The Supreme Court has ruled that the Insolvency and Bankruptcy Code (IBC) will override Income-Tax rules on claims.

“Given Section 238 of the Insolvency and Bankruptcy Code, 2016, it is obvious that the Code will override anything inconsistent contained in any other enactment, including the Income-Tax Act,” the Bench comprising Justice Rohinton Fali Nariman and Justice Indu Malhotra ruled recently, in a case between the PR Commissioner of Income Tax-6, New Delhi, and Monnet Ispat & Energy Limited.

The apex court thus upheld a Delhi High Court ruling that had held that a moratorium under the IBC will apply to the order of the Income-Tax Appellate Tribunal.

The court relied on the Dena Bank vs Bhikhabhai Prabhudas Parekh and Co & Ors (2000) 5 SCC 694 and its progeny, making it clear that income-tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons.

“We are of the view that the High Court of Delhi, is, therefore, correct in law,” the apex court said.

Earlier, the Hyderabad High Court had ruled that government agencies don’t have rights on the encumbered property of a company facing liquidation under the Insolvency and Bankruptcy Code.

A Bench of Justices Sanjay Kumar and Amarnath Goud was hearing a case filed by Leo Edibles and Fats against a decision of the Sub-Registrar of Erragadda, Hyderabad.

The government official had refused to register immovable property that Leo acquired from VNR Infra under the liquidation process overseen by the National Company Law Tribunal (NCLT).

According to legal experts, the purpose of the IBC code is to provide relief to the debtor through a standstill period during which its assets are protected.

Related Topics