Initiation of proceedings against non-existing company impermissible: Karnataka HC

Trelleborg India Private Limited Vs State of Karnataka (Karnataka High Court)

Karnataka High Court held that once an amalgamating entity ceases to exist upon approved Scheme of Amalgamation, the question of initiation of proceedings as regards the non-existent Company cannot be permitted.

Facts- The notices in Form GST DRC-01 have been issued for various tax periods on the ground that notices have been issued to a non-existent entity, viz., M/s. Trelleborg Sealing Solutions (India) Private Limited.

It is to be noticed that in terms of the Scheme of Amalgamation approved by National Company Law Tribunal (NCLT) Bengaluru Bench, M/s. Trelleborg Sealing Solutions (India) Private Limited was amalgamated resulting in the creation of a new entity M/s. Trelleborg India Private Limited, which is the petitioner herein.

Conclusion- Held that once an amalgamating entity ceases to exist upon approved Scheme of Amalgamation, the question of continuing the proceedings as regards the non-existent Company cannot be permitted.

Held that as the notices are issued to a non-existent entity, the proceedings sought to be initiated by virtue of show cause notices in all the petitions are set aside. It is needless to state that the respondents are at liberty to pursue the proceedings against the appropriate entity as is permissible in law, as the petitions are disposed off on the premise that no proceedings could have been initiated against a non-existent Company.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

These petitions have been filed by M/s. Trelleborg India Private Limited, who is the petitioner in all these batch of writ petitions challenging the notices/endorsement in Form GST DRC-01 as hereunder:-

2. The notices in Form GST DRC-01 have been issued for various tax periods on the ground that notices have been issued to a non-existent entity, viz., M/s. Trelleborg Sealing Solutions (India) Private Limited.

3. It is to be noticed that in terms of the Scheme of Amalgamation approved by National Company Law Tribunal (NCLT) Bengaluru Bench, M/s. Trelleborg Sealing Solutions (India) Private Limited was amalgamated resulting in the creation of a new entity M/s. Trelleborg India Private Limited, which is the petitioner herein in terms of the order dated 13.06.2017 passed by NCLT, Bengaluru Bench in T.P.No.175/2017 & 176/20 17.

4. After amalgamation of M/s. Trelleborg Sealing Solutions (India) Private Limited with the Transferee Company M/s. Trelleborg Indstrial Products Private Limited, the new entity formed underwent change of name and accordingly, the petitioner represents a new Company consequent to amalgamation as per the order dated 13.06.2017 passed by NCLT, Bengaluru Bench in T.P.No.175/2017 & 176/20 17.

5. Sri Shamanth Naik, learned HCGP appearing for the respondents refers to the order dated 13.06.2017 passed by NCLT, Bengaluru Bench in T.P.No.175/2017 & 176/2017 and submits that in terms of the said order, the liability stands transferred to the Transferee Company. Said aspect is taken note of.

6. It is to be noticed that after the approval of Scheme of Amalgamation by NCLT, an application for cancellation of registration of M/s. Trelleborg Sealing Solutions (India) Private Limited was made on 29.11.2021 and the final order came to be passed on 03.12.2021 in Form GST REG-19 and the effective date of cancellation of registration was stipulated as 29.11.2021.

7. It is submitted that despite all developments, a pre show cause notice came to be issued and in reply to which, the developments as referred to have been made and reference of such reply is stated   to have     been made.The relevant details come forth in     the  Summary Table of dates filed by the petitioner, which is extracted below:-

8. It is submitted that despite the intimation of amalgamation of the Company having been made in writing, the show cause notices have been issued to M/s. Trelleborg Sealing Solutions (India) Private Limited, which is a non-existent entity and accordingly the same have been challenged in these Writ Petitions and details of date of issuance of such notices is detailed at Serial No. 10 of the Summary Table of Dates, extracted hereinabove.

9. Such of the facts as referred to above are not in dispute. In light of the legal position emanated from the decision of Apex Court in Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki (India) Limited reported in (2020) 18 SCC 331, it is clear that once an amalgamating entity ceases to exist upon approved Scheme of Amalgamation, the question of continuing the proceedings as regards the non-existent Company cannot be permitted. This position has been reiterated in the subsequent judgments of this Court including the order of this Court dated 04.06.2024 passed in W.P.No.14156/2024 [M/s.Rajdisle Private Limited v. The Income Tax Officer and Another].

10. Admittedly, as the notices/endorsement at Annexure-‘A’ are issued to a non-existent entity, the proceedings sought to be initiated by virtue of show cause notices/endorsement at Annexure-‘A’ in all the petitions are set aside. It is needless to state that the respondents are at liberty to pursue the proceedings against the appropriate entity regarding the subject matter of notices at Annexure-‘A’ as is permissible in law, as the petitions are disposed off on the premise that no proceedings could have been initiated against a non-existent Company. All contentions are kept open

Accordingly, the petitions are disposed off.