Absence Of Charge Defeats Income Tax Department's Secured Creditor Status: NCLAT New Delhi
Mohd.Rehan Ali
13 Sept 2025 1:35 PM IST
The National Company Law Appellate Tribunal (NCLAT), New Delhi, comprising Justice Rakesh Kumar Jain (Member-Judicial) and Mr. Naresh Salecha (Member-Technical), has held that in the absence of the charge, the income tax department cannot be considered as a secured creditor. The financial creditor, M/s Prutha Enterprises, filed a section 7 application before the adjudicating...
The National Company Law Appellate Tribunal (NCLAT), New Delhi, comprising Justice Rakesh Kumar Jain (Member-Judicial) and Mr. Naresh Salecha (Member-Technical), has held that in the absence of the charge, the income tax department cannot be considered as a secured creditor.
The financial creditor, M/s Prutha Enterprises, filed a section 7 application before the adjudicating authority against the corporate debtor for default in the repayment of the debt. The adjudicating authority admitted the application and appointed Mr. Parag, the appellant herein, as the Interim Resolution Professional. As no resolution plan was approved, the adjudicating authority directed the liquidation of the corporate debtor, and the appellant was appointed as the liquidator.
Proceeds from the sale were distributed among the stakeholders in compliance with the code. And, after the completion of the liquidation process, the appellant filed I.A. No. 541 of 2022, seeking dissolution of the corporate debtor. However, during the pendency of this application, the Income Tax department filed a claim for the tax dues of Rs. 7.71 Cr.
The NCLT dismissed the liquidator's application for the dissolution of the corporate debtor. It relied on the ruling of State Tax Officer (1) vs. Rainbow Papers Ltd., Civil Appeal No. 1661 of 2020 and Civil Appeal No. 2568 of 2020, and Principal Commissioner of Income Tax vs. M/s Assam Company India Ltd., CA (AT) (Ins) No. 243 of 2022, and discussed that the income tax department is a secured creditor and the liquidator should not have considered it as the other creditors.
The liquidator, appellant herein, argued that the adjudicating authority has committed an error by relying on the ruling of Rainbow Papers (Supra), as the facts of that case were altogether different. It also contended that the reliance on Principal Commissioner of Income Tax (Supra) is not correct, as the order of attachment was passed in that case, which in a sense is the creation of a charge on the property; however, in this case, no attachment order has been passed.
The appellant also highlighted a statement made by the income tax lawyer of the adjudicating authority that the income tax department does not have any charge created on the demand of the income tax, hence, the decision of Rainbow Papers (Supra) will not be applicable. The appellant also highlighted that the statement had not been challenged.
The notice was served to the income tax department, but they remained absent.
The NCLAT observed that the statement made by the income tax counsel that the department has no charge against the demand of income tax stood unchallenged.
The tribunal further observed that the adjudicating authority has committed an error in rejecting the application on the presumption that the income tax department is a secured creditor in accordance with the rulings of Rainbow Papers (Supra) and Principal Commissioner of Income Tax (Supra).
Considering the above circumstances, the NCLAT bench allowed the appeal by setting aside the NCLT's order.
Case Name: Parag Sheth vs. Union of India & Ors.
Case No.: Comp. App. (AT) (Ins) No. 1395 of 2024
For Appellant: Ms. Natasha Dhruman Shah, Advocate
Bench: Ms. Natasha Dhruman Shah, Advocate
Order Date: 02.09.2025