NCLT Mumbai: Past Tax Liabilities That Are Not A Part Of Resolution Plan Shall Stand Extinguished

The National Company Law Tribunal (“NCLT”) in the case Subodh Kumar Agrawal v Taguda Pte. Limited, the Mumbai bench comprising of Justice P.N. Deshmukh, Judicial Member and the Technical Member, Shri Shyam Babu Gautam observed while adjudicating a plea and has held that all past liabilities arising out of any levies/tax dues to any government authorities, etc., which accrued during CIRP period and are not part of the Resolution Plan, the same shall stand extinguished from the date of approval of the Resolution Plan. Accordingly, the bench waived off the income tax and GST liabilities of the Corporate Debtor that had accrued after initiation of CIRP.
Facts of the Case:
The Corporate Debtor, Ushdev International Limited was admitted into Corporate Insolvency Resolution Process (“CIRP”). The Resolution Professional appointed was Mr. Subodh Kumar Agrawal.
It had been submitted by Resolution Applicant/Applicant, Taguda Pte. Limited a resolution plan for the Corporate Debtor which was approved by the Committee of Creditors (“CoC”). An application has been filled by the Resolution Professional before the Adjudicating Authority for approval of the said Resolution Plan.
The Adjudicating Authority on 03.02.2022, while approving the resolution plan had directed that all past liabilities arising out of any levies/tax dues to any government authorities, etc., which was not the part of the Resolution Plan and is pertaining to pre-CIRP period, shall stand extinguished from the date of approval of the Resolution Plan. Any waiver sought in the Resolution Plan shall also be subject to approval of the concerned Authorities. Therefore, as a consequence of which the said order essentially did not allow the specific waivers sought in the Resolution Plan, even though the same had been entirely approved by the CoC.
An application before the Adjudicating Authority has been filled by the applicant, wherein seeking modification of the order dated 03.02.2022 limited up to waivers as sought under the Resolution Plan. Thus, the waivers included the liabilities accrued during the CIRP period, liabilities which shall occur till the closing date (as defined under the Resolution Plan) and liabilities which shall arise on implementation of the Resolution Plan. It has also been prayed by the Resolution Applicant, the waiver of tax and Goods & Services Tax (GST) liability accrued on the Corporate Debtor from the CIRP commencement date.
NCLT Decision:
The bench stated that all the past liabilities arising out of any levies/tax dues to any government authorities, etc., which are not being a part of the Resolution Plan and pertaining to CIRP period which shall stand extinguished from the date of approval of the Resolution Plan. Further, the court observed that the authorities have to file the claim before the Resolution Professional before the approval of Resolution Plan by the CoC. The Applicant Resolution cannot be burdened with the liabilities after approval of the Resolution Plan. Accordingly, the bench waived off the GST dues and the income tax.
It has also been observed by the bench that the income tax liability on notional income, arising on implementation of the Resolution Plan due to writing back of the unpaid dues to the creditors in the books of Corporate Debtor are also to be waived off and such liabilities were also being waived off.