Facts of the Case

The Income Tax Department had filed multiple appeals before the Delhi High Court challenging orders passed by the Income Tax Appellate Tribunal concerning the tax liabilities of Monnet Ispat & Energy Ltd. During the pendency of these appeals, the State Bank of India initiated insolvency proceedings against the company under Section 7 of the Insolvency and Bankruptcy Code, 2016.

The National Company Law Tribunal admitted the insolvency petition and declared a moratorium under Section 14, prohibiting institution or continuation of proceedings against the corporate debtor. Consequently, the question arose whether the Income Tax Department’s pending appeals could proceed despite the moratorium.

Issues Involved

  1. Whether pending income tax appeals before the High Court fall within the scope of moratorium under Section 14 of the IBC?
  2. Whether the provisions of the Insolvency and Bankruptcy Code override proceedings under tax laws?
  3. Whether the Revenue Department can continue litigation against the corporate debtor during the insolvency resolution period?

petitioner’s Arguments (Revenue Department)

The Revenue Department contended that the Income Tax appeals involved determination of tax liability and should not be interrupted merely because insolvency proceedings had commenced.

It was argued that unlike earlier insolvency laws, the Insolvency and Bankruptcy Code does not specifically provide a mechanism for obtaining permission from the NCLT to continue pending proceedings in other judicial forums. Therefore, the Department sought continuation of its tax appeals

Respondent’s Arguments (Assessee / Corporate Debtor)

The Respondent relied on the express provisions of Section 14 of the IBC, arguing that once the insolvency commencement date is triggered, all pending legal proceedings against the corporate debtor must remain stayed.

It was further argued that Section 238 gives overriding effect to the IBC over all inconsistent laws, including tax statutes, thereby mandating suspension of all pending proceedings.

Court Findings / Court Order

The Delhi High Court examined Sections 14 and 238 of the Insolvency and Bankruptcy Code and held that the statutory moratorium clearly prohibits continuation of pending proceedings against the corporate debtor.

The Court observed that Section 238 gives overriding effect to the Code over all inconsistent laws. Therefore, even tax appeals pending before the High Court are covered by the moratorium once insolvency proceedings are admitted by the NCLT.

Accordingly, the Court disposed of the Income Tax appeals with liberty to the Revenue Department to revive the appeals subject to further orders of the NCLT. 

Important Clarification

The judgment clarifies that:

  • Tax proceedings are not exempt from the moratorium under Section 14 of the IBC.
  • The IBC overrides tax statutes by virtue of Section 238.
  • Revenue authorities cannot continue proceedings against the corporate debtor during the Corporate Insolvency Resolution Process (CIRP).
  • Such proceedings may be revived after the conclusion of insolvency proceedings, depending on NCLT orders.

Sections Involved

  • Section 7 – Initiation of Corporate Insolvency Resolution Process by Financial Creditor
  • Section 14(1)(a) – Moratorium prohibiting institution or continuation of proceedings
  • Section 31 – Approval of Resolution Plan
  • Section 33 – Liquidation of Corporate Debtor
  • Section 238 – Overriding effect of the Insolvency and Bankruptcy Code
  • Relevant Income Tax Appellate proceedings under the Income-tax Act, 1961 

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:8936-DB/SMD04092017ITA5332017_162641.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.