Facts of the Case

The Income Tax Department, through the Principal Commissioner of Income Tax-6, New Delhi, 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 National Company Law Tribunal (NCLT) admitted an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code against Monnet Ispat & Energy Ltd. and initiated the Corporate Insolvency Resolution Process.

Upon admission of the insolvency petition, the NCLT declared a moratorium under Section 14 of the Insolvency and Bankruptcy Code prohibiting institution or continuation of pending proceedings against the corporate debtor.

In view of the moratorium, the question arose whether the pending income tax appeals before the Delhi High Court could continue.

Issues Involved

  1. Whether income tax appellate proceedings fall within the scope of “proceedings” prohibited under Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016?
  2. Whether the moratorium declared by NCLT bars continuation of pending tax litigation against the corporate debtor?
  3. Whether the overriding effect under Section 238 of IBC prevails over the Income Tax Act in case of inconsistency?

Petitioner’s Arguments (Revenue Department)

The Revenue Department contended that the Income Tax Department’s appeals related to determination of tax liability and should not be treated at par with ordinary civil proceedings.

It was further argued that unlike earlier insolvency legislations, the Insolvency and Bankruptcy Code does not expressly provide a mechanism for obtaining permission from NCLT to continue pending proceedings before other forums.

The Department sought continuation of its tax appeals notwithstanding the moratorium order.

Respondent’s Arguments (Assessee Company)

The Respondent company submitted that once CIRP was initiated and moratorium declared by NCLT, all proceedings against the corporate debtor, including tax appeals, must remain stayed.

It was argued that Section 14 of the IBC expressly prohibits continuation of pending proceedings and Section 238 gives overriding effect to the Code over all inconsistent laws.

The Respondent relied upon the statutory protection granted during the insolvency resolution process.

Court Findings / Observations

The Delhi High Court observed:

  • Section 14(1)(a) clearly prohibits continuation of pending suits or proceedings against the corporate debtor after commencement of insolvency proceedings.
  • The expression “proceedings” is wide enough to include tax appeals pending before the High Court.
  • Section 238 of the Insolvency and Bankruptcy Code gives overriding effect to the Code over any inconsistent provisions of other laws.
  • The Court relied upon the Supreme Court decision in Innoventive Industries Ltd. v. ICICI Bank, affirming the overriding nature of the IBC.

The Court held that the moratorium imposed by NCLT covers the pending tax appeals filed by the Revenue Department.

Court Order / Final Decision

The Delhi High Court disposed of the appeals and granted liberty to the Income Tax Department to revive the appeals subject to further orders of the National Company Law Tribunal.

Thus, the proceedings were not decided on merits but were kept in abeyance owing to the statutory moratorium under the Insolvency and Bankruptcy Code.

Important Clarification

  • Tax proceedings are not automatically exempt from the IBC moratorium.
  • Pending appeals by the Revenue against a corporate debtor are covered under Section 14 moratorium.
  • Section 238 ensures the supremacy of IBC over tax statutes where inconsistency exists.
  • Revenue authorities may revive proceedings after completion of CIRP or subject to NCLT’s further orders.

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 

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.