Income Tax Department Cannot Continue Pre-CIRP Attachment After Resolution Plan Approval: NCLT Kochi

The National Company Law Tribunal (NCLT) at Kochi recently held that the Income Tax Department cannot continue a pre-CIRP attachment over a corporate debtor's property after approval of a resolution plan.

A coram of Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy allowed an application filed by Orchid Valley Apartment Buyers Association, the successful resolution applicant for the Orchid Valley project of Samson and Sons Builders and Developers Private Limited.

The bench directed the Income Tax Department to lift the attachment over the project properties.

“The right, if any, prior to CIRP stands extinguished automatically by operation of law upon approval of the resolution plan, subject to terms and conditions set out and approved by CoC and this Adjudicating Authority.” it held

The applicant approached the Tribunal seeking directions to the Department to accept ₹1.38 lakh provided under the approved resolution plan towards settlement of its admitted claim of ₹5.28 crore and to lift an attachment over the project properties.

The resolution plan was approved on 14 August 2024. Thereafter, the Department challenged the plan before the NCLAT and sought to pursue an additional claim of over ₹16.40 crore. However, no stay was granted on the approved plan.

The applicant contended that despite its willingness to remit the settlement amount, the Department refused to facilitate payment or remove the attachment over the project land, thereby obstructing implementation of the resolution plan.

Opposing the plea, the Department argued that its challenge to the resolution plan was pending before the NCLAT and that the pre-CIRP attachment could not be treated as extinguished solely on account of approval of the resolution plan.

Examining the issue, the Tribunal referred to Section 31 of the Insolvency and Bankruptcy Code, 2016, which makes an approved resolution plan binding on all stakeholders, including statutory authorities.

The Bench further relied on the Supreme Court's decisions in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd and Electrosteel Steel Ltd. v. Ispat Carrier Pvt. Ltd, wherein it was held that once a resolution plan is approved, all claims not forming part of the plan stand extinguished and no proceedings can be initiated or continued in respect of such claims.

Referring to Section 290 of the Income-tax Act, 2025, the Tribunal observed:

“The statutory provisions contained in Section 290 of the Income-tax Act, 2025, which correspond to erstwhile Section 156A of the Income-tax Act, 1961, provide that where any tax, interest, penalty, fine, or any other sum in respect of which a notice of demand has been issued is reduced as a consequence of an order passed by the Adjudicating Authority, as defined under clause (1) of Section 5 of the Insolvency and Bankruptcy Code, 2016, the Assessing Officer shall modify the demand in conformity with such order and shall thereafter serve upon the assessee a revised notice of demand specifying the sum payable, if any."

The tribunal held that once a resolution plan is approved, tax authorities are required to revise their tax demands in line with the terms of the approved plan.

It further held that continuation of the attachment would impede implementation of the resolution plan and would be contrary to its binding effect.

Accordingly, the Tribunal allowed the application, directed the Income Tax Department to withdraw and lift the attachment over the project properties, and issued the necessary communication for the removal of the encumbrance.

For Applicant: Advocate Bijoy P Pulipra

For Respondents: Advocates Cyriac Tom and Vinod P.V