Appellant Cannot Be Remediless Due To Legal Impediment: Supreme Court

CASE TITLE:
M/s. Shekhar Resorts Limited (United Hotel Orient Taj) Vs. Union of India &Ors.

DATE OF ORDER:
5 Jan 2023.

JUDGE(S):
Mr. JusticeM. R. Shah and B. V. Nagarathna.

PARTIES:
Petitioner: M/s. Shekhar Resorts Limited (United Hotel Orient Taj).
Respondent: Union of India &Ors.

SUBJECT

In the present case, the Court is dealing with a matter where the appellant was accused for non-payment of a settlement amount within a specified period. But the non-payment was not intentional as the appellant was restrained from making any payments due to legal impediment.

IMPORTANT PROVISIONS

The Insolvency and Bankruptcy Code (Amendment) Act, 2021

• Section 7- . In section 34 of the principal Act, in sub-section (1), after the words and figures "under Chapter II", the words, figures and letter "or for the pre-packaged insolvency resolution process under Chapter III-A" shall be inserted.

BRIEF FACTS

• In the present case, the appellant company was engaged in providing hospitality services and it registered itself with the Service Tax Department.
• The Service Tax Department conducted investigations on the appellant company as they were evading service tax. Show cause notices were issued to the appellant company demanding for the payment of service tax under various categories such as Accommodation in Hotels, Inn, Guest House, Restaurant Services, Mandap Keeper services etc.
• Thereafter, proceedings were initiated against the appellant company under the Insolvency and Bankruptcy Code (Amendment) Act, 2021 (hereinafter to be referred as “IBC”).
• The Financial Creditors of the appellant submitted an application under Section 7 of the IBC which was admitted by the NCLT, Delhi by an order dated 11 September 2018.
• The corporate insolvency process began on and from 11 September 2018 against the appellant and they were subjected to moratorium under Section 14 of the IBC on and from the same date.
• A Committee of Creditors was constituted as per the provisions of the IBC. In its 15th meeting it unanimously approved the resolution plan submitted by NCJ Infrastructure Private Limited on 4 June 2019.
• For availing the benefit of “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, the Scheme of 2019 came to be introduced on 1 September 2019 under Section 125 of the Finance Act, 2019.
• The appellant submitted an application through its Resolution professional within the period prescribed under the Scheme 2019. Form No.1 was issued to the appellant on 27 December 2019 which was within the prescribed time limit. The tax dues were also computed by the appellant as per the Scheme 2019.
• The Designated Committee issued Form No.3 to the appellant after determining the amount due and payable under the Scheme.
• As per the said statement for payment of tax dues, the appellant was supposed to pay Rs. 1, 24, 28, 500. The appellant was required to make the payment under the Scheme within a time period of 30 days as per Form No.3. However, the time to make the payment was extended by the Government to 30 June 2020 due to COVID-19 Pandemic.
• The Resolution Plan of the applicant was approved by the NCLT by an order dated 24 July 2020. Hence, the moratorium period came to an end with the closure of the insolvency proceedings on 24 July 2020. Subsequently, the appellant informed the same by a writing to the Commissioner, CGST and Central Excise, Agra. He also stated that he was ready and willing to make the full amount as stated by the Designated Committee.
• The Appellant explained to the Commissioner that he cannot pay the settlement amount mentioned under the Scheme 2019 before 30 June 2020 due to the legal moratorium imposed upon the company.
• The Joint Commissioner, Agra communicated that they cannot extend the last date for the payment by an order dated 19 October 2020.
• The Appellant approached the High Court as he could not obtain the permission for the payment of the dues post the lifting of the moratorium.
• The High Court rejected the writ petition on the following grounds-

1. 1. The High Court shall not issue a direction contrary to the Scheme.
2. 2. The relief sought cannot be granted as the Designated Committee under the Scheme is not existing.

QUESTIONS RAISED

• When it was impossible for the appellant to deposit the settlement amount in view of the bar and/or the restrictions under the IBC, the appellant can be punished for no fault of the appellant?

ARGUMENTS ADVANCED BY THE APPELLANT

• The learned counsel for the appellant submitted that the Designated Committee consists of the Principal Commissioners, Commissioners, Additional Commissioners, Joint Commissioners or Deputy Commissioners of the Central Excise and Service Tax depending on the tax amount involved in the matter. But in the present case, it only consisted of the Joint Commissioner and the Commissioner who were officers associated with the offices of Respondent No.3 and 4.
• The Appellant counsel also submitted that the Designated Committee under the Scheme had been constituted on a need basis to comply with the orders of the courts across the country and in many cases they have rejected the applications under the Scheme, 2019 erroneously. Different courts had also set aside the decisions of the Designated Committee after 30 June 2020 and has directed them to consider the case of the respective applicants under the Scheme 2019. To reconsider the cases pursuant to the orders passed by the courts/ High Courts, the CBEC issued instructions dated 17 March 2021 allowing for processing of declarations manually under the Scheme by the respective Designated Committees.
• It was submitted that the Designated Committee carried out their functions even after 30 June 2020 and reported the opposite to the High Court that it was not in existence after the above mentioned date.
• Therefore, it is not acceptable that the appellant is not entitled to any relief.
• The learned counsel also submitted that theappellant counsel bonafidely could not deposit the settlement due on or before 30 July 2020 on account of operation of law. Including this, it was also submitted that the provisions of IBC does not allow any payment to be made during the moratorium period.
• It was also submitted that as per the Resolution plan during the insolvency proceedings, the Resolution Applicant was required to deposit all statutory dues (including service tax dues) within 6 months from the effective date into an escrow account. The Applicant had submitted the same before the expiry of the period of six months.
• The learned counsel cited the order of Principal Commissioner of Income Tax v. Monnet Ispat& Energy Ltd. [(2018) 18 SCC 786] and held that once a moratorium has been enforced, any existing proceeding against the debtor shall stand prohibited. Therefore, the IBC shall have precedence over any inconsistent statutes.
• The learned counsel vehemently submitted that in any case the appellant shall not be left remediless when he did everything according to the law and cited the following cases-

1. Sunil Vasudeva vs. Sundar Gupta [(2019) 17 SCC 385].
2. United Air Travel Services vs. Union of India [(2018) 8 SCC 141].
3. Union of India vs. AsishAgarwak [(2022) SCC Online SC 543].

• The learned counsel concluded that the appellant could not make the payment due to legal disability and no one can be expected to do the impossible. It relied on Gyanichand vs. State of Andhra Pradesh [(2016) 15 SCC 164] and Calcutta Iron Merchants Association vs. Commissioner of Commercial Taxes [(1997) 8 SCC 42].
• Lastly, it was submitted that the appellant cannot be prejudiced and/or made to suffer for no fault of the appellant by relying on the case of Anmol Kumar Tiwari &Ors. vs. State of Jharkhand [(2021) 5 SCC 424].

ARGUMENTS ADVANCED BY THE RESPONDENT

• The respondent counsel submitted the Designated Committees were dissolved and the scheme was also closed after 30 June 2020 and therefore, the High Court correctly observed that there was no jurisdiction to extend the Scheme.
• It was also submitted that if the Scheme is extended then it would create many complications.
• The learned counsel concluded that no payment was made of settlement amount under the Scheme prior to 30 June 2020. The prayer of the petitioner was also rejected by the Commissioner and the High Court has also held the same without interfering with the decision taken.

ANALYSIS OF THE COURT

• The Court observed that the even before the Scheme 2018 came to be introduced, the appellant was subjected to proceedings under the IBC which commenced on 11 September 2018 and it continued up to 24 July 2020. Hence, correctly the petitioner could not have paid any amount during the period of moratorium. Therefore, the appellant was statutorily debarred from making any payment.
• It was also observed that the appellant approached the authority requesting them to accept the settlement amount immediately after the moratorium came to an end. This has been confirmed by the High Court but was rejected by the Commissioner.
• The Court therefore submitted that the High Court has erred in refusing to grant any relief to the appellant as prayed.
• The Court thereby, allowed the present appeal and quashed the judgement passed by the High Court.

CONCLUSION

The Court rightly pointed out that an appellant cannot be remediless just because he is restrained by law. It is very pity if a person is accused wrongly when he is willing to not do that wrong thing. A person should not be punished if he does not have the intention to commit the crime (mens rea).

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