Facts of the Case

The Revenue Department filed multiple appeals before the Delhi High Court challenging the order passed by the Income Tax Appellate Tribunal (ITAT) in relation to the tax liabilities of Monnet Ispat & Energy Ltd.

During the pendency of these appeals, the National Company Law Tribunal (NCLT), acting as the Adjudicating Authority under Section 7 of the Insolvency and Bankruptcy Code, admitted the insolvency petition filed by State Bank of India against Monnet Ispat & Energy Ltd. and declared a moratorium under Section 14 of the Code.

The moratorium prohibited institution or continuation of pending suits or proceedings against the corporate debtor. In light of this development, the question arose whether the pending tax appeals could continue.

Issues Involved

  1. Whether income tax appeals pending before the High Court are covered within the scope of “proceedings” under Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016?
  2. Whether the moratorium under the IBC bars continuation of proceedings initiated by the Income Tax Department?
  3. Whether Section 238 of the Insolvency and Bankruptcy Code overrides provisions of the Income Tax Act in case of inconsistency?

Petitioner’s Arguments (Revenue Department)

The Revenue contended that the Income Tax Department’s appeal involved determination of tax liability and therefore should not be automatically halted merely because insolvency proceedings had commenced.

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

 Respondent’s Arguments (Assessee / Corporate Debtor)

The Respondent relied upon the moratorium order passed by the NCLT and contended that once CIRP had commenced, all proceedings against the corporate debtor, including tax proceedings, must remain stayed in view of Section 14 of the Code.

It was submitted that Section 238 gives overriding effect to the Insolvency and Bankruptcy Code over all inconsistent laws.

Court Findings / Court Order

The Delhi High Court held that:

  • Section 14(1)(a) expressly prohibits continuation of pending suits or proceedings against the corporate debtor once the insolvency commencement date takes effect.
  • The expression “proceedings” is broad enough to include income tax appeals pending before the High Court.
  • Section 238 of the Insolvency and Bankruptcy Code gives overriding effect to the Code over any inconsistent statutory provisions.
  • The Court relied upon the Supreme Court judgment in Innoventive Industries Ltd. vs ICICI Bank for affirming the overriding nature of IBC.

Accordingly, the Court disposed of the income tax appeals with liberty to the Revenue Department to revive them subject to further orders of the NCLT.

Important Clarification

This judgment clarified that:

  • Income tax proceedings are not excluded from the moratorium under IBC.
  • Tax authorities cannot continue litigation against a corporate debtor during CIRP.
  • The moratorium applies comprehensively across judicial and quasi-judicial forums.
  • Revenue claims must be addressed within the insolvency resolution framework.

This judgment became an important precedent in insolvency-tax litigation conflict jurisprudence.

Sections Involved

  • Section 7 – Initiation of Corporate Insolvency Resolution Process by Financial Creditor
  • Section 14 – Moratorium
  • Section 31 – Approval of Resolution Plan
  • Section 33 – Liquidation
  • Section 238 – Overriding Effect of the Code
  • Appellate jurisdiction provisions concerning tax disputes 

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.