The National Sewing Thread Co. Ltd vs DCIT and Others [W.P.(C)8679/2024(A.Y.2022-23)]
The present case aims to nullify the Assessment Order dated May 22, 2024, which was issued by DCIT, in accordance with Section 143(3) of Income Tax for the AY 2022–23. Additionally, the petition under review challenges the Demand Notice issued by DCIT u/s 156 as well as the notices u/s 274 of the Income Tax Act of 1961.
According to the petitioner company’s learned AR, the notices were sent out following the learned National Company Law Tribunal’s (NCLT) order dated December 06, 2021, which approved the Resolution Plan for the company’s revival and restructuring. They argued that the contested order and notification dated May 23, 2024, is legally unsound and violates the Insolvency and Bankruptcy Code 2016 (“IBC”), which calls for the company to be reorganized and resolved on a “clean slate basis.”
Delhi High Court noted that the Ld. NCLT vide order dated August 29, 2019, allowed the petitioner to initiate CIRP (Corporate Insolvency Resolution Process) against the petitioner company and moratorium u/s 14 of IBC, 2016 came into force. Later, the CIRP of the petitioner concluded in a successful manner, where the revitalization and reorganization of the company of the petitioner was proposed and approved by the Committee of Creditors on September 13, 2021.
The Hon’ble HC further observed that after the adoption of the resolution plan, new management assumed control of the petitioner-company to implement the Resolution Plan in accordance with IBC.
It was a settled proposition of law that once a Resolution Plan was duly approved by the adjudicating authority u/s 31(1) of IBC, 2016, the claims as provided in the Resolution Plan shall stand frozen and it 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 stake holders.
The High Court relied on the Supreme Court’s Judgement in the case of Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd, wherein it was held that “after the authority approved the resolution plan, all such claims that are not part of the resolution plan expire and no one had the right to initiate or continue proceedings in respect of a claim that is not part of the resolution plan.”
It should be noted that the principle of a clean slate had been repeatedly reiterated and confirmed both in the Supreme Court and in this court. Therefore, if the resolution plan or sale is accepted as operative and is duly approved by the adjudicating authority, the previous obligations and claims of all debtors of the company will cease to exist.
According to the above order it clearly showed that once the resolution plan is approved by the COC, it was binding on all concerned. As a result of the above, the impugned assessment order dated 22nd May 2024 and notification dated 23rd May 2024 cannot be in the eye of the law and set aside.
The National Sewing Thread Co. Ltd vs DCIT and Others
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