Supreme Court

Amendments to the IT Rules, 2026: Effectuating the Tiger Global Case 

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On 31st March 2026, the Central Board of Direct Taxes (‘CBDT’) notified amendment to two sub-rules of Rule 128, The Income Tax Rules, 2026 (‘IT Rules, 2026’). Reactions to the amendments are neatly divided: while a few believe that the amendments are to effectuate the Supreme Court’s decision in The Authority for Advance Rulings (Income Tax) and Others v Tiger Global International II Holdings (‘Tiger Global case’), others have observed that the amendments are to dilute its impact. In this article, I suggest that the CBDT has amended the IT Rules, 2026 to codify the ratio of Tiger Global case. Though before I elaborate on my claim, three preliminary things: 

Firstly, in this article I’ve not elaborated either facts or the Supreme Court’s decision in the Tiger Global case; for context, you can read my preliminary comments on the case. 

Secondly, before reading this article you may want to look at the side-by-side comparison of the pre-amendment and post-amendment rules.

Thirdly, Rule 10U, IT Rules, 1962 is pari materia with Rule 128, IT Rules, 2026. Former was the subject of discussion in the Tiger Global case and latter, as its successor, is the subject of recent amendments discussed in this article.      

In this article, my first claim is that amendments to the IT Rules, 2026 have been introduced to eliminate any confusion about the applicability of General Anti-Avoidance Rules (‘GAAR’) to investments made before 1st April 2017. A confusion that was partly caused by use of the phrase ‘without prejudice’ in Rule 10U(2), Income Tax Rules, 1962 (‘IT Rules, 1962’). I underline this claim by analyzing relevant portions of the Delhi High Court’s judgment that was overruled by the Supreme Court in the Tiger Global case. My second claim is that amendment to the IT Rules, 2026 brings greater clarity about the Income Tax Department’s (IT Department) stance on the interaction of GAAR with Double Taxation Avoidance Agreement (‘DTAA’) benefits. Specifically, the India-Mauritius DTAA. However, the Supreme Court’s interpretation of cut-off date in the Tiger Global case has not been diluted by the amendment. Finally, a crucial piece of the puzzle is still missing. We still do not know judicial meaning of the term ‘arrangement’ – and by extension impermissible avoidance arrangement – despite the Supreme Court relying on it to decide the Tiger Global case. Thus, despite the amendments to the IT Rules, 2026, the crucial test of applying Rule 128 to facts will determine the tax fate of future investments. And the tax fate may, in most cases, hinge on how courts interpret the term arrangement.    

Grandfathering of Investments  

Grandfathering in the IT Rules, 2026 is rooted in grandfathering in the India-Mauritius DTAA. Originally, an import of Article 13(4) of the India-Mauritius DTAA was that capital gains earned by a resident of Mauritius from securities listed in Indian stock exchanges were taxable only in Mauritius, the state of residence. While the vice-versa was also true, it mainly benefited companies incorporated in Mauritius aiming to access the Indian stock market. In 2016, Protocol to the India-Mauritius DTAA amended Article 13 – inserted Article 13(3A) – to provide taxation rights to the source country. Implying that India now had taxation rights on capital gains earned by companies incorporated in Mauritius. But Article 13(3A) was to be only applicable to gains from alienation of shares acquired on or after 1st April 2017. Article 13(3A) thus grandfathered investments and taxability of securities acquired before 1st April 2017 which were to be governed by the original provision. 

Rule 10U(1) of the IT Rules, 1962 intended to achieve the same effect as Article 13(3A) of the India-Mauritius DTAA, but in relation to GAAR. Specifically, Rule 10U(1)(d) provided that GAAR shall not apply to any income that arises, accrues, is received or deemed to accrue, arise or received by any person from transfer of investments made before 1stApril 2017 by such person. However, Rule 10U(2) stated that: 

Without prejudice to the provisions of clause (d) of sub-rule (1), the provisions of Chapter X-A shall apply to any arrangement, irrespective of the date on which it has been entered into, in respect of the tax benefit obtained from the arrangement on or after the 1st day of April, 2017. (emphasis added)

A combined reading of Rule 10U(1) and 10U(2) suggested that while grandfathering benefit was available for investments, arrangements could not claim the same benefit. But this was not the only possible interpretation. Use of the phrase ‘without prejudice’ created room to suggest that Rule 10(2) did not completely override Rule 10U(1)(d). And it is on this specific point that the Delhi High Court made a few pertinent observations.    

‘Without Prejudice’ in the IT Rules, 1962 

The IT Department argued before the Delhi High Court that ‘without prejudice’ clause implies that Rule 10U(2) overrides Rule 10U(1)(d). Even though an arrangement may have been entered before 1st April 2017, any benefit obtained from it after 1st April 2017 will be subject to GAAR. On the other hand, the counsel for Tiger Global resisted the IT Department’s interpretive approach, and argued that use of ‘without prejudice’ cannot permit interpreting Rule 10(2) inconsistently with Rule 10U(1)(d).  

The Delhi High Court refused to accept the IT Department’s argument and observed that: 

Apart from the above, if the argument of Mr. Srivastava were to be accepted, it would amount to sub-rule (2) immediately taking away what stood saved in the immediately preceding provision, namely, clause (d) of sub-rule (1). If the submission of Mr. Srivastava were to be upheld, it would lead to a wholly irreconcilable conflict between the two aforenoted provisions. However, the arguments addressed along the aforesaid lines are clearly erroneous since it fails to consider the meaning liable to be ascribed to the expression ―without prejudice to…..which appears in sub-rule (2). (para 231) (emphasis added)

The Delhi High Court thus clearly stated that accepting the IT Department’s argument would amount to Rule 10U(2) taking away the benefit conferred by Rule 10U(1)(d). Additionally, the High Court elaborated on the meaning of ‘without prejudice’ by relying on ITO v Gwalior Rayon Silk Manufacturing (Weaving) Co Ltd. In short, the meaning of ‘without prejudice’ in the context of Rule 10U can be distilled as: (i) Rule 10U(2) cannot be inconsistent to or prejudicial to Rule 10U(1)(d); (ii) while Rule 10U(2) was an independent provision it was subject to Rule 10U(1)(d). 

Apart from the meaning of ‘without prejudice’, the Delhi High Court also invoked the grandfathering benefit introduced via Article 13(3A) of the India-Mauritius DTAA. The High Court observed that the India-Mauritius DTAA had clearly provided safe passage to transactions completed before 1st April 2017. And accepting the IT Department’s argument that Rule 10U(2) overrides the grandfathering benefit provided in Rule 10U(1)(d) would mean:

…a delegatee of the Legislature while framing subordinate legislation being competent to override a treaty provision. A subordinate legislation would thus stand elevated to a status over and above a treaty entered into by two nations in exercise of their sovereign power itself. (para 230)

The Delhi High Court held that permitting secondary legislation to override international treaty obligations is unacceptable. Cumulatively, Article 13(3A) of the India-Mauritius DTAA and meaning of ‘without prejudice’ was used by the Delhi High Court to prevent the IT Department from invoking GAAR against Tiger Global. The High Court’s observations on Rule 10U are an important reference point to understand interpretation of secondary legislation, meaning of the phrase ‘without prejudice’ and how DTAA obligations can and do influence domestic laws. 

Amendments Align with Ratio of the Tiger Global Case

The Supreme Court in the Tiger Global case overruled the Delhi High Court. The IT Department’s stance before the Supreme Court can be summarized as: Rule 10U(1)(a) grants grandfathering benefit only to investments made before 1stApril 2017 and not to arrangements entered before 1st April 2017. Thus, Rule 10U(2) can be applied to deny benefits to arrangements entered before the said date. The Supreme Court agreed with the IT Department and held that: 

Therefore, the prescription of the cut-off date of investment under Rule 10U(1)(d) stands diluted by Rule 10U(2), if any tax benefit is obtained based on such arrangement. The duration of the arrangement is irrelevant. (para 46)

It stands to reason that the Supreme Court interpreted ‘without prejudice’ to have same meaning as ‘notwithstanding’. And, by doing so, clarified that the relationship of Rule 10U(2) with Rule 10U(1)(d) is that the former occupied a higher pedestal. It is to reinforce this legal position that Rule 128(2), IT Rules, 2026 has been amended to state that:

The provisions of Chapter XI shall apply to any arrangement, irrespective of the date on which it has been entered into, in respect of the tax benefit obtained from the arrangement on or after the 1st April, 2017, except for that income which accrues or arises to, or deemed to accrue or arise to, or is received or deemed to be received by, any person from transfer of such investments which were made before the 1st April, 2017 by such person. (emphasis added) 

There are two inter-related reasons why I suggest that the above amendment is to effectuate ratio of the Tiger Global case. Firstly, the removal of ‘without prejudice’ clause eliminates any confusion as to whether Rule 128(2) overrides Rule 128(1)(d). A confusion that was evident in the Delhi High Court’s judgment which was not in favor of the IT Department. Secondly, Rule 128(2) now uses the word ‘irrespective’. This aligns with the new legislative policy under the IT Act, 2025 to use ‘irrespective’ instead of ‘notwithstanding’. If we tentatively understand that meaning of irrespective is equivalent to notwithstanding, then Rule 128(2) overrides Rule 128(1)(d). And it is the primacy of Rule 128(2) that the IT Department successfully argued before the Supreme Court in the Tiger Global case. 

Thus, I suggest that the IT Rules, 2026 now codify the Tiger Global ratio and not dilute it. Grandfathering benefit is available only to investments, not to arrangements. The date on which the arrangement was entered – before or after 1st April 2017 – is immaterial as GAAR can be invoked against all arrangements. 

No Change in Cut-Off Date

The Supreme Court in the Tiger Global case suggested that gains arising after cut-off date of 1st April 2017 cannot claim the grandfathering benefit. Supreme Court’s observations on Rule 10U(1)(d) were that the cut-off date was for capital gains and not the investments. See, for example, the Supreme Court’s following observation: 

… in the case at hand, though it prima facie appears as if the assessees acquired the capital gains before the cut-off date, i.e., 01.04.2017, it is to be noted that the proposal for transfer of investments commenced only on 09.05.2018. (para 47)

The Supreme Court is clearly concerned that capital gains were not earned by Tiger Global before the 1st April 2017 instead of determining if the investment was made before that date. The Supreme Court also elaborated that the underlying transaction was only completed after the 1st April 2017 to underline that capital gains were only earned after cut-off date. However, grandfathering – under the India-Mauritius DTAA and the IT Rules, 1962 – protected investments made before 1st April 2017 and did not require that income should be earned before the said date. Since Rule 10U(1)(d) and Rule 128(1)(d) contain substantially the same language the Tiger Global ratio is certainly not diluted by amendment to the IT Rules, 2026. Rule 128(1)(d) of the IT Rules, 2026 states that GAAR shall not apply to: 

any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of such investments which were made before the 1st April, 2017 by such person.”; (emphasis added) 

Rule 128(1)(d) clearly states that investments were made by a person before 1st April 2017 but the income transfer of such investments was realised after the said date, GAAR shall be inapplicable. Rule 10U(1)(d), reproduced below also stated the same: 

any income accruing or arising to, or deemed to accrue arise to, or received or deemed to be received by, any person from transfer of investments made before the first day of April, 2017 by such person.(emphasis added)

The addition of ‘which were’ in the amended rule is hardly a substantive amendment. In the absence of any substantial difference between Rule 10U(1)(d) and Rule 128(1)(d), the Supreme Court’s observations on cut-off date remain the law until their basis is removed by a statutory amendment or subsequent decision(s).  

Meaning of ‘Arrangement’ May Continue to be Contentious 

The above changes though still leave us searching for one crucial answer. The meaning of arrangement. GAAR is applicable only if the arrangement is an impermissible avoidance arrangement. The Supreme Court referred to the statutory definition of an impermissible avoidance arrangement – in Section 96, IT Act, 1961/Section 179, IT Act, 2025 – which states that it is an arrangement whose main purpose is to obtain a tax benefit and is carried out by means or manner which is not ordinarily employed for bona fide purposes. In the Tiger Global case the Supreme Court stated that transaction in question was an impermissible avoidance arrangement because: the transaction entered by Tiger Global was exempt from tax under the Mauritius tax law and it was also seeking exemption under the Indian income tax law. Thereby presenting a strong case for the IT Department to deny the benefit under the India-Mauritius DTAA as such an arrangement is impermissible. 

The Supreme Court made no precise observation as to which aspect of the transaction or corporate structure/arrangement adopted by Tiger Global amounts to an impermissible avoidance arrangement. The Supreme Court’s above observations suggest that to claim tax benefit under a DTAA, the taxpayer must pay tax in at least one of the contracting states. And since the case involved an indirect transfer, the Supreme Court’s observations can be applied to similar such transfers in the future. But, overall, specificity as to what constitutes an impermissible avoidance arrangement is missing in the Tiger Global case. Largely, we have the statutory definition of an impermissible avoidance arrangement to rely on for future cases, but the exact scope may emerge through future decisions and as new fact situations require judicial attention. 

Overall, though amendments to the IT Rules, 2026 have ensured that any confusion that could emerge from interpretation of the ‘without prejudice’ clause is removed. And the IT Department is intent on effectuating ratio of the Tiger Global case in so far as application of GAAR in relation to grandfathering benefit is concerned. In short, arrangements entered before 1st April 2017 will be subject to GAAR, only investments can claim the grandfathering benefit. But distinguishing one from the other will require strenuous efforts and contentious interpretations.      

PS: Amendments to the IT Rules, 2026 were uploaded via a notification on the IT Department’s website without any accompanying explanation. Taxpayers were left to their own devices to decode rationale and implication of the amendment. Perhaps the IT Department could have made some effort in communicating its intent.   

Income Tax Act, 2025: A ‘Reform’ Comes to Life 

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The Income Tax Act, 2025 (IT Act, 2025) – after almost a decade of attempts to redraft income tax law – comes into force on 1 April 2026 and replaces the Income Tax Act, 1961 (IT Act, 1961). It’s a unique legislative achievement for various reasons. Two noteworthy reasons are: (a) there was no widespread or pressing demand for enacting a new income tax law; (b) the IT Act, 2025 does not effectuate any major change in tax policy. No other comparable ‘legislative replacement’ comes to mind where a new law was implemented without intending to change the previous policy. Instead, the IT Act, 2025 is an attempt ‘simplify’ the income tax law, remove redundant provisions and overall change the sequence and arrangement of various provisions. A rewriting of the income tax law, if you may.      

The attempt at simplification required the Income Tax Department (‘IT Department’) to devote a significant time – 75,000 person hours – but some of the re-drafted provisions have raised concerns. Until now, the most notable concern has been about the scope of search and seizure powers and their impact on digital privacy of taxpayers. A pre-mature Public Interest Litigation challenging constitutionality of Section 247, IT Act, 2025 – which contains search and seizure powers – was filed before the Supreme Court. But the Supreme Court did not entertain the petitioner’s plea and allowed the petition to be withdrawn. 

In this article, I attempt to provide a descriptive account of three aspects of the IT Act, 2025: origin of the reform, the lack of legislative scrutiny, and a brief comment on the expanded scope of search and seizure powers.    

Forgotten (and Opaque) Roots 

In November 2017, the Union of India constituted a Task Force to draft a new income tax law. The Task Force was mandated to draft an income tax law in consonance with the economic needs of India and that aligned with international best practices. The Task Force was not constituted because of any major or specific concerns about the IT Act, 1961. In fact, major concerns were about the IT Department’s propensity to amend the IT Act, 1961: frequently and retrospectively. And this propensity was fuelled by an intent to overcome loss in courts. The Press Information Bureau’s communication dated 22 November 2017 only states that there was a concern that the IT Act, 1961 was more than five decades old. And there is need to draft a new income tax law. A generic and weak concern that triggered the mammoth exercise of drafting a new income tax law. 

In July 2019, the Finance Minister Ms Nirmala Sitharaman informed the Rajya Sabha that there was no proposal under consideration regarding the Direct Taxes Code, but a task force had been constituted to draft a new income tax law. This statement, in my view, was an attempt to distinguish the NDA government’s attempt to rewrite the income tax law with the UPA government’s previous attempt of overhauling the IT Act, 1961 via a Direct Taxes Code. Nonetheless, she also informed that the remit of Task Force had been expanded and it will now provide suggestions on faceless assessments, reducing litigation, making compliance burdens less onerous, and examine sharing of information with indirect tax departments.  In August 2019, there were sporadic news reports that the Task Force had submitted its report. But the report and recommendations of the Task Force were never made public. The report, its recommendations, and its draft of income tax law – if any – remain a blackhole in India’s income tax law reform history. A Task Force on income tax law, funded by taxpayers, but whose final recommendations and work remain beyond the taxpayers’ access. Irony sometimes visits Indian tax reform, only to mock us taxpayers.      

Any reports or information on the Task Force’s recommendations died a natural death after 2019. There is no public record of any progress or discussion on income tax reform. And, then, after 5 years of silence, in her Budget Speech of 2024, Finance Minister Ms Nirmala Sitharaman announced a ‘comprehensive review’ of the IT Act, 1961. She informed the Parliament that the purpose was to make the statute more lucid, easy to read, and reduce disputes and litigation. She added that the entire exercise was to take six months. But there was no reference to the recommendations or work of the Task Force constituted in November 2017 or whether the ‘comprehensive review’ was an extension of their work. Or whether Union of India had decided to reject all recommendations of the Task Force. Since the Task Force was mandated to draft a new income tax law, presumably its draft was unacceptable to the Union of India necessitating the need to initiate a complete review five years after the Task Force had submitted its report. 

Nonetheless, first draft of the IT Bill, 2025 was introduced in the Lok Sabha in the Budget Session of 2025. It is anyone’s guess as to whether the draft is based on, similar to, or a complete variation from the one drafted by the Task Force in 2019. Anyhow, the introduction of first draft unleashed the vocabulary of ‘simplification’ of income tax law. The Union of India – under the NDA government – wanted that the IT Bill, 2025 be examined on the touchstone of leanness and simplification. And not whether the IT Bill, 2025 was necessary in the first place. Thus, one question that slipped through the cracks: what made the IT Act, 1961 cumbersome? One vital reason: tendency of the IT Department to amend the law each time they lost a major case. The most dramatic and popular amendment is the retrospective amendment made in 2012 in aftermath of the Vodafone case. But, in my view, amending the IT Act, 1961 as an annual ritual – during the Budget- contributed to making it cumbersome. In short, it is not solely the age of IT Act, 1961 that made it cumbersome and complicated. Tax administration was also responsible to making the law unwieldly.   Unless the IT Department’s habit of effectuating annual amendments – to overcome a loss in courts – is brought to a halt, the IT Act, 2025 will suffer the same fate. 

Quick Legislative Passage and Amendments 

The Select Committee on the IT Bill, 2025 submitted its recommendations in July 2025 and, one month later, the IT Act, 2025 was passed by both Houses of the Parliament in the Monsoon Session of 2025. I’ve remarked elsewhere – of course, in jest – that the hurry with which the IT Bill, 2025 was passed should not lead courts to ascribe any ‘legislative wisdom’ to drafting of its provisions. The legislative hurry ensured that there was no meaningful legislative scrutiny of various provisions by either the Lok Sabha or the Rajya Sabha. Thus, it is not a stretch to say that the IT Act, 2025 is a law conceived and drafted by the executive and the Parliament merely rubber stamped it. While the Parliament rubber stamping various laws has been an increasing trend for various laws, in the context of income tax law such a practice brings into focus the idea of no taxation without representation. Elected representatives – especially in the Lok Sabha – should ideally scrutinise the quantum and methods with which the Union of India wishes to extract income tax from the taxpayers. But income tax policies are hardly the subject of any legislative debates and scrutiny. Executive fiat is determining our income tax burdens.   

Which brings me to, what I suggest, is a related issue. Frequent amendments to income tax laws. The IT Act, 2025 possesses the rare distinction of being amended before its implementation. The IT Act, 2025 comes into force on 1 April 2026 and in February-March of 2026, the Budget of 2026 proposed to amend some of its provisions. One reason for amendments to a law that was yet to be implemented was partially tied to the swiftness of its legislative passage. If the IT Bill, 2025 was never examined by either the Lok Sabha or the Rajya Sabha, there were bound to be some errors and oversights. While it is true that the IT Department spent a considerable time in drafting the law, the Select Committee prepared a gargantuan report detailing its observations and views of various stakeholders; there is no replacing a meaningful legislative debate.   

Of course, I don’t mean to say that if a meaningful and substantive legislative debate takes place, it cannot stop errors from creeping in the statute. Neither does it mean that the law will not be frequently amended. However, legislative debates – at the very least – can serve as useful insights into legislative intent. And this can be particularly useful because the IT Department frequently reasons that a particular provision is being amended because courts misunderstood legislative intent. In the absence of a legislative debate, what was the legislative intent remains only in the executive’s knowledge. Taxpayers only find out about the legislative intent if and when the executive chooses to reveal it. And while, in courts, the IT Department does frequently cite legislative intent to support its interpretation of the provision it is not supported by any legislative debates. The closest source we get are some statements by the Finance Minister in the Parliament while introducing or clarifying the amendments. Or if the amendments were made as part of the Finance Act, then the accompanying Memorandum might contain some brief explanations. But that is not true for all amendments as several provisions are amended via the Finance Act but no corresponding explanation for the amendment is found in the Memorandum. 

A quick-paced legislative passage, no meaningful legislative debate or scrutiny of the relevant provisions means that the income tax law becomes the site of back and forth between the IT Dept and courts. That is what frequently happened with the IT Act, 1961. And unless there is a serious change in the tax administration’s approach and the Parliament becomes more robust, we are likely to witness a similar scenario with the IT Act, 2025.  

Powers of Search and Seizure 

This brings me to third aspect of the IT Bill, 2025 that has caught attention in some quarters. To begin with, there is need to clarify that the IT Dept possessed search and seizure powers under the IT Act, 1961 too. Section 132 of the IT Act, 1961 empowered income tax officers to enter any building or place, seize any books of account or documents, place marks of identification on books of account or make copies. The corresponding provision in the IT Act, 2025 – Section 247- makes a crucial addition and extends the powers to electronic records. 

Section 247 states that where the competent authority has reason to believe that any person to whom summons have been issued has omitted or failed to produce any documents any books of account or documents are may be required by summons or notice; it may authorise relevant officers to enter and search a building, vessel or aircraft where it has reason to suspect that such books of account or documents are kept. Section 247(1)(a)(II) extends this power to ‘any information in an electronic form or a computer system’ which will be relevant to proceedings under the IT Act, 1961 or IT Act, 2025. Section 247(b)(ii) takes this power even further and states if a person is found in possession of an electronic record, information in electronic form or a computer system; the officer may require such person to:

such reasonable technical and other assistance (including access code, by whatever name called) as may be necessary to enable the authorised officer to inspect such books of account or other documents or such information;  

Thus, the officer can demand the person whose electronic record it is trying to access to provide technical assistance for accessing the record. 247(b)(iii) further states that if the access code to a computer system is not available, the officer can override it. Thus, the extension of powers to access computer systems and electronic records is comes with the power to obligate the person to provide access, and on refusal override the access codes. The extension of search and seizure powers to electronic records and computer systems can be justified by pointing towards ubiquitous nature of digitalisation. If the income tax officers had similar powers in respect of physical books of accounts and documents, their extension to digital sphere is an example of the law keeping abreast of contemporary practices. Equally, the threshold of ‘reason to believe’ needs to be satisfied, and the powers of search and seizure contain in-built safeguards.  

I’ve expressed my preliminary views on the interface of privacy and tax previously. But, two quick points on widening of search and seizure powers under Section 247 of the IT Act, 2025. First, extension of search and seizure powers to computer systems has a high probability of bringing personal devices within their scope. If not, personal devices per se, the IT Dept can gain access to a taxpayer’s personal data on an official computer system. In fact, the IT Department – even before implementation of the IT Act, 2025 – has confiscated mobile phones and laptops raising concerns of privacy and potential leak of personal data on these devices. The IT Department’s assurance that the device and data will be used in accordance with the law is effectively lack of any legal protection against invasion of privacy. Second, it is worth examining if the threshold of ‘reason to believe’ is sufficient protection vis-à-vis computer systems and electronic records. The courts have consistently upheld that reason to believe is a subjective standard and requires a speaking order detailing reasons. But, have refrained from scrutinising the material or information that led to the concerned officer arriving at the belief. But, with the Supreme Court endorsing right to privacy and introduction of personal data laws, it is worth examining if reason to believe provides adequate protection in the emerging landscape on privacy. My tentative view is: reason to believe is insufficient.    

There needs to be a safeguard, that if the computer system especially a mobile phone/laptop is used for personal and professional purposes, the income tax officer cannot seize or access it without any prior restrictions. An additional filter, on a priori basis, is necessary to provide a meaningful safeguard. Else, an officers’ reason to believe is sufficient for them to gain access to a taxpayers’ social media accounts, personal communication, financial records, and other personal data. The kind of information that is likely to be on mobile phone or laptop if it is also used for personal purposes. Reason to believe may be sufficient for income tax officers to gain access to business premises of a taxpayer, and conduct search for physical books of account; but extending it computer systems is fraught with the risk of violation of privacy.                

The Future Beckons   

Indian income tax  – and its reform – has a long history. The latest addition to it – IT Act, 2025 – has its roots in the Task Force constituted in 2017. But, since 2019, the Union of India has avoided any reference to recommendations and report of the Task Force. The second wind for replacing the IT Act, 1961 caught momentum in 2024 and will reach its conclusion on 1 April 2026. We can only speculate how much of the efforts to simplify the law are attributable to the Task Force. Nonetheless, what we do know is that the IT Act, 2025 is leaner and shorter with fewer provisions. I’m tempted to analogise it with being lean, but not healthy. But, it is difficult to say with certainty if the change in language and use of alternate vocabulary will create less litigation, free up capital caught in pending court cases, or otherwise contemporise India’s income tax law. What we do know is that there are two major trends that are almost contemporaneous to simplification of the income tax law: first, a movement to new tax regime as the default regime; second, a push, even if marred with controversies, towards faceless assessment. A third crucial aspect remains uncertain: India’s stance on digital taxation. While the equalisation levy has been made redundant, what follows its removal is not entirely certain.  

Spectrum Licensed to Telecom Companies: Another Frontier for the IBC

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Interaction of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) with various sectors of the economy – aviation and real estate – has produced uneven results. Telecom sector brings forth its own set of issues. The Supreme Court in its recent judgment of State Bank of India v Union Bank of India (‘SBI case’) has accorded primacy to the Indian Telegraph Act, 1885 and its attendant regulatory framework, potentially throwing a spanner in the efficacy of IBC for telecom companies. The narrow issue was whether spectrum – held under a license by telecom companies – is an asset that can be subjected to corporate insolvency resolution proceedings (‘CIRP’) under the IBC. The Supreme Court answered in the negative and held that telecom companies do not own the spectrum, and it cannot be categorized as their asset under the IBC. 

The broader framework – previously endorsed in  Property Owners Association & Ors v State of Maharashtra & Ors – within which the Supreme Court decided the case was that spectrum is a finite natural resource and belongs to the people. The Government acts as a trustee in distributing these natural resources and is constitutionally bound to distribute spectrum to sub-serve common good. The Supreme Court held that telecom companies possess a limited right to use the spectrum and do not own it. And treatment of spectrum as an asset by telecom companies in their balance sheet is not determinative of the nature of spectrum. Instead, the relevant telecommunication laws – and license conditions – provide the answer to question if spectrum is an asset or not. Further, the Supreme Court held that the IBC cannot displace telecommunication laws as the latter determine conditions for grant, use, and transfer of spectrum.  

This article attempts to highlight three aspects of the SBI case: firstly, an acknowledgment that natural resources cannot be treated as objects of private ownership does not naturally lead to the conclusion that they cannot be treated as assets for CIRP; there is a ‘reasoning gap’ between the statement and its conclusion; secondly, potential implications for companies in other sectors where use of licenses for exploiting natural resources is the main business activity and, the license, a vital asset of such companies; thirdly, by treating spectrum as incapable of being subjected to CIRP, the recovery of pending dues by the State may not materialize or alternatively, push negotiations outside the framework of IBC. Both eventualities do not serve the IBC’s purpose. Finally, this article examines the broader issue of reconciling telecommunication laws with the IBC and makes a case that the latter should override the former and all sectoral laws should accommodate the contingency of licensee’s insolvency to harmonize the objectives of both laws.    

Background

The Aircel Group entities (‘Aircel’) were granted telecom licenses by the Department of Telecom (‘DoT’) under license agreements which were valid for twenty years. Aircel availed loan facilities from domestic lenders such as the State Bank of India for its business. Aircel, on failure to pay license fees to the DoT, initiated voluntary CIRP under Section 10 of the IBC. The DoT challenged resolution plan approved by the NCLT via an appeal before the NCLAT. The NCLAT’s three observations that are relevant to this article are: (a) spectrum is an intangible asset of Aircel; (b) DoT is an operational creditor of Aircel in relation to pending payment of license fee and usage charges’; (c) spectrum cannot be utilized without clearing pending dues as CIRP cannot be used to wipe out statutory dues. The last two observations are, inter-se, inconsistent. If the DoT was accepted as an operational creditor, it should have been paid as per the approved resolution plan. The NCLAT by observing that payment of pending license fees to the DoT is pre-condition for utilization of spectrum indirectly categorized the DoT as a ‘pre-eminent creditor’. A situation not endorsed by the IBC. The Supreme Court disagreed with the NCLAT’s first observation itself and held that spectrum is not owned by a licensee such as Aircel, is not its asset, and cannot be subjected to CIRP.  

Spectrum Trading Subject to Clearance of Dues   

The Supreme Court examined the nature and conditions of the spectrum license and made three pertinent observations: (a) the DoT’s powers as a licensor are not merely contractual in nature but emerge concurrently from the Constitution and statute; (b) the license does not confer ownership or proprietary interests to the licensee merely a right to use the spectrum for a limited duration; (c) the licensor maintains absolute control over the licensee including rights of the latter to create third-party rights or transfer the spectrum. The latter was evident in The Guidelines for Trading of Access Spectrum, 2015 which stipulate certain conditions that need to be fulfilled for spectrum trading.  The Supreme Court cited Guideline 11 which mandates a licensee to pay all pending dues before concluding any agreement for spectrum trading. And Guideline 12 under which the Government reserves the right to claim any subsequent dues discovered from either of the two parties, jointly or severally. 

Core condition of spectrum trading under the license can thus be spelled out: if a licensee has pending dues, it cannot trade spectrum unless pending dues are paid. But does this condition apply even during a CIRP under the IBC? If a licensee is undergoing CIRP, can a successful resolution applicant can acquire its license without paying the (entirety of) pending dues? The Supreme Court answered in following words: 

The Spectrum Trading Guidelines cannot be overridden or substituted by the insolvency resolution framework. Dues payable to the Licensor, which must be cleared prior to spectrum trading, cannot be relegated to treatment under a Resolution Plan. (para 29)   

The Supreme Court endorsed this position by reasoning that payment of pending dues is an absolute condition. And that the IBC cannot bypass telecommunication laws by treating spectrum as an asset. Nor can the non-obstante clause of the IBC – Section 238 – wherein it overrides all other laws can be used to displace the condition of payment of pending dues before transferring the spectrum. Supreme Court’s reasoning suffers from a few limitations, as I elaborate in the subsequent sections.  

Understanding Implications 

Firstly, Supreme Court’s conclusion is encased in the constitutional framework of natural resources being owned by the people. The emphasis on the absolute and pervasive control of the DoT on all aspects of spectrum – tradability, transferability – was one reason to conclude that licensee did not own the spectrum.  Supreme Court’s understanding that natural resources such as spectrum are licensed by State largesse and do not result in change in ownership is plausible on a standalone basis. However, this understanding does not naturally lead to the conclusion that spectrum cannot be subjected to CIRP. The Supreme Court justified the conclusion by referring to Section 18 of the IBC wherein assets of a corporate debtor include intangible assets owned by the corporate debtor. However, Section 18(f) states that it includes ‘any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor …’. Thus, merely ownership of an asset is not a condition, its reflection as an asset in balance sheet is also crucial. However, the Supreme Court emphasized on the former and reasoned that treatment of spectrum in a balance sheet was not determinative of ownership of an asset. But, did not engage with the language of Section 18(f) which mentions ownership of an asset and its treatment in the balance sheet.     

Also, the Supreme Court arrived at its conclusion by identifying telecommunication laws as the ‘legal province’ of spectrum and observing that the IBC cannot alter conditions for license prescribed by the former. The Supreme Court observed that if the DoT forgoes pending dues under a resolution plan, it will be acting contrary not only to telecommunication laws but also to its constitutional obligations. The IBC’s competing aim of rescuing the licensee pales in comparison to constitutional mandate of distribution of natural resources for the common good. The Supreme Court’s approach does not acknowledge that transfer of spectrum as an asset – under the approved resolution plan – would also take place under a constitutionally valid law, i.e., the IBC. And the DoT’s legal and constitutional mandate of securing pending payments cannot be secured merely under telecommunication laws. Though once the Supreme Court identified latter as the relevant laws, applicability of the IBC was only possible if the special circumstance – of financial distress – that precipitate the CIRP were acknowledged. But the Supreme Court insisted on the absolute nature of telecommunication laws, unqualified adherence to conditions of licenses, and impliedly endorsed the position that any reduction or non-payment of pending dues will be a betrayal of the constitutional mandate to secure natural resources for common good.  

Secondly, the Supreme Court’s observations create potential issues for similarly placed companies whose licenses are one of their most valuable assets. For example, companies that have secured mining licenses – for coal and other natural resources – may face similar legal situations wherein the State may claim priority for any pending dues under the respective licenses. For such companies, a mining license is their core asset and if it does not form part of CIRP, the IBC’s aim to rescue such companies may fail. Other companies will have little incentive to participate in CIRP and rescue the company if they cannot control the latter’s most lucrative asset, i.e., the license. The only caveat is that the Supreme Court’s conclusion in the SBI case is based on its examination of the relevant telecommunication laws. And the specific legal and regulatory framework for such other licenses and terms of licenses may determine the outcome in those cases. Though the State is likely to use the SBI case as an instrument to claim payment of all pending dues under a license.   

Thirdly, it is worth highlighting that the corporate debtor’s unwillingness or inability to pay the pending dues is the reason that CIRP is initiated. In such a situation, the DoT’s insistence that the corporate debtor pay all pending dues may not materialize. The other plausible option is that a resolution applicant’s whose plan is chosen by the CoC makes payment to the DoT before getting the plan approved by the NCLT. But if one operational creditor – the DoT, even if it is a statutory body – gets paid on priority and in full under the resolution plan it prejudices claims of other operational creditors. And payment of dues to the DoT on priority has no statutory basis under the IBC. The third option is of corporate debtor entering negotiations outside the IBC framework. A telecom company – unable to unwilling to pay dues – may enter into an agreement with a willing buyer wherein the latter pays the pending dues and buys the spectrum. The Supreme Court’s judgment may push financial distressed telecom companies towards these negotiations that will occur outside the IBC’s framework. 

I suggest that all three possible options elaborated above defeat the IBC’s objective of providing timely resolution of a distressed corporate, accounting the interests of all stakeholders, and maximizing the value of corporate debtor’s assets. Payment to the DoT, on priority, prejudices other creditors and is at odds with prescribed mechanisms under the IBC. While initiation and completion of any negotiations outside the framework of the IBC prevents the corporate debtor from taking advantage of a law enacted for the purpose of corporate rescue and can potentially sideline other stakeholders. On balance, I would argue that the obligations of outstanding debts and pending dues are better recast and negotiated under the IBC’s framework and not beyond.       

Reconciling Telecommunication Laws with the IBC    

Supreme Court’s judgment in the SBI case implies that all dues that a licensee owes to the State are to be recovered as per the telecommunication laws, and the IBC cannot influence the nature and quantum of pending payments. The fact that the licensee is financially distressed and is seeking rescue under the IBC via CIRP is immaterial. The Supreme Court observed that payment of pending dues is an ‘absolute’ condition under the telecommunication laws and the IBC cannot displace it. There are two aspects worth examining in respect of the Supreme Court’s above observations. 

Firstly, let us look at Explanation to Section 14(1) wherein it is stated that the Central Government, State Government, local authority or sectoral regulator shall not terminate a license, permit or quota on grounds of insolvency; provided there is no default in payment of dues during the moratorium period. This provision reduces the elbow room for a licensor such as the DoT to terminate a telecom license on grounds of non-payment of dues caused by insolvency or initiation of CIRP. While Section 14 of the IBC seemingly constraints the powers of licensors to terminate licenses, it also reveals that a reconciliation between the IBC and licensing powers of the State is possible. Latter is forced to acknowledge financial distress of the corporate debtor, restrain from termination of license, and acknowledge the IBC’s purview. 

In fact, I would argue that Section 14 envisages that all dues relating to licenses should be resolved as part of CIRP and not independent of it. Explanation to Section 14(1) prevents cancellation of licenses to preserve status quo until a resolution plan is approved. The explanation is premised on the fact that all pending dues in relation to a license shall be resolved as per the resolution plan. Else, if the recovery of dues of a license – telecom or otherwise – was envisaged to be independent of the CIRP there is little reason to prevent cancellation of licenses. The presumption is that natural resources in possession of a licensee even if not owned by it have value that can be accounted for in the resolution plan. And pending dues paid accordingly. This ensures that all pending dues under a license are paid to the licensor as part of CIRP, the corporate debtor is rescued, and all its financial obligations are addressed comprehensively under the IBC itself. While it is trite that natural resources cannot be privately owned, it is also vital to acknowledge that a license confers economic and exploitation rights to the licensee. While the Supreme Court – in the SBI case – examined the issue of economic rights, it looked at solely from the lens of ownership of asset and did not engage in a deeper analysis of their interaction with insolvency. Economic rights in relation to the natural resources are a crucial asset that are subject to license conditions, but insolvency is a special condition and provides a persuasive reason to deviate from standard license conditions.     

Secondly, only a related note, it needs to be underlined that non-obstante clause of the IBC serves multiple purposes. To begin with, it indicates that – to the extent of inconsistency – the IBC prevails over all other laws since it is an exhaustive law. The Supreme Court has clarified the exhaustive nature of IBC sufficiently. In matters relating to insolvency, the IBC prevails over all other laws. Even sectoral laws. The IBC does not ‘displace’ sectoral laws but only ensures that in matters relating to insolvency no other law be applicable to ensure predictability and certainty in CIRP. Further, I would argue that the non-obstante clause also underlines that the IBC hovers over all sectors of the economy and applies to all companies. It is sector agnostic. Thus, it is the sectoral laws that need to adjust to the presence of IBC and not the other way around. The Supreme Court – in the SBI case – reasoned that applying the IBC to telecom sector will cause disharmony. And the harmony, as per the Supreme Court could only be served by observing the license conditions in isolation from CIRP. The Supreme Court concluded: 

The two statutes have different subjects to deal with, different purposes to subserve, different laws to abide, protect different rights and create different liabilities. It is necessary for the constitutional courts to recognize their respective provinces and to ensure that they operate with harmony and without conflict. (para 68)         

If both laws operate in their own provinces, then the harmony that prevails is only superficial. The harmonious approach endorsed by the Supreme Court has the potential of each sector regulator – in its capacity as a licensor – claiming a privileged position as a debtor. And, rendering the non-obstante clause of the IBC subject to vagaries of various sectoral laws and license conditions. At the very least, it will jeopardize attempts at rescuing various kinds of companies under the IBC, especially the ones that have secured licenses from the State. 

Conclusion

Supreme Court’s observations in the SBI case, in effect, privileges dues owed to the State under a license. And there are scarcely justifiable reasons why pending dues under a license cannot be recovered – in part or full – as part of the resolution plan. The conditions of payment under a license should be respected unless a CIRP is commenced. The latter – once commenced – should have the effect of varying the contractual obligations as it is a special circumstance. But insistence on absolute nature of payments on constitutional grounds and sub-serving common goods does little to increase the likelihood of payment of pending dues. And if a successful resolution applicant does pay the dues to the State on priority, it amounts to redesigning the IBC in favor of the State. While, ideally, the State should actively concede its claims to help revive a corporate debtor instead of saddling it with full recovery amounts.   

Supreme Courts Uses Tax Sovereignty to Hunt Tiger Global

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The Supreme Court recently handed a significant legal victory to the Income Tax Department (‘Revenue’) in The Authority for Advance Rulings (Income-Tax) & Ors v Tiger Global International III Holdings (‘Tiger Global case’). And in the process created a significant shift in our understanding of income tax jurisprudence and tax treaty obligations. But, before we get to what the Supreme Court held, a short prologue.  

Prologue: Underlying Procedural Knot

Justice Mahadevan, in his leading opinion, concluded that the Revenue has proved that transactions in ‘the instant case are impermissible tax-avoidance arrangements, and the evidence prima facie establishes that they do not qualify as lawful.’ (para 50) (emphasis added)  

The above conclusion – lacking adequate basis – is crucial because of procedural backdrop of the case. Tiger Global companies (‘Tiger Global’) had filed an application before Authority for Advance Ruling (‘AAR’) seeking clarity on their obligation to withhold taxes. But, AAR rejected Tiger Global’s application on the ground that its arrangement was for avoidance of tax in India. If a transaction is ‘designed prima facie for the avoidance of income tax’, then AAR is obligated to reject the application under proviso (iii) to Section 245R(2). AAR found the above provision to be ‘squarely applicable’ to the case and rejected the application. The core finding of AAR was that Tiger Global incorporated in Mauritius lacked economic substance and its head and brain were located in the United States of America. Tiger Global, AAR noted, were ‘conduits’ for investments in Singapore and Mauritius.   

Tiger Global impugned AAR’s ruling before the Delhi High Court (‘High Court’). The Revenue contended that AAR had only given a preliminary opinion on chargeability to tax and there was no justification for the High Court to exercise judicial review. The High Court reasoned that reports of both Commissioner of Income Tax and AAR had ‘trappings of finality’ and ‘evident element of resolute decisiveness’. The High Court’s view was fortified by AAR’s observations on treaty eligibility and on chargeability of capital gains. The High Court, convinced that AAR had made substantial findings and not expressed a prima facie view, pronounced a detailed decision on merits. The High Court held that Tiger Global was not liable to tax in India and could avail treaty benefits under the India-Mauritius tax treaty.     

In appeal against the High Court’s decision, the Supreme Court has pronounced a detailed judgment but not gone into merits of the case. A fact that is difficult to come terms with once you read the judgment. Nonetheless, as per the Supreme Court the core question before it was: whether AAR was right in rejecting applications for advance rulings on grounds of maintainability and whether enquiry can be made if capital gains is chargeable.

In view of the above procedural history, the Supreme Court’s conclusion that the Revenue has succeeded in proving that ‘prima facie’ Tiger Global’s arrangements are unlawful is vital. Since the Supreme Court Revenue has ruled in favor of the Revenue, the assessment of Tiger Global will materialize. Tiger Global, if it chooses, can lend quietus to the issue and pay tax or challenge the imminent assessment orders and indulge in another round of legal bout with the Revenue. That is all in the untold future, until then we have the Supreme Court’s judgment to contend with.   

Introduction

Supreme Court’s judgment can be analyzed on various axes: international tax law-domestic law dynamic, application of judicial anti-avoidance rule, prospective and retrospective applicability of amendments, trajectory of India-Mauritius tax treaty, eligibility for tax treaty benefits, relevance of secondary legislation such as circulars issued by the Revenue and norms of judicial propriety. Two crucial threads of the case – in my view – are the relevance of tax residency certificate (‘TRC’) and applicability of GAAR.

In brief, Supreme Court has held that TRC is necessary but not a sufficient condition to claim tax treaty benefits. Tiger Global possessing TRC of Mauritius does not preclude the Revenue from applying the substance over form test and deny assessee tax treaty benefits. In this article, I forsake an exhaustive commentary on the case, to make two narrow claims: 

First, the Supreme Court in holding that TRC is a necessary but not sufficient condition for claiming tax treaty benefits plays fast and lose with strict interpretation of Section 90(4) of the Income Tax Act, 1961 (‘IT Act, 1961’) and instead places greater reliance on legislative history and legislative intent while ignoring binding judicial precedents.

Second, I suggest that Tiger Global case unsettles well-entrenched axioms in income tax and tax treaty landscape. The most significant rupture is of the doctrine that tax treaties override domestic law if the former are more beneficial to the assessee. The Supreme Court had no qualms in stating that GAAR contained in a domestic law can be used to deny tax treaty benefits. An observation that appears unblemished, if we look at the underlying provision(s), but holds wider consequences for India’s tax treaty obligations.   

I conclude that the sub-par reasoning of the Supreme Court is attributable to its half-baked idea of tax sovereignty. The concurring opinion of Justice Pardiwala invokes tax sovereignty expressly while the leading opinion of Justice Mahadevan relies on it impliedly. In Tiger Global case, Indian Supreme Court has couched tax sovereignty in legal sophistry, without articulating it in any meaningful manner. In fact, the Supreme Court has exhibited a shallow view of international law – and by extension tax treaty – obligations by viewing them as dispensable and permitted unilateral actions by the Revenue in the name of tax sovereignty.     

I make the above claims fully cognizant of the fact that the Supreme Court’s judgment is, technically, not on merits of the case. But the Supreme Court’s observations are sufficiently detailed and such judicial observations deserve a scrutiny irrespective of narrowing framing of the issue. 

Factual Background 

The brief facts of the case are that Tiger Global acquired shares in Flipkart Singapore before 1 April 2017. The value of shares of Flipkart Singapore was primarily due to the assets the company held in India. In simpler terms, Tiger Global held some shares in holding company of Flipkart – Flipkart Singapore – which in turn controlled subsidiary Indian companies. And the value of shares of Flipkart Singapore was derived from the business and assets owned by its Indian subsidiaries. In August 2018, Tiger Global sold the shares as part of the larger restructuring wherein Walmart acquired majority shareholding in Flipkart Singapore. 

The sale of shares was an ‘indirect transfer’ because sale of shares of Flipkart Singapore indirectly transferred control of Flipkart’s Indian companies and business to Walmart. The sale, as per the Revenue was chargeable to tax under IT Act, 1961. Since the value of shares in Flipkart Singapore was primarily due to the assets it held in India, the legal fiction under Explanation 5, Section 9 was applicable as it deems such shares as located in India. Tiger Global contended that it was a resident of Mauritius, it had acquired the shares before 1 April 2017, and as per the India-Mauritius tax treaty it was liable to pay tax only in Mauritius.    

Tiger Global was riding on two major factors: firstly, that under the India-Mauritius treaty all investments made by residents of Mauritius before 1 April 2017 were grandfathered and were liable to tax only in Mauritius; secondly, if an assessee is resident of India’s tax treaty partner the IT Act, 1961 will only apply if it is more beneficial to the assessee. Thus, as per Tiger Global even if the transaction was liable to tax under Section 9, IT Act, 1961 the India-Mauritius tax treaty exempted it from tax in India and the treaty should override the statute. Widely held views amongst lawyers backed the former claim, decades of jurisprudence the latter.  

The Supreme Court rejected the arguments of Tiger Global and wrote a judgment premised on fanciful ideas of tax sovereignty and autonomy.    

Tax Residency Certificate: Necessary but not Sufficient  

In April 2000, the Revenue had issued Circular No. 789 to address the anxieties about tax liabilities of FIIs and other investment funds which operated from Mauritius and were incorporated there. The relevant portion of the Circular stated that: 

It is hereby clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAC accordingly. (emphasis added)

In October 2003, the validity of Circular No. 789 was upheld by a Division Bench of the Supreme Court in Union of India v Azadi Bachao Andolan and Anr. The Supreme Court in upholding the Revenue’s power to issue Circular No. 789 endorsed its contents and the Revenue’s interpretation of the India-Mauritius tax treaty. In Tiger Global case, the Supreme Court instead of accepting this unequivocal position of law and engaging with it a meaningful manner, pursued the tangent of legislative history and amendment of Section 90 to conclude that TRC is not sufficient evidence of residence. The legislative history was the amendments made to IT Act, 1961 in 2012 and 2013 to primarily undo the effect of Supreme Court’s judgment in the Vodafone case.    

Finance Act, 2012 amended Section 90(4), IT Act, 1961 to state that an assessee is not entitled to claim relief under a tax treaty unless he obtains a certificate of being residence. In 2013, Finance Bill, 2013 proposed to introduce Section 90(5) in IT Act, 1961 to state that: 

The certificate of being a resident in a country outside India or specified territory outside India, as the case may be, referred to in sub-section (4), shall be necessary but not a sufficient condition for claiming any relief under the agreement referred to therein.

Due to backlash and concerns about the effect of proposed sub-section(5) on the Mauritius route, Finance Act, 2013 dropped the above version and instead introduced the current Section 90(5) which states that an assessee referred to in sub-section(4) shall also provide ‘such other documents and information’ as may be required.

Presuming the legislative history of Section 90 is relevant to adjudicate the issue in Tiger Global case, it is possible to derive two possible views from the above developments. One, adopted by the Delhi High Court was that:

issuance of a TRC constitutes a mechanism adopted by the Contracting States  themselves so as to dispel any speculation with respect to the fiscal residence of an entity. It therefore can neither be cursorily ignored nor would the Revenue be justified in doubting the presumption of validity which stands attached to that certificate bearing in mind the position taken by the Union itself of it constituting ―sufficient evidence‖ of lawful and bona fide residence. (para 199)

The High Court cited the Vodafone case to note that the Revenue’s power to investigate despite a TRC was confined only to cases of tax fraud, sham transactions or where an entity has no vestige of economic substance. 

The Supreme Court pointed the needle in other direction. The Supreme Court referred to the Explanatory Memorandum of Finance Bill, 2012 to observe that intent of amending Section 90(4) was that TRC is necessary but not sufficient evidence of residence. Reliance on supporting sources instead of interpreting the provisions is a curious approach and even the High Court traversed this path for no clear reason. 

The Supreme Court noted that while the legal position – that TRC is necessary but not sufficient – could not be codified due to withdrawal of previous version of Section 90(5), introduction of current version of Section 90(5) still introduced ambiguity if TRC was sufficient. But the Finance Ministry issued a clarification in 2013 that the Revenue ‘will not go behind the TRC’ and Circular No. 789 continues to be in force. And yet, the Supreme Court’s conclusion seems at odds with the clarification issued by the Finance Ministry. The Supreme Court concluded that: 

Section 90(4) of the Act only speaks of the TRC as an “eligibility condition”. It does not state that a TRC is “sufficient” evidence of residency, which is a slightly higher threshold. The TRC is not binding on any statutory authority or Court unless the authority or Court enquires into it and comes to its own independent conclusion. The TRC relied upon by the applicant is non- decisive, ambiguous and ambulatory, merely recording futuristic assertions without any independent verification. Thus, the TRC lacks the qualities of a binding order issued by an authority. (para 37)

The legislative intent in amending Section 90(4) was that TRC is necessary but not sufficient to claim treaty benefits. But such an unambiguous position never found its way in the statute. Instead, the Revenue to clarify the import of amendments to Section 90 stated – via the Finance Ministry – that Circular No. 789 is still in force. But the Supreme Court, relied on legislative intent and observed that TRC has ‘limited evidentiary value’ because of the statutory amendments that govern the field. Failing to note that the Finance Ministry issued its clarification in March 2013 – after the amendments.  

The import and of Section 90(5) was understood by the Supreme Court in following words: 

Section 90(5) mandated that the assessee shall also provide such other documents and information, implying that the existence of a TRC alone need not be treated as sufficient to avoid taxation under the domestic law. (para 12.24) (emphasis added)

Even if legislative history is relevant, the failure to engage with a binding judicial precedent – Azadi Bachao Andolan case – is indefensible. Supreme Court’s refuge was that amendments to IT Act, 1961 have changed the law. In stating so, it refused to acknowledge jurisprudence that High Courts have developed jurisprudence on TRC even after the amendments and the judicial view has largely been consistent with Azadi Bachao Andolan case. Perhaps engagement with the reasoning of High Court judgments and expressing better reasons for disagreement could have lent some credibility and weight to Supreme Court’s conclusions. And as the Revenue itself argued, Vodafone was not a treaty case, it involved interpretation of statutory provisions. Amendments to IT Act, 1961 in 2012 and 2013 to undo Vodafone cannot be used to bypass treaty obligations.  

The non-engagement with Azadi Bachao is what led Supreme Court to say that since the object of a tax treaty is to prevent double taxation, ‘for the treaty to be applicable, the assessee must prove that the transaction is taxable in its State of residence.’ (para 19) How damaging is this statement, we will only know in due time. For now, it suffices to say that it flies in the face of settled law on treaty interpretation that to avail a treaty benefit, a resident must only be liable to tax in another jurisdiction. Liability to tax cannot be equated to actual payment of tax. 

Also, interpreting tax statutes based on implication is a rare approach. Courts, including the Indian Supreme Court, have repeatedly exhorted that tax statutes need to be interpreted strictly. Adherence to strict interpretation is a sine qua non that courts only abandon in the face of ambiguity in a provision. In Tiger Global case, the Supreme Court seemed comfortable relying on legislative intent – revealed by Explanatory Memorandum – and dismissing binding judicial precedents and valid circulars by pointing at statutory amendments. 

Cumulatively, Supreme Court’s observations on TRC fall foul of strict interpretation of tax laws, disrespect judicial precedents, allow the Revenue to conveniently sidestep its own binding circulars and bring into question legitimacy of documents issued by India’s treaty partners. A stirred cocktail of tax misgovernance.   

Tax Treaty Overrides Domestic Law, GAAR is an Exemption  

The Revenue’s argument was that TRC only constitutes prima facie evidence of residence and cannot override substance over form. Even if TRC was not considered as sufficient, the Revenue had to rely on anti-tax abuse rules to claim that Tiger Global was a sham or a conduit. But the Limitation of Benefits clause (‘LOB clause’) in the India-Mauritius treaty was inapplicable to the transaction. So? GAAR came to the rescue. But the Supreme Court had to jump a few interpretive hoops to allow the Revenue to apply GAAR.  

Section 90(2) states that where the Union has entered a tax treaty with another State or jurisdiction that provisions of IT Act, 1961 shall apply to the extent they are more beneficial to the assessee. The import of this provision is that if a tax treaty is more beneficial it shall apply even if it is at variance with the IT Act, 1961. In successive decisions courts have upheld the above legal position and held that charge of income tax and determination of scope of income under sections 4 and 5 of IT Act, 1961 are subject to tax treaties. An uncontroversial position until 2012.   

In 2012, the Finance Act added sub-section (2A) to section 90 which states that: 

Notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him.

Chapter X-A contains provisions relating to General Anti-Avoidance Rule, also introduced via the Finance Act, 2012. Section 90(2A) empowers the Revenue to apply a statutory anti-tax abuse rule to assessees who are covered by tax treaties. The exception in subsection (2A) then ensures that if the LOB clause of a tax treaty is not sufficient, GAAR can be invoked to address tax avoidance strategies.  

The Supreme Court took cognizance of the above provision, interpreted it strictly and noted that GAAR can apply to assessees covered by tax treaties. On the touchstone of strict interpretation, the Supreme Court was right in observing that GAAR can apply to assessees covered by tax treaties. But Supreme Court’s failure to engage to engage with decades of judicial precedents stating that domestic tax law cannot override tax treaties remains a fatal flaw of the judgment. Unless tax treaty provides that GAAR can apply in the absence/insufficiency of a LOB clause, Section 90(2A) amounts to a unilateral amendment of tax treaties. And the Supreme Court seems to have endorsed it.   

The other hurdle was grandfathering. Rule 10U(1)(d), Income Tax Rules, 1962 states that Chapter X-A containing GAAR shall not apply to income accrued or arisen from investments made before 1 April 2017. Tiger Global argued against application of GAAR citing the grandfathering contemplated in the domestic provisions. But the Revenue relied on Rule 10U(2) which states that: 

Without prejudice to the provisions of clause (d) of sub-rule (1), the provisions of Chapter X-A shall apply to any arrangement, irrespective of the date on which it has been entered into, in respect of the tax benefit obtained from the arrangement on or after the 55[1st day of April, 2017]. (emphasis added) 

Rule 10U(2), on first glance, negates the grandfathering contemplated by Rule 10U(1)(d). The Revenue made a similar argument. The High Court had refused to interpret ‘without prejudice’ to mean that GAAR could be applied to income from arrangements entered before 1 April 2017. The High Court noted that it should ‘eschew from’ interpreting a provision in a domestic statute that conflicts with a treaty provision. And concluded that accepting the Revenue’s argument would mean:

A subordinate legislation would thus stand elevated to a status over and above a treaty entered into by two nations in exercise of their sovereign power itself. (para 230)

The Supreme Court did not have similar qualms  as the High Court and accepted the fine distinction made by the Revenue. The distinction was that Rule 10U(1)(d) only grandfathered investments, while Rule 10U(2) uses the word ‘arrangement’ and thus the grandfathering benefit can only extend to investments and not tax avoidance arrangements, even if the latter were entered into before 1 April 2017. A strict interpretation of both Rules – supported by observations of the Shome Committee – will place Supreme Court’s conclusion in a defensible category. But what does it mean for India’s tax treaty obligations?   

A two-pronged thorn emerges: 

First, tax treaty override over domestic law will no longer be exhaustive by virtue of Section 90(2); Revenue can apply GAAR if LOB clause of tax treaty is insufficient by invoking Section 90(2A) read with Rule 10U. Domestic law, specifically, GAAR will act as a backstop to prevent tax avoidance. A legal position that the Supreme Court has accepted in Tiger Global case but flies in the face of decades of jurisprudence on income tax law and tax treaty interpretation.  

Second, relevant provisions of the India-Mauritius tax treaty refer to ‘gains’ not to investments or arrangements. Can domestic laws – including secondary legislation – now determine the scope of taxability and allocation of rights agreed upon tax treaties? The High Court said a categorical no, the Supreme Court said yes. The Supreme Court took refuge in the fact that amendments of IT Act, 1961  – specifically Section 90 – had changed legal landscape. Domestic landscape, yes. Treaty obligations, not. But, I guess, we are a sovereign country that can act independently and if need be in flagrant disregard of our treaty obligations.   

Conclusion

Tiger Global case is an attempt by Indian Supreme Court to flex tax sovereignty, without truly understanding it. The concurring opinion of Justice Pardiwala exemplifies this lack of understanding. He lauds India’s unilateral revocation of Bilateral Investment Treaties in 2016 and adds that an assertion of tax sovereignty is the power to make unilateral moves. What is being termed as tax sovereignty is polite speak for reneging on tax treaty commitments if revenue demands are not accepted unconditionally. Such prescriptions appeal to baser instincts of the State and do not aspire to tax governance founded on rule of law. Justice Pardiwala perfunctorily adds that India should negotiate tax treaties by including certain safeguards such as: GAAR should override tax treaty benefits. Another example of how he misunderstands manifestation of tax sovereignty. Is the assumption here that India’s treaty partners will simply agree to such clauses and not extract similar concessions for themselves. Justice Pardiwala not only exceeds his remit by providing policy prescriptions but provides them based on a shallow understanding of treaty dynamics and negotiations.    

To book end this article, Justice Mahadevan’s conclusion cited at the beginning where he concludes that the transactions of Tiger Global are impermissible anti-avoidance arrangements is based on facts that seem only privy to him and the Revenue. There is nothing in both the leading opinion and the concurring opinion to even provide a glimpse of reasons as to why the transactions and arrangements are impermissible anti-avoidance arrangements. If only Supreme Court judgments on tax issues were to provide us less tax history lessons, fewer policy prescriptions and substitute them with better reasoning, sound analysis of facts and accurate application of law.   

Time Restraint on Power of Provisional Attachment under GST 

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Introduction 

The Supreme Court in Kesari Nandan Mobile v Office of Assistant Commissioner of State Tax (‘Kesari Nandan Mobile’) held that an order of provisional attachment under Section 83 of the Central Goods and Services Act, 2017 (‘CGST Act of 2017’) cannot extend beyond one year. A plain reading of Section 83(2) of the CGST Act of 2017 reveals that every provisional attachment shall cease to have effect after expiry of one year. However, Section 83(2) doesn’t expressly prohibit renewal of an attachment order after expiry of one year.  

In Kesari Nandan Mobile, the Revenue Department after expiry of one year issued a new attachment order terming it as ‘renewal’ of the previous attachment order. The Gujarat High Court dismissed the assessee’s challenge to ‘renewal’ of the attachment order. The Gujarat High Court provided two major reasons: 

first, prima facie the assessee was engaged in supply of bogus invoices and claiming Input Tax Credit (‘ITC’) based on those invoices. In view of the assessee’s conduct, the Gujarat High Court held that the order of provisional attachment cannot be said to cause any harassment to the assessee;  

second, the Gujarat High Court added that under Section 83(2) of the CGST Act of 2017, there was no embargo to issue a new provisional attachment order after lapse of the previous attachment order. And that a provisional attachment order passed after one year was intended to safeguard the revenue’s interest and was not in breach of Section 83(2) of the CGST Act of 2017.                   

The Supreme Court set aside the Gujarat High Court’s decision by interpreting Section 83(2) in favor of the assessee. The Supreme Court referred to comparable legislations – Income Tax Act, 1961 (‘IT Act, 1961’) as well as Customs Act, 1962 and The Central Excise Act, 1944 – and noted that the authorities can renew an order of provisional attachment only when a statute expressly provides for it. But, if the statute does not expressly confer a power for extension of provisional attachment, the executive ‘cannot overreach the statute’. 

In this article, I argue that the Supreme Court in Kesari Nandan Mobile has added a welcome restraint on the Revenue Department’s power of provisional attachment by correctly interpreting Section 83(2) of the CGST Act of 2017. I further suggest that the Supreme Court in the impugned case reinforced the legal framework on provisional attachment elaborated in in M/S Radha Krishan Industries v The State of Himachal Pradesh(‘Radha Krishan Industries’). The Supreme Court in Radha Krishan Industries was categorical that the power of provisional attachment was ‘draconian in nature’ with serious consequences. And the rights of assessees against such a power were valuable safeguards that needed protection. The Supreme Court in Kesari Nandan Mobile builds on the foundation laid in Radha Krishan Industries and expressly states that provisional attachment is only a pre-emptive measure and not a recovery mechanism. 

Radha Krishan Industries on Provisional Attachment 

The Supreme Court in Radha Krishan Industries noted that the legislature was aware of the draconian nature of provisional attachment and serious consequences that emanate from it. And use of power of provisional attachment is predicated on specific statutory language used in Section 83 of the CGST Act of 2017. Interpreting Section 83(1) of the CGST Act of 2017, the Supreme Court emphasized that the Commissioner must only issue an order of provisional attachment if it is necessary to do so and not because it was practical or convenient. Necessity of protecting the interest of the revenue is the fountainhead reason that triggers the power of provisional attachment. 

Supreme Court in Radha Krishan Industries also interpreted Section 83(1) of the CGST Act of 2017 alongside Rule 159 of the CGST Rules of 2017. The latter provided detailed procedure and rights of assessee’s vis-à-vis provisional attachment. The Supreme Court specifically interpreted Rule 159(5) of the CGST Rules and held that it provided two procedural entitlements to the person whose property was attached: first, the right to file an objection on the ground that the property was not or is not liable to be attached; second, an opportunity of being heard. The Supreme Court underlined the importance of these rights and dismissed the Revenue Department’s stance that the right to file objections was not accompanied by a right to be heard.  

Finally, in Radha Krishan Industries, the Supreme Court took umbrage that a previous attachment order against the assessee was withdrawn by the Revenue Department after considering representations of the assessee; but a subsequent order of provisional attachment was passed on the same grounds. The Supreme Court observed that unless there was a change in circumstances it was not open to the Revenue Department to pass another order of provisional attachment. While this observation of the Supreme Court was not in the context of outer time limit, it laid down the law that even if a new provisional attachment order is issued within one year, the onus is on the Revenue Department to prove that there was a change in circumstances that necessitated a new order.  

It is in the backdrop of the Supreme Court’s above observations in Radha Krishan Industries on provisional attachment that we need to understand the issue of time restraint addressed in Kesari Nandan Mobile. 

Supreme Court Adds Time Restraint

In Kesari Nandan Mobile, the Supreme Court was faced with the issue of whether an order of provisional attachment can be issued after expiry of one year of issuance of the previous attachment order. The Supreme Court noted that issuance of an order of provisional attachment after one year cannot be justified on the ground that it is not prohibited under a legislative or executive instrument. The Supreme Court added three more reasons to support its conclusion that provisional attachment cannot take place after expiry of one year: 

First, the ‘complete absence of any executive instruction’ that is consistent with the legislative policy of allowing renewal of orders of provisional attachment after expiry of one year. 

Second, the Supreme Court reasoned that Section 83(2) of the CGST Act of 2017 must be interpreted in a manner that does not reduce it to a dead letter. As per the Supreme Court, conceding to the Revenue Department’s argument of allowing renewal of provisional attachment after expiry of one year would make Section 83(2) otiose. The Supreme Court – impliedly invoked Radha Krishan Industries – and held that Section 83(1) conferred a draconian power and Section 83(2) should not be interpreted to ‘confer any additional power over and above the draconian power’ upon the lapse of one year envisaged under Section 83(2).     

Third, the Supreme Court further observed that issuance of a fresh provisional attachment order on substantially the same grounds as previous one would be in disregard to the safeguard provided under Section 83(2) of the CGST Act of 2017. In Radha Krishan Industries the Supreme Court had disallowed issuance of a fresh provisional attachment order on similar grounds as the previous order. But the Supreme Court’s primary objection was that the new provisional attachment order was issued despite there being no change in facts. However, in Kesari Nandan Mobile, the Supreme Court expressed concern that issuance of new order after expiry of one year may lead to continuous issuance of provisional attachment under the garb of renewal and would be contrary to a plain reading of Section 83(2). 

The Supreme Court’s observations in Kesari Nandan Mobile are an important win for taxpayer protection, a plain reading of tax statutes, and a welcome restraint on the Revenue Department’s power. The Gujarat High Court’s decision was influenced by dishonest conduct of the taxpayer. Ideally, the taxpayer’s conduct should not intervene in plain and strict reading of the tax statutes unless the context warrants otherwise. In the impugned scenario, there was little reason for the Gujarat High Court to interpret Section 83(2) in a way that provided additional powers to the Revenue Department. Especially when the powers in question are intrusive and can cause permanent damage to the assessee’s business.  

Incongruity Between Section 83(2) and Rule 159(2)

The Supreme Court in Kesari Nandan Mobile also took note of the incongruity between Section 83(2) of the CGST Act of 2017 and Rule 159(2) of CGST Rules of 2017. The former provides that every order of provisional attachment shall cease to have effect after expiry of one year. Rule 159(2) in turn provides that an order provisional attachment shall cease to have effect only when the Commissioner issues written instructions. Thus, even after expiry of one year the provisional attachment continues unless written instructions are issued by the Commissioner. The Supreme Court noted that the incongruity had been brought to the notice of the GST Council and an amendment to Rule 159(2) was proposed. The amendment to Rule 159(2) will provide that a provisional attachment shall cease to have effect after one year or from the date of order of the Commissioner, whichever is earlier. 

But even though the proposed amendment – though approved by the GST Council – has not been effectuated, the Supreme Court held that it is important that Section 83(2) is complied with strictly. Implying that an order of provisional attachment should not extend beyond one year.     

Conclusion 

The power of provisional attachment is certainly intrusive, but at the same time necessary. The necessity stems from preventing an eventual frustration of the tax demand because the assessee has disposed of their properties. At the same time, as courts have reminded the Revenue Department: the power of provisional attachment is not a recovery measure. It is temporary until the investigation is over. And failure to complete the investigation or recover tax cannot be used as a cover to extend the duration of provisional attachment beyond the statutory mandate. And each time, the Revenue Department must be mindful of the consequences that provisional attachment entails and its disruption to assessee’s business and profession. 

Parallel Proceedings under GST: Supreme Court Misses an Opportunity

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Introduction 

Recently, the Supreme Court in M/S Armour Security (India) Ltd v Commissioner, CGST, Delhi East Commissionerate & Anr (Armour Security case) clarified scope of the terms ‘proceedings’ and ‘same subject matter’ used in Section 6(2)(b) of the Central Goods and Services Act, 2017 (CGST Act of 2017). The need to clarify the import of both phrases was necessary to ensure that taxpayers are not subjected to parallel proceedings by the Union and State GST officers on the same subject matter. 

The judgment largely succeeds in earmarking the scope of both phrases but feels like a missed opportunity. 

In this article, I suggest that Armour Security case offered the Supreme Court a chance to elucidate on the inter-relatedness of various proceedings under CGST Act of 2017. Instead, the Supreme Court focused narrowly only on Section 6(2)(b) and eschewed a broader examination of inter-dependency of various provisions of the CGST Act of 2017. I also argue that the Supreme Court’s guidelines are not a substantive contribution to the challenge of preventing parallel proceedings. GST is the first time that both the Union and States have jurisdiction over the same taxpayer base. Overlaps, frictions, and disputes in administrative actions of both entities are expected and addressing them will require time, deft adjudication, and interpretive balance. Broad guidelines for tax administration wherein courts urge respective tax authorities to ‘communicate with each other’ is a simplistic approach to a novel and complex issue.   

Scope and Aim of Section 6(2)(b), CGST Act of 2017 

Section 6 of the CGST Act of 2017 performs two crucial roles in GST administration: 

first, Section 6(1) ensures ‘cross empowerment’ wherein officers appointed under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act are authorized to be the proper officers for the purposes of the CGST Act of 2017 as well. This ensures that appointment and orders of proper officers have effect under both the Union and State GST laws simultaneously.   

second, Section 6(2)(b) ensures a ‘single interface’ for the taxpayer by providing: 

where a proper officer under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act has initiated any proceedings on a subject matter, no proceedings shall be initiated by the proper officer under this Act on the same subject matter. (emphasis added) 

Section 6(2)(b) serves a salutary purpose of ensuring that a taxpayer is not subjected to overlapping investigations by two different authorities and is accountable to only one authority, i.e., there is a ‘single interface’ for the taxpayer. But ensuring a single interface is not as straightforward. The Supreme Court in Armour Security case had to interpret the phrases ‘proceedings’ and ‘same subject matter’ to clarify the powers of officers and various actions that they are allowed or restrained from initiating against a taxpayer.      

Issuance of Summons is not Initiation of Proceedings 

In the impugned case, Armour Security had received a show cause notice (‘SCN’) under Section 73 of the CGST Act of 2017. The SCN raised a demand for tax, interest, and penalty for excess claim of ITC. Approximately three months later the premises of Armour Security were searched by another authority. Armour Security subsequently received summons under Section 70 of the CGST Act of 2017 requiring one of its directors to produce relevant documents. Armour Security challenged the latter on the grounds of lack of jurisdiction in view of Section 6(2)(b). 

The Supreme Court in Armour Security case clarified that issuance of summons to a taxpayer under Section 70 of the CGST Act of 2017 does not amount to initiation of proceedings. The Supreme Court endorsed the view of the Allahabad High Court in GK Trading v Union of India & Ors where it was held that Section 70 of the CGST Act of 2017 empowers a proper officer to issue a summon to obtain evidence or document in any inquiry. The High Court added that the use of the word ‘inquiry’ in Section 70 had a specific connotation and was not synonymous with use of the word “proceedings” used in Section 6(2)(b) of Uttar Pradesh GST Act (pari materia with Section 6(2)(b) of the CGST Act of 2017).  

The Supreme Court reasoned that summons do not culminate an investigation but are merely an information gathering device during an ‘inquiry’ to determine if proceedings should be initiated against the taxpayer. If and any information received consequent to summons can influence initiation of proceedings. Thus, the Supreme Court correctly held that issuance of summons does not amount to proceedings. In stating the above, the Supreme Court largely reiterated the reasoning and conclusion of the Allahabad High Court. But let’s suppose proceedings against a taxpayer are pending before the Union GST officers. During the pendency, State GST officers issue summons to the taxpayer. And the latter discover new information as part of their inquiry; information that justifies initiation of proceedings. Wouldn’t pending proceedings before the former constrain the latter from initiating proceedings against the latter? It would defeat the entire purpose of obtaining the information via summons. In such a situation, it seems the State GST officers can only transfer the information that they obtained to the Union GST officers who initiated the proceedings.   

‘Proceedings’ Galore under CGST Act of 2017 

In interpreting the scope of ‘proceedings’, the Supreme Court chose to focus only on Section 6(2)(b) of the CGST Act of 2017. The Supreme Court’s narrow lens on Section 6(2)(b) is a defensible judicial choice but has left a few issues unaddressed. I will take two examples from the CGST Act of 2017 to highlight the crucial nature of inter-relatedness of various proceedings. 

First, let me cite Section 83 of the CGST Act of 2017 which states: 

Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property. Including bank account, belonging to the taxable person … (emphasis added)

Chapter XIV of the CGST Act of 2017 contains Section 70 which empowers a proper officer to summon any person. Chapter XII also contains Section 67 empowering a proper officer to conduct inspection, search and seizure. So, it is not unreasonable to deduce that as per Section 83(1) cited above, issuance of summons and conduct of inspection, search and seizure amounts to proceedings. Initiation of either of the two will satisfy the pre-condition of exercising the power of provisional attachment under Section 83(1). 

So, after Armour Security case, this is the position: issuance of summon under Section 70 of the CGST Act of 2017 does not amount to initiation of ‘proceedings’ under Section 6(2)(b); but as per Section 83(1), issuance of summons continues to be a ‘proceeding’. Not only is the taxpayer liable to respond to the summons, but the taxpayer becomes susceptible to provisional attachment immediately after issuance of summons. The current position of law is unlikely to be a respite for the taxpayer.  

Second, Section 66 of the CGST Act of 2017 empowers an officer not below an Assistant Commissioner to direct a special audit ‘at any stage of scrutiny, inquiry, investigation or any other proceedings before him’. Does issuance of a summon satisfy the pre-condition for a special audit under Section 66 too? Section 66 is under Chapter XIII of the CGST Act of 2017, so we can argue that proceedings under this provision does not have the same meaning as ascribed to it under Section 6(2)(b) or Section 83(1). And that the Armor Security case needs to be read narrowly. But there is no clear or definitive answer yet. 

The term ‘proceedings’ has been used in several places in different contexts throughout the CGST Act of 2017. One can argue that the context of the provision may alter the meaning of the term ‘proceeding’ and the Supreme Court’s observations in Armour Security case must be understood solely in the context of Section 6. It is a fair argument but does not set aside the possible interpretive disagreements that may arise. Not the least because of the inter-related nature of various proceedings under the CGST Act of 2017 – an issue that the Supreme Court chose to not address.      

Scope of ‘Same Subject Matter’ 

The bar against parallel proceedings under Section 6(2)(b) of the CGST Act of 2017 is only regarding ‘the same subject matter.’ The meaning of same subject matter thus acquiring a crucial role in preventing parallel proceedings. The Supreme Court in the impugned case was clear that proceedings are initiated only on issuance of SCN. And it is only in a SCN that various grounds and challenges alleged against an assessee are penned down for the first time. Based on its above observations about SCN, the Supreme Court concluded that: 

The expression “subject matter” contemplates proceedings directed towards determining the taxpayer’s liability or contravention, encompassing the alleged offence or non-compliance together with the relief or demand sought by the Revenue, as articulated in the show cause notice through its charges, grounds, and quantification of  demand. Accordingly, the bar on the “same subject matter” is attracted only where both proceedings seek to assess or recover an identical liability, or even where there is the slightest overlap in the tax liability or obligation. (para 86)

Thus, same subject matter is determined on the basis that an authority has already proceeded on an identical tax or offence and the demand or relief sought subsequently is identical. 

The Supreme Court’s delineation of what constitutes the same subject matter flows logically from its identification of issuance of SCN as the initiation of proceedings against an assessee. And it is the demand mentioned in a SCN that will be the reference point to determine if the latter set of proceedings are on the same subject matter.

There is little to dispute about the Supreme Court’s interpretation of scope and meaning of the ‘same subject matter’. But whether the above understanding will be applied appropriately – by GST officers and courts – to various fact situations will only be known in future.       

Supreme Court’s Guidelines    

The Supreme Court did not stop at interpreting the term proceedings and same subject matter. Though the interpretation would have sufficed given the issue involved in the impugned case. The Supreme Court went ahead and issued guidelines in its over eagerness to ensure that parallel proceedings against a taxpayer are avoided. The Supreme Court’s guidelines are perhaps the weakest part of Armour Security case. Mostly, because they were not needed. Additionally, the guidelines are a simplistic take on an issue that requires frequent administrative decisions and co-ordination. A task that the judiciary is not best suited to accomplish. The Supreme Court as part of its guidelines urges the tax authorities to decide inter se who should have jurisdiction over the proceedings against the taxpayer if it comes to their notice that a taxpayer is subjected to parallel proceedings. And enjoins an assessee to bring parallel proceedings to the notice of tax authorities by writing a complaint to have that effect. Equally, the Supreme Court clarified that both authorities have a right to pursue a matter until it is established that it concerns the same liability and demand. In other words, both authorities are allowed to pursue their actions until they can ascertain if they relate to the same subject matter.

Maybe – by way of abundant caution – the Supreme Court felt the need to communicate certain obvious issues to the Revenue Department. But, on balance, it seems that the guidelines are superfluous and could have been easily avoided. The Revenue Department – if it feels necessary – is better positioned to issue suitable guidelines on how to address the issue of parallel proceedings, prevent duplication of efforts, and ensure that the taxpayer is not subject to repeated and unnecessary queries on the same subject matter.  There are likely to be finer nuances of dual tax administration that the Revenue Department can appreciate as opposed to a judicial forum. And some of the issues may need time and experience to be ironed out adequately.     

Conclusion

The Armor Security case is a welcome addition to the jurisprudence on parallel proceedings. It clarifies some crucial elements regarding proceedings and subject matter. And, at the same time, provides additional guidance to the taxpayers and tax authorities on how to ensure better communication when caught in the crosshairs of multiple proceedings. While the guidelines seem superfluous, the Supreme Court’s narrow focus on Section 6(2)(b) may create a bigger uncertainty. The meaning of ‘proceedings’ used in other provisions of the CGST Act of 2017 can either be aligned with or be at variance with the Armor Security case. Either way, there is no clear answer for now.  

Shelf Drilling Judgment: A Case of Interpretive Disagreements

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The Supreme Court in a split judgment left unresolved the long standing issue of interplay between Section 144C-Section 153 of the Income Tax Act, 1961 (‘IT Act, 1961’). The absence of a clear resolution while not ideal, provides an insight into different interpretive attitudes towards procedural issues in tax. In this article, I make a few broad points on the interpretive approaches both the judges adopted when faced with a question that did not have a clear answer, but at the same time, a question seems to have acquired more complexity than  warranted. 

Issue 

The panoramic question was: whether timelines for ‘specific assessments’ in Section 144C of the Income Tax Act, 1961 (‘IT Act, 1961’) are independent of or subsumed in the general timelines for assessments provided in Section 153 of the IT Act, 1961? 

Section 144C provides the procedure and timelines for a specific kind of assessments which typically involve foreign companies. If the assessing officer makes any change in the assessment which is prejudicial to the assessee, then Section 144C prescribes a procedure which includes forwarding a draft assessment order to the assessee. If the assessee has any objections after receiving the draft assessment order, it may approach the Dispute Resolution Panel (‘DRP’). Section 144C, in turn, empowers DRP to issue binding directions to the assessing officer. And the latter has to complete the assessment as per the said directions. Section 153, in comparison, is a general provision which prescribes timelines for completion of assessments and reassessments. The assessing officer ordinarily has 12 months, after the end of a financial year, to complete any assessment.  

Opinions that do not ‘Converse’ 

In the impugned case, both judges framed the issue identically but answered it in diametrically opposite fashion. The divergent conclusions were a result of the different interpretive approaches adopted by both judges and their differing opinions as to what each of them considered relevant factors to adjudicate the case. The jarring part is that there seems to be no single point of consensus between the two judges. At the same time, while Justice Nagarathna does mention some points of disagreement with Justice SC Sharma’s opinion, the latter does not even mention or even superficially engage with her opinion. And consequently, Justice SC Sharma fails to tell us as to why he disagrees with Justice Nagarathna. It is left for us to arrive at our deductions and conclusions. I indulge in a preliminary attempt at this exercise and identify how both judges approached the issue and interpreted the relevant provisions and their respective reasonings.          

Modes Of Interpretation 

It is trite that tax statutes need to be interpreted strictly. Justice Nagarathna in her opinion went into significant detail about the appropriate interpretive approach in tax law disputes and cited various judicial precedents to lend support to her view of the necessity of strict interpretation. One offshoot of the doctrine of strict interpretation is that if the provision(s) is clear, plain, and unambiguous and inviting only one meaning, the courts are bound to give effect to that meaning irrespective of the consequences. It is this interpretive approach that guided her opinion that the issue of interplay between Section 144C-Section 153 was simply of statutory interpretation. She added that courts should not opine about the adequacy of the timelines available to the assessing officer or to the assessee as it would undermine the cardinal principles of tax law interpretation. So, if a strict interpretation of the provisions meant that an assessing officer would have limited time to complete assessments, so be it. It is for the Parliament to look into the adequacy of time available to the officers and assessees, not courts.      

Justice SC Sharma had no qualms – superficial or otherwise – about the need to follow strict interpretation. His approach was of a ‘balancing act’, literally. He clearly says that the Court must be alive to the ‘fine balance’ that needs to be maintained between tax officers having sufficient time to scrutinise income tax returns to prevent tax evasion and the right of assessees to not have their returns scrutinised after a certain amount of time. And in doing so, he stresses on the need for harmonious interpretation, the need to make various provisions of the IT Act, 1961 work. As is wont, a balancing act tends to lead to a half-baked solution. And Justice SC Sharma’s conclusion is one such solution where he concludes that the timelines prescribed in Section 153 are not completely irrelevant to Section 144C. The assessing officer is bound to complete the draft assessment order within the timelines mentioned in Section 153, and not the final assessment order. So he binds the assessing officer to complete half a job within the timeline prescribed by Section 153, but not the complete job. As per him, the final assessment order can be passed even after the limit set of Section 153. This is certainly not a strict interpretation of tax law provisions, but a judge’s subjective view of what is a ‘reasonable time’ for an assessing officer to complete an assessment.  

Relevance of Administrative Inconvenience 

Justice SC Sharma’s opinion is littered with his concern for tax officers of this country and their inability to complete assessments in a short time if the time period under Section 144C is interpreted to be subsumed in the time period provided in Section 153. He stated that in such a scenario, the tax officer will have to work ‘backwards’ and allow for a period of nine months to the DRP. As per Section 144C, if an assessee objects to the draft assessment order and refers it to a DRP, the latter has nine months to issue directions to the officer for completion of assessment and its directions are binding on the assessing officer. So, the assessing officer has to complete the draft assessment order by anticipating that objections may be raised before DRP, else the final assessment may not be completed within the timeline prescribed in Section 153. Justice Sharma was of the opinion that the Parliament ‘could not have conceived’ such a procedure to be followed by an assessing officer. The root cause of his concern was that the time window to complete the final assessment would be ‘negligible’ since ordinarily an assessment is to be completed within 12 months from end of the financial year in which the remand order is received from the tribunal. And this narrow time window, in his view, would ‘result in a complete catastrophe for recovering lost tax.’

Justice Nagarathana, however, dismissed the concern of unworkability of timelines. She said that failure of the assessing officer to meet the statutory timeline cannot be the basis of assuming any absurdity. The Revenue argued that if an assessing officer has to work backwards, the timelines may not be met, leading to an absurdity. I do agree with Justice Nagarathana that if for a specific set of assesses the assessing officers have to work backwards to respect the timelines, it does not make the provisions unworkable or absurd. How is working backwards to accommodate statutory prescribed timelines an absurd position? An assessing officer has to essentially accommodate nine months of time accorded to DRP in Section 144C and issue a draft assessment order accounting for that time. The actual absurdity is in the Revenue’s argument that an assessing officer accounting for the time that DRP may consume is a ground for extending statutory prescribed timelines. 

Also, Justice Nagarathana made it clear that merely because the assessee may opt for raising objections against the draft assessment order and approach the DRP cannot be a factor for increasing the timeline. The assessee cannot be prejudiced for exercising a right prescribed in the statute. Justice SC Sharma’s opinion though suggests that the exact opposite and implies that the assessee exercising the right to file objections and approach DRP is a good reason to extend timelines. And in implying so, he adopts a tenuous position. 

Impact of Non Obstante Clause(s) 

Our tax statutes contain non-obstante clauses galore, but their import and impact is understood differently based on the context. In the impugned case, Justice Nagarathana noted that the context and legislative intent of a non-obstante clause is vital to understand its import. Applying the above dictum, she held that the non-obstante clause in Section 144C(1) was only regarding the special procedure prescribed in the provision and not for the timelines enlisted in Section 153. She elaborated that Section 144C is only applicable to ‘eligible assessees’ and the provision mandates the assessing officer to forward a draft assessment order, while in all other cases a final assessment order is issued directly. Since Section 144C prescribes a special procedure for the eligible assessees, it overrides only those provisions of the IT Act, 1961 which prescribe a different procedure. Section 144C does not override all the provisions of the IT Act, 1961.  

Based on the above reasoning, Justice Nagarathana concluded that  the effect of non-obstante clause of Section 144C(1) is not to override Section 153. But why? This is because as per Justice Nagarathana, the latter was not contrary to the former. She added that if Section 144C is construed to extend the limitation period prescribed under Section 153, it would lead to an ‘absurd result’ as the scope and ambit of two provisions is distinct. She was clear that Section 153 prescribes timelines for assessments and reassessments while Section 144C prescribes procedure for a specific set of eligible assessees. In other words, Section 153 controls the timelines for all assessments while Section 144C controls procedure for specific assessments that may encompass only a limited set of assessees. Thus, both provisions had different scope and were not at odds with each other.  

One can also understand the above interpretive dilemma as an occasion where a judge faced with the relation between a general and specific provision, held that the former should serve the object and aims of the latter. Section 153 is certainly a general provision, and the timelines prescribed in it must be respected by a narrower and more specific provision such as Section 144C. Latter cannot operate at odds with the former and defeat the larger objective of completing assessments within prescribed time periods.  

Justice SC Sharma’s emphasis was on the non-obstante clauses in Section 144C(4) and Section 144C(13) which specifically override Section 153. Both these sub-sections mention the assessing officer’s obligation to pass a final assessment order. Both these sub-sections obligate an assessing officer to pass a final assessment order within one month (approximately) of receiving the assessee’s acceptance and DRP’s directions respectively. Justice Sharma somehow reads into the non-obstante clauses in these two sub-sections the idea that their effect was to only extend the timeline for passing a final assessment order and not the draft assessment order. He concluded that an assessing officer will have to complete the draft assessment order within the limitations stated in Section 153. 

Justice Sharma insisted that the non-obstante clauses must be construed to ‘not defeat’ the working of the IT Act, 1961 and ensure a harmonious construction of both the provisions. However, the real reason was his belief that if timelines of cases in Section 144C were subsumed in Section 153, it would be ‘practically impossible’ to complete the assessments. As discussed above, Justice Nagarathana was clear – and rightly so – that such a belief should have no role in interpretation of tax statutes. Also, Justice Sharma added that the assessing officer only acts in an executing capacity once the draft assessment order is passed, since the no new fresh issues can be raised thereafter. The implication being that the draft assessment order issued under Section 144C is effectively a final assessment order. This is convoluted phrasing and also an inaccurate understanding of assessment orders.      

Use of ‘Internal’ and ‘External’ Aids for Interpretation 

In the context of this discussion, let me say that an internal aid for interpretation can be understood be other provisions of the IT Act, 1961. While an external aid can include the Parliamentary discussions, committee reports, etc. Both the judges referred to external aids in the impugned case and tried to understand the rationale of impugned provisions, especially Section 144C, by citing memorandums and explanatory notes of the relevant finance acts. Justice Nagarathna cited them in significant detail and one can see that her conclusion was influenced by these external aids. The Finance Minister, when introducing the amendment via which Section 144C was inserted in the IT Act, 1961 had mentioned the need to improve climate for tax disputes, expedite the dispute resolution process, and provide an alternate dispute resolution process. Since the assessees that would benefit from Section 144C would primarily be foreign companies, the aim was to signal a more receptive tax environment for foreign investment. If expediting dispute resolution process was one of the aims of Section 144C, one could argue it was a reasonable deduction that timelines of Section 144C were subsumed in timelines of Section 153. Holding otherwise would delay the process instead of expediting it. And Justice Nagarathna was partially influenced by the purpose of introducing Section 144C before arriving at her conclusion.      

Justice SC Sharma’s reliance on external aid was comparatively much more limited. He cited the relevant extracts that explained the need for Section 144C, but his focus was more on the need to harmoniously interpret Section 144C and Section 153. He tried to reason that his conclusions were aimed at making sure the IT Act, 1961 remained workable and absurdities were avoided. He primarily relied on internal aids, i.e., other provisions of the IT Act, 1961 to defend his conclusions that he said were aimed to ensure harmony amongst the various statutory provisions.    

While We Await Another Judicial Opinion  

Until a three-judge bench weighs in with their opinion, the interplay of Section 144C-Section 153 obviously remains without a clear answer. On balance, the reasoning adopted by Justice Nagarathna is more aligned to classical principles of tax law interpretation. But, the Indian Supreme Court has an uneven record in tax law matters and predicting what may happen next is as good as rolling the dice. In recent times, the Supreme Court’s uneven history on tax matters includes but is not limited to providing remedy to the Revenue Department without them even making a request for it. Or adopting gymnast worthy legal fictions and altering the concept of time to ostensibly balance the rights of the Revenue and the assessees. Thus, there is no predicting the outcome of this dispute, though I can go out on a limb and say that the relevant provision(s) maybe amended, and retrospectively so, if the Income Tax Department does not agree with the final verdict. Such amendments are certainly not unheard of!     

Competition Law and the IBC: An Alternate Perspective on the Supreme Court’s Balancing Act

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Introduction

Recently, the Supreme Court (‘Court’) in Independent Sugar Corporation Ltd v Girish Sriram Juneja & Ors resolved an interpretive uncertainty involving the interface of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) with the Competition Act, 2002. The narrow question before the Court was whether the approval of a resolution plan by the Competition Commission of India (‘CCI’) must mandatorily precede the approval of the Committee of Creditors (‘CoC’) under the proviso to Section 31(4), IBC. The proviso states that:

 Provided that where the resolution plan contains a provision for combination as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.

The majority opinion, relying on a plain and literal interpretation, held that prior approval by the CCI was mandatory and not directory. The interpretive disagreement did not arise due to any ambiguity in the provision per se, but due to anxiety about delays in the resolution process. It was argued that mandating the prior approval of the CCI for all resolution applicants, instead of only the successful resolution applicant, would delay the completion of the resolution process under the IBC, and time is of the essence in a resolution process to protect and maximise the value of the corporate debtor’s assets. The issue – before, and even after the Court’s judgment – has been largely looked at from the prism of efficacy of the resolution process under the IBC and the need to respect timelines. Even the resolution professional in the impugned case seems to have interpreted the requirement of prior approval as directory to preserve time.  

I suggest that there are alternative ways to examine the issue. First, the prior approval of the CCI ensures respect for the commercial wisdom of the CoC as it prevents an ex-post alteration of the latter’s decision. The above sequence will help preserve the design of the IBC, which entrusts the CoC with the final say on commercial decisions in the resolution process. Second, I propose that insistence on prior approval of the CCI should be viewed as an eligibility requirement for resolution applicants instead of a procedural hurdle. The requirement of the prior approval of the CCI may dissuade insincere resolution applicants, and prevent submission of resolution plans that may crumble at the implementation stage. Cumulatively, both arguments cohere with the framework of the IBC and provide us a better understanding of its aims and procedures.  

Respect For Commercial Wisdom Of The CoC 

In most cases where petitioners have challenged the CoC’s approval of a resolution plan, courts have invoked the supremacy of the commercial wisdom of the CoC. The policy design of the IBC confers powers on the CoC to take commercial decisions, and courts can only intervene in limited and specific instances. The narrow window for judicial interference with decisions of the CoC has been rightly justified by courts by invoking limited grounds for appeal under the IBC. Courts have, thus, termed decisions of the CoC as being of paramount importance. How does the CoC’s supremacy translate into, and become relevant, in the context of the interface of the IBC and the Competition Act, 2002?

The Court in the impugned case relied on the commercial wisdom of the CoC to observe that the lack of prior approval will dilute the aforesaid design of the IBC. For example, if the CoC approves a resolution plan before it receives approval by the CCI, it would leave open the possibility of the latter suggesting modifications to the resolution plan. Permitting ex-post changes by the CCI would also strike at the finality of the CoC’s decision, and, more pertinently, alter the CoC’s position as the final arbiter of corporate debtors’ destiny. The Court underlined the paramount importance of the commercial wisdom of the CoC and reasoned that it can only be exercised assiduously if the CCI’s approval precedes the CoC’s approval. Otherwise, the CoC would be forced to exercise its commercial wisdom without complete information.   

Providing the CoC with the final say on commercial aspects of the resolution plan has remained a core idea since the initial stages of discussion on the IBC. The Bankruptcy Law Reforms Committee (‘BLRC’) had noted that one of the flaws of the pre-IBC regime was to have entrusted business and financial decisions to judicial forums. The BLRC opined that it was not ideal to let adjudicatory bodies take commercial decisions as they may not possess the relevant expertise. To overcome the flaws of the pre-IBC regime, the IBC was designed to empower only the CoC to take business decisions, as it comprises of financial creditors who may bear the loss in the resolution process. The bifurcation of roles was clear, the legislature and courts were to control and supervise the resolution process, however, all business decisions were the remit of the CoC, though it would arrive at the decision after consultation and negotiations with the corporate debtor. In a similar vein, the Court in Swiss Ribbons v Union of India noted that the financial creditors, comprising mainly of banks and financial institutions, are from the beginning involved in assessing the viability of the corporate debtor, and are best positioned to take decisions on restructuring the loan and reorganisation of the corporate debtor’s business when there is financial stress.         

The resolution applicant also suggested that the CCI’s approval could be sought by the successful applicant after the CoC’s approval but before the NCLT’s approval. First, the suggestion contravenes the plain language of the proviso. Second, the suggestion, if accepted, would still leave open the window of the CCI suggesting amendments to the CoC-approved resolution plan and strike at the IBC’s aim to give the CoC the final say on commercial aspects of the resolution plan.

In fact, the CoC approving a resolution plan which has not received the CCI’s approval would also be in contravention of other provisions of the IBC. The Court specifically mentioned that a resolution plan which contains a provision for combination is incapable of being enforced if it has not secured prior approval of the CCI. Such a plan cannot be approved by the Court as it would violate Sections 30(2)(e), 30(3), and 34(4)(a) of the IBC on grounds of being in contravention of the laws in force. Apart from the above provisions, it may be worth mentioning Section 30(4), which obligates the CoC to approve a resolution plan after considering its feasibility and viability. Clearly, evaluation of the feasibility and viability of a resolution plan must precede the CoC’s approval. The CoC should not be put in a position where it approves a resolution plan and only subsequently considers its feasibility and viability based on the CCI’s opinion, as that would disregard the IBC’s mandate.   

 Proviso To Section 31(4) As An ‘Eligibility Requirement’

 I suggest that the proviso to Section 31(4) should be viewed as an eligibility requirement for the resolution applicant. My suggestion is predicated on an analogy with Section 29A(c). Briefly put, Section 29A(c) declares that a person is ineligible to submit a resolution plan if such person or any other person acting jointly, or in concert with, it has an account classified as a non-performing asset for one year. The proviso removes the ineligibility if the person makes payment of all overdue amounts before the submission of the resolution plan. One of the resolution applicants in Arcelor Mittal India Pvt Ltd v Satish Kumar Gupta & Ors had argued that insistence on the prior payment of overdue amounts would reduce the pool of resolution applicants as their plan may not be eventually approved by the CoC, and that the proviso should be interpreted in a ‘commercially sensible’ manner wherein overdue amounts should be allowed to be paid as part of the resolution plan and not before the submission of the resolution plan.

Justice S.V.M Bhatti, in his dissenting opinion in the impugned case, has attempted to interpret proviso to Section 31(4) in a similar fashion. He has observed that insistence on prior approval by the CCI would limit the number of eligible resolution applicants. Further, he noted that the requirement of prior approval by the CCI raises a question of prudence since the resolution applicant would seek approval of its plan, which may eventually not be acceptable to the CoC.    

 In Arcelor Mittal, the Court dismissed the above line of arguments and held that the plain language of the proviso to Section 29A(c) makes it clear that the ineligibility is removed if overdue payments are made before the submission of the resolution plan. Making the overdue payments may be worth the while of the applicant as the dues may be insignificant compared to the possibility of gaining control of the corporate debtor. The Court added that it would not disregard the plain language of the proviso to avoid hardship to the resolution applicant. The above reasoning squarely applies to the proviso to Section 31(4) and is more persuasive than the dissenting opinion in the impugned case.  

 In fact, one could further engage with the argument about the proviso limiting the number of eligible resolution applicants by stating that the mandate of prior approval of the CCI may act as a filtering mechanism and attract only sincere applicants with concrete resolution plans. The receipt of the CCI approval may diminish the possibility of the resolution plan crumbling at the implementation stage due to the inability or disinclination of the resolution applicants to comply with the subsequent conditions that the CCI may impose. Knowledge of the CCI’s stance prior to the approval of the resolution plan will help in setting realistic timelines and conditions for the successful resolution applicant. 

 Section 31(4) permits the successful resolution applicant to obtain the necessary approvals required under any law for the time being in force, within one year from the date of approval by the adjudicating authority.  The proviso to Section 31(4) carves out one exception and states that if the resolution plan contains a provision for combination, the resolution applicant shall obtain the approval of the CCI prior to the approval of such resolution plan by the CoC. The language of the proviso is clear, unambiguous, and the legislative intent is unmistakable. As the Court noted in its majority opinion, courts must respect the ordinary and plain meaning of the language instead of wandering into the realm of speculation. An exception has been made in the proviso wherein resolution applicants need the prior approval of the CCI. To interpret ‘prior’ to mean ‘after’ would amount to the judicial reconstruction of a statutory provision. There is also no room to interpret the requirement of prior approval as being directory and not mandatory. Analogous to the proviso to Section 29A(c), obtaining the prior approval of the CCI may be ‘worth the while’ of the resolution applicants and this would be a  minor hardship compared to the possibility of controlling the corporate debtor.  

 Prior approval by the CCI should be viewed as an eligibility requirement for resolution applicants instead of a procedural burden. Typically, resolution professionals prescribe requirements of net worth, expertise, etc. for resolution applicants. If compliance with such conditions is not viewed as a hurdle, why view a regulatory approval only through the lens of time, as a procedural hurdle? Instead, it is better viewed as a safeguard to prevent future legal hurdles, smoothen the implementation of approved resolution plan, and to preserve the IBC’s design.  

Understanding The Anxiety About Delay

The Court, in the impugned case, has cited statistics to blunt the argument on delay. The statistics about the speed of decision-making by the CCI reveal that delays may not be significant. The Court cited the Annual General Report of the CCI for 2022-23, as per which, the average time taken by the CCI to dispose of combination applications was 21 days, and there was no recorded instance of the CCI taking more than 120 days to approve a combination application. The track record of the CCI partly convinced the Court that arguments about delays were exaggerated.

While there is merit in arguing that the insistence on prior approval by the CCI may delay the resolution process, it is important to add two caveats: first, even in cases not requiring the approval of the CCI, timelines of the IBC are not frequently respected for various reasons. This is not to suggest that additional delays would do no harm, but that delays are par for the course even when the CCI’s approval is not required. So, it is not accurate to ascribe the possible delay only to the requirement of the CCI’s prior approval. Second, prior approval by the CCI will be needed in relatively few instances, and thus there is good reason to adopt a relaxed view of timelines in such cases to avoid competition law issues after the CoC has approved the resolution plan. The additional time consumed in seeking the CCI’s approval will be for a valid reason, i.e., to address the interface of the IBC with competition law. The IBC cannot be implemented in a sealed bubble. where no extraneous factor  ever influences the speed and progress of the resolution process.  

Conclusion

I have tried to establish that once we take a step back from the time-centric arguments, we can cast a different lens on the issue of the interface of competition law and the IBC.  We can understand that the decision-making of the CoC, and other procedural requirements also need to be respected to maintain the integrity of the resolution process. Time, despite being vital, cannot solely dictate the entire resolution process. When the resolution process implicates other areas of law, such as competition law, adopting a relatively relaxed approach to the time limits of the IBC may ensure smooth approval and implementation of the resolution plan. In fact, the prior approval of the CCI aligns with the key design of the IBC, which strives to reserve final decisions on the resolution process to the CoC, subject to minimal judicial supervision. If the CCI unpacks and modifies the CoC-approved resolution plans ex-post, it will in fact, undermine the sanctity of the resolution process.

[This post was first published at NLSIR Online in May 2025.]

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