Facts of the Case

The Revenue Department filed multiple Income Tax Appeals before the Delhi High Court against Monnet Ispat & Energy Ltd. arising from orders passed by the Income Tax Appellate Tribunal (ITAT) regarding tax liabilities of the assessee. During the pendency of these appeals, the National Company Law Tribunal (NCLT), by order dated 18 July 2017, admitted an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code filed by State Bank of India against Monnet Ispat & Energy Ltd. and declared a moratorium under Section 14 of the Code.

As a result of the moratorium, continuation of pending suits or proceedings against the corporate debtor became prohibited. The question arose whether the income tax appeals instituted by the Department would also fall within the scope of such prohibition.

 Issues Involved

  1. Whether income tax appellate proceedings pending before the High Court are covered by the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016?
  2. Whether the overriding provision under Section 238 of the Insolvency and Bankruptcy Code prevails over proceedings under the Income Tax Act?
  3. Whether the Revenue Department can continue tax litigation during pendency of Corporate Insolvency Resolution Process?

 Petitioner’s Arguments (Revenue Department)

The Appellant-Revenue contended that the Income Tax Appeals pertained to determination of tax liabilities and therefore should not be treated at par with ordinary civil proceedings.

It was argued that unlike earlier insolvency statutes, the Insolvency and Bankruptcy Code does not expressly provide a mechanism for obtaining permission from the NCLT for continuation of proceedings pending before other judicial forums.

The Revenue sought continuation of the appeals for adjudication of tax liability.

 Respondent’s Arguments (Assessee / Corporate Debtor)

The Respondent relied upon the moratorium order passed by the NCLT under Section 14 of the Insolvency and Bankruptcy Code and submitted that continuation of any proceedings against the corporate debtor stood prohibited during the insolvency resolution period.

It was argued that the Income Tax Department’s appeals clearly fell within the expression “continuation of pending suits or proceedings” and hence could not proceed further.

 Court Findings / Court Order

The Delhi High Court held that:

  • Section 14(1)(a) of the Insolvency and Bankruptcy Code clearly prohibits institution or continuation of suits or proceedings against the corporate debtor upon commencement of insolvency proceedings.
  • The language of Section 238 of the Code gives overriding effect to the Insolvency and Bankruptcy Code over all inconsistent laws.
  • The Court relied upon the Supreme Court judgment in Innoventive Industries Ltd. vs ICICI Bank for affirming the overriding nature of the Code.
  • Income Tax Appeals filed by the Department against the corporate debtor are covered within the moratorium and cannot proceed during the CIRP period.

Accordingly, the Court disposed of the appeals with liberty to the Revenue Department to revive the same subject to further orders of the NCLT.

 Important Clarification

This judgment clarifies that tax proceedings, including appellate proceedings under the Income Tax Act, are not exempt from the moratorium under Section 14 of the Insolvency and Bankruptcy Code.

The ruling establishes that once CIRP commences, even tax litigation initiated by the Revenue against the corporate debtor remains stayed unless permitted by the insolvency framework.

The judgment reinforces the supremacy of the Insolvency and Bankruptcy Code over other statutory proceedings through Section 238.

 

Sections Involved

Insolvency and Bankruptcy Code, 2016

  • Section 7 – Initiation of Corporate Insolvency Resolution Process by Financial Creditor
  • Section 14 – Moratorium
  • Section 31 – Approval of Resolution Plan
  • Section 33 – Liquidation
  • Section 238 – Overriding Effect of the Code

Income Tax Act, 1961

  • Appellate provisions relating to Revenue Appeals before High Court

  Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:8936-DB/SMD04092017ITA5332017_162641.pdf

 Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.