Institution of Suit against Corporate Debtor during Moratorium is Prohibited U/S 14 of the IBC: ITAT [Read Order]

Institution of Suit - Corporate Debtor - Moratorium - IBC - ITAT - Taxscan

The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) has held that the institution of suit against the corporate debtor during the moratorium period is prohibited under section 14 of the Insolvency and Bankruptcy Code.

The petition was filed by Capman Conpro Pvt. Ltd. and Vighnahartha Corrugators Pvt. Ltd. in their capacity as the Financial Creditors of Global Softech Ltd. (“Corporate Debtor”), under section 7 of the Code read with Rule 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 before the Honorable Adjudicating  Authority i.e. National Company Law Tribunal, Ahmadabad Bench, Ahmadabad (NCLT) for initiation of Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor. The matter is pending before the Insolvency Professional in terms of the Insolvency and Bankruptcy Code, 2016 (Code), and the moratorium period has been declared as per section 14 of the Code. The period of moratorium shall have the effect from the date of such order till the completion of the corporate insolvency resolution process.

It is pertinent to note that as per the provisions of section 14 of the Code institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree, or order in any court of law, tribunal, arbitration panel or other authority shall be prohibited during the moratorium period.

The appeal was filed by Revenue is an institution of suit against the corporate debtor, which is prohibited under section 14 of the Code. Hon’ble Supreme Court in case of Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudavan (Pvt.) Ltd. [2017] 88 taxmann.com 202 held that even arbitration proceedings cannot be initiated after imposition of the moratorium u/s 14 (1) (a) has come into effect and it is non est in law and could not have been allowed to continue.

Further, it was observed by the ITAT that the Hon’ble Supreme Court in the case of Pr. CIT v. Monnet Ispat & Energy Ltd. [SLP (C) No.6487 of 2018] has upheld overriding nature and supremacy of the provisions of the Code over any other enactment in case of conflicting provisions, by virtue of a non obstante clause contained in section 238 of the Code. It is further pertinent to note that under section 178(6) of the Act, as amended, the Code shall have overriding effect. Further, as per section 31 of the Code, the resolution plan as approved by the Adjudicating Authority shall be binding on the corporate debtor and its employees, members, creditors, guarantors, and other stakeholders involved in the resolution plan. Thus, this will prevent State authorities, Regulatory bodies including Direct & Indirect Tax Departments from questioning the resolution plan. Therefore, there is no reason to keep this appeal pending.

The Coram of Sri Prashant Maharishi, Accountant Member and

Sri Sandeep Singh Karhail, Judicial Member, has held that “we dismiss the appeal filed by the Revenue with the liberty to the Assessing Officer to file the appeal afresh after completion of moratorium period upon the revival of the Corporate Debtor as per Resolution Plan as approved by the Adjudicating Authority or upon the appointment of the Liquidator, as the case may be”.

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