Mr. Devarajan Raman Liquidator of Kotak Urja Pvt. Ltd. Vs. Principal Commissioner Income Tax and Ors
Company Appeal (AT) (Insolvency) No. 977 of 2023
Facts:
1. M/s Kotak Urja Pvt Ltd was admitted into Corporate Insolvency Resolution Process (‘CIRP’ in short) on 18.11.2019. The appellant was appointed as the Resolution Professional (‘RP’ in short). The RP had informed Respondent about the admission of the Corporate Debtor into CIRP following which the Respondent filed a claim with the RP for an amount of Rs.11.59 cr on 20.01.2020. The said claim was admitted by the RP.
2. While moratorium was in force, on 10.02.2021, an amount of Rs.90.42 lakhs received towards tax refund was adjusted by the Respondent against outstanding tax demands. Committee of Creditors (‘CoC’ in short) passed a resolution for liquidation of the Corporate Debtor on 04.01.2021 following which the RP filed an application before the Adjudicating Authority for this purpose on 18.05.2021.
3. While the liquidation proceedings were pending before the Adjudicating Authority, the RP sent letters to the Respondent on 03.12.2021 and 07.01.2022 to refund the amount adjusted by them against outstanding income tax dues. RP filed I.A. No. 117/2022 before the Adjudicating Authority praying for issue of directions to the Respondents to refund Rs.90.42 lakhs which had been adjusted against alleged tax liability of the Corporate Debtor. The Respondent filed a claim of Rs.10.69 cr before the Liquidator on 01.02.2023 which was admitted by the Appellant/Liquidator.
4. The Adjudicating Authority vide orders dated 16.06.2023 dismissed I.A. No. 117/2022. Appeal is filed against the order dismissing the IA.
Issue: Whether the appeal can be admitted ?
Argument:
Appellant:
1. Counsel for the Appellant contended that the Adjudicating Authority had failed to appreciate the statutory provisions of IBC in the right perspective by not taking notice of the fact that the provisions of IBC do not permit the Corporate Debtor to make any adjustment/set off to pay outstanding dues to creditors when CIRP proceedings are continuing and moratorium is in effect.
2. Counsel submitted that in the present case, though CIRP period had come to an end on 21.12.2020, the CIRP process kept continuing until the liquidation order was passed on 03.10.2022. Since CIRP was continuing, moratorium also continued and, hence, the Respondent during this period was not entitled to adjust the tax refund received by the Corporate Debtor against outstanding tax dues of different assessment year.
3. Counsel submitted that Adjudicating Authority had misinterpreted the statutory provisions of IBC in holding that the adjustment of tax refund against tax dues was an exercise of the right to realize security interests by a Secured Creditor. In the present case while the liquidation order was passed on 03.10.2022, the purported realization of security interest by way of adjustment of tax refund took place on 10.02.2021 which clearly preceded the commencement of liquidation and hence impermissible.
Respondent:
1. Counsel for the Respondent submitted that asserted that it is settled law that when no resolution plan is received until expiry of maximum period permitted for completion of CIRP, the Corporate Debtor is mandatorily put into liquidation. It was submitted that the exercise of the right of set off by the Respondent on 10.02.2021 which date was well after the expiry of the maximum CIRP period did not suffer from any infirmity. It was contended that in the intervening period between the attainment of the maximum period within which CIRP was to be completed and the passing of the liquidation order, the right to set off can be exercised.
Decision: NCLAT allowed the appeal.
Rationale:
1. Hon’ble NCLAT relying on the provision of section 14 of the Code held that logical corollary that follows is that any adjustment of any tax refund amount during moratorium period is not permitted in terms of the above provisions. It noted that Respondent was well aware of the imposition of moratorium. It is also an undisputed fact that during the CIRP, the Respondent had filed their claim with the RP for an amount of Rs.11.59 cr on 20.01.2020.
2. It held that refund from the Income Tax fell under the asset of the Corporate Debtor and would require to be added to the liquidation assets and held that the adjustment of the said amount of Rs 90 lakhs towards tax demands prior to liquidation amounted to a sort of recovery by the Respondent in violation of the moratorium and hence the Respondent is liable to return or pay the adjusted amount to the Corporate Debtor.
Order:
