Ruchi Soya (Patanjali) – Claim Not Included In Approved Resolution Plan Stand Extinguished : Karnataka High Court

Facts:
The Appellant, M/S Patanjali Foods Limited (formerly known as Ruchi Soya Industries Ltd.), engaged in importing Crude Palm Oil of edible grade, claimed a duty exemption on 8499.980 MTs of oil imported on 22.2.2011. However, the Commissioner of Customs (Respondent) issued a show cause notice dated 17.02.2012, contending the oil was not of edible grade and thus not entitled to the exemption. The Commissioner confirmed the demand of customs duty amounting to Rs. 19,40,00,646 by its order on 31.07.2012. Aggrieved, the assessee preferred an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).

In the interregnum, Corporate Insolvency Resolution Process (CIRP) proceedings under Section 7 of the IBC were initiated against Ruchi Soya Industries Ltd. by the order dated 08.12.2017, passed by the National Company Law Tribunal (NCLT), Mumbai. The NCLT approved a modified resolution plan, which led to a change in control of the company. The name of the Company was also changed to Patanjali Foods Limited.

The Appellant filed Miscellaneous Applications with the CESTAT to change the name of the assessee, Ruchi Soya, to Patanjali and to hold that the liability was extinguished. The CESTAT, by its final order dated 17.11.2023 (impugned order) held that the appeal abated under Rule 22 of the CESTAT (Procedure) Rules, 1982.

The Appellant filed the appeal under section 130 of the Customs Act, 19621, challenging the impugned order dated 17.11.2023, passed by the CESTAT.

Issue:
The substantial question of law framed by the Court was whether the CESTAT erred by not following the law laid down by the Supreme Court that demands for which no claims were submitted or included in the approved Resolution Plan stand extinguished, and no proceedings can be continued in respect of such dues.

Contentions:

The Appellant argued that:

• Under Section 32A of the IBC and in view of the Supreme Court's judgments in Ghanshyam Mishra v. Edelweiss Reconstruction Company Ltd. [(2021) 9 SCC 657] and Ruchi Soya Industries Limited v. Union of India [(2022) 6 SCC 343], claims not submitted during the CIRP stand extinguished. Therefore, the customs duty demand was extinguished as it was not part of the resolution plan.
• The CESTAT's reliance on Rule 22 of the 1982 Rules to conclude that the appeal has abated is erroneous.

The Respondent did not dispute the legal position.

Observations:

The High Court placed relaince on the judgment in Ghanshyam Misha, where it was held that:

“...once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.”

Reference was also made to Ruchi Soya Industries Ltd., where it was reiterated that on the date on which NCLT approved the resolution plan, all claims stood frozen, and no claim, which is not a part of the resolution plan, would survive.

The court thus held that the revenue, not having made any claim before the IRP during the CIRP process and the demand not having been part of the resolution plan, has stood extinguished and cannot be continued.

The court then referred to the case of Commissioner of Customs v. Patanjali Foods Limited (Formerly Ruchi Soya Industries Limted), where the Gujarat High Court held that since the resolution process was completed and the appellant did not submit a claim as an Operational Creditor, the appeal had become infructuous and abated. All liabilities were extinguished with the approval of the resolution plan as per Sections 31 and 32A of the IBC.

Considering the above, the court held that the demand of the revenue against the appellant could not be continued.

Further, the court observed that Rule 22 of the 1982 Rules, which states that the appeal abates if a party to the appeal dies, is adjudicated insolvent, or if a company is being wound up, does not apply in cases where a resolution plan has been approved under the IBC. According to Section 5(26) of the IBC, the applicant proposes a resolution plan to continue the company's business as "a going concern," which means that the company's operations will continue during the resolution process, whereas the company's business will be wound up only during the liquidation process. The NCLT approved the appellant's resolution plan, so the issue of winding up did not arise. Therefore, the court held that the CESTAT had erred in relying on Rule 22 of the 1982 Rules to conclude that the appeal had abated.

The court thus allowed the appeal and set aside the impugned order dated 17.11.2023, passed by the CESTAT. It also allowed the Miscellaneous Applications filed by the assessee before the CESTAT. Therefore, the demand of Rs. 19,40,00,646 made by the revenue against the appellant-assessee under the order dated 31.07.2012 was held to have abated and extinguished.

Case Title: M/S Patanjali Foods Limited (Formerly Ruchi Soya Industries Limted) vs. Commissioner of Customs

Case No.: CSTA No. 4 of 2024

Judgment Date: 30.09.2024