Dishnet Wireless Limited Vs Union of India (Madras High Court)
Summary: Madras High Court dealt with a batch of writ petitions filed by Dishnet Wireless Limited, Aircel Limited and Aircel Cellular Limited concerning Income Tax Department demands and challenges relating, inter alia, to Section 194H of the Income Tax Act, 1961. During pendency of the writ petitions, the petitioners were before the National Company Law Tribunal (NCLT), Mumbai Bench-II, where a Scheme formulated by the Committee of Creditors had been approved on 09.06.2020. The High Court recorded that the approved Scheme did not indicate that the Income Tax Department had put forth any claim concerning the arrears forming the subject matter of the proceedings, and Revenue’s Senior Standing Counsel was unable to produce material to the contrary.
The Court relied on Ghanashyam Mishra and Sons Private Limited Vs Edelweiss Asset Reconstruction Company Limited [2021 (9) SCC 657], concerning the effect of a resolution plan approved under Section 31(1) of the Insolvency and Bankruptcy Code, 2016. The Supreme Court had explained that an approved resolution plan binds the corporate debtor and stakeholders and is intended to enable the successful resolution applicant to start on a fresh slate without subsequently facing surprise claims. The High Court also relied on Ruchi Soya Industries Limited Vs Union of India [2022 (6) SCC 343], where the principle in Ghanashyam Mishra was applied to a claim that had not been lodged after the statutory public announcements.
Applying those decisions, the Madras High Court held that once the resolution plan stands approved by the NCLT, all claims stand frozen and no claim that is not part of the resolution plan survives. Recording this legal position and the absence of any material showing that the Income Tax Department’s subject claims had been included in the approved Scheme, the Court closed all the writ petitions without costs. The connected miscellaneous petitions were also closed.
Cases Discussed
- Ruchi Soya Industries Limited Vs Union of India [2022 (6) SCC 343] (Supreme Court) — Relied upon; the Supreme Court applied Ghanashyam Mishra where the Union of India had not lodged its claim before the Committee of Creditors and held that claims not forming part of the approved resolution plan do not survive.
- Ghanashyam Mishra and Sons Private Limited Vs Edelweiss Asset Reconstruction Company Limited [2021 (9) SCC 657] (Supreme Court) — Relied upon for the binding effect of an NCLT-approved resolution plan under Section 31(1) of the IBC and the principle that claims outside the approved plan stand extinguished so that the successful resolution applicant can start on a fresh slate.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
All the assesses/petitioners in the Writ Petitions are stated to be before the National Company Law Tribunal (NCLT), Mumbai Bench – II wherein the Scheme, formulated by the Committee of Creditors has been approved on 09.06.2020. The scheme does not anywhere indicate that a claim has been put forth by the Income Tax Department in regard to the arrears that are the subject matter of these appeals, and learned Senior Standing Counsel is not in a position to produce any material to the contrary.
2. The Hon’ble Supreme Court, in the case of Ghanshyam Mishra and Sons Private Limited Vs Edelweiss Asset Reconstruction Company Limited [2021 (9) SCC 657], had considered the impact of a resolution plan once duly approved by the adjudicating authority in terms of Section 31(1) of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’). At paragraphs 65 to 68, the Hon’ble Bench states as follows:
“58. Bare reading of Section 31 of the I&B Code would also make it abundantly clear, that once the resolution plan is approved by the Adjudicating Authority, after it is satisfied, that the resolution plan as approved by CoC meets the requirements as referred to in subsection (2) of Section 30, it shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders. Such a provision is necessitated since one of the dominant purposes of the I&B Code is, revival of the Corporate Debtor and to make it a running concern.
59. The resolution plan submitted by successful resolution applicant is required to contain various provisions, viz., provision for payment of insolvency resolution process costs, provision for payment of debts of operational creditors, which shall not be less than the amount to be paid to such creditors in the event of liquidation of the Corporate Debtor under section 53; or the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in subsection (1) of section 53, whichever is higher. The resolution plan is also required to provide for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, which also shall not be less than the amount to be paid to such creditors in accordance with sub section (1) of section 53 in the event of a liquidation of the Corporate Debtor. Explanation 1 to clause (b) of sub section (2) of Section 30 of the I&B Code clarifies for the removal of doubts, that a distribution in accordance with the provisions of the said clause shall be fair and equitable to such creditors. The resolution plan is also required to provide for the management of the affairs of the Corporate Debtor after approval of the resolution plan and also the implementation and supervision of the resolution plan. Clause (e) of subsection (2) of Section 30 of I&B Code also casts a duty on RP to examine, that the resolution plan does not contravene any of the provisions of the law for the time being in force.
60. Perusal of Section 29 of the I&B Code read with Regulation 36 of the Regulations would reveal, that it requires RP to prepare an information memorandum containing various details of the Corporate Debtor so that the resolution applicant submitting a plan is aware of the assets and liabilities of the Corporate Debtor, including the details about the creditors and the amounts claimed by them. It is also required to contain the details of guarantees that have been given in relation to the debts of the corporate debtor by other persons. The details with regard to all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities are also required to be contained in the information memorandum. So also the details regarding the number of workers and employees and liabilities of the Corporate Debtor towards them are required to be contained in the information memorandum.
61. All these details are required to be contained in the information memorandum so that the resolution applicant is aware, as to what are the liabilities, that he may have to face and provide for a plan, which apart from satisfying a part of such liabilities would also ensure, that the Corporate Debtor is revived and made a running establishment. The legislative intent of making the resolution plan binding on all the stakeholders after it gets the seal of approval from the Adjudicating Authority upon its satisfaction, that the resolution plan approved by CoC meets the requirement as referred to in subsection (2) of Section 30 is, that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. The dominant purpose is, that he should start with fresh slate on the basis of the resolution plan approved.”
3. A similar issue was considered by the Hon’ble Supreme Court in the case of Ruchi Soya Industries Limited Vs Union of India [2022 (6) SCC 343]. The ratio of the judgment in Ghansyam Mishra was noticed and applied in that matter as well.
4. The distinction between the case of Ruchi Soya Industries Limited (Supra) and the present matter is that in the former, the Union of India had not laid any claim before the Committee of Creditors, leading the Court to observe at para 11, as follows:
“11.Admittedly, the claim in respect of the demand which is the subject matter of the present proceedings was not lodged by Respondent 2 after public announcements were issued under Sections 13 and 15 IBC. As such, on the date on which the resolution plan was approved by the learned NCLT, all claims stood frozen, and no claim, which is not a part of the resolution plan, would survive.”
5. Thus, once the resolution plan stands approved by the NCLT, all claims stand frozen, and no claim, which is not a part of the resolution plan, survives.
6. Recording the above, these Writ Petitions are closed. No costs. Consequently, connected miscellaneous petitions are closed.
