NCLAT Delhi Directs Tax Authorities To Withdraw Notices For Freezing Accounts Of Corporate Debtor

The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Justice M. Satyanarayana Murthy (Judicial Member) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Mr. Hemant Mehta v Asst. Commissioner of State Tax, has held that notices issued by the Tax Authorities to freeze the accounts the Corporate Debtor during liquidation process are bad in law and has directed withdrawal of such notices and de-freezing of the accounts. The Bench held that the Adjudicating Authority is vested with residuary powers under Section 60(5) of the Insolvency and Bankruptcy Act, 2016 ("IBC") to intervene in circumstances where insolvency resolution process is getting derailed. Background Facts Pan India Utilities Distribution Co. Ltd. ("Corporate Debtor") was admitted to Corporate Insolvency Resolution Process ("CIRP") by the Adjudicating Authority on 20.09.2019 and Mr. Hemant Mehta ("Appellant") was appointed as the Interim Resolution Professional, later confirmed as Resolution Professional. As no resolution plans were received, the order for Liquidation was passed on 11.08.2020 by the Adjudicating Authority. The Assistant Commissioner of State Tax, Mumbai ("Respondent No. 1") and the Commercial Tax Officer, Gwalior Circle-1, Madhya Pradesh ("Respondent No. 2") had issued notices to IDBI Bank and Axis Bank respectively, directing them to freeze the current account of the Corporate Debtor towards clearance of outstanding dues/liabilities of CST/VAT. IDBI and Axis Bank had accordingly placed debit freeze on the accounts of the Corporate Debtor. The Appellant sent several communications to the government/bank authorities urging them to defreeze the relevant current accounts, but to no avail and therefore an interim application bearing I.A. No 192 of 2021 was filed before the Adjudicating Authority, seeking (i) directions to be issued to Respondents No. 1 & 2 to set aside their notices issued to the bank authorities freezing the bank accounts of the Corporate Debtor; and (ii) directions IDBI and Axis Bank to de-freeze the bank accounts of the Corporate Debtor. The Adjudicating Authority vide an order dated 31.01.2022 directed the Liquidator (Appellant) to take up with the relevant government authorities and their grievances redressal mechanism to de-freeze the bank accounts of the Corporate Debtor towards consolidating the assets of the Corporate Debtor which is under liquidation. The Appellant filed an appeal against the order dated 31.01.2022 before the NCLAT. Contentions Of The Appellant The Appellant contended that Regulation 44(1) of IBBI (Liquidation Process) Regulations, 2016 mandates that the Liquidator shall liquidate the Corporate Debtor within a period of one year, hence it was necessary to take over the bank accounts of the Corporate Debtor as part of the liquidation estate within the prescribed time-frame or else the objective of value maximization would fail. It was submitted that the Adjudicating Authority has refused to exercise the powers vested on it by the IBC to direct the banks/government authorities to de-freeze the accounts of Corporate Debtor and has instead directed the Appellant to again approach the government authorities. It was submitted that the directions made by the Adjudicating Authority to remand the Appellant yet again before the government authorities would only add to delay in completion of the CIRP and mount liquidation costs. Issue Whether the Liquidator having already made sufficient efforts and still having failed to persuade the government authorities and the banks to de-freeze the relevant bank accounts of the Corporate Debtor, does it become incumbent upon the Adjudicating Authority in terms of the IBC to intervene and issue appropriate directions to the relevant government authorities/banks to lift the debit freeze on the accounts of Corporate Debtor, if it is so requested by the Liquidator? Relevant Law Section 60(5) of IBC "Section 60: Adjudicating Authority for corporate persons – xxx xxx xxx "(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of – (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code." Decision Of The NCLAT The Bench observed that Section 35 of the IBC clearly empowers the liquidator to exercise authority to seek the de-freezing ...

NCLAT Delhi Directs Tax Authorities To Withdraw Notices For Freezing Accounts Of Corporate Debtor

Pallavi Mishra

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