IBC: No Moratorium on Personal Guarantor

The Apex Court on 13th August, 2018 upheld the judgment of the Delhi High Court in PR Commissioner of Income Tax v. Monnet Ispat & Energy Limited[1] that the provisions of the moratorium stipulated under section 14 of the Insolvency and Bankruptcy Code, 2016 (“ Code”) would override anything inconsistent contained in any other enactment, including the Income Tax Act, 1961. The Court quoted Section 238 of the Insolvency and Bankruptcy Code and concluded that “it is obvious that the Code will override anything inconsistent contained in any other enactment, including the Income-Tax Act.

An application u/s 7 of the Code was admitted at the National Company Law Tribunal (“NCLT”) against Monnet Ispat and Energy Ltd. where in the Principal Commissioner of Income Tax – 6 challenged the applicability of the moratorium order to the proceedings of the Income Tax Appellate Tribunal (“ITAT”) against the corporate debtor. The High Court of Delhi confirmed that an order of moratorium made by the NCLT under section 14 of the Code, would also apply to the proceedings and orders of the ITAT in respect of the tax liability of the assesse. Reliance was made on the Supreme Court judgment, Innoventive Industries Ltd. v. ICICI Bank and Anr.[2] wherein it was held that the provisions of the Code will prevail over any other law where a conflict exists by the bare perusal of the non-obstante provision contained in section 238 of the Code, which unambiguously provides that the Code will apply notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

The bench also referred to the decision in Dena Bank v. Bhikhabhai Prabhudas Parekh and Co.[3] wherein it was held that income-tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons.

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[1] Special Leave to Appeal (C) No(s). 6483/2018

[2] Civil Appeal Nos. 8337-8338 OF 2017

[3] (2000) 5 SCC 694