Past Tax Liabilities That Are Not Part Of Resolution Plan Shall Stand Extinguished: NCLT Mumbai

Background Facts

Ushdev International Limited ("Corporate Debtor") was admitted into Corporate Insolvency Resolution Process ("CIRP"). Mr. Subodh Kumar Agrawal was appointed as the Resolution Professional.

Taguda Pte. Limited ("Resolution Applicant/Applicant") had submitted a resolution plan for the Corporate Debtor which was approved by the Committee of Creditors ("CoC"). The Resolution Professional had filed an application before the Adjudicating Authority for approval of the said Resolution Plan.

On 03.02.2022, the Adjudicating Authority while approving the Resolution Plan had directed that all past liabilities arising out of any levies/tax dues to any government authorities, etc., which was not part of the Resolution Plan and pertaining to pre-CIRP period, shall stand extinguished from the date of approval of the Resolution Plan. Further, any waiver sought in the Resolution Plan shall be subject to approval of the concerned Authorities. As a consequence thereof, the said order essentially did not allow the specific waivers sought in the Resolution Plan, even though the same had been entirely approved by the CoC.

Thus, the Applicant filed an application before the Adjudicating Authority, seeking modification of the order dated 03.02.2022 limited up to waivers as sought under the Resolution Plan. The waivers included the liabilities accrued during the CIRP period, liabilities which shall occur till the closing date (as defined under the Resolution Plan) and liabilities which shall arise on implementation of the Resolution Plan. The Resolution Applicant also prayed for waiver of income tax and Goods & Services Tax (GST) liability accrued on the Corporate Debtor from the CIRP commencement date.

Decision Of NCLT

The Bench opined that all the past liabilities arising out of any levies/tax dues to any government authorities, etc., which are not part of the Resolution Plan and pertaining to CIRP period, shall stand extinguished from the date of approval of the Resolution Plan. It was observed that the authorities have to file the claim before the Resolution Professional before the approval of Resolution Plan by the CoC. The Resolution Applicant cannot be burdened with the liabilities after approval of the Resolution Plan. The Bench accordingly waived off the income tax and GST dues.

Further, the Bench observed that the income tax liability on notional income, arising on implementation of the Resolution Plan due to writing back of the unpaid dues to the creditors in the books of Corporate Debtor, were also to be waived off. Accordingly, such liabilities were also waived off.

Case Title: Subodh Kumar Agrawal v Taguda Pte. Limited

Case No.: CP(IB)No. 1790/MB/2017

Counsel For the Applicant: Adv. Gautam Ankhad and Adv. Mustafa Kachwala

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