Ultra Tech Cement Limited & Anr. v. Union of India & Ors.

What happened

Ultra Tech Cement Limited and another petitioner were the successful resolution applicant for Binani Cement Limited. The corporate insolvency resolution process began on 25 July 2017 on an application under section 7 by Bank of Baroda, and a public announcement inviting claims was made on 29 July 2017. The plan was unanimously approved by the committee of creditors and by the appellate tribunal on 14 November 2018, and the Supreme Court affirmed it on 26 July 2019; the management was taken over on 20 November 2018, the transfer date. The petitioners challenged orders of 24 and 31 December 2019 and notices of January 2020, and the adjustment of refunds of ₹1,43,46,686, ₹67,69,380 and ₹1,12,73,866 for 2019-20 against a demand for 2011-12, all relating to years from 2007-08 to 2015-16.

Questions before the court

• Can the income tax authorities raise demands, adjust refunds or reassess for periods before the transfer date after approval of the resolution plan?

Why the court ruled this way

The Court noted that the Supreme Court in Ghanashyam Mishra and Sons, Essar Steel and Vaibhav Goyal had held that once a resolution plan is approved, claims not included in it stand extinguished and a successful resolution applicant cannot face undecided claims springing up. The Court concluded that on 14 November 2018, when the plan was approved by the appellate tribunal, all claims stood frozen and none that did not form part of the plan could survive, so the authorities had no right to adjust refunds for the frozen period (paragraph 11) and could not start fresh proceedings in respect of demands up to assessment year 2019-20 (paragraph 12).

Controlling point

Once a resolution plan is approved, claims not forming part of it stand extinguished, and the income tax authorities cannot adjust refunds for or initiate fresh proceedings on periods before the transfer date.

Order and next steps

The impugned notices proposing fresh proceedings and the consequential orders and proceedings for periods before the transfer date, up to assessment year 2019-20, were held arbitrary and illegal and were quashed. The authorities must allow the petitioner to carry forward the unabsorbed depreciation and accumulated losses as shown in the returns filed before the transfer date and to use them against future tax. They must refund without any adjustment the amounts to which the petitioner is entitled, with prevailing banking interest. The writ petition and connected applications were disposed of.

Practical implications

A successful resolution applicant whose refunds are being set off against pre-resolution demands can rely on the approval date of the plan as the cut-off, and should ask for carry-forward of losses and depreciation shown in the returns filed before the transfer date to be recognised.

Limits of this ruling

• The directions apply to periods before the transfer date, up to assessment year 2019-20, and to the plan and facts of this petition; demands for later periods are not covered.