NCLAT Dismisses Tamil Nadu State Tax Dept's Belated Claim In Sri NagaNanthana Mills Liquidation

The National Company Law Appellate Tribunal (NCLAT) at Chennai has dismissed an appeal filed by the Tamil Nadu State Tax Department, holding that belated tax claims cannot be entertained once liquidation proceedings have attained finality.

A bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain reiterated that timelines are strict under the insolvency law and a belated claim cannot be entertained.

"When the liquidation process of the Corporate Debtor has already been laid to rest, the same cannot be permitted to be reopened for the purposes of entertainment of the belated claim of the Appellant by entertaining of the Company Appeal. Hence, the Company Appeal lacks merit and the same is accordingly dismissed. All pending Interlocutory Applications would stand closed.", it said.

The appeal arose from the liquidation of Sri NagaNanthana Mills Ltd, which was ordered by the National Company Law Tribunal, Chennai on June 21, 2018. Pursuant to the order, the liquidator issued a public notice on June 27, 2018, inviting claims from creditors, with July 26, 2018 fixed as the last date.

The State Tax Department filed its claim with a delay of 351 days. The liquidator rejected the claim on the ground that it was not filed in the prescribed form, was not in accordance with the Insolvency and Bankruptcy Code rules and regulations, and was barred by limitation under Regulation 16(1) of the IBBI (Liquidation Process) Regulations, 2016.

Despite being informed of the rejection, the department did not challenge it within the statutory period.

The tribunal observed, “The statute provides that against an order of rejection of a claim by the liquidator, the remedy available to the claimant is to prefer an appeal before the Learned Adjudicating Authority. However, the limitation prescribed for filing such an appeal is 14 days from the date of receipt of the decision, as contemplated under Section 42 of the I & B Code, 2016."

Instead, the department later filed applications seeking condonation of delay and setting aside of the rejection order. Those applications were dismissed by the NCLT, leading to the present appeal.

Upholding the NCLT's decision, the Appellate Tribunal observed that the appellant had failed to act within time at every stage. It further held that even after taking into account the exclusion of limitation during the Covid-19 period, the applications filed in 2023 remained hopelessly time-barred.

The tribunal also noted that by the time the appellant approached the forum, the liquidation process had substantially progressed and the assets of the corporate debtor had already been distributed under Section 53 of the IBC.

It ruled, “By that time, the liquidation process had substantially progressed, and the assets had already been distributed in accordance with the waterfall mechanism under Section 53 of the I & B Code..the stage under Section 53 had already been crossed, rendering any interference impermissible."

Reaffirming that liquidation once concluded cannot be reopened for the sake of admitting belated claims, the appellate tribunal refused to set aside the NCLT Order.