Facts of the Case

The Respondent-Assessee, Monnet Ispat & Energy Ltd., was subjected to insolvency proceedings initiated under Section 7 of the Insolvency and Bankruptcy Code, 2016 by State Bank of India before the National Company Law Tribunal (NCLT).

The NCLT admitted the insolvency petition and imposed a moratorium under Section 14 of the Code, restraining institution or continuation of suits or proceedings against the corporate debtor.

At the same time, the Income Tax Department had filed multiple appeals before the Delhi High Court challenging the order of the Income Tax Appellate Tribunal (ITAT) relating to tax liability of the assesseeWhether pending Income Tax appeal.

The issue arose whether such appeals could continue during the moratorium period.

Issues Involved

s fall within the ambit of “proceedings” under Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016?

  1. Whether the moratorium imposed by NCLT bars continuation of tax litigation before the High Court?
  2. Whether the overriding provision under Section 238 of the Insolvency and Bankruptcy Code prevails over tax statutes?

petitioner’s Arguments (Revenue Department)

The Revenue contended that the Income Tax appeals pertained to determination of tax liability and should not automatically be stayed merely because insolvency proceedings had commenced.

It was argued that unlike earlier insolvency statutes, the Insolvency and Bankruptcy Code does not expressly provide for obtaining permission from NCLT for continuation of pending proceedings.

Respondent’s Arguments (Assessee)

The Respondent relied upon the NCLT’s admission order under Section 7 of the Code and the statutory moratorium under Section 14.

It was submitted that the moratorium expressly prohibits continuation of pending proceedings against the corporate debtor and, therefore, the tax appeals instituted by the Revenue could not proceed.

Court Findings / Court Order

The Delhi High Court held that Section 238 of the Insolvency and Bankruptcy Code gives overriding effect to the Code over all inconsistent laws.

The Court observed that Section 14(1)(a) clearly prohibits continuation of pending proceedings against the corporate debtor.

The Court further held that pending Income Tax appeals filed by the Department squarely fall within the expression “proceedings” and cannot continue during the moratorium period.

Accordingly, all the appeals were disposed of, granting liberty to the Revenue Department to revive them subject to further orders passed by the NCLT.

Important Clarification

The Court clarified that the disposal of appeals was procedural and not on merits.

The Revenue’s right to pursue the appeals was preserved, subject to the conclusion or modification of insolvency proceedings before the NCLT.

This decision reinforces that tax proceedings are not exempt from the moratorium under the Insolvency and Bankruptcy Code.

Sections Involved

  • Section 7 – Initiation of CIRP by Financial Creditor
  • Section 14(1)(a) – Moratorium on institution/continuation of proceedings
  • Section 31 – Approval of Resolution Plan
  • Section 33 – Liquidation Order
  • Section 238 – Overriding effect of IBC 

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

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