CASE RESEARCH

-Aakash Raj Chauhan

➢ Pr. Commissioner of Income Tax v. Monnet Ispat and Energy Ltd.

➢ RULE OF LAW DERIVED :-

The Supreme Court of India, by its order dated 10 August 2018 in has held that the
provisions of the moratorium stipulated under section 14 of the Insolvency and Bankruptcy
Code, 2016 (“ Code”) would override anything inconsistent contained in any other
enactment, including the Income Tax Act, 1961, thereby upholding the judgment of the
Delhi High Court to the same effect in 2017, which had been challenged before the Supreme
Court.

➢ BRIEF FATCS ABOUT THE CASE?

In the instant case, the National Company Law Tribunal (“NCLT”) had admitted an
application under section 7 of the Code against Monnet Ispat and Energy Ltd. A
challenge was brought forth by Principal Commissioner of Income Tax-6 as to the
applicability of the moratorium order to the proceedings of the Income Tax Appellate
Tribunal (“ITAT”) against the corporate debtor. The High Court of Delhi had held that an
order of moratorium is made by the NCLT under section 14 of the Code, and the same
would also apply to the proceedings and orders of the Income Tax Appellate Tribunal in
respect of the tax liability of the assessee. It arrived at this reasoning by making a
reference to the decision of the Supreme Court in Innoventive Industries Ltd. v. ICICI
Bank and Anr. wherein the Supreme Court had held that it is clear that the provisions of
the Code will prevail over any other law where a conflict exists by the bare perusal of
the non-obstante provision contained in section 238 of the Code, which unambiguously
provides that the Code will apply notwithstanding anything inconsistent therewith
contained in any other law for the time being in force.

➢ JUDGEMENT OF DELHI HC WHICH THE SUPREME COURT UPHELD ?

The High Court of Delhi, following the above-mentioned reasoning, concluded that the
execution of the order given by the ITAT in respect of the tax liability will be stayed
until the approval of the resolution plan. Further, the High Court of Delhi negatived
similar contentions subsequently brought forth by the CCT South Delhi challenging the
applicability of the moratorium proceedings upon their adjudicatory claim of tax
liability against the same corporate debtor following identical reasoning.

➢ SC CASE ON WHICH DELH HC RELIED FOR REASONING FOR COMING TO

CONCLUSION ?

Innoventive Industries Ltd. v. ICICI Bank and Anr. wherein the Supreme Court had held
that it is clear that the provisions of the Code will prevail over any other law where a
conflict exists by the bare perusal of the non-obstante provision contained in section
238 of the Code, which unambiguously provides that the Code will apply
notwithstanding anything inconsistent therewith contained in any other law for the
time being in force.

➢ SECTION 14(1)(A) IBC,2016 / order of moratorium period?

Section 14(1)(a) of the Code stipulates that the order of moratorium shall
come in force from the “insolvency commencement date” upon an order
of the NCLT prohibiting, inter alia, the institution of suits or continuation
of pending suits or proceedings against the corporate debtor including
the execution of any judgement, decree or order in any court of law,
tribunal, arbitration panel or other authority.

➢ BASIC PURPOSE/DEFINATION OF MORATOTIUM AS DEFINED BY “Bankruptcy

Law Reform Committee” and “Insolvency Law Committee” ?

According to the to the Report of the Bankruptcy Law Reforms

Committee, the intent behind an order for moratorium is to ensure
stability of the financial position of the corporate debtor so as to
facilitate the assessment of its financial position as stipulated under the
Code as it exists on the date of the commencement of insolvency.

Further, the Insolvency Law Committee in its Report in 2018 had

noted that the purposes of the moratorium extends to keeping the
corporate debtor’s assets together during the insolvency resolution process
and facilitating orderly completion of the processes envisaged during the
insolvency resolution process. Therefore, any claim or execution of claim
by the tax authorities is clearly barred under section 14(1)(a) of the Code.
➢ CASE ON WHICH SUPREME COURT REFFERED WHILE COMING TO CONCLUSION
AND WHAT WAS HELD IN THAT CASE ?

The Supreme Court, in arriving at its decision in this matter, made

reference to its decision in the case of Dena Bank v. Bhikhabhai Prabhudas
Parekh and Co. wherein it was held that income tax dues, being in the
nature of crown debts, do not take precedence even over secured
creditors who are private persons. It is necessary to note in the course of
this analysis that the Code affirms in its preamble the alteration in the
order of priority of payment of Government dues. Therefore, it is
necessary for the undisturbed assessment of the financial position and
integrity of the corporate debtor that the government dues sought by the
tax authorities, as in this case, be barred under the order of moratorium
as provided in the Code.