Claims not included in Approved Resolution Plan are Extinguished: Karnataka HC rules In Favour of Patanjali [Read Order]
The bench clarified that Rule 22 of the Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982, which deals with abatement of appeal upon death, adjudication as insolvent or winding-up, does not apply when a resolution plan has been approved as the objective of a resolution plan is to continue the business of the company as “a going concern.”
Karnataka HC – Karnataka High Court – Karnataka HC Rules In Favour of Patanjali – Patanjali – Patanjali foods limited – Favour of Patanjali – Resolution Plan – taxscan
Karnataka HC – Karnataka High Court – Karnataka HC Rules In Favour of Patanjali – Patanjali – Patanjali foods limited – Favour of Patanjali – Resolution Plan – taxscan
The division bench of the Karnataka High Court in a ruling in favour of Patanjali foods limited, has held that Claims not included in approved resolution plan are extinguished. It was viewed that once a resolution plan is approved by the Adjudicating Authority under Section 31(1) of the Insolvency and Bankruptcy Code, 2016 (IBC), no further proceedings can be initiated against the corporate debtor in respect of claims which are not included in the resolution plan.
The Appellant, formerly known as Ruchi Soya Industries Ltd engaged in importing Crude Palm Oil of edible grade, claimed a duty exemption on 8499.980 MTs of oil imported on 22.2.2011. However, the Commissioner of Customs , the Respondent issued a show cause notice dated 17.02.2012, contending the oil was not of edible grade and thus not entitled to the exemption. The Commissioner confirmed the demand of customs duty amounting to Rs. 19,40,00,646 by its order on 31.07.2012. Aggrieved, the assessee preferred an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
In the interregnum, Corporate Insolvency Resolution Process (CIRP) proceedings under Section 7 of the IBC were initiated against Ruchi Soya Industries Ltd. by the order passed by the National Company Law Tribunal (NCLT), Mumbai. The NCLT approved a modified resolution plan, which led to a change in control of the company. The name of the Company was also changed to Patanjali Foods Limited.
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The Appellant filed Miscellaneous Applications with the CESTAT to change the name of the assessee, Ruchi Soya, to Patanjali and to hold that the liability was extinguished. The CESTAT, by its final order dated 17.11.2023 (impugned order) held that the appeal abated under Rule 22 of the CESTAT (Procedure) Rules, 1982. The Appellant filed the appeal under section 130 of the Customs Act, 19621, challenging the impugned order dated 17.11.2023, passed by the CESTAT.
The substantial question of law framed by the Court was whether the CESTAT erred by not following the law laid down by the Supreme Court that demands for which no claims were submitted or included in the approved Resolution Plan stand extinguished, and no proceedings can be continued in respect of such dues.
The Appellant argued that under Section 32A of the IBC and in view of the Supreme Court's judgments in Ghanshyam Mishra v. Edelweiss Reconstruction Company Ltd. (2021) and Ruchi Soya Industries Limited v. Union of India (2022) claims not submitted during the CIRP stand extinguished. Therefore, the customs duty demand was extinguished as it was not part of the resolution plan.
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The court viewed that the revenue, not having made any claim before the IRP during the CIRP process and the demand not having been part of the resolution plan, has stood extinguished and cannot be continued.
The court then referred to the case of Commissioner of Customs v. Patanjali Foods Limited (Formerly Ruchi Soya Industries Limted), where the Gujarat High Court held that since the resolution process was completed and the appellant did not submit a claim as an Operational Creditor, the appeal had become infructuous and abated. All liabilities were extinguished with the approval of the resolution plan as per Sections 31 and 32A of the IBC.
The bench comprising Mr. Justice S.G. Pandit and Mr. Justice C.M. Poonacha clarified that Rule 22 of the Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982, which deals with abatement of appeal upon death, adjudication as insolvent or winding-up, does not apply when a resolution plan has been approved as the objective of a resolution plan is to continue the business of the company as “a going concern.”
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While allowing the appeal, the Court set aside the impugned order dated 17.11.2023, passed by the CESTAT. The demand of Rs. 19,40,00,646 made by the revenue against the appellant-assessee under the order dated 31.07.2012 was held to have abated and extinguished.
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