INTRODUCTION

Last year, Vodafone won an arbitration case against the Indian Government of amount worth Rs. 20,000 crores. There was this company Hutch. Vodafone in 2007 bought Hutch. There is a particular tax levied on the capital gain. Vodafone bought Hutch. Hutch got capital gain. Here Vodafone made payment to Hutch.

Legally, Vodafone if is making payment to Hutch; Vodafone will have to hold its capital gain and pay rest to Hutch. Now here the capital gain tax; which was supposed to be paid to Government was Rs. 22,100 Crore; which was not put on hold.

This matter went to the Permanent Court of Arbitration. It held that the taxation put here is wrongful; as there was breach of the guarantee of fair and equitable treatment to the Vodafone.

Background

In May 2007, Vodafone had bought a 67% stake in Hutch for 11 billion dollars. Here Hutch is gaining capital gain. Here instead of Hutch; Vodafone is supposed to pay the tax.

Vodafone contended that, Income Tax Act has no such provisions; and we are not liable to make the payment. Vodafone went to Bombay High Court; however, Bombay High Court ruled in the favour of Income Tax Department. Vodafone challenged it in the Supreme Court.

Supreme Court overruled it and held that Vodafone Group’s interpretation of IT Act, is correct. This ruling was passed in the year 2012. The then finance minister, Pranab Mukherjee, circumvented the Supreme Court’s ruling.

As Government was unhappy with the decision, it decided to amend the Finance Act retrospectively.  There was global backlash upon this decision. After much criticism, Government decided to proceed to amicably settle the dispute. It didn’t go well.

There was an investment treaty between Netherland and India. (Bilateral Investment Treaty – hereinafter referred as Treaty) in the year 1995. Vodafone invoked Clause 9 of the Treaty. This treaty sought to protect the interest of investors. This Court accordingly go to Permanent Court of Arbitration.

The Arbitration Tribunal decided that the retrospective change in the tax law is wrongful. Court also directed India to reimburse a sum of Rs. 40.3 Crore to Vodafone. Afterward, there seems to have a very limited scope now; to pursue the matter anymore.

The new notification

In order to settle the past disputes with the Vodafone, The Central Board of Direct Taxes on 13^th October notified “Relaxation of Validation (Section 119 of the Finance Act, 2012) Rules, 2021”. It prescribed the forms and conditions for the declaration; that has to be filed by the company if they decided to settle the case.

Government first of all brought law to scrap the taxes; which was demanded from the Vodafone. Now Government came up with this Rule to settle the dispute. Government clarified, that if any sum was collected as tax before under the 2012 amended IT Law; it will be refunded without any interest. Company also needs to withdraw all pending legal proceedings; in order to claim such benefit.

After this notification, Vodafone will have 45 days to approach the Government for the settlement.

Author’s Remarks

Article 51(c) of the Constitution seeks to respect the international treaties. The treaty abovementioned; became the major cause for it to go to international forum. The same could not again be challenged before the Supreme Court; as Article 131 of the Constitution, which clearly describe the Jurisdiction of Supreme Court put restraints here.

It clearly describes that if any dispute arises out of treaty, the Court will not have jurisdiction for the same. For the same reason, the scope of further dispute resolution became bleak. Respecting the DPSPs of Constitution and considering the restrictive provisions in the Constitution; Government had no other means; except to adhere to the Tribunal’s award.

Here, to minimize the damages, this rule was brought up. It will now be up to the company to decide on the settlement. If company decides to proceed with the dispute, the Government may have to remit the cost, to the Vodafone.

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In May 2011, the company was served a show cause notice demanding the service tax for the period from 2005-06 to 2009-10 on the basis that the company was required to pay the service tax on the gross value which includes the wages paid to the workers. Countering this, the company submitted that the wages clearly are the reimbursable expenses and since it was not retained, it cannot liable to service tax.

Considering all the facts and circumstances of the case, the court held that the period of dispute i.e., 2005-06 to 2009-10 and show cause notice was issued on 19.05.2011. It is also observed that the appellant has filed their ST-3 return covering the period October 2009 to March 2009 on 27.04.2010. As per the aforesaid facts the entire demand is beyond the normal period and falling under the extended period of limitation. As per the above discussion and findings which is supported by the various judgments on limitation. Therefore, the entire demand is time barred.

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Later, when the total income filed by the petitioner was verified, the AO found that the assessee has claimed the double taxation relief under Section 90 of the IT Act and admitted total income but claimed TDS of Rs.7.66,567/- in his return. For this, the petitioner was required to furnish the Tax residency certificate to claim the relied under Section 90 of the salary received outside India for the services provided outside India and the copy letter between the Employer and employee.

On such demand, the petitioner stated that he qualifies as a non-resident under Section 6(1) of the Act. With the same reason, the foreign allowance of Rs. 20,72,238 was not offered to tax in India in the income return as the same was received by him outside India for the services rendered outside India and shall not form part of total income under section 5(2) of the Act.

The tribunal, after considering all the submissions, directed the Assessing Officer to allow exemption under DTAA and held that it is a very hectic task to obtain the certificated from the foreign countries for the compliance of domestic statutory obligations. In such conditions, the assessee cannot be obligated to do impossible task and penalized for the same. If the taxpayer provides the circumstantial evidence in such cases, the requirement of Section 90(4) is to be relaxed.

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The deductions were claimed by the company before the Assessment officer through the statement filed with it which was accompanies by a Chartered Accountant’s report in the form 10DA. Also, the details concerning prior period expenses were also provided by the company. The Assessment officer denied to provide the two deductions claimed by the company and therefore, he assessed the assessee taxable income at Rs. 148,24,34, 100/- vide assessment order. On being unsatisfied with this order, the company approached the CIT with the appeal.

The CIT allowed the appeal and overturned the order of AO. The AO approached the tribunal in appeal wherein the tribunal stated that according to the impugned order, the CIT was right in law in entertaining the fresh claims made by the assessee, in respect of the claimed deductions under Section 80JJAA of the Act and the claim concerning prior expenses. According to the bench of Delhi HC, unless the tribunal states their clear view in the present matter, the remand cannot be called for. Therefore, the court quashed the judgement of the tribunal and sustained the fresh claims made by the company to be allowed by the CIT.

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According to Section 254 of the IT Act, Orders of Appellate Tribunal:

(1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub- section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the 2 Assessing] Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this. sub- section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard.

However, considering the facts at hand, the tribunal held that the order can be reviewed on the basis of such facts. They also find that reappreciation of facts and modification of the Tribunal’s order is nothing but review of ITAT order. U/s 254(2) of the IT Act, ITAT can only rectify the alleged mistakes which are apparent from record and cannot reappreciate the evidence and review its findings as held by the Hon’ble Bombay High Court in the case of CIT vs. Ramesh Electric & Trading Co. (1993) 203 ITR 497 (Bom.). Therefore, this M.A. is not maintainable and is accordingly rejected.

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After that, the impugned notices under Section 153A of the Act were issued to Dr. S. Gurushankar, while the impugned noticed under Section 153C of the Act were issued noticed under Section 153C of the Act were issued to M/S SR Trust. The petitioners then invoked the jurisdiction of 226 of Constitution instead of taking part in the assessment proceedings. The writ petition was admitted and interim stay was also granted and for vacating the same, the petitioner was also filed by the assessment authority.

On considering all the facts, the court held that the initiation of the impugned action cannot be said without any ground as it is based on a solid evidence. the court also took the contention of the petitioner into consideration where the submitted that if the jurisdictional fact itself is absent, it cannot be made open to the respondents to initiate proceedings under Section 153A and 153C of the Act. Though the petitioners have alternative remedies available under the statute, when the jurisdictional fact itself is absent, it is certainly open to the assessee to approach the court by filing the writ petitions.  

However, the court mentioned that Only after fully satisfying himself, the assessing officer chose to issue the impugned notices. If the petitioners have nothing to fear, they can as well place all the materials before the assessing authority for consideration. The Court is satisfied with the jurisdictional facts exist for assumption of jurisdiction under Section 153A as well as Section 153C of the Act. It does not find any illegality or infraction of procedure in the action initiated by the respondents. Therefore, the writ petitions lack merit.

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Section 54 of Income Tax Act: Exemption for Capital Gains

Many homeowners must sell their homes for a variety of reasons, including relocating to a new area, changing jobs, retiring, and so on. According to section 54 of the Income Tax Act, if a seller of a residential property purchase or constructs another residential property with that money, he or she is entitled to capital gains tax benefits.

Thus, under Section 54 of the Income Tax Act, an assessee is excluded from capital gains when he or she sells a residential property and buys or builds another residential property.[i] Since an individual needed to relocate for a variety of reasons, he sold his old home and used the money to buy a new one.

The seller’s goal, in this case, was not to make money by selling the old house but to find some other suitable home. It would be a disadvantage for the seller if he were to pay income tax on capital gains resulting from the selling of the old building. Section 54 provides relief from such a hardship. It provides tax exemption to a taxpayer who sells his primary residence and buys another primary residence with the proceeds of the sale.[ii]

Moreover exempts persons and Hindu Undivided Families (HUF) from paying tax on long-term capital gains resulting from the sale of a residential property if certain conditions are met. The section was created to alleviate the rigours of tax liability under Section 45 and to promote residential property investment.[iii]

A residential house selling is a capital asset sale, and the benefit is taxed as a capital gain. Property of any kind, movable or immovable, tangible or intangible, owned by the assessee for any reason is included in the scope of a capital asset under section 2(14) of the Income Tax Act. Assets are divided into two categories for capital gains purposes under the income tax act, based on how long they have been held:[iv]

• Short Term Capital Asset: A short-term capital asset is owned by a person for less than 36 months. From FY 2017-18 onwards, the 36-month criteria for immovable assets such as land, buildings, and houses have been reduced to 24 months.
• Long Term Capital Asset: Long-term capital assets are those that have been retained for more than 36 months. Movable property, such as jewellery and mutual funds, is not eligible for the limited duration of 24 months. These movable properties would be listed as a long-term capital asset if kept for more than 36 months, as previously stated.[v]

In the case of CIT v. Ananda Basappa,[vi] it was decided that the phrase “a residential house” should not be interpreted as referring to a single number. The assessee is entitled to a deduction under section 54 because he bought two residential flats that are next to each other and the contractor combined them into one unit.

The conditions under section 54 are:

1. Asset should be a long term capital asset.
2. A Residential House is a commodity that was sold. The income from such a house must be taxed as House Property Income.
3. A residential house should be purchased by the purchaser either one year before or two years after the date of sale or move. If the seller is building a home, he or she has an extra three years from the date of sale/transfer to complete the project. If the compulsory acquisition is required, the acquisition or construction period will be determined by the court.
4. India should be the location of the new residential building. The seller cannot seek the exemption if he or she buys or sells a home in another country.

The conditions mentioned above are cumulative. As a result, even though one of the conditions is not met, the seller is not eligible for the Section 54 exemption.

The Finance Act of 2019 amended Section 54 with effect from Assessment Year 2020-21 to expand the value of exemption in respect of investments made in two residential house properties. If the amount of long-term capital gains does not exceed Rs.2 crores, an exemption would be applicable for investments made by way of acquisition or development in two residential house properties.

Amount of Capital Gain Exempted under Section 54

The lower of the two is allowed as an exemption sum for a taxpayer under Section 54 of the Income Tax Act:

• Amount of capital gains on transfer of residential property or
• An investment made for building or buying a new residential property.

The remaining sum (if any) would be taxed in accordance with the income tax act.[vii]

In the case of I.T.O. v P.C.Rama Krishna,[viii] the assessee purchased two flats in the same house, one on the ground floor and the other on the third floor. Since the two flats were in the same house, it was agreed that the assessee could seek benefits under section 54.

In the case of Prem Prakash Bhutani v. ACIT,[ix] a capital gains deduction was permitted where the assessee purchased three flats in the same house. It was decided that the residential house must be a structure, and that section 54 does not require the structure to be built in a particular way.

In the case of Jt. CIT v. S.K.Jasani,[x] by installing an internal staircase, the assessee was able to turn two flats on separate floors into a residential unit. The exception under section 54 was allowed because the proceeds of the transfer were invested in the purchase of two flats within a short period of time. As a result, two flats were deemed to fall under the definition of “a residential building.”

Deductions under section 54 were permitted in Vyas (K.G.) v ITO[xi] when the assessee bought four flats on separate floors in the same house.

The exception under section 54 cannot be asserted if the assessee purchased seven houses in a row by seven different purchasing agreements. In the case of Krishnagopal Nagpal v. DCIT,[xii] the court reached this conclusion. The logic was that each row house could be used as a single unit independent of the others. As a result, a deduction can be provided for the purchase of one residential home.

Several self-occupied dwelling units that were contiguous and located in the same compound and within the common boundary and had unity of structure should be considered as one residential home, according to the decision in Shiv Narain Chaudhari v. CWT.[xiii]

In Shri Humayun S. Rangila v. ITO,[xiv] the assessee sold two flats and bought two new flats with the proceeds. The exemptions would apply to any number of residential houses as long as other section 54 requirements are met, it was decided. The selling of any number of residential properties will be exempted as long as there are corresponding investments. The total capital gain is impossible to quantify. The deduction must be determined for each combination of sale and expenditure that benefits the assessee the most. In Rajesh Keshav Pillai v. ITO,[xv] the assessee sold two flats and used the capital gain from the sale to buy two more flats. The exception can only be sought on a one-to-one basis when more than one house is sold and purchased, and each package of

[i] Section 54 of the Income Tax Act: Capital Gains Exemption, https://tax2win.in/guide/section-54-of-income-tax-act

[ii] Section 54 Exemption for Capital Gains Arising on Transfer of Residential House Property, Income Tax Department, https://incometaxindia.gov.in/tutorials/16.%20exemption%20under%2054.pdf

[iii] Transfer of Residential Property: Capital Gains and Exemptions under Ss. 54 & 54F, http://saprlaw.com/taxblog/s54.pdf

[iv] Section 54 of Income Tax Act – Capital Gains Exemption, https://cleartax.in/s/section-54-capital-gains-exemption#:~:text=Under%20Section%2054%20the%20IncomeTax,or%20construction%20of%20residential%20property.&text=The%20seller%20cannot%20buy%20or,abroad%20and%20claim%20the%20exemption.

[v] Ritesh Sonavane, What is a Capital Asset? And What are Long Term and Short Term Capital Assets, https://blog.kohinoorpune.com/what-is-a-capital-asset-and-what-are-long-term-and-short-term-capital-assets

[vi] (2009) 223 CTR (Kar) 186.

[vii] Supra Note 1.

[viii] (2007)107 TTJ (Chennai) 351.

[ix] 110 TTJ (Del) 440 ( 2007).

[x] Reported in BCAJ, August, 2005

[xi] 16 ITD 195 (Bom.)(1986).

[xii] (2004) 82 TTJ (Pune) 481.

[xiii] (1977) 108 ITR 104.

[xiv] ITA No.1239/M/2010 Mumbai.

[xv] 7Taxmann 11 (Mum) (2010)

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What Section 17(3) of Income Tax Act, states?

Any payment received or due in addition to the salary or wages from your employer; is profit in lieu of salary. Section 17 (3) of income tax act defines profit in lieu of salary as follows;

1. the amount of any compensation due to or received by an assessee from his employer or former employer; at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;
2. any payment [other than any payment referred to in clause (10), [clause (10A),] [clause (10B),] clause (11), [clause (12) [, clause (13)] or clause (13A)] of section 10], due to or received by an assessee from an employer or a former employer or from a provident or other fund [* * *], to the extent to which it does not consist of contributions by the assessee or [interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

Income from Salary

Compensation due/received from the employer/former employer by an assessee; as a result of loss/termination/resignation from employment.

Compensation accrued or received, due to modification of the employment terms.

If company takes keyman insurance in assessee name; and assessee received money as a result of such policy, that amount will be taxable.

During prejoining/post termination, if employee received payment from employer/former employer, it will be taxable under this head.

Any other amount received from employer will be treated as profit in lieu of salary unless; and until that particular amount is specifically exempted under any section of the income tax act.

Employer-Employee Relationship

In order to bring the taxability under this head of ‘Salary’, it is necessary to establish an Employer-Employee Relationship. In short, if a transaction has to be put under the lense of ‘Income from Salary’; for the purpose of taxation. It becomes mandatory to prove that the transaction was the result of; employer-employee or master-servant relationship.

In Dharan Chemicals work ltd. v. State of Saurashtra; Court held that the Prima Facie test for Relationship; is the existence of master’s right to supervise and control work of his servant.

In Summons v. Heather Laundry Company, Court held that Greater control of power will be there if there is an existence of service contract. If there is greater independence then higher chance is of professional service.

In Laxminarayan v. Government of Hyderabad, Court held that, the Status of agent is much like independent contractor. He undertakes work for principle and he earns commission/remuneration based on his work. He does the work in his manner and the earning is not counted under the heading of ‘income under salary’.

In CIT v. Navtoj Bai Tata, Court held that:

• Merely having office doesn’t prove the existence of Employer-Employee Relationship.
• A director may have office of his own but he is not servant or employee of the Company
• Director’s earning is taxable under Section 56 of the Income Tax Act. (Income from other sources)

In Ram Prasad v. CIT, Court held that if contractual relationship of master-servant is created between company and managing director; his earning will be taxable under ‘Salary’.

Income of Advocate General

In CIT v. Govinda Swaminathan, Court held that Advocate General is not an employee of Government. He serves a professional service. He holds office on Governor’s wish. His earning will be taxable under the head of ‘Profits and Gains from Business and Profession’.

Income of Judges

In Justice Nandan Agarwala v. UOI, Court held that, the Judge’s salary is taxable under the head ‘Salary’, even if there exist no employer of a Judge. Article 125 and 221 of the Indian Constitution, express their earning as Salary.

Income of MLAs, MPs, etc.

The income of MLAs, MPs, etc, comes under the heading of “Income from other sources”.

Movie Actors / Actresses

The employment of Actors and Actresses are based on Contracts. Their employment is of particular tenure.

In case of CIT v. Mrs. Durga Khote, where the actress entered into various Contracts for the relevant year. Contractually she would become free from any obligations, if the terms of the Contract ends. Court held that, based on the nature of work, she will charged tax on her earning from profession and not from salary.

Difference between Salary or From Business

The question whether a particular income is from “salary” or is “income from business” is not always free from difficulty. At times the line between “business” and “employment” becomes rather thin, and the question has to be determined, on such material as may be available, whether the relationship between the assessee and the person from whom the money is received is that of a servant and master or that of two independent contracting parties.

The basic test

Several tests have been laid down as an aid to the decision of the question. In a contract of service there are three basic concepts which must be borne in mind. A servant does the work for his master and the work done by him is, therefore, not his own.

The control and supervision must necessarily be of the master, and the servant is bound to work according to his directions. The servant works for remuneration which may be paid in lump sum or on a commission basis or partly one and partly the other. The relationship of master and servant being, however, the result of a contract, it is possible to vary any or all the terms mentioned above by agreement.

But the basic idea of servant doing the work of the master for remuneration and under the supervision or control of the master is always there. On the other hand, a person carrying on a business cannot be said to be doing the Work of another; he has an interest in the business and can be said to be doing his own work.

He is entitled to the profits and is liable for the losses, and he also has a discretion to do his work in his own way. Even in the case of a business agreement, it is possible to vary all or any of these terms by contract and then the question whether it is a business activity or a contract of service becomes more difficult a question, to be decided by taking into account all the facts and the totality of circumstances

FAQs

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Introduction

In India, before the advent of IBC, the Insolvency Resolution Process involved several legislations. There was no one single consolidate law to deal with Corporate Insolvency. These statues include the Sick Industrial Companies Act, 1985[1]–SICA, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002[2]– SARFAESI, DRT Act 1993[3] and the Companies Act 2013[4].

Broadly these laws provide for the dissimilar process of asset realization, seizure and debt structuring in order to facilitate the fulfilment of the outstanding debts.[5] However, due to the presence of so many legislations, the efficiency in the Insolvency Process took setback. The process was not efficient and it used to have inordinate delays. This gave rise to the immediate need to renovate the insolvency regime.

Applicability of different legal avenues an laws have led India to witness a huge piling of NPAs- Non-Performing Assets. Consequently, a long waiting period for creditors to recover their money from defaulters. The Insolvency and Bankruptcy Code is an attempt at completely reform the disintegrated corporate insolvency framework.

It aims to restore faith in creditors for speedy disposal of their cases. The Code aims to consolidate existing insolvency and debt recovery laws for the individuals and corporate entities into a single piece of legislation. This code has unified the statutes related to enforcing creditors’ rights and attempted to streamline the manner in which the revival of Debtor Company can be made without adversely affecting the rights of creditors.

Applicability of the Code

This code provides the creditors with a mechanism to initiate the Corporate Insolvency Resolution Process [CIRP] in the scenario in which the corporation defaults in repaying its debt. The code makes a distinction between Financial Creditors and Operational Creditors.

Financial Creditors

A financial creditor is the creditor whose relationship with the debtors is of pure financial contract[6]. Recent reforms in the code have tried to address the interests of the homebuyers through treating them as the financial creditors for the purpose of this code. As per the recent ordinance- the amount raised from the buyers under the real estate project – (a buyer for the commercial or residential under-construction property) is to be treated as the “financial debt” because such amount has the effect of commercial borrowing[7].

However, there is no clarification on whether such buyers/allottees are to be treated as unsecured or secured financial creditors. Such classification may be possible through the agreement entered into corporate debtor and homebuyers. In the absence of such clarifications, there will be uncertainty regarding their priorities in receiving dues from the proceedings of insolvency.

Operational Creditors

An Operational creditor refers to a person to whom an operational debt is owed and includes any person to whom such amount has been legally assigned or transferred for goods or services done by them. Vendors and suppliers, employees, government etc. are examples of operational creditors.[8].

The Institutional framework of the Code

The creation of several new institutions has been proposed by the code which possesses specialized functions in the insolvency resolution process. The IBC has created the supervisory and regulatory body called as IBBI- the Insolvency and Bankruptcy Board of India, which has the overall responsibility to effectively operationalize, implement and educate of Insolvency and Bankruptcy Code.

The IBBI has the further responsibility to smoothen functionality of IBC through framing rules/regulations and studying the practical implications to overcome any hurdle or difficulty. The Code envisions the creation of a core of professional insolvency practitioners which are known as Resolution Process- RP, who is tasked with the overseeing certain aspects of the resolution process.

The IBC also sets up IPA- Insolvency Professional Agencies which are professional bodies who will regulate the RPs.  Individual RPs are required to be registered with the IPA which are empowered to conduct exams, layout code of conduct and certify professionals.

Information utilities provided by the Code

The IBC provides the establishment of the information utilities[9] which are tasked with the maintenance, collection, collation, supply and provision of financial data to the business, adjudicating authorities, financial institutions, insolvency professionals and other stakeholders.

It thereby functions as a comprehensive database on corporate debtors which are of financial in nature. For operational creditors, it is options to provide financial information to information utility. This information includes overall debt, liabilities and defaults which is to be sourced from the creditors through the utility service.

It is a positive step towards having transparency where all security interest which is created on the assets are reported to the utilities[10], by financial creditors[11]. Such utilities’ records have evidentiary value in the insolvency resolution process and it can assist various stakeholders to arrive at the best resolution of distressed companies.

However, the IBC is silent on the interlinking and networking of multiple utilities. NeSL- National e-governance Service Ltd has become the first utility through IBBI.

The framework of the IBC

All proceedings under the Code against the corporate entities is to be adjudicated by the National Company Law Tribunal which has been designed as a special forum to tackle all aspects of the insolvency resolution proceedings.

The National Company Law Tribunal is refereed as the sole Adjudicatory forum in respect of the corporate insolvency and no other tribunal or court can stay action initiated through the NCLT.  Appeals from the orders of NCLT lie before the NCLAT- National Company Law Appellate Tribunal[12].

All appeals against the NCLAT lies with the Supreme Court of India.[13] The IBC has explicitly ousted the jurisdiction of the Civil courts with respect to the matters addressed by the IBC.[14] In addition to that, it is now well settled that the Limitation Act is applicable to the proceedings under the IBC[15]. 

When it is not viable of resolution of debts or restructuring, the NCLT can order the dissolution of the company. It is a two steps process. First is revival and second is liquidation.

Judicial developments of The Insolvency and Bankruptcy Code 2016

With almost 3 years since the commencement of the IBC-2016, there have many challenges in implantation of the code. However certain effective amendments coupled with the constructive interpretation by the judiciary have helped to eliminate such issues and challenges.

IBBI- Insolvency and Bankruptcy Board of India which is the supervisory and regulatory body of the IBC has also done a commendable job in regulating space and proactively spreading the awareness. Many important judgements have been pronounced throughout just 3 years.

Certain landmark judgements of the Supreme Court has attempted to ensure that spirit of the code is given priority over the procedural requirements. Through such judgements, proper interpretation of the code is done along with new insights and different point of view.

IBC- Eligibility of the bidders

Section 29A of the IBC provides for the eligibility criteria which is applicable to any person/entity and resolution applicant acting in concert or jointly provided that such resolution applicant fulfils certain requirements. In the case of “ArcelorMittal India Private Limited & Others v. Satish Kumar Gupta & Others”[16], the SC has explored Sec 29-A[17] of the Insolvency and Bankruptcy Code and it was found that Sec 29-A requires lifting of the corporate veil too.

According it was held by the Supreme Court that if on the basis of the facts of the case it can be inferred that certain people were acting jointly in such manner as to impute that such people were acting mutually then such people would fall under the category of “person acting jointly”.

In addition to that while IBC does not specifically define the phrase “person acting in concert”, the Supreme Court by taking into account existing laws and precedents held that such phrase shall have the similar meaning of the term as assigned by the SEBI Takeover Code.

In this case, the further meaning of terms such as “control” and “management” under sec 29A was discussed by the Supreme Court of India. It was held that “control” will cover only proactive or positive control and not any sort of reactive or negative control. It was further held that “management” will cover the de jure management of the corporate debtor.

In addition to that the issue that whether a resolution applicant can avoid falling within the criteria for ineligibility under sec 29-A was examined by the Supreme Court. The SC applied to look back approach and it was held that along with the present credentials of the resolution applicant on the date of submission of plan can be considered, his past actions which are relevant and proximate to the current resolution plan can also be considered.

Invalidation of fraudulent, extortionate or preferential transactions

Through judicial interpretation, Insolvency and Bankruptcy Code has conferred powers on the Adjudicating Authorities to reveres or nullify the effect of certain transaction which are carried out for the purpose of circumventing or undermining any provisions of the Code.

In the case of “IDBI Bank Ltd vs Jaypee Infratech Ltd”[18], it was held by the NCLT Allahabad that mortgages created by the JIL- “Jaypee Infratech Ltd” in favour of the creditors of its holding company JAL- Jaiprakash Associates Ltd amounts to the fraudulent and preferential undervalued transactions.

Upon finding that such transactions were preferential, undervalued and fraudulent, the NCLT Allahabad ordered that to release encumbered lands from holding company JAL- Jaiprakash Associates Ltd’s landers and directed to vest them back in the JIL- “Jaypee Infratech Ltd”.

Following factors were taken into account by the NCLT to reach an abovementioned conclusion.

1. Making mortgage in favour of the holding company JAL’s landers, in beneficial position or interest in the case if JIL’s assets are distributed as per the distribution scheme under sec 53 [19] of the IBC.
2. Such mortgage was not in the ordinary course of business of Jaypee Infratech Ltd.
3. Jaypee Infratech Ltd did not have any benefit from such mortgage in any manner.
4. Jaypee Infratech Ltd created a mortgage in favour of JAL without any counter-guarantee or any consideration.

Insolvency code is a Special Law which has an overriding effect

In the case of “Jagmohan Bajaj v. Shivam Fragrances Pvt. Ltd & Anr”[20], it was held that initiating of CIRP can’t be defeated by taking recourse to the pendency of internal dispute between Corporate Debtor’s Directors on the allegations of mismanagement and oppression.

IBC is a special law with an overriding effect[21]. Thus it was held that rights of financial creditors can’t be made docile to pending proceedings as per Sec 241[22] and Sec 242[23] of the Companies Act 2013. 

Challenge of Arbitral Award

In the case of “K.Kishan v Vijay Nirman Company Pvt Ltd”[24], it was clarified by the Supreme Court that the operational creditors can’t use IBC for extraneous considerations, as a substitute for debt enforcement procedure or prematurely or extraneous considerations or as a substitute for the debt enforcement procedure.

It was held that petition filed under sec 34 of the Arbitration and Conciliation Act -1996 against the arbitral award is a stage of pre-existing dispute which concludes its initial stage in the form of award and it remains continue till the date of final adjudicatory process concluded under sec 34 and 37 of the Arbitration Act.

Therefore it was held that the proceedings under IBC can’t be initiated till all mechanism available through statutory appeal have been exhausted by the parties.

Prevalence of the IBC over the Income Tax Act 1961

The High Court of Telangana, in the case of “Leo Edibles & Fats limited vs The tax recovery officer- IT Department, Hyderabad”[25], dealt with the issue of settlement of dues pending before the Income Tax Authority during the liquidation of the debtor company. 

It was held by the High Court that in the event where assessee company is under the liquidation process as per provisions of the Insolvency and Bankruptcy Code, the IT authority can’t claim the priority of recovering dues under the Income Tax Act. It was further held by the High Court that assets which are under the attachment can no longer create an interest in favour of the IT authority by making them secured creditors under the Insolvency and Bankruptcy Code-2016.

Apart from that in respect of moratorium, the High Court ruled that proceedings initiated under the IBC confirm that any previous pending litigation, initiated before the commencement of the insolvency/bankruptcy proceedings are suspended.

No necessity to accept only matured claim by resolution professional

In the case of “Andhra Bank vs M/s F.M. Hammerle Textile Ltd”[26], it was held by the NCLAT that it is not mandatory that all the claims submitted by the creditors need to be matured on the date of initiation of the Corporate Insolvency Resolution Process.

Even the for the debt which is due in future upon its maturity, the “Operational Creditor” or “Financial Creditor” or “Unsecured Creditor” or “Secured Creditor” can file such claim. Rejection of claim cannot be made by the Resolution Professionals on the grounds that only claims which are matured can be entertained and others can’t be looked into. Thus in the total liabilities of the corporate debtor, un-matured claims including uninvoked guarantees can be included[27].

Moratorium under Section 14 of the IBC applicable to the personal guarantor also

In the case of “State Bank of India vs V. Ramakrishnan & Anr”[28], it was held that under Sec 14 of the IBC- moratorium does not intend to create bar against assets of the guarantors for the recovery of debts from the corporate debtor.

The scope of the sec 14 of the IBC for moratorium can be restricted to the assets of the corporate debtor only. It was held that even in the case of personal guarantee- principles of contractual guarantee is to be respected during the moratorium.

Equality in making payments to the Financial Creditors

In the case of “Binani Industries Limited v. Bank of Baroda & Another”[29] it was held by the NCLAT that the resolution plan submitted by the Dalmia Company was discriminatory in nature because of unequal treatment of similarly put operational and financial creditors.

In addition to that NCLAT dealt with the importance and priority of maximization of assets over the procedural compliance of IBC. Therefore it was ruled by the NCLAT that a resolution plan making unintelligible discrimination between creditors on similar footing would result in invalidation of such resolution plan by the Adjudicatory Authority.

Committee of creditors can’t initiate liquidation without inciting expression of interest

In case of “Vedika Nut Crafts Pvt Ltd”[30], it was held by the NCLT bench that the committee of the creditors can’t initiate liquidation process before inviting Expression of Interests[31] by the prospective/ strategic resolution applicant.

Such a decision will be arbitrary and would violate fair play and legal provisions. It is the mandatory duty of the Resolution Professionals to invite Expression of Interests because in absence of that there would be no possibility of any prospective applicant to make an offer.

NCLT under IBC doesn’t have jurisdiction to examine the legality of a foreign decree

In the case of “Usha Holdings L.L.C. vs Francorp Advisors Pvt Ltd”[32], NCLAT held that Insolvency resolution is not litigation and Adjudicating Authority under IBC is not Tribunal or court. Accordingly, NCLAT doesn’t have the jurisdiction to decide whether the foreign decree is proper or legal.

In this case, an appeal was filed against the order of refusal to admit a petition under Sec 9 of the IBC. The appellant’s claim for being an operational creditor was rejected on the basis of money decree passed by the US Court to which the company was complying with.

Recognition of Rights of Operational Creditors

In the Case of “Mobilox Innovations Private Limited (“Mobilox”) versus Kirusa Software Private Limited”[33], the Supreme Court of India has settled the issue of the interpretation of the term “dispute in existence”[34] under the IBC-2016.  Here the question was raised before the Supreme Court as to the interpretation of the code as to what would constitute dispute when it comes to the debts which is owed to the operational creditors.

It was held by the Supreme Court that for the existence of dispute all that NCLT is required to see is whether there is any plausible contention which makes it necessary for further investigation and that such dispute is not the shaky legal argument or just the fact uncorroborated by the evidence.

Delayed claims

In the case of “Speculum Plast Pvt. Ltd v PTC Techno Pvt. Ltd[35]” the NCLAT held that the provisions of the Limitation Act shouldn’t apply to the proceedings initiated under the code. It was held by the NCLAT that for the proceedings under the code the Limitation Act should not apply.

Further, it was clarified by the NCLAT that in the scenario where an application is filed under “sec 7” [36] or “sec 9”[37] of IBC after a long delay, NCLT will provide an opportunity to the applicant under above-mentioned sections to provide an explanation for such delay and before rejecting a belated application any negligence on the part of an applicant can be taken into consideration.

However, it was specifically clarified that the same opportunity won’t be provided to the applicant filing an application under Sec 10 of the code for initiating insolvency resolution process by the corporate debtor against itself in case there is no specific debt or claim. In the case of a claim, it was held by the NCLT that it is the Committee of Creditors who will decide whether such a claim after a long delay can be accepted or not.

If the creditor feels aggrieved by such decision, he can apply to the NCLT for the relief. However, this specific relief for limitation is applicable only on the claims before initiation of the IBC. Through the amendment in 2018[Ins. by Act No. 26 of 2018, sec. 34 (w.e.f. 6-6-2018] sec 238-A was inserted in code which provides for the application of limitation to the code.[38]

Thus this move has cleared all litigations around the country regarding the applicability of the limitation to the IBC.

Certificates for Operational creditors

In the case of “Macquarie Bank Limited v Shilpi Cable Technologies Limited”[39], it was held by the Supreme Court that under sec 9(3)(c) of the Code, for operational creditor the requirement to provide a certificate from the financial institution is not a mandatory and only directory.

The second issue which was touched by the Supreme Court was whether a demand notice of unpaid operational debt can be issued by a lawyer on behalf of the operational creditor?

The Supreme Court answered in affirmative and further held that a court must endeavour to interpret the IBC in a manner that would fulfil its objectives without creating major inconvenience for the innocent parties.

Timeline for rectification of defects

In the case of “JK Jute Mills v M/s. Surendra Trading”[40], it was held by the NCLAT that prescribed period of 14 days for Adjudicating Authority requiring them to pass such order is directory however the period of 7 days which is given to the operational creditor or applicant to rectify the defects in the application is mandatory.

However, it was held by the SC that such period of 7 days to rectify the defects in the application by the operational creditor is also directory and mandatory. On the other hand, the SC has clarified that in the case where such defect is not removed within 7 days, it is mandatory for the applicant to file an application and to show sufficient grounds for the delay due to which objections were not removed within 7 days.

This ruling providing time limit of 14 days for adjudicating authority and 7 days for operational creditor only directory can stretch the timelines in the insolvency process. However, recognition of time as an essence might be helpful to avoid unnecessary delay. It is yet to see whether this ruling will provide fairness or open a way to use it as a tactic for delaying insolvency proceedings.

Analysis of the evolution of IBC through Essar steel judgement

In a recent judgement of “Committee of Creditors of Essar Steel India Limited through Authorised Signatory vs. Satish Kumar Gupta & Ors”[41], the Supreme Court has clarified certain core issues regarding Insolvency and Bankruptcy Code, 2016 specifically related to Corporate Insolvency Resolution Process (hereinafter referred to as ‘CIRP’). The present research paper attempts to encapsulate the core of the judgement which has evolved the IBC in a specific manner. The crux of the judgement is as follows:

Jurisdiction of Appellate tribunal and adjudicating authority

In this judgement, the Supreme Court has clarified the scope of judicial review which can be exercised by the Adjudicating Authority and held that it is confined within the ambit of “Sec 30(2)”[42] of the IBC while on the other hand scope of review by the Appellate Tribunal was held to be within the grounds which are provided in “Sec 32”[43] of the IBC read with Sec 61(3).

For Adjudicating Authority it was observed that it can’t exercise equity or discretionary jurisdiction outside the ambit of Sec 30(2) of the IBC in the case where the resolution plan is put before Adjudicating Authority.

It was emphasised by the Supreme Court that the ultimate discretion regarding how much to pay and what to pay to each class or subclass of creditors lies with the COC-Committee of Creditors. It was however with a caveat that the decision of the committee of creditors shall reflect the fact that it has taken into consideration of requirement that the corporate debtor to keep going as a concerned party during the resolution process.

Meaning of that is that COC requires to maximize the value of corporate debtor’s assets and similarly on the other hand interest of all stakeholders which includes operational creditors needs to be considered.

Further, it was observed by the Supreme Court that in such cases where nothing is paid to the operational creditors or the minimum value/ liquidation value which is in most cases is nil after all secured creditors are paid, would not maximise the value of assets of corporate debtors or balance the interest of stakeholder if running of business becomes impossible.

Further, it was held that the judicial review by the Adjudicating Authority includes the examination of resolution plan and to determine that whether such resolution plan approved by the committee of creditors has met the conditions required under Sec 30(2) of the IBC.

Further as mentioned in Sec 30(2) judicial review would include keeping check that such resolution plan submitted by the COC doesn’t contravene any other law for the time being in force including the provisions mentioned in IBC as they are also provisions of law time being in force. If it is found by the adjudicating authority that there is a breach of any condition mentioned as above, it may return the resolution plan to the COC and compel them to re-submit such resolution plan after satisfying above-mentioned criteria.

Equitable treatment to creditors

It was categorically stated by the Supreme Court that equitable treatment is to be applied to similarly situated creditors and such equitable principle can’t be stretched to treat unequal equally.

Such equitable treatment is to be rendered to each creditor based on their class to which they belong to whether unsecured or secured, operational or financial.

Further, it was held that there is no law to not to approve the resolution plan only on the ground that it is unjust or unfair to a class of creditors as long as the interest of each class has been taken into considered and looked into.

The validity of sub-committee constituted by Committee of creditors

With regard to the exercise of Committee of Creditors’ powers it was held by the Supreme Court that such powers which have a serious impact on the running of the business of the corporate debtor, such powers shall not be delegated to any person as per provisions of sec 28(1)(h) of the code.

Also for the approval of resolution plan under Sec 30(4), the same also can’t be delegated to any other person as it is the only committee of the creditors who have been vested with the power to take such decision which it needs to take itself.

It was clarified by the Supreme Court that appointment of sub-committees can’t be done for the purpose of performing administrative or ministerial acts, or for the negotiating with resolution applicants provided that such acts are ratified and approved after due analysis by the Committee of Creditors.

Extinguishment of undecided claims and personal guarantees

It was made clear by the Supreme Court regarding the effect of approving of resolution plan on such claims of the creditors who did not submit their claims before the RP- Resolution Professionals within the specific time period provided under the code.

It was laid down by the Supreme Court that once under Sec 31(3) of the IBC resolution plan is approved by the committee of creditors it shall have a binding effect on all stakeholders and guarantors. It was held by the Supreme Court that once a resolution plan by the successful creditor has been accepted, he can’t suddenly face the challenge of undecided claims thereafter. Such an act would throw a prospective resolution applicant who has taken over successfully business of corporate debtor into the uncertainty of claims.

All such claims are required to be submitted before and decided by the Resolution Professionals in order to make aware a prospective resolution applicant exact amount to be paid to successfully take over and run business of the corporate debtor.

The National Company Law Appellate Tribunal/ the Appellate Tribunal in its judgement also rejected rights of the creditors against the guarantees which were extended by promoters or group of promotors of the corporate debtor. However such decision was overruled by the Supreme Court on the ground that it was violative of Sec 31(1) of the IBC and Supreme Court’s ruling on “State Bank of India vs V. Ramakrishnan”[44]

Apart from above, it was argued by the guarantors of the corporate debtor that the rights of subrogation can’t be extinguished by the resolution plan. It was observed by the Supreme Court that it is difficult to accept the contention that part of the resolution which provided that on an instance of subrogation claims of guarantors extinguished do not apply to the directors of the corporate debtor.

However, in respect of the present case, it was clarified by the Supreme Court that it is refraining from stating anything which might have an effect on the pendency of litigation due to invocation of such guarantees.

Utilization of profits of the corporate debtor

It was held by the National Company Law Appellate Tribunal that the profits of Corporate Debtor during the process of Corporate Insolvency Resolution Process shall be utilized to pay off creditors of the Corporate Debtor. However, the Supreme Court overturned the decision and held that after the consented proposal is approved by the COC, such profits won’t go the creditors.

The constitutional validity of Section 4 of the IBC (Amendment Act) 2019

Constitutional Validity of Sec 4 of the IBC (Amendment Act) 2019 hereinafter referred to as Amending Act -2019 was under constitutional challenge before the Supreme Court.

Sec 4 & Sec 6 of the IBC Amending Act, 2019 brought the mandatory time period of 330 days[45] for completion of Corporate Insolvency Resolution Process failing of which the liquidation process of the corporate debtor would be initiated.

It was observed by the Supreme Court that time period of legal proceedings should not be such which would harm a litigant in the case where tribunal itself would be unable to take up the case within the specified period without fault of the litigant.

It was further held that mandatory deadline provision without such exception would violate Art-14 and Art 19(1)(g) of the Indian Constitution. Because of that, the Supreme Court left sec 4 of the Amending act intact and only struck downed the mandatory provision for being violative of art 14 of the Indian Constitution.

It was held that its restriction was excessive and unreasonable which hampers applicant’s right to carry business, as per Art 19(1)(g) of the Constitution. 

Clarification of effect of such declaration was made and it was laid down that in ordinary case the time taken in Corporate Insolvency Resolution Process must be within the limit of 330 days from the date of commencement of insolvency proceedings including extensions period and the time period in legal proceedings.

However as per the facts of the case if it can be validly shown that only a short period beyond 330 days is required for completion of CIRP and it is in the interest of all stakeholders that instead of liquidation corporate debtor is put back on its feet and the delay in legal proceedings is due to factors which are beyond controls of litigants before the Appellate Tribunal or Adjudicating Authority or large part of such factors are attributable to the delayed process of Appellate Tribunal or Adjudicating Authority itself.

It was held that, in such scenario, time limit of 330 days can be extended.

Disputed claims before resolution professionals

In this case, the Resolution Professionals admitted claims of certain creditors at a notional value of INR 1 on the basis that various disputes were pending before many authorities in respect of the said claim/amount.

However, the Adjudicating Authority and even the Appellate Authority in appeal held that Resolution Professionals are required to register the entire claim.

However, the said decision by the Appellate Authority was set aside by the Supreme Court and it was held that Resolution Professionals were correct in admitting claim at an only notional valuation of INR 1 because of pendency of numerous cases with respect to such claims.

Conclusion and Recommendations

The IBC 2016 is a vital reform which will make it easier to do business in India. The Code will lead to the availability of the credit, balancing the interest of all stakeholders and promote entrepreneurship by amending and consolidating laws related to insolvency resolution of individuals, partnership firms and corporate entities and for maximization of value of assets of the corporate debtor.

The Insolvency and Bankruptcy Code promises to facilitate faster and better debt recovery mechanism and to make it easier to wind up the failing business in the country. The Code is a revolutionary step as through it the credit market is going to be transformed which was malfunctioning due to malpractices and various other problems. The entire code will be implemented through NCLTs and DRTs.

Insolvency and Bankruptcy Code is one of the best reforms implemented by the Indian Government. Firstly the appropriate result needs to be within 330 days. Prior to amendment in IBC, the requisite period was of maximum 180 days which would further allow only one-time extension of 90 days from the date of commencement of insolvency proceedings.

However, it was not practically possible for CIRPs, to conclude all the proceedings within 270 days. This was one of the lacunas of the code which was rectified through 2019 amendment. However, the amendment provided mandatory completion of the proceedings within 330 days and 90 days for transitionary measure after which there will be a risk of liquidation.

This was also acting against the interest of several stakeholders due to delay being caused by the adjudicating authority. Thus in Essar Steel Judgement, the Supreme Court struck down the mandatory provision. However, it now becomes the duty of the Adjudicating and Appellate Authority that time-line of 330 days is extended only in exceptional cases.

Secondly, it is the creditors whose money is at stake and thus Code provides the Committee of Creditors powers to take vital decisions concerning the practicality of running of business and resolution process. 

Thirdly that it is the NCLT which should be judging viable maters of fairness and priority shall be given to the Insolvency Professionals. The IBC aims to justify procedure and process for insolvency and bankruptcy. It intends to increase creditors’ assurance in Indian Market and for that advance procedure for recovery of debts.

Though Code is in its initial stage it has attempted to bring changes through various amendments and have attempted to rectify lacunas. Initially, under the code, it was uncertain that whether amalgamation, merger or demerger can be included under a resolution plan. After 2019 it is now clarified that the resolution plan can include amalgamation, merger or demerger.

The Government has brought many amendments in Insolvency and Bankruptcy Code 2016 to make it an effective instrument to deal with insolvency proceedings. For example, initially, criteria to become Resolution Professionals were not defined and now they are very well defined.

Another example of the needful amendment is a requirement for approval of resolution plan by 75% of Creditors which is now reduced[46] to 2/3rd or 66%. Because initially, only 26% of dissenting creditors could take the company into liquidation.

However, one thing which is not changed is the minimum value of default which can trigger the insolvency proceedings which is just a sum of Rs. 1, 00,000/- because in a corporate regime any small vendor under late-payment or non-payment of dues can initiate Insolvency proceedings although such late payment might be due to temporary disturbance in the cash-flow.

This will increase the caseload of NCLT. To prevent this minimum threshold value to file a suit shall be increased and also no. of benches for NCLT shall be increased. Apart from it to prevent multiplicity of proceedings all powers at initial stage shall lie to NCLT only through IBC and High Court shall have only supervisory power through appeal.

No case shall be allowed to file in different form such as DRTs unless NCLT has adjudicated or rejected the petition. An attempt shall be made to bring all laws regarding debt recovery into single umbrella legislation of Insolvency and Bankruptcy Code.

Though Insolvency and Bankruptcy Code has certain lacunas, the Government has played a pro-active role in bringing amendment in this code. Through the introduction of this code, the Indian Corporate Market can see the hope for a better future for creditors as well as motivation for new investors. Further effective implementation of this code will result into lesser pendency of insolvency of the suit. The quick judicial decision would further result in maximization of assets of the corporate debtor and thus would be more beneficial to creditors.

Author: Nisarg Shah

[1] Available at http://legislative.gov.in/actsofparliamentfromtheyear/sick-industrial-companies-special-provisions-act-1985

[2] Available at http://legislative.gov.in/sites/default/files/A2002-54.pdf

[3] Available at http://www.drat.tn.nic.in/Docu/RDDBFI-Act.pdf

[4] Available at ebook.mca.gov.in/default.aspx

[5] It is to be noted that creditors even have right to approach the Arbitration Tribunal or Civil Courts for contractual obligation.

[6]As per Sec 5(7) of IBC “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;

[7] As per amendment in sec 5(8) of the code-through Ordinance of 2018 for Insolvency and Bankruptcy Code- any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;  [Explanation. -For the purposes of this sub-clause, – (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]

[8] As per Sec 5(20)of IBC “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;

[9] As per Sec 210 of the IBC, these utilities needs to be registered with the IBBI

[10] See Sec 215 (2) of the IBC

[11] See Sec 215(3) of the IBC

[12] As per Section 61, of the IBC

[13] As per Section 182, of the IBC

[14] As per Section 231, of the IBC

[15] Section 238A, Insolvency and Bankruptcy Code, 2016 (As amended by the Insolvency and Bankruptcy (Amendment) Ordinance, 2018.

[16] CA No. 9402 – 9405 of 2018.

[17] Sec-29A. Persons not eligible to be resolution applicant.

[18] CA No.26/2018 in Company Petition No.(IB)77/AD/2017.

[19] Sec 53of the IBC-.  Distribution of assets.

[20] CA (AT) (Insolvency) No. 428 of 2018.

[21] See Sec 238 of IBC

[22] Sec 241 of the Companies Act-2013. Application to Tribunal for relief in cases of oppression, etc

[23] Sec 242 of the Companies Act -2013- Powers of Tribunal

[24] CA No. 21824 of 2017.

[25] Available at- Writ Petition No. 8650 of 2018https://www.ibbi.gov.in/webadmin/pdf/whatsnew/2018/Jul/26th%20Jul%202018%20in%20the%20matter%20of%20Leo%20Edibles%20&%20Fats%20Ltd.%20Vs.%20The%20Tax%20Recovery%20Officer%20(Central)%20IT%20Dept.,%20Hyderabad_2018-07-27%2014_02_39_2018-07-28%2021:02:14.pdf

[26] CA (AT) (Insolvency) No. 61 of 2018. Available At https://nclat.nic.in/Useradmin/upload/7456493665b6a891d72c52.pdf

[27] Also See- Export Import Bank of India v. Resolution Professional, Company

[28] CA (AT) (Insolvency) No. 61 of 2018

[29] CA (AT) (Insolvency) No. 82 of 2018.

[30] (IB)-40(PB)/2017.

[31] INVITATION FOR EXPRESSION OF INTEREST- (Under Regulation 36A (1) of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

[32] Civil Appeal (AT) (Insolvency) No. 44 of 2018.

[33] CIVIL APPEAL NO. 9405 OF 2017 Available At https://indiankanoon.org/doc/166780307/

[34] Sec 8(2) of the IBC

[35] Available at https://taxpublishers.in/Ency_CL/CL_Judg_Show?83974000?a0

[36] Sec 7 deals with Initiation of corporate insolvency resolution process by financial creditor.

[37] Sec 9 deals with Application for initiation of corporate insolvency resolution process by operational creditor

[38] Sec-238-A The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be

[39] SC Civil Appeal No. 15135 of 2017 Available at https://indiankanoon.org/doc/185937110/

[40] Available at https://ibbi.gov.in/1stMay17JKJuteMills_SurendraTradingALD2017.pdf

[41] CIVIL APPEAL NO. 8766-67 OF 2019 in SUPREME COURT. Available at https://www.ibbi.gov.in/uploads/order/d46a64719856fa6a2805d731a0edaaa7.pdf

[42] Sec 30(2) of the IBC deals with method of examination of resolution plan by Resolution Professional

[43] Sec 32. Of IBC   Appeal. – Any appeal from an order approving the resolution plan shall be in the manner and on the grounds laid down in sub-section (3) of section 61.

[44] Supreme Court CIVIL APPEAL NO. 4553 OF 2018 available at https://ibbi.gov.in/webadmin/pdf/order/2018/Aug/11958_2018_Judgement_14-Aug-2018_2018-08-14%2022:04:34.pdf

[45] As per Amended Sec 12 of the IBC

[46] Sec 30(4) of the IBC

Edited by Medha Mukherjee

The post Critical Analysis: Insolvency and Bankruptcy Code 2016 [IBC] appeared first on LexForti .

Tax Residency for Individuals in India

Tax assessment from an individual relies upon his private status in the nation. Segment 6 sub-segment (1) of the Income Tax Act, 1961 gives the conditions under which an INDIVIDUAL is supposed to be Resident in India. When the INDIVIDUAL is supposed to be an inhabitant in India, at that point we have to see whether he fits the bill to be a ‘NOT ORDINARY RESIDENT’ under sub-segment (6) of area 6. This is because the extent of complete payment with the end goal of tax collection is diverse for RESIDENT, NOT ORDINARY RESIDENT, and NON-RESIDENT. 

The Finance Bill, 2020 presented in India on Feb. 1, 2020, had a condition to burden “stateless” people. This prompted a great deal of disarray and in this manner, the MOF of the GOI, in its Press Release dated Feb. 2, 2020, explained that: 

To keep away from any distortion, it is explained that in the event of an Indian resident who gets esteemed occupant of India under this proposed arrangement, pays earned outside India by him will not be burdened in India except if it is gotten from an Indian business or calling. Fundamental explanation, whenever required, will be consolidated in the applicable arrangement of the law. 

The Finance Act, 2020 which got the Presidential consent on March 27, 2020, has tended to the issue. These arrangements are appropriate from AY 2021-22. 

Inhabitant: 

FOR AY:2020-21 

A. An INDIVIDUAL is supposed to be RESIDENT IN INDIA on the off chance that he is in India for 182 days or more during the earlier year. 

Or on the other hand 

B. An INDIVIDUAL is supposed to be RESIDENT IN INDIA if he is in India for 60 days or more during the earlier year AND he is in India for 365 days or more in 4 going before earlier years. 

Or then again 

B-1. Where a Citizen of India, leaves India, as an individual from a group of Indian boat or for work outside India – An INDIVIDUAL is supposed to be RESIDENT IN INDIA on the off chance that he is in India for 182 days or more during the earlier year AND he is in India for 365 days or more in 4 going before earlier years. 

(For Citizen of India who leaves India, as an individual from a group of outside bound boat departing India, the period went into Continuous Discharge Certificate (CDC) as joining and closing down by the person, of the qualified journey which has either beginning port or the goal port in India, is barred, to decide the time of remain in India – Rule 126) 

Or on the other hand 

B-2. Where a Citizen of India, or PIO, visits India – An INDIVIDUAL is supposed to be RESIDENT IN INDIA on the off chance that he is in India for 182 days or more during the earlier year AND he is in India for 365 days or more in 4 going before earlier years. 

Or on the other hand 

From AY: 2021-22 

B-3. Where a Citizen of India, or PIO, having Indian source pay surpassing Rs. 15 lakhs during the earlier year, visits India – An INDIVIDUAL is supposed to be RESIDENT IN INDIA on the off chance that he is in India for 120 days or more during the earlier year AND he is in India for 365 days or more in 4 going before earlier years. 

C. Esteemed RESIDENT: (NO stay in India required.) 

From AY: 2021-22 

Singular Citizen of India having Indian source salary surpassing Rs. 15 lakhs during the earlier year, if not at risk to burden outside India because of his home, living arrangement, or comparable standards, will be Deemed to be RESIDENT IN INDIA, for that earlier year. 

NOT ORDINARY RESIDENT: 

FOR AY:2020-21 

A. An INDIVIDUAL is supposed to be NOT ORDINARY RESIDENT IN INDIA on the off chance that he is an NRI in 9 out of 10 earlier years going before that earlier year. 

Or then again 

B. An INDIVIDUAL is supposed to be NOT ORDINARY RESIDENT IN INDIA on the off chance that he is in India for 729 days or less during 7 going before earlier years. 

Or then again 

From AY: 2021-22 

C. Where a Citizen of India, or PIO, having Indian source pay surpassing Rs. 15 lakhs during the earlier year, visits India – An INDIVIDUAL is supposed to be NOT ORDINARY RESIDENT IN INDIA if he is in India for 120 days or more yet under 182 days during the earlier year. 

Or then again 

From AY: 2021-22 

D. A Citizen of India is said to be NOT ORDINARY RESIDENT IN INDIA on the off chance that he is DEEMED RESIDENTas above. 

An individual who is not a RESIDENT is a NON-RESIDENT in India [section 2(30)] 

Taxability of Total Income of an Individual in India relies upon his private status under the Income Tax Act, 1961. 

Further, once the payment is burdened on gathering premise, the equivalent will not again be burdened on receipt premise. 

Presently let us see what is the pay considered to be gotten in India and pay regarded to accumulate or emerge in India. 

Pay DEEMED TO BE RECEIVED IN INDIA:[Section 7] 

(a) Contribution to perceived opportune reserve. 

(b) Employer commitment to national benefits conspires u/s 80CCD. 

Pay DEEMED TO ACCRUE OR ARISE IN INDIA:[Section 9] 

(1) All pay to collect or emerging, regardless of whether legitimately or in a roundabout way, 

• through or from any business association in India, or 
• through or from any property in India, or 
• through or from any benefit or wellspring of salary in India, or 
• through the exchange of a capital resource arrange in India. 

But where a non-inhabitant  

• purchases the merchandise in India with the end goal of Export. 
• not being a Citizen of India, from shooting of any cinematography film in India. 

(2) “Pay rates” earned in India. 

(3) Dividend paid by an Indian organization outside India. 

(4) Interest, Royalty, and Fees for specialized administrations payable by Govt. of India 

(5) Interest, Royalty, and Fees for specialized administrations payable by Resident of India except obligation used outside India or winning source outside India. 

(6) Interest, Royalty, and Fees for specialized administrations payable by a non-inhabitant on obligation used in India or procuring source in India. 

(Note: This article portrays an extremely expansive structure for residency test and tax assessment for “People” in India under its duty arrangements. The perspectives communicated are close to home and need not be acknowledged by any assessment experts in any State. Perusers are anyway encouraged to take lawful conclusion before finishing up a particular exchange.)

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