The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) adjudicated two cross appeals filed by the Deputy Commissioner of Income Taxes, Mumbai against Mercator Ltd., Mumbai undergoing Liquidation and vice versa. The Company had been under the cross-fire of the department regarding the records of various Assessment Years from A.Y. 2008-2009 to A.Y. 2014-2015.
The Company, Mercator Ltd. had previously been subject to proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 ( IBC ) for initiating the corporate insolvency resolution process. In light of the proceedings under Section 7 of the IBC, the NCLT had pronounced an order approving the liquidation of the Company and appointed a liquidator for the same as well. As is laid down by Section 34(1) of the IBC, the Liquidator absorbs all powers of the Key member of the Company as the Company is pushed into liquidation and ceases to exist.
It was during the pendency of the liquidation proceedings that the Deputy Commissioner of Income Tax preferred to initiate legal proceedings against the Company.
The Mumbai Bench of the Income Tax Appellate Tribunal, consisting of Amit Shukla, Judicial Member and Padmavathy S, Accountant Member while pronouncing its order laid made reference to Section 33(5) of the IBC which provides that:
“Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted by the liquidator, on
behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.”
In closing, the Bench reaffirmed its stance confirming that there is an inherent bar in initiating legal proceedings against a corporate debtor while the debtor is undergoing moratorium.
The Bench, while dismissing the appeals, also gave guidelines confirming that the parties are at “liberty to restitute the appeal once the committee of corporate creditors directs the Liquidator or corporate creditors to pursue the appeal”. Further, the liquidator was also given the option to approach the Bench to get the appeal disposed after revised Form 36 is filed.
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