Supreme Court Allows Settlement Under Sabka Vishwas Scheme Despite IBC Moratorium: M/s. Shekhar Resorts Limited vs. Union of India (2023) INSC 15 (5 January 2023)

Supreme Court Allows Settlement Under Sabka Vishwas Scheme Despite IBC Moratorium

Date of the Judgment: 5 January 2023
Citation: (2023) INSC 15
Judges: M.R. Shah, J. and B.V. Nagarathna, J.
Can a company be denied the benefits of the “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019” if it could not make payments due to a moratorium imposed by the Insolvency and Bankruptcy Code (IBC)? The Supreme Court addressed this question in a recent judgment, ruling in favor of a company that was unable to make payments within the scheme’s deadline due to an ongoing IBC moratorium. The court held that the company could not be penalized for failing to do the impossible, thereby allowing the company to settle its dues under the scheme. This judgment was delivered by a two-judge bench consisting of Justice M.R. Shah and Justice B.V. Nagarathna, with Justice M.R. Shah authoring the opinion.

Table of Contents

Case Background

M/s. Shekhar Resorts Limited, the appellant, was a company providing hospitality services and registered with the Service Tax Department. The department investigated the company for service tax evasion, issuing show cause notices for unpaid taxes under various categories. Subsequently, insolvency proceedings were initiated against the company under the Insolvency and Bankruptcy Code, 2016 (IBC). On 11 September 2018, the National Company Law Tribunal (NCLT), Delhi, admitted the application filed by the financial creditors, thus commencing the corporate insolvency resolution process and imposing a moratorium under Section 14 of the IBC.

During the insolvency process, the Committee of Creditors approved a resolution plan on 4 June 2019. Later, the “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019” was introduced on 1 September 2019, under Section 125 of the Finance Act, 2019. The appellant, through its Resolution Professional, applied for the scheme before the deadline of 31 December 2019. Form No. 1 was issued to the appellant on 27 December 2019. The Designated Committee issued Form No. 3 on 25 February 2020, determining the amount payable by the appellant under the scheme as Rs. 1,24,28,500. The payment was to be made within 30 days, but this was extended to 30 June 2020 due to the COVID-19 pandemic.

The NCLT approved the resolution plan on 24 July 2020, ending the moratorium period. The appellant then informed the successful resolution applicant and the Commissioner, CGST and Central Excise, Agra, that it was ready to pay the dues. However, the authorities rejected the request, stating that the last date for payment under the scheme was 30 June 2020. The appellant then approached the High Court of Judicature at Allahabad, which dismissed the writ petition, leading to the current appeal before the Supreme Court.

Timeline

Date	Event
11 September 2018	NCLT, Delhi, admits application under Section 7 of IBC against the appellant, initiating corporate insolvency resolution process and imposing moratorium.
4 June 2019	Committee of Creditors approves resolution plan.
1 September 2019	“Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019” introduced.
27 December 2019	Appellant submits application under the scheme and is issued Form No. 1.
25 February 2020	Designated Committee issues Form No. 3, determining the amount payable as Rs. 1,24,28,500.
30 June 2020	Extended deadline for payment under the scheme.
24 July 2020	NCLT approves the resolution plan, ending the moratorium period.
9 October 2020	Appellant requests permission to pay the dues.
19 October 2020	Joint Commissioner rejects the request, stating the deadline was 30 June 2020.
8 January 2021	Service Tax dues deposited in an escrow account.
24 June 2021	High Court of Judicature at Allahabad dismisses the writ petition.

Course of Proceedings

The appellant, after being denied the ability to pay the settlement amount, approached the High Court of Judicature at Allahabad via Writ Tax No. 328 of 2021. The High Court dismissed the petition, stating that it could not issue a direction contrary to the scheme and that the Designated Committee under the scheme was no longer in existence. This led the appellant to file the current appeal before the Supreme Court.

Legal Framework

The case primarily revolves around the “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019,” introduced under Section 125 of the Finance Act, 2019. This scheme aimed to resolve legacy disputes related to central excise and service tax. The scheme provided a mechanism for settling tax dues by paying a specified amount, provided the application and payment were made within the stipulated time. The relevant provisions are:

Section 125 of the Finance Act, 2019: This section introduced the “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019” to resolve legacy disputes related to central excise and service tax.
Section 14 of the Insolvency and Bankruptcy Code, 2016: This section imposes a moratorium on the initiation or continuation of legal proceedings against a corporate debtor once insolvency proceedings have commenced.

The interplay between the scheme and the IBC moratorium is central to the case. The IBC aims to protect the assets of a company undergoing insolvency proceedings, and the moratorium prevents any actions that could diminish those assets, including payments to creditors.

Arguments

Appellant’s Submissions:

The High Court erred in dismissing the writ petition and not directing the authorities to accept the payment under the scheme.
The Designated Committee under the scheme still exists and is being constituted on a need basis to comply with court orders. The Designated Committee comprises of the Joint Commissioner and the Commissioner who are officers associated with the offices of Respondent nos.3 and 4.
The appellant could not deposit the amount under the scheme before 30 June 2020 due to the moratorium imposed under the IBC, which ended on 24 July 2020.
The appellant could not have made any payment during the moratorium period without breaching the IBC.
The resolution plan required the resolution applicant to deposit all statutory dues within six months from the effective date (24 July 2020) into an escrow account, which was done on 8 January 2021.
The appellant cannot be left remediless due to the operation of law.
The appellant’s inability to pay was due to a legal disability, and no one can be expected to do the impossible.
The appellant cannot be prejudiced for no fault of its own.

Respondent’s Submissions:

The scheme was valid only until 30 June 2020, and the High Court cannot extend it.
The Designated Committees were dissolved after 30 June 2020.
No payment was made before the deadline, and the request to extend the time limit was rightly rejected.

Main Submission	Sub-Submissions (Appellant)	Sub-Submissions (Respondent)
Validity of Scheme and Designated Committee	✓ Designated Committee still exists. ✓ Committees are being constituted on a need basis to comply with court orders. ✓ CBEC issued instructions for manual processing of declarations.	✓ Scheme was valid only until 30 June 2020. ✓ Designated Committees were dissolved after 30 June 2020. ✓ High Court cannot extend the scheme.
Inability to Pay	✓ Moratorium under IBC prevented payment before 30 June 2020. ✓ Payment during moratorium would have breached IBC. ✓ Resolution plan required deposit of dues within six months after moratorium. ✓ Appellant cannot be left remediless due to operation of law. ✓ Appellant’s inability to pay was due to a legal disability.	✓ No payment was made before the 30 June 2020 deadline. ✓ Request to extend time limit was rightly rejected.
Fairness and Equity	✓ Appellant cannot be prejudiced for no fault of its own. ✓ No one can be expected to do the impossible.	✓ Extending the scheme would create complications.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

Whether, when it was impossible for the appellant to deposit the settlement amount in view of the bar and/or the restrictions under the IBC, the appellant can be punished for no fault of the appellant?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Issue	Court’s Decision	Brief Reasoning
Whether the appellant can be punished for not depositing the amount due to the IBC moratorium?	The appellant cannot be punished.	The appellant was statutorily barred from making payment during the moratorium. It is an established principle that no one should be compelled to do the impossible. The appellant cannot be penalized for failing to act due to a legal impediment.

Authorities

The Supreme Court considered the following authorities:

Authority	Court	How it was Considered	Legal Point
Principal Commissioner of Income Tax vs. Monnet Ispat & Energy Ltd., (2018) 18 SCC 786	Supreme Court of India	Relied upon	Moratorium under IBC prohibits existing proceedings against the debtor.
Sunil Vasudeva vs. Sundar Gupta, (2019) 17 SCC 385	Supreme Court of India	Relied upon	No party shall be left remediless.
United Air Travel Services vs. Union of India, (2018) 8 SCC 141	Supreme Court of India	Relied upon	General principle that no party should be left remediless
Union of India vs. Asish Agarwak, (2022) SCC Online SC 543	Supreme Court of India	Relied upon	General principle that no party should be left remediless
Gyanichand vs. State of Andhra Pradesh, (2016) 15 SCC 164	Supreme Court of India	Relied upon	Court cannot direct someone to do the impossible.
Calcutta Iron Merchants Association vs. Commissioner of Commercial Taxes, (1997) 8 SCC 42	Supreme Court of India	Relied upon	No law would compel a person to do the impossible.
Anmol Kumar Tiwari & Ors. vs. State of Jharkhand, (2021) 5 SCC 424	Supreme Court of India	Relied upon	A party should not suffer for no fault of their own.

Judgment

Submission	Court’s Treatment
The High Court erred in dismissing the writ petition and not directing the authorities to accept the payment under the scheme.	Accepted. The Supreme Court held that the High Court should have considered the legal impediment faced by the appellant.
The Designated Committee under the scheme still exists.	Accepted. The Supreme Court noted that the CBEC has issued circulars allowing manual processing of declarations by the Designated Committees even after 30 June 2020.
The appellant could not deposit the amount under the scheme before 30 June 2020 due to the moratorium imposed under the IBC.	Accepted. The Supreme Court agreed that the moratorium under the IBC was a legal impediment that prevented the appellant from making the payment.
The appellant could not have made any payment during the moratorium period without breaching the IBC.	Accepted. The Supreme Court acknowledged that any payment during the moratorium would have been a breach of the IBC.
The resolution plan required the resolution applicant to deposit all statutory dues within six months from the effective date (24 July 2020) into an escrow account, which was done on 8 January 2021.	Accepted. The Supreme Court considered this as a valid reason for the delay in payment.
The appellant cannot be left remediless due to the operation of law.	Accepted. The Supreme Court reiterated that no party should be left remediless.
The appellant’s inability to pay was due to a legal disability, and no one can be expected to do the impossible.	Accepted. The Supreme Court agreed that the appellant’s inability to pay was due to a legal disability and that no one can be expected to do the impossible.
The appellant cannot be prejudiced for no fault of its own.	Accepted. The Supreme Court held that the appellant should not suffer for no fault of its own.
The scheme was valid only until 30 June 2020, and the High Court cannot extend it.	Partially Accepted. The Supreme Court acknowledged that the High Court cannot extend the scheme but clarified that this case was about taking remedial measures, not extending the scheme.
The Designated Committees were dissolved after 30 June 2020.	Rejected. The Supreme Court noted that the CBEC has issued circulars allowing manual processing of declarations by the Designated Committees even after 30 June 2020.
No payment was made before the deadline, and the request to extend the time limit was rightly rejected.	Rejected. The Supreme Court held that the appellant’s inability to pay was due to a legal impediment and not a deliberate failure to comply with the scheme.

How each authority was viewed by the Court?

The Court relied on Principal Commissioner of Income Tax vs. Monnet Ispat & Energy Ltd. [CITATION] to emphasize that a moratorium under the IBC prohibits any existing proceedings against the debtor.
The Court cited Sunil Vasudeva vs. Sundar Gupta [CITATION], United Air Travel Services vs. Union of India [CITATION] and Union of India vs. Asish Agarwak [CITATION] to reinforce the principle that no party should be left remediless.
The Court referred to Gyanichand vs. State of Andhra Pradesh [CITATION] and Calcutta Iron Merchants Association vs. Commissioner of Commercial Taxes [CITATION] to support the view that a court cannot direct someone to do the impossible.
The Court also used Anmol Kumar Tiwari & Ors. vs. State of Jharkhand [CITATION] to highlight that a party should not suffer for no fault of their own.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that no one should be penalized for failing to do the impossible. The Court recognized that the appellant’s inability to pay the settlement amount within the stipulated time was due to the legal impediment imposed by the IBC moratorium. The Court emphasized that the appellant had taken all necessary steps within its control, including applying for the scheme within the deadline and being ready to pay the dues immediately after the moratorium was lifted. The Court also considered the fact that the appellant had deposited the dues into an escrow account as required by the resolution plan.

Sentiment	Percentage
Legal Impossibility	40%
No Fault of Appellant	30%
Remedial Justice	20%
Compliance with IBC	10%

Fact:Law Ratio

Category	Percentage
Fact	30%
Law	70%

The court’s reasoning was primarily based on legal principles and the interpretation of the IBC and the “Sabka Vishwas Scheme”. While the factual circumstances of the case were important, the legal principles of impossibility and the need to provide a remedy were the driving factors behind the decision.

Appellant applied under “Sabka Vishwas Scheme” before deadline.

Form No. 3 issued determining settlement amount.

Moratorium under IBC imposed, preventing payment.

Appellant unable to pay by 30 June 2020 due to legal bar.

Moratorium lifted; appellant ready to pay.

Authorities reject payment request.

Supreme Court allows settlement, citing legal impossibility.

Logical Reasoning Flowchart

The court considered alternative interpretations but rejected them. For example, the court acknowledged that the High Court was correct in stating that it could not extend the scheme’s deadline. However, the Supreme Court clarified that the case was not about extending the scheme but about providing a remedy to a party that was unable to comply due to a legal impediment. The Court also rejected the argument that the Designated Committees were no longer in existence, citing circulars that allowed manual processing of applications.

The Supreme Court concluded that the appellant could not be penalized for failing to do the impossible. The court held that the appellant was entitled to the benefit of the scheme and directed the authorities to accept the payment and issue a discharge certificate. The court reasoned that:

The appellant applied under the Scheme and was found eligible.
The appellant was unable to make the payment due to the moratorium under the IBC.
The appellant approached the authorities immediately after the moratorium was lifted.
The appellant deposited the amount in escrow as per the resolution plan.

The Supreme Court’s decision was unanimous, with both judges concurring in the judgment. The court emphasized the need to provide a remedy to a party that was unable to comply with a deadline due to a legal impediment. The court also highlighted the importance of ensuring that no one is penalized for failing to do the impossible.

The court quoted the following from the judgment:

“no party shall be left remediless and whatever the grievance the parties had raised before the court of law, has to be examined on its own merits”
“no law would compel a person to do the impossible.”
“it would not be fair on the part of the Court to give a direction to do something which is impossible and if a person has been directed to do something which is impossible, and if he fails to do so, he cannot be held guilty.”

Key Takeaways

A company cannot be denied the benefits of the “Sabka Vishwas Scheme” if it was unable to make payments due to a moratorium imposed by the IBC.
Courts must consider the legal impediments faced by parties and cannot penalize them for failing to do the impossible.
The principle that no party should be left remediless is paramount.
Designated Committees under the scheme continue to function for processing applications even after the original deadline.
The IBC moratorium is a valid reason for not making payments under other schemes.

Directions

The Supreme Court directed that the payment of Rs. 1,24,28,500 already deposited by the appellant be appropriated towards settlement dues under the “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019,” and that the appellant be issued a discharge certificate.

Development of Law

The ratio decidendi of this case is that a party cannot be penalized for failing to comply with a deadline when that failure is due to a legal impediment, such as a moratorium under the IBC. This decision reinforces the principle that no one should be compelled to do the impossible and that courts must provide remedies to those who are unable to act due to legal constraints. This judgment clarifies the interplay between the “Sabka Vishwas Scheme” and the IBC, ensuring that companies undergoing insolvency proceedings are not unfairly disadvantaged.

Conclusion

The Supreme Court’s decision in M/s. Shekhar Resorts Limited vs. Union of India provides significant relief to companies that were unable to comply with the payment deadlines of the “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019” due to the moratorium imposed by the Insolvency and Bankruptcy Code, 2016. The court’s emphasis on the principle that no one should be penalized for failing to do the impossible and the need to provide remedies to those facing legal impediments ensures that the scheme’s benefits are not denied to eligible applicants due to circumstances beyond their control. This judgment serves as a crucial precedent for similar cases involving the interplay between different legal frameworks.

FAQ

Q: What is the “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019”?
A: It is a scheme introduced by the Indian government to resolve legacy disputes related to central excise and service tax. It allows businesses to settle their tax dues by paying a specified amount.

Q: What is a moratorium under the Insolvency and Bankruptcy Code (IBC)?
A: A moratorium is a temporary suspension of legal actions against a company undergoing insolvency proceedings. It prevents any actions that could diminish the company’s assets, including payments to creditors.

Q: What did the Supreme Court decide in this case?
A: The Supreme Court ruled that a company cannot be denied the benefits of the “Sabka Vishwas Scheme” if it was unable to make payments due to an IBC moratorium. The court held that the company could not be penalized for failing to do the impossible.

Q: Why was the company unable to make the payment within the scheme’s deadline?
A: The company was under a moratorium imposed by the IBC, which legally prevented it from making any payments during that period.

Q: What should a company do if it faces a similar situation?
A: A company facing a similar situation should apply for the scheme within the deadline and inform the authorities about the legal impediment preventing them from making the payment. They should also approach the court for relief if their request is rejected.

Q: What is the significance of this judgment?
A: This judgment clarifies the interplay between the “Sabka Vishwas Scheme” and the IBC, ensuring that companies undergoing insolvency proceedings are not unfairly disadvantaged. It reinforces the principle that no one should be penalized for failing to do the impossible due to legal impediments.

Source: M/s. Shekhar Resorts Limited vs. Union of India