Facts of the Case

The petitioner, Monnet Ispat and Energy Limited, sought substitution in the writ petition by JSW Steel Limited pursuant to approval of a resolution plan by the NCLT, Mumbai Bench.

The petitioner relied on:

  • NCLT order approving the resolution plan
  • Certificate of incorporation reflecting change of name

The matter also involved tax demands pertaining to Assessment Years (AYs) 2005–06 to 2011–12.

The Commissioner of Income Tax (Appeals) [CIT(A)] had already passed an order stating that:

  • The tax demand stood permanently extinguished
  • Proceedings became infructuous
  • The Assessing Officer was directed to give effect to the NCLT order under Section 156A

Additionally, the NCLT had imposed a moratorium under Section 14 of the IBC, halting all proceedings against the corporate debtor.

Issues Involved

  1. Whether substitution of the petitioner (post-resolution plan) should be allowed.
  2. Whether tax demands survive after approval of the resolution plan under IBC.
  3. Whether pending tax proceedings become infructuous due to extinguishment of liabilities.
  4. Applicability of Section 156A of the Income Tax Act in giving effect to IBC outcomes.

Petitioner’s Arguments

  • The petitioner argued that pursuant to the NCLT-approved resolution plan, all liabilities including tax demands stood extinguished.
  • It relied on:
    • NCLT order dated 22.06.2023
    • Earlier moratorium order dated 18.07.2017
  • It was submitted that:
    • All proceedings for AYs 2005–06 to 2011–12 had been dropped
    • No appeals were pending against the CIT(A) order
  • Hence, the writ petition should be disposed of accordingly.

 Respondent’s Arguments

  • The Revenue did not oppose the substitution application.
  • It accepted notice and stated no reply was required.
  • It did not dispute:
    • The effect of the NCLT order
    • The extinguishment of demand
    • The applicability of the CIT(A) order

Court Findings / Order

  • The substitution of JSW Steel Limited in place of Monnet Ispat was allowed.
  • The Court took note of the CIT(A) order, which:
    • Declared the tax demand as permanently extinguished
    • Directed implementation under Section 156A
  • The Court observed that:
    • Tax demands for AYs 2005–06 to 2011–12 stood dropped
    • Proceedings were rendered infructuous

Final Order

  • The writ petition was disposed of in terms of the CIT(A) order
  • Interim order dated 24.12.2019 was vacated
  • All pending applications were closed

Important Clarifications

  • Once a resolution plan is approved under IBC, all prior liabilities including tax dues may stand extinguished.
  • The Income Tax Department is bound to:
    • Recognize the resolution plan
    • Give effect under Section 156A
  • Pending proceedings automatically become infructuous if liability ceases to exist.
  • Moratorium under Section 14 bars continuation of proceedings during insolvency resolution.

IBC overrides prior tax demands, and once a resolution plan is approved, extinguished liabilities cannot be revived through tax proceedings.

  • Finality of resolution plans
  • Binding nature on all stakeholders, including tax authorities

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS04102023CW136622019_160519.pdf

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