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JC - Legal Updates - Claims of the IT Department for the period covered by the resolution plan would stand extinguished - High Court of Telangana

Legal Updates

24 Jan 2022

Claims of the IT Department for the period covered by the resolution plan would stand extinguished - High Court of Telangana

The High Court of Telangana, Hyderabad (“HC”) in the matter of The Sirpur Paper Mills Limited & Another Vs. Union of India & Two Others W.P. No. 25827 of 2019 vide order dated 18th January 2022 held that once a resolution plan is approved by the adjudicating authority (“AA”), all claims or dues owed to the State/Central Government or any local authority including the tax authorities who were not part of the resolution plan shall stand extinguished.

The Petitioner no.1 (“Corporate Debtor”) filed a writ petition under Article 226 of the Constitution of India (“W.P.”) in the HC seeking quashing of notices issued by the Income Tax Department (“Respondent No. 2”) and the Deputy Commissioner of Income Tax (“Respondent No. 3”) under section 143(2) and 142 (1) of the Income Tax Act, 1961 issued after the resolution plan was approved by the National Company Law Tribunal (“Tribunal”).

It was stated in the W.P. that the Respondents are operational creditors of the corporate debtor and as a consequence of approval of the resolution plan under Section 31(1) of the Insolvency and Bankruptcy Code, 2016 (“IBC”), the resolution plan is binding on the corporate debtor as well as on the creditors and other stakeholders involved in the resolution plan. Therefore, the respondents cannot exercise an independent right after an order is passed by the Tribunal approving the resolution plan.

The Respondents contended that they are neither operational creditors nor involved in the making of the resolution plan. Further, respondents did not receive any notice of the resolution plan and were not granted an opportunity to participate in the formulation of the resolution plan, it was further contended that the resolution plan cannot override or supersede statutory requirements.

The HC while deciding the W.P. observed that the resolution plan was approved by the Tribunal in July 2018 and the return of income for the assessment year 2017-18 was filed prior to order of the Tribunal approving the resolution plan. Therefore the HC held that “71. What the resolution plan provides, and which is in conformity with the law laid down by the Supreme Court is that on and from the date of approval of the resolution plan by the Tribunal, the same would prevail over the claims of the Income Tax Department and such claims which are outside the resolution plan for the period covered by the resolution plan would stand extinguished.”


For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Mr. Dhruv Malik (dhruv.malik@jclex.com).