Su-Kam Power System Ltd. & Another Vs State of Himachal Pradesh & Others (Himachal Pradesh High Court)
Conclusion: The red entry/charge created by the Revenue Department on the property of assessee-company during the currency of the moratorium imposed by the NCLT, would be void in law as once the order for the sale of Corporate Debtor as a going concern had been upheld by the NCLAT and by the Supreme Court, it was not permissible for the respondents to act, as if they still have a right over the properties of assessee-Company.
Held: Assessee-company was engaged in the business of manufacturing and trading of Inverters & Batteries and had its factory premises in Himachal Pradesh. For running its operations, it had availed various facilities from financial creditors and also with SBI. On account of default in adherence to the financial discipline by the erstwhile management of the Company, SBI initiated Corporate Insolvency Resolution Process ( CIRP ) of assessee under section 7 of IBC, 2016 before the NCLT. Resultantly, a Resolution Professional (RP) was appointed replacing the earlier management which stood suspended, and by operation of Section 14 of the IBC, 2016 a moratorium was imposed. Pursuant to the initiation of the CIRP process, expressions of interest were invited from prospective resolution applicants. Committee of Creditors resolved to initiate liquidation proceedings, and RP filed an application for liquidation of the Company. In the meantime, Department of State Taxes & Excise, Government of Himachal Pradesh, filed claim of Rs.354,11,34,131/- on account of arrears of Value Added Tax, Central Sales Tax & Central Goods & Services Tax/HPGST with the Liquidator. On that basis, without issuing any notice or without hearing the Liquidator, legal proceedings were initiated by respondents no.3 & 4 and the properties in question were charged and marked with red entries bypassing the procedure laid down in the H.P. Land Revenue Act, 1954 and in violation of Principles of Natural Justice as well as Section 33(5) of the IBC. The present management of the Company participated in the e-auction process and was the highest successful bidder with bid value of Rs.49.95 crore and submitted acquisition plan for taking over theassessee-Company as a going concern. 22. Thus, the plan submitted by the current management envisaged no further claims by any operational creditor including respondents no.2 to 4 in the event its plan for taking over assessee-Company as a going concern was approved by the NCLT. NCLT issued letter of intent in favour of the current management and the sale of the Corporate Debtor as a going concern in favour of respondents no.1 to 4 therein, stood confirmed. The current management of assessee-company contended that all the claims of the respondents had stood extinguished qua the properties of the Company, and even the red entry made was void, since it was made during the period of moratorium which commenced on the passing of the admission order by the NCLT under Section 7 IBC. It was held that the respondents were also estopped from continuing the red entry/charge on the properties of assessee-Company, since they had never objected to the acquisition plan submitted by the current management of assessee-Company and that they had also not challenged the said order passed by the NCLT approving the acquisition plan for assessee-Company. Once the said order had been upheld by the NCLAT and by the Supreme Court, it was not permissible for the respondents to act, as if they still have a right over the properties of assessee-Company. Thus, as held in the above decision of the Supreme Court in Ghanashyam Mishra’s case, the legislative intent was to extinguish all debts owed to the Central Government or any State Government or any Local Authority including the Tax Authorities, when once an approval was granted to Resolution Plan by the NCLT. As per the amended Section 31 of the Code, the said principle of taking over Corporate Debtor under a Resolution Plan, will also apply to taking over by way of acquisition plan. This is referred to as the “Clean Slate” principle of IBC. The plea of the respondents that the tax dues claimed by them would have priority as a “Crown Debt”, therefore, could not be accepted, and their action in continuing the said red entry/charge on account of dues recoverable from erstwhile management of assessee-Company under the H.P. Vat Act, 2005, HPGST Act, 2017 and the CST Act, 1956, would be clearly illegal & arbitrary.
