Moratorium-Section 14 Vs. Section 33(5)

After initiation of moratorium under Section 14(1) of IBC, no assessment proceedings can be continued | After an order of liquidation is passed, Section 33(5) of IBC does not prohibit initiation or continuation of assessment proceedings | No claim on the basis of assessment carried during the moratorium under Section 14(1) of IBC can be admitted in the CIRP – Employees’ Provident Fund Vs. Jaykumar Pesumal Arlani RP of Decent Laminates Pvt. Ltd. – NCLAT New Delhi

This judgment answers the questions:

(i) Whether after imposition of moratorium under Section 14 of the IBC, assessment proceedings can be carried on by the EPFO under Section 7A, 14B and 7Q of the EPF & MP Act, 1952.
(ii) Whether any claim on the basis of assessment, subsequent to imposition of moratorium, can be admitted in the CIRP.
(iii) Whether claims, which were filed by the Appellant(s), subsequent to the approval of Resolution Plan by the CoC, could have been admitted in the CIRP.

And covers:
A. Judicial Precedents
B. Ratio of a judgment cannot be read as statute
C. Interpretation of Section 14(1)(a) of IBC
D. Whether after moratorium has been imposed, it is open for EPFO to proceed with the assessment proceeding
E. Whether claims filed subsequent to the approval of Resolution Plan by the CoC, could have been admitted in the CIRP

After initiation of moratorium under Section 14(1) of IBC, no assessment proceedings can be continued | After an order of liquidation is passed, Section 33(5) of IBC does not prohibit initiation or continuation of assessment proceedings | No claim on the basis of assessment carried during the moratorium under Section 14(1) of IBC can be admitted in the CIRP – Employees’ Provident Fund Vs. Jaykumar Pesumal Arlani RP of Decent Laminates Pvt. Ltd. – NCLAT New Delhi Read Post »

Whether moratorium under Section 33(5) of IBC during Liquidation Process, bars on adjustment of Income Tax Refund with past dues | Whether on completion of Income Tax assessment proceedings during liquidation, the Income Tax Department can avail of set-off suo motu – Avil Menezes Liquidator of Sunil Hitech and Engineers Ltd. Vs. Principal Chief Commissioner of Income Tax, Mumbai – NCLAT New Delhi

In this important judgment, Hon’ble NCLAT held that:

(i) Section 14 prohibits both institution and continuation of pending suits or proceedings against the Corporate Debtor, Section 33(5) of IBC is only a bar on the institution of new suits during the liquidation process.
(ii) There is no bar in a suit or a legal proceeding continuing along with liquidation proceedings as pending suits or legal proceeding have not been included within the scope of moratorium under Section 33(5) of IBC.
(iii) Set-off has been claimed after passing of the liquidation order which is legally permissible under Chapter III Part II of IBC.
(iv) The Income Tax authority enjoys limited jurisdiction of continuing with assessment proceedings and in determining the quantum of Income Tax dues but does not enjoy the jurisdiction and power to suo motu initiate recovery of dues or execute their claim unilaterally by adjusting the Income Tax Refund amount with past tax dues.
(v) While applying the principle of set-off, it must be kept in mind that no creditor ends up getting share disproportional to their dues.

Whether moratorium under Section 33(5) of IBC during Liquidation Process, bars on adjustment of Income Tax Refund with past dues | Whether on completion of Income Tax assessment proceedings during liquidation, the Income Tax Department can avail of set-off suo motu – Avil Menezes Liquidator of Sunil Hitech and Engineers Ltd. Vs. Principal Chief Commissioner of Income Tax, Mumbai – NCLAT New Delhi Read Post »

Whether set-off/adjustment of demand with refund by Income Tax Dept. during the intervening period when CIRP timeline period has expired but Liquidation Order u/s 33 of IBC has not yet been passed, amounted to violation of Moratorium under Section 14 of the IBC? – Mr. Devarajan Raman Liquidator of Kotak Urja Pvt. Ltd. Vs. Principal Commissioner Income Tax and Ors. – NCLAT New Delhi

This judgment answered the following issues:

(i) Can Income Tax Dept. set-off/adjust tax dues with refund during the intervening period when CIRP timeline period had expired but the liquidation order had not yet been passed by the Adjudicating Authority?

(ii) Can a Secured Creditor realise secured assets in terms of Section 52 of the IBC after expiry of CIRP period under Section 12 of the IBC and before liquidation order under Section 33 is passed?
(iii) Is Income Tax Department being a Government Authority a secured creditor and entitled to realise security interest?

Whether set-off/adjustment of demand with refund by Income Tax Dept. during the intervening period when CIRP timeline period has expired but Liquidation Order u/s 33 of IBC has not yet been passed, amounted to violation of Moratorium under Section 14 of the IBC? – Mr. Devarajan Raman Liquidator of Kotak Urja Pvt. Ltd. Vs. Principal Commissioner Income Tax and Ors. – NCLAT New Delhi Read Post »

Can claims of Tax Assessment Orders passed during moratorium under Section 14 & 33(5) of IBC be considered as Unsecured Operational Debt whereas claims under the same statute related prior to admission of CIRP are being treated as Secured Creditor? – Commissioner of State Tax Department Vs. Ramchandra Dallaram Chaudhary Liquidator of Anil Ltd. – NCLAT New Delhi

In this important judgment, Hon’ble NCLAT held that:

(i) Claim related to Gujarat Sales Tax Act, 1969 are treated as unsecured since The Gujarat Sales Tax Act, 1969 does not contain any part-materia stipulation akin to Section 48 of the Gujarat Value Added Tax Act, 2003.
(ii) The assessment orders passed after the imposition of Moratorium under Section 14 of the Code tantamount to violation of Section 14 of the Code.
(iii) Assessment orders passed after passing of liquidation order under VAT Act violates the moratorium under provision of 33(5) of the Code.
(iv) The Claims of Assessment Orders passed during the moratorium under Section 14 & 33(5) of the Code, have been rightly considered and admitted as Unsecured Operational Debt.
(v) Time period of 330 days prescribed in the Code is indicative and directory in nature and not mandatory.
(vi) The Tax Department during the moratorium period could determine the tax, interest, fine or any penalty which is due, however, it could not be enforced for recovery or levy of interest on the tax due during the period of Moratorium.

Can claims of Tax Assessment Orders passed during moratorium under Section 14 & 33(5) of IBC be considered as Unsecured Operational Debt whereas claims under the same statute related prior to admission of CIRP are being treated as Secured Creditor? – Commissioner of State Tax Department Vs. Ramchandra Dallaram Chaudhary Liquidator of Anil Ltd. – NCLAT New Delhi Read Post »

NCLT has no power and authority under IBC to declare a tax assessment order as void ab initio and non est in law | After declaring moratorium, there is an embargo on enforcing tax demand, but there is no embargo under Sec. 14 read with Sec. 33(5) of IBC, for determining the quantum of tax and other levies, if any, against the Corporate Debtor – Deputy Commissioner (Works Contract), Kerala State Goods and Services Tax Department Vs. National Company Law Tribunal and Anr. – Kerala High Court

In this case, NCLT had passed the impugned order stating that the Sales Tax Assessment Order was passed in violation of the prohibition provided under Section 14(1)(a) of IBC. Therefore, the Assessment Order was declared void ab initio.

In this important judgment, Hon’ble Kerala High Court refers Sundaresh Bhatt, Liquidator of ABG Shipyard v. CBIC (2022) ibclaw.in 103 SC holds that:

(i) Moratorium under Section 14 is to ensure the curtailing of parallel proceedings and reduce the possibility of conflicting outcomes in the process.
(ii) The authority could only initiate assessment or reassessment of the duties or other levies. However, they cannot transgress such boundary and proceed to initiate recovery in violation of Sections 14 and 33(5) of the IBC.
(iii) The IRP or the Liquidator, as the case may be, is empowered to question the legality of the assessment order before the deputed authority.
(iv) The impugned order passed by the NCLT, Kochi Bench, as preposterous and untenable.
(v) Such an order only reflects the competence of the persons who are manning such an important Tribunal. The Order shows the lack of basic understanding of the law.

NCLT has no power and authority under IBC to declare a tax assessment order as void ab initio and non est in law | After declaring moratorium, there is an embargo on enforcing tax demand, but there is no embargo under Sec. 14 read with Sec. 33(5) of IBC, for determining the quantum of tax and other levies, if any, against the Corporate Debtor – Deputy Commissioner (Works Contract), Kerala State Goods and Services Tax Department Vs. National Company Law Tribunal and Anr. – Kerala High Court Read Post »

Unlike Section 14 of IBC (CIRP Moratorium), under Section 33(5) of IBC (Liquidation Moratorium) there is no absolute bar in a suit or legal proceedings continuing along with the Liquidation proceedings. Bar on the Civil Court u/s 63 and 231 of IBC would only be in respect of fresh suits – Elecon Engineering Company Ltd. Vs. Energo Engineering Projects Ltd. & Ors – Delhi High Court

Hon’ble High Court held that legislature in its wisdom has decided not to include ‘pending suits or legal proceedings’ within the scope of moratorium under Section 33(5) of the IBC. To be noted that even the proviso to Section 33(5) of the IBC only uses the word ‘instituted’, but does not use the word ‘pending’. Further, in terms of the said proviso, even a fresh suit or legal proceedings may be instituted by the Liquidator with the prior approval of the Adjudicating Authority. So, unlike Section 14 of the IBC, under Section 33(5) of the IBC there is no absolute bar in a suit or legal proceedings continuing along with the liquidation proceedings. It also held that a reading of Section 63 of the IBC would reveal that the bar on the Civil Court is only to ‘entertain any suit or proceeding in respect of any matter on which NCLT has the jurisdiction under this Code’. This would not apply to suits, which were already pending before the commencement of liquidation proceedings.

Unlike Section 14 of IBC (CIRP Moratorium), under Section 33(5) of IBC (Liquidation Moratorium) there is no absolute bar in a suit or legal proceedings continuing along with the Liquidation proceedings. Bar on the Civil Court u/s 63 and 231 of IBC would only be in respect of fresh suits – Elecon Engineering Company Ltd. Vs. Energo Engineering Projects Ltd. & Ors – Delhi High Court Read Post »

Whether the institution or continuation of a proceeding under Section 138/141 of the Negotiable Instruments Act can be said to be covered by the moratorium provision under Section 14 of the IBC – P. Mohanraj and Ors. Vs. Shah Brothers Ispat Pvt. Ltd. – Supreme Court

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Whether the institution or continuation of a proceeding under Section 138/141 of the Negotiable Instruments Act can be said to be covered by the moratorium provision under Section 14 of the IBC – P. Mohanraj and Ors. Vs. Shah Brothers Ispat Pvt. Ltd. – Supreme Court Read Post »

Moratorium would not apply to the proceedings which are in the benefit of the Corporate Debtor- Power Grid Corporation of India Ltd Vs. Jyoti Structures Ltd. – Delhi High Court

In the light of the purpose or object behind the moratorium, Section 14 of the Code would not apply to the proceedings which are in the benefit of the corporate debtor, like the one before this court in as much these proceedings are not a „debt recovery action‟ and its conclusion would not endanger, diminish, dissipate or impact the assets of the corporate debtor in any manner whatsoever and hence shall be in sync with the purpose of moratorium which includes keeping the corporate debtor‟s assets together during the insolvency resolution process and facilitating orderly completion of the process envisaged during the insolvency resolution process and ensuring the company may continue as a going concern. If such proceedings is against the corporate debtor or is in its favour. Stay of proceedings against an award in favour of the corporate debtor would rather be stalking the debtor‟s effort to recover its money and hence would not fall in the embargo of Section 14 (1) (a) of the Code.

Moratorium would not apply to the proceedings which are in the benefit of the Corporate Debtor- Power Grid Corporation of India Ltd Vs. Jyoti Structures Ltd. – Delhi High Court Read Post »

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