In a decision of far-reaching magnitude, especially for the government, the Delhi High Court recently in the case of The National Sewing Thread Company Limited versus Deputy Commissioner of Income Tax (2024 DHC 4771-DB)  held that once a resolution plan is approved by the adjudicating authority, the claims not included in the resolution plan stand extinguished, and the same is binding on all stakeholders, including the Central and State governments. 

In other words, the new owner as per the resolution plan under Insolvency and Bankruptcy Code (IBC) starts on a clean slate basis untrammelled by the past or future to the extent the past or future is not specifically incorporated under the resolution plan. 

This means the new promoter starts on a fresh note without any legacy issues and not burdened by anything not explicitly mentioned in the resolution plans.  Thus, the income tax order passed later on is not of any consequence even though the proceedings had started much before the resolution plan was sanctified by the committee of creditors. 

In the light of this judgement government claims are likely to fall by the wayside in the proceedings dominated by the secured creditors. 

Case 2: Resignation can be withdrawn before its acceptance is communicated to the employee, orders SC  

In S.D. Manohara  versus Konkan Railway Corporation Ltd & Others case, the Supreme Court recently ordered reinstatement of an employee whose resignation acceptance was not communicated to him by the management before he withdrew the resignation. 

The lesson for employers is not to vacillate or procrastinate when armed with a resignation letter. Act on it immediately lest the employee has a change of heart and mind and withdraws his resignation. Of course, managements are sometimes reluctant to let go talented and sincere employees. That is altogether a different issue.  In other words, resignation of employees perceived by management to be laggards should be accepted with alacrity and communicated to him pronto before he changes his mind. 

Case 3: When engine is leased, aircrafts need to be grounded for non-payment of rentals

In SpiceJet Ltd versus Team France 01 SAS matter, the Delhi High Court recently upheld the single judge’s interim order grounding of the engines leased by the airlines when it was remiss in not paying the lease rentals. The three ingredients namely prima facie case in favour of the petitioner, balance of convenience in his favour and irreparable injury inherent if he were asked to wait till the final disposal of the case one way or the other justified the interim order to ground the engines. 

The French lessors contended that if the aircrafts with their engines were allowed to fly uninterrupted despite the non-payment of rentals, it would aggravate and compound their loss. The loss is because the engines suffer depreciation with every flight. 

The counter to this view is unless aircrafts are flown and revenue generated, how can the dues be paid?  But far from a chicken and egg conundrum such clever argument is self-serving and abuse of the lease agreement which clearly called for grounding on non-payment, period. 

Case 4: Cause of action doesn’t die with the death of the assessee, but the legal heir must be heard

In S. R. Steels versus The Deputy State Tax Officer case, the Madras High Court was seized of a tax matter relating to the assessee who had died in 2019 but against whom the tax demand was raised in February 2024. In the meanwhile, the legal heir, the husband of the deceased had the mortification of seeing his bank accounts being frozen by the state tax authorities. 

The High Court rightly ordered de-freezing of the bank accounts and directed the tax authorities to proceed against the husband the legal heir by giving adequate and real opportunity of being heard as it would have given to the deceased herself had she been alive. 

To be sure, in non-criminal matters the cause of action doesn’t die with the death of the accused but that doesn’t mean the principles of natural justice can be done away with insofar as the legal heir is concerned. 

—The author, S Murlidharan, is a Chartered Accountant and legal expert, who comments and interprets important court rulings and judgements. The views expressed here are his own and personal.    

Read the previous Legal Digest columns here