The Delhi High Court observed that Show Cause Notice ( SCN ) can’t be issued to entertain claims before the period of Approval of the Resolution Plan.
The issue which arises for consideration in the writ petition concerns the sustainability of the show-cause notice, issued by the Additional Director General (ADG), Directorate of Revenue Intelligence (DRI).
The petitioner i.e., Sree Metaliks Limited [SML] asserted, that the show-cause notice is liable to be quashed and/or set aside, for the reason, that it has been issued after the Resolution Plan framed under the aegis of the National Company Law Tribunal, Kolkata Bench [NCLT], received the imprimatur of the National Company Law Appellate Tribunal [NCLAT].
SML imported capital goods between October 2005 and November 2011 against e Export Promotion Capital Goods Scheme (EPCG) licenses issued in its favour by the DRI. The show cause when SML’s net worth stood eroded, which propelled SML to file a reference before the Board for Industrial and Financial Reconstruction (BIFR) and register itself under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 [SICA].
With the enforcement of the Insolvency and Bankruptcy Code (IBC), SICA was repealed, and its reference lodged with Board for Industrial and Financial Reconstruction (BIFR) stood abated in terms of the provisions of the Eighth Schedule of the Code. A financial creditor of SML applied Section 7 of IBC.
An e-mail was served by the Resolution Professional (RP), and the respondent was informed that the Corporate Insolvency Resolution Process (CIRP) was on, but also that since SML had been issued summons under Section 108 of Customs Act, 1962, details concerning SML should be furnished to the RP. Admittedly, the DRI/DGFT did not submit their proof of claims. Furthermore, the respondent neither replied nor furnished any information.
The Counsel for the petitioner contended that once a Resolution Plan is approved, it is binding on all stakeholders, including the respondents, in terms of Section 31 of the Code. Resultantly, those claims, which do not form part of the Resolution Plan stand extinguished.
The Counsel for the respondent contended that although SML was aware of its customs dues, it deliberately chose to ignore the same and that SML knew that it had to bear the burden of its liability is evident from the fact that it repeatedly sought extension of time to fulfil its export obligations.
The Bench comprising Justice Rajiv Shakdher and Tara Vitasta Ganju noted that “The Supreme Court has enunciated, in no uncertain terms, the clean slate principle; it cannot be set at nought by entertaining claims that concern the period obtaining before the approval of the Resolution Plan.”
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