In a recent ruling dated October 15, 2024, the Hon’ble NCLAT has ruled that the provisions of the Income Tax Act do not create any charge or security interest. Further, while deciding on another issue concerning the method of communication of the status of the claim, the Tribunal held that posting the status of claims on the website of the corporate debtor and the IBBI portal are sufficient for communication of claim status under the provisions of IBC and CIRP Regulations, for they amount to deemed knowledge and constructive notice on part of the creditors. By way of the said ruling, the Hon’ble NCLAT has also reiterated that once the resolution plan is approved by the adjudicating authority, no claims can be accepted or entertained thereafter.
The instant case involved various issues, including the (i) powers of a resolution professional (RP) in verification of claims; (ii) communication of the status of claims to the creditors post such verification; (iii) treatment of undecided claims once a resolution plan is approved by the Committee of Creditors (CoC) and the Adjudicating Authority; and (iv) non-creation of a charge or security interest in favour of a creditor under the provisions of the Income Tax Act, 1961 (IT Act).
The case involves an appeal preferred by the Commissioner of Income Tax (TDS-1), Mumbai (IT Dept) on the grounds that its claim, was not included in the resolution plan of JBF Petrochemical Ltd., the corporate debtor, which came to be approved by the CoC as also the Hon’ble National Company Law Tribunal (NCLT). Stating that the RP had misrepresented that no government authorities had claimed any security or charge over the Corporate Debtor’s assets, the Appellant challenged the plan approval order to be bad in law. It was further pointed out that the RP at no point in time had intimated the Appellant about the rejection of their claims. The IT Dept. also sought to rely on the decisions of the Hon’ble Supreme Court to argue that it was a secured creditor of the Corporate Debtor.
On the other hand, the RP contended that the IT Dept. was informed about the CIRP initiation and the public announcement inviting claims. The Respondent RP contended that the IT Department’s claim was, inter alia, rejected owing to non-compliance with the timelines and lack of supporting documents. It was also contended that once the resolution plan is approved, new claims cannot be considered. The RP argued that the CIRP Regulations were duly adhered to by uploading the updated list of creditors with the status of their claims on the website of the Corporate Debtor and on the IBBI portal from time to time. However, no objections were raised by the IT Department, despite having knowledge of the same for a long time. Lastly, the Respondent contended that the IT Dept. could not have filed its claim as a secured creditor since the IT Act does not provide basis for it to be treated as such.
Having considered the arguments of the respective parties, the Hon’ble NCLAT ruled that the RP had adhered to the statutory provisions while inviting and verifying the claims. It was observed that the IT Dept. had failed to file its claim within the prescribed time and to provide necessary documents, as required. On the point that the IT dept. was kept in the dark vis-à-vis the status of its claim, the Hon’ble NCLAT ruled that the status of the claims uploaded from time to time on the Corporate Debtor’s website as also the IBBI portal, would amount to ‘deemed knowledge’ and ‘constructive notice’ on the IT Dept. with respect to rejection of its claim. On the next issue of entertaining claims, once a resolution plan comes to be approved by the CoC and the Adjudicating Authority, the Hon’ble NCLAT reiterated the settled position to hold that the claims not part of the resolution plan are considered extinguished. Finally, the Hon’ble NCLAT held that the provisions of IT Act do not create any charge or security interest in favour of the It Dept. to be treated as a secured creditor under the Code,
We believe that the judgment is significant because it reinforces the importance of adherence to statutory timelines and procedures during the CIRP by all creditors including government authorities. As such, the view of the Hon’ble NCLAT in upholding the supremacy of an approved resolution plan which ought not to be reopened on the basis of belated claims by unvigilant creditors, appears to be loud and clear.
Authors & Contributors
Partner:
Associates:
Bhawana Sharma
Shreya Chandhok
Kirti Talreja
Rounak Doshi
Bharath Krishna