Case Law Details
Drake & Scull Water & Energy India Private Limited Vs National Faceless Assessment Centre (Punjab and Haryana High Court)
The Punjab and Haryana High Court allowed the writ petition and set aside an income tax demand raised against the petitioner company after approval of its resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court held that once a resolution plan is approved under Section 31(1) of the IBC, all claims not forming part of the approved resolution plan stand extinguished and cannot be enforced thereafter.
The petitioner company underwent the Corporate Insolvency Resolution Process (CIRP) in 2018, and a moratorium came into effect on 30.10.2018. The National Company Law Tribunal (NCLT), Chandigarh, approved the resolution plan on 03.12.2020, and the approval was also published in newspapers. Despite this, the Income Tax Department issued a demand notice dated 30.03.2024 under Section 156 of the Income-tax Act, 1961, seeking recovery of ₹38,45,397 for Assessment Year 2012-13. The petitioner challenged the demand, and on 30.05.2024, the High Court restrained the Department from making any recovery during the pendency of the petition.
In its written response, the Revenue raised only the objection regarding the availability of an alternate statutory remedy but did not dispute the applicability of the Supreme Court’s decision in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited. During the pendency of the proceedings, despite the interim order, the Department recovered ₹28,62,100 on 19.02.2025 and further recovered ₹9,83,297 and ₹2,87,603 on 27.03.2026 by adjusting the petitioner’s income tax refunds.
The High Court referred to the Supreme Court’s ruling in Ghanashyam Mishra, which held that once a resolution plan is approved under Section 31(1) of the IBC, all claims not included in the resolution plan stand frozen and extinguished, and no proceedings can thereafter be initiated or continued in respect of such claims. The Court noted that the impugned tax demand admittedly did not form part of the approved resolution plan. Consequently, the demand notice dated 30.03.2024 was held unsustainable and was quashed.
The Court further directed the Revenue to refund the amounts recovered on 19.02.2025 and 27.03.2026, together with applicable interest. Although the recoveries had been made in violation of the Court’s interim order, the Court took a lenient view in light of the Revenue’s fair stand and its explanation that the recoveries occurred through the recently introduced faceless mechanism. However, the Court directed the Secretary, Department of Revenue, Ministry of Finance, to take immediate steps to ensure that orders passed by courts and statutory authorities are complied with promptly and in letter and spirit.
FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT
In the year 2018, under the Insolvency and Bankruptcy Code 2016, (for short, “IBC) the petitioner-Company underwent the Corporate Insolvency Resolution Process (CIRP) and on 30.10.2018 moratorium was introduced. A resolution plan was then made which was approved by the National Company Law Tribunal, Chandigarh, (for short, “NCLT”) on 03.12.2020. Through publication in newspapers, the public at large was also put to notice of the approval of the afore resolution plan.
2. Thereafter, a notice of demand dated 30.03.2024 was served upon the petitioner under Section 156 of the Income-Tax Act, 1961 (hereinafter referred to as “the Act”) through which, for the assessment year 2012-13, the petitioner was required to deposit tax dues amounting to Rs.38,45,397/-. The petitioner was further informed that in case the demanded tax was not deposited, it would entail levy of penalties etc.
3. Through the instant petition, the petitioner challenged the demand notice dated 30.03.2024 which petition came up for preliminary hearing before a Coordinate Bench of this Court on 30.05.2024 on which date, this Court issued notice to the respondents and in the meanwhile, as an interim measure, restrained the respondents from effecting any recovery from the petitioner.
4. The respondent-Revenue filed a written response through which the only objection raised was that the petitioner had an alternate remedy to challenge the impugned notice through filing of a statutory appeal but on merits, there was no denial to the ground raised by the petitioner that the impugned demand was in conflict with the law laid down by the Supreme Court in Ghanashyam Mishra and Sons Private Limited. Vs. Edelweiss Asset Reconstruction Company Limited, (2021) 9 SCC 657.
5. Despite the interim order dated 30.05.2024, passed by this Court, restraining the respondents from making recovery of the demanded tax, an amount of Rs.28,62,100/- was recovered from the petitioner on 19.02.2025 and further amounts of Rs.9,83,297/- and Rs.2,87,603/- were recovered from the petitioner on 27.03.2026. These amounts were set off against the refunds to which the petitioner had been held entitled to by the respondent-department.
6. Learned counsel for the petitioner submits that demand raised through the impugned notice dated 30.03.2024 is against the law laid down by the Supreme Court in Ghanashyam Mishra and Sons Private Limited’s case (supra), which proposition of law has not even been disputed in the written response filed by the respondent-Revenue and that against the demand impugned through this petition, the recoveries made from the petitioner on 19.02.2025 and 27.03.2026 are not only against the law laid down by the Supreme Court in Ghanashyam Mishra and Sons Private Limited’s case (supra) but are also in direct conflict with the interim order of this Court on 30.05.2024 through which the respondent-Revenue was restrained from making any recovery from the petitioner.
7. Learned counsel for the respondent-Revenue fairly does not dispute the proposition of law settled in the petitioner’s favour by the Supreme Court in Ghanashyam Mishra and Sons Private Limited’s case (supra) that once a resolution plan is duly approved by the adjudicating authority under Section 31(1) of the IBC then all claims, as provided in the resolution plan stand frozen. She further submits that the recoveries made from the petitioner on 19.02.2025 and 27.03.2026 were through the faceless mechanism recently introduced by the respondent-Revenue and that the errors, both in the issuance of the impugned notice dated 30.03.2024 and making of recoveries from the petitioner on 19.02.2025 and 27.03.2026 are in the process of being corrected.
8. Learned counsel for the parties have been heard and with their able assistance, the records of the case have also been perused.
9. The relevant paragraph in the judgment of the Supreme Court in Ghanashyam Mishra and Sons Private Limited’s case (supra) reads as follows:-
“102.1 That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.”
10. Thus, once under Section 31 (1) of the IBC, a resolution plan of a company under moratorium, is approved by the adjudicating authority, the claims, as provided in the resolution plan stand frozen. It is further clear that on the date of approval of the resolution plan by the adjudicating authority, all claims which are not part of the resolution plan stand extinguished and that no person, including the respondent-Revenue, would be entitled to initiate or continue proceedings in respect of the claims which are not part of the resolution plan.
11. The impugned demand of Rs.38,45,397/- raised to be made from the petitioner through the impugned notice dated 30.03.2024 was admittedly not part of the petitioner company’s resolution plan which was approved by the NCLT on 03.12.2020. That being so, such amount could not have been demanded from the petitioner by the respondent-Revenue. Therefore, we have no hesitation in setting aside the impugned demand dated 30.03.2024 (Annexure P-1). Resultantly, the afore referred recoveries already made from the petitioner on 19.02.2025 and 27.03.2026 shall be forthwith, along with applicable interest, refunded to the petitioner.
12. The recoveries made from the petitioner on 19.02.2025 and 27.03.2026 were in violation of the interim order passed by this Court on 30.05.2024 but on account of the fair stand taken before us by learned counsel for the respondent-Revenue and considering the fact that the faceless mechanism with regard to dealing with processes under the Act has been recently introduced by the respondent-Revenue, we choose to take a lenient view in the matter and choose to exercise restraint. However, a direction is issued to the Secretary, Department of Revenue, Ministry of Finance, Government of India to take immediate steps to ensure that in future orders passed by any Court/statutory body are forthwith complied with, in letter and spirit.
13. The petition is allowed in the above terms.
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