The National Company Law Tribunal (NCLT), Kolkata Bench, recently issued a crucial ruling on a Corporate Insolvency Resolution Process (CIRP) petition under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC).
In this case, a private limited company sought CIRP initiation to evade Income Tax liability, despite facing a persistent tax demand of Rs. 2.86 crores, encompassing interest and penalties, as of March 31, 2022. The company lodged the CIRP petition on March 25, 2023, prompting NCLT Kolkata to assess the maintainability of such a petition concerning Income Tax obligations.
Jayam Vyapaar Pvt. Ltd. filed an application on March 25, 2023, under Section 10 of the IBC to commence the CIRP.
The company confronted an Income Tax demand of Rs. 2,86,44,540/- for the assessment year 2012-13, confirmed by the Commissioner of Income Tax (Appeals) Kolkata on December 18, 2018.
The court noted the corporate applicant’s failure to challenge the order before the Income Tax Appellate Tribunal, rendering the demand final on December 18, 2018.
The applicant’s counsel argued substantial losses, resulting in a decline in net worth.
Categorized as an Operational Creditor, the Income Tax Department was owed Rs. 2,86,44,540/-, with the application filed within the stipulated time frame. The tribunal discovered financial reporting discrepancies in the company and questioned the motive behind the application, deeming it an attempt to avoid Income Tax liability and suggesting fraudulent intent.
The Tribunal clarified NCLT’s non-function as a recovery tribunal, emphasizing the fraudulent and malicious nature of the applicant’s intention. Referring to legal precedent in Monotrone Leasing Private Limited vs. PM Cold Storage Private Limited, NCLT invoked Section 65 of the IBC, addressing penal action for initiating Insolvency Resolution Process with fraudulent or malicious intent.
Invoking Section 65 of the IBC, the court imposed a Rs. 1,00,000/- penalty on the corporate applicant, directing payment to the Prime Minister’s National Relief Fund, subject to a 10% per annum penalty for delays.
Consequently, the March 27, 2023, application under Section 10 of IBC was declared not maintainable and dismissed.
This decision reinforces NCLT’s commitment to preserving the integrity of the CIRP process, deterring the misuse for non-genuine resolution purposes. It establishes a precedent for upholding the sanctity of the legal and statutory framework surrounding corporate insolvency.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
