# In the matter of LML Limited CA No.. 389 of 2019 in CP(IB)No. 55-ALD-2017

> NCLT judgment dated 2020-08-31. Citation: TCN-2020-NCLT-00759. The case involves an application filed by the liquidator of LML Limited under Section 60(5) of…

- **Court:** NCLT
- **Order date:** 31 Aug 2020
- **Citation:** TCN-2020-NCLT-00759
- **Category:** IBC
- **Source page:** https://caseease.in/cases/ibc/nclt-chandigarh/lml-limited-ca-no-389-of-2019-in-cpibno-55-ald-2017-bce309d9

## Summary

### Background

The case involves an application filed by the liquidator of LML Limited under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, seeking directions on whether capital gains tax should be paid from the proceeds of asset sales of the corporate debtor and included in liquidation costs or distributed as per the waterfall mechanism under Section 53 of the IBC. The applicant has already distributed a majority of the realized amount and needs to distribute the remaining amounts according to the waterfall mechanism. The liquidator is faced with the issue of whether capital gains tax would be attracted on sales of assets as part of the liquidation estate and whether it should be included as liquidation costs, requiring the liquidator to first make provision for capital

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## Facts

LML Limited is undergoing liquidation, with a liquidator appointed. The liquidator has realized Rs. 113,88,40,170/- from various auctions. The liquidator seeks direction on whether capital gains tax should be paid on the proceeds from the sale of assets of the corporate debtor and included in liquidation costs or distributed as per the waterfall mechanism under Sec 53 of IBC. The counsel for the liquidator referred to Sec 52 of the Code, wherein a secured creditor has the option to either relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in Section 53, or realize its security interest in the manner specified in this Section. The Income Tax Department argued that the amount

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## Issues and analysis

### Issue 1: Whether capital gains tax is to be paid on the proceeds received from the sale of assets of the …

**Ratio:** Section 53 of the Insolvency and Bankruptcy Code, 2016, provides the waterfall mechanism

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**Reasoning:** The Adjudicating Authority considered the provisions of Section 238 of the IBC and

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**Interpretation:** The court interpreted that the IBC has an overriding effect over other laws,

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**Application:** The court applied the principle that the IBC's waterfall mechanism should be

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## Parties

- **Judges:** Rajesh Daya…
- **Appellants:** LML LIMITED…
- **Respondents:** LML LIM…; OFFICE OF…

## Timeline

- **2017-01-01 — CP(IB) F…**: CP(IB) No.55/ALD/2017…
- **2019-01-01 — CA Filed…**: CA No.389 of 2019 was…

## Legal provisions

- [Insolvency and Bankruptcy Code, 2016, Section 60(5) — Adjudicating Authority for corporate persons](https://caseease.in/legal-provisions/insolvency-and-bankruptcy-code-2016/section-60)

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