Delhi High Court Quashes Pre-Resolution Plan Tax Demands Against Patanjali Foods Limited

Court affirms September 4, 2019, as the effective date for resolution plan approval, setting aside demands prior to this date.

In a significant ruling, the Delhi High Court has quashed the demands made against Patanjali Foods Limited for the period prior to the approval of its resolution plan under the Insolvency and Bankruptcy Code, 2016. The bench, comprising Justices Prathiba M. Singh and Shail Jain, determined that the demands for the period before September 4, 2019, were impermissible following the resolution plan approved by the National Company Law Tribunal (NCLT).

The case arose from the insolvency proceedings of Ruchi Soya Industries Ltd., which were resolved with a plan submitted by a consortium led by Patanjali Ayurved Limited. The NCLT Mumbai Bench approved the resolution plan initially on July 24, 2019, but clarified on September 4, 2019, that all outstanding issues were addressed, allowing the new management to take over on a clean slate basis.

The Delhi High Court's decision aligns with previous judgments by the Bombay and Andhra Pradesh High Courts, confirming September 4, 2019, as the final approval date of the resolution plan. This decision means that any demands or claims not included in the resolution plan before this date are extinguished, in line with the Supreme Court's interpretation in "Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd."

The court has permitted the Assistant Commissioner CGST Narela Division to issue a fresh show cause notice for periods following the approval date, provided it is within the statutory limitation period. The court acknowledged that the pendency of the writ petition could affect the limitation period and allowed for the exclusion of the petition's pendency time from the limitation calculation.

The decision underscores the binding nature of resolution plans under the Insolvency and Bankruptcy Code, which provide a fresh start to companies emerging from insolvency, free from past liabilities not included in the resolution plan.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 - Approval of Resolution Plan by NCLT - Demands for period prior to approval of resolution plan not permissible - New management takes control of the company on a clean slate basis - Date of final approval of the Resolution Plan taken as 4th September, 2019.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 31(1)

Patanjali Foods Limited v. Assistant Commissioner CGST Narela Division, (Delhi)(DB) : Law Finder Doc Id # 2821802