NCLAT New Delhi Rejects PPL's Entry Tax Exemption Claim, Finds No "Deemed Consent" Under SICA

On 18 May, the New Delhi National Company Law Appellate Tribunal (NCLAT) held that the State of Orissa was not bound to grant Entry Tax exemptions to Paradeep Phosphates Ltd. (PPL) under a BIFR-sanctioned rehabilitation scheme, since the State had expressly refused consent during the proceedings.

Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra dismissed PPL's appeal against the National Company Law Tribunal (NCLT), Cuttack Bench, noting that its express refusal excluded the application of “deemed consent” under Section 19(2) of the Sick Industrial Companies Act, 1985 (SICA). The Bench held:

“…The question of deemed consent arise when there is no communication from the state regarding consent. In the proceeding which were proceeding for hearing objection on the revised DRS on behalf of State of Orissa categorically stated that there is no policy of giving any relief to the SIC Industrial Company by the Government of Orissa. The above submission was clear denial of consent from the State of Orissa. The submission of the appellant of deemed consent as contemplated in Section 19(2) of the SICA shall not come into play in facts of the present case…”

PPL, a fertiliser manufacturer, challenged the NCLT order that rejected its claim for enforcement of exemptions under a BIFR-approved Draft Rehabilitation Scheme (DRS). The Board for Industrial and Financial Reconstruction (BIFR) declared PPL a sick industrial company in 2005. It circulated a Draft Rehabilitation Scheme in 2008 and sanctioned it on 2 September 2008. Clause 20 of the scheme provided reliefs, including exemption from VAT/Sales Tax and Entry Tax for seven years (2007–2014).

During the BIFR proceedings on 15 May 2008, the State of Orissa's representative stated that the State had no policy to grant relief to sick industrial companies. The Bench recorded this position as part of the proceedings.

In 2011, PPL's net worth turned positive, and it sought deregistration from BIFR while also seeking enforcement of the unimplemented benefits under the scheme. BIFR, by order dated 16 August 2011, deregistered and discharged PPL from its purview without issuing directions for tax exemptions. The order was not challenged and attained finality.

PPL then pursued relief before the Orissa High Court and the Supreme Court, but it did not succeed. In 2017, it approached the NCLT under the Insolvency and Bankruptcy Code (IBC), seeking recognition of the BIFR scheme as a resolution plan. The NCLT rejected the plea in January 2023, which led to the present appeal before the NCLAT.

Before the Appellate Tribunal, PPL argued that Clause 20 of the sanctioned scheme bound the State of Orissa and that the 2008 statement did not amount to a formal objection or refusal of consent. It further argued that, since the State did not file a written objection, consent must be deemed under Section 19(2) of SICA.

The State of Orissa countered that its statement during the 2008 hearing amounted to an express refusal of consent, as it clearly stated that no policy existed to grant exemptions. It relied on this to argue that deemed consent could not arise.

On the first issue, the NCLAT held that PPL lost its entitlement to benefits when BIFR deregistered it in 2011, since no enforceable direction for exemptions survived thereafter.

On the second issue, the Tribunal rejected the plea of deemed consent and held that the State's 2008 statement amounted to an express refusal. The Bench observed:

“…thus it was a clear case of communication that State of Orissa is not consenting to grant exemption from Entry Tax, we are not persuaded to accept the submission of the counsel for the appellant that in facts of the situation of the present case, consent of the State of Orissa shall be deemed to have been given.”

On the third issue, the Bench held that PPL failed to establish any enforceable right to exemptions till 2014 and ruled that the 2017 notification could not revive a lapsed scheme or extinguished rights.

Accordingly, the NCLAT dismissed the appeal.

For Appellants: Senior Advoctae Krishnendu Dutta with Advocates Varsha Banerjee and Udita Singh

For Respondents: Advocates Shashank Bajpai, Aashna Mehra, Akshit Saxena, Vatsal Tripathi, Govind Singh Chauhan