Mr Hemant Mehta vs Asst. Commissioner Of State Tax & Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI Company Appeal (AT)(Insolvency) No. 328 of 2022 [Arising out of order dated 31.01.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench, Court-I in IA 192/2021 in CP (IB) 990/MB/2019]

IN THE MATTER OF:

Mr. Hemant Mehta Resolution Professional of Pan India Utilities Distribution Co. Ltd. D-613/614, Neelkanth Business Park, Opp. Near Railway Station, Vidyavihar (W), Mumbai - 400 086. Appellant

Vs.

1. Asst. Commissioner of State Tax 4th Floor New Building, Cabin F-4, GST Bhavan, Mazgaon, Mumbai-400010. Respondent No. 1

2. Commercial Tax Officer Opposite Gulmohar city behind New Collectrate Sirol road, 3rd Floor, Gwalior Circle - 1 Madhya Pradesh - 475001. Respondent No. 2

3. General Manager IDBI Bank, Plot No. 77, Dharmi Nivas, Ramakrishna Marg, Khar West Branch, Mumbai-400 052. Respondent No. 3

4. General Manager Axis Bank Ltd. Worli Branch, Mumbai - 400 052. Respondent No. 4

Company Appeal (AT)(Insolvency) No. 328 of 2022 1 Present:

For Appellant: PCS Devarajan Raman, Advocate. For Respondents: Mr. Rahul Chitnis and Mr. Aaditya Pande, Advocates for R-1.

JUDGMENT

{Per: Barun Mitra, Member (Technical)}

The present appeal, filed under Section 61 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as 'IBC') by the Appellant

arises out of the order dated 31.01.2022 (hereinafter referred to as the

'Impugned Order') passed by the Adjudicating Authority (National

Company Law Tribunal, Mumbai) in I.A. No. 192/2021 in C.P. (IB)-

990/MB/2019. In the impugned order, the Adjudicating Authority while

disposing of the said I.A., directed the Appellant/Liquidator 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. Aggrieved by the said impugned order, the Appellant has

challenged this order on the ground 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 instead directed the Appellant to again approach the

appropriate government authorities.

Company Appeal (AT)(Insolvency) No. 328 of 2022 2

2. The Learned Counsel for the Appellant has also filed I.A. No. 860 of

2022 in Company Appeal (AT) (Insolvency) No. 328 of 2022 seeking

condonation of delay in filing this Appeal. There being a delay of less than

15 days in filing the appeal and the delay period falls within the

permissible period under Proviso to Section 61(2) of IBC and the grounds

of delay cited appear to be bona-fide, the I.A. is allowed and the delay in

filing the delay is condoned.

3. The brief facts of the case, as stated by the Appellant, is that the

Corporate Debtor was admitted to Corporate Insolvency Resolution

Process (hereinafter referred to as 'CIRP') by the Adjudicating Authority on

20.09.2019. The Appellant was appointed initially as Interim Resolution

Professional ('IRP' in short) and later confirmed as Resolution Professional

of the Corporate Debtor. The Resolution Professional having not received

any Expression of Interest following the public announcement made on

22.02.2020, the Committee of Creditors ('CoC' in short) on 13.06.2020

resolved by majority to go ahead with liquidation. Accordingly, the

Liquidation Order was passed on 11.08.2020 by the Adjudicating

Authority.

4. The Learned Counsel for the Appellant has further submitted that

the exercise of consolidation of the assets of the Corporate Debtor, by

bringing the bank accounts of the Corporate Debtor held in IDBI Bank and

Axis Bank within the liquidation estate, was occasioned by the need to

further the liquidation process in accordance with the provisions of the

Company Appeal (AT)(Insolvency) No. 328 of 2022 3 IBC. However, this exercise could not progress as Respondents No. 1 and

2, namely, the Assistant Commissioner of State Tax, Mumbai and the

Commercial Tax Officer, Gwalior Circle-1, Madhya Pradesh respectively

had issued notices to IDBI and Axis Bank, arrayed herein as Respondents

No. 3 and 4, directing them to freeze the current account of the Corporate

Debtor towards clearance of outstanding dues/liabilities of CST/VAT.

Following these directions, Respondents No. 3 and 4 had placed debit

freeze on the accounts of the Corporate Debtor. Copy of the notices, as

issued by Respondents No. 1 and 2, find place in the Appeal Paper Book.

It has been further submitted that the Appellant sent several

communications to the government/bank authorities urging them to de-

freeze the relevant current accounts, but as there was no progress in the

matter, he was constrained to file I.A. No 192 of 2021 before the

Adjudicating Authority seeking directions to be issued to Respondents No.

1 and 2 setting aside their notices issued to the bank authorities freezing

the bank accounts of the Corporate Debtor and separate directions to

Respondents No. 3 and 4 to de-freeze the bank accounts of the Corporate

Debtor.

5. The Adjudicating Authority, after hearing the Appellant, disposed of

the I.A. and passed the impugned order, the relevant portions of which are

extracted as under: -

"......As per the procedure in law as

liquidator, the Liquidator has powers to

Company Appeal (AT)(Insolvency) No. 328 of 2022 4 take appropriate steps to consolidate

the assets of the Corporate Debtor.

Liquidator is directed to take the matter

with the relevant Government

Authorities including the grievances

redressal mechanism of those

Authorities. The Applicant is at liberty

to take appropriate steps as available

under the law. With this observation,

the Application is disposed of."

In other words, it was held by the Adjudicating Authority that the

Appellant/Liquidator, as empowered by IBC, ought to continue the follow-

up exercise with the relevant government authorities to consolidate the

assets of the Corporate Debtor.

6. Aggrieved by the above directions contained in the impugned order,

the Appellant has preferred this appeal with the prayer to set aside the

impugned order and direct the Respondents No 1 and 2 to release the

attachment placed by them on the bank accounts of the Corporate Debtor

and, in the alternative, direct Respondents No. 3 and 4 to defreeze the

bank accounts of the Corporate Debtor.

7. We also heard the Learned Counsel for Respondent No.1 who

submitted that the Adjudicating Authority was justified in directing the

Liquidator to continue following up with the government authorities/bank Company Appeal (AT)(Insolvency) No. 328 of 2022 5 and their grievance redressal mechanism for defreezing the attached

current bank accounts but did not contest the other arguments advanced

by the Learned Counsel for the Appellant. The other three Respondents

No. 2 to 4 were not present during the hearing. None of the Respondents

have filed any counter affidavit.

8. Having heard the Learned Counsels and after perusing carefully the

records/documents placed before us, the issue before us for our

consideration is 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.

9. Before we proceed to dwell on this matter any further, a quick look

into some of the duties of the liquidator as provided under Section 35 of

the IBC juxtaposed against the facts of the present case will be useful and

constructive. Section 35 reads as follows: -

35. Powers and duties of liquidator -

(1) Subject to the directions of the Adjudicating

Authority, the liquidator shall have the

following powers and duties, namely: --

Company Appeal (AT)(Insolvency) No. 328 of 2022 6 "(a) to verify claims of all the creditors;

(b) to take into his custody or control all the

assets, property, effects and actionable

claims of the corporate debtor;

(c) to evaluate the assets and property of

the corporate debtor in the manner as may

be specified by the Board and prepare a

report;

(d) to take such measures to protect and

preserve the assets and properties of the

corporate debtor as he considers necessary;

(e) to carry on the business of the corporate

debtor for its beneficial liquidation as he

considers necessary.

xxx xxx xxx

(n) to apply to the Adjudicating Authority for

such orders or directions as may be

necessary for the liquidation of the corporate

debtor and to report the progress of the

liquidation process in a manner as may be

specified by the Board."

Company Appeal (AT)(Insolvency) No. 328 of 2022 7

10. A bare reading of the stipulations contained in the above provision

of IBC clearly empowers the liquidator to exercise authority to seek the

defreezing of the current bank accounts of the Corporate Debtor and

transfer the funds lying therein to the Liquidator's account so as to form

part of the liquidation estate. The Learned Counsel for the Appellant has

submitted that exercising these powers, the Appellant/Liquidator in the

present matter had entered into protracted correspondence, through

emails and letters, both with the government authorities and the banks to

unlock the frozen accounts. This has been substantiated by the Learned

Counsel for the Appellant by attaching related documents at pages 22-41

and 44-50 of Appeal Paper Book. On perusal of these communications, we

note that the Appellant made genuine and sustained efforts to bring the

bank accounts of the Corporate Debtor into the liquidation estate and thus

cannot be faulted for any inaction or non-compliance on his part. That

these efforts of the liquidator, so far, has remained an exercise in futility

and not generated any traction is also borne out by the facts placed before

us.

11. The Learned Counsel for the Appellant submitted that their

endeavours to persuade the Respondent parties to defreeze the bank

accounts not having yielded the desired results, the Appellant was

constrained to approach the Adjudicating Authority praying for issue of

direction to the Respondent parties that bank accounts of the Corporate

Debtor be defreezed so that the Appellant is in a position to make available

Company Appeal (AT)(Insolvency) No. 328 of 2022 8 the funds in the bank account of the Corporate Debtor as part of the

liquidation estate.

12. It has been further stated by Learned Counsel for the Appellant

that Regulation 44(1) of Insolvency and Bankruptcy Board of India

(Liquidation Process) Regulations, 2016 mandates that the Liquidator

shall liquidate the Corporate Debtor within a period of one year from the

liquidation commencement date. It has also been pointed out that it is

necessary to take over the bank accounts of the Corporate Debtor as part

of the liquidation estate within the prescribed time-frame or otherwise the

object of value maximization will be lost if not completed within a

reasonable time. It has been further argued that the Appellant had already

tried his level best to get the accounts defreezed and despite having failed

to succeed in doing so, the directions made in the impugned order

remanding the Appellant yet again before the government authorities

would only add to delay in completion of the CIRP and mount liquidation

costs. We agree with these submissions in as much as the Preamble to the

IBC aspires to bring in place a statutory framework where insolvency

resolution can take place in a time bound manner for maximization of

value of assets amongst other objectives.

13. Advancing the arguments further, the Learned Counsel for the

Appellant has drawn attention to two specific legal provisions, namely,

Section 60(5) and Section 238 of the IBC which, according to him,

empowers the National Company Law Tribunal as the Adjudicating

Company Appeal (AT)(Insolvency) No. 328 of 2022 9 Authority to intervene in such circumstances to resolve the impasse facing

the liquidation process.

14. For better understanding, it would be desirable to study Section

60(5) of the IBC which reads as follows: -

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

Company Appeal (AT)(Insolvency) No. 328 of 2022 10 the corporate debtor or corporate person under this

Code."

From a plain reading of the above provision of IBC and also given that the

said section is prefaced with a non-obstante clause, we are inclined to

agree that the Adjudicating Authority is vested with residuary jurisdiction

and it therefore casts a responsibility on the Adjudicating Authority to

intervene in certain circumstances. The present is also a fit case where the

Adjudicating Authority could have exercised its residuary discretion under

Section 60(5) so as to ensure that the objectives of IBC are not frustrated

including providing relief to the Liquidator in stalemate circumstances as

the present. It has also been held by the Hon'ble Supreme Court in the

Gujarat Urja Vikas Nigam Ltd. Vs. Amit Gupta & Ors. (Civil Appeal No.

9241 of 2019) that the residuary jurisdiction of the NCLT under Section

60(5) (c) of the IBC provides it a wide jurisdiction and can be exercised as

long as the matter is not dehors the insolvency proceedings.

15. This now brings us to Section 238 of the IBC which reads as

follows: -

Section 238: Provisions of this Code to override other laws -

"The provisions of this Code shall have

effect, notwithstanding anything inconsistent

therewith contained in any other law for the

Company Appeal (AT)(Insolvency) No. 328 of 2022 11 time being in force or any instrument having

effect by virtue of any such law".

Section 238 of IBC clearly overrides anything inconsistent contained in any

other enactment. The IBC is thus a complete code and prevails over all other

laws which are inconsistent with or in conflict with the Code. This is a

settled position of law and a catena of judgements of the Hon'ble Supreme

Court affirms this position viz. Principal Commissioner of Income Tax Vs.

Monnet Ispat and Energy Limited1; Tata Consultancy Services Limited

Vs. Vishal Ghisulal Jain2 and Indus Biotech Pvt. Ltd. v. Kotak India

Venture (Offshore) Fund3. We therefore agree that the directions issued by

Respondent No.1 and 2 freezing the accounts of the Corporate Debtor during

liquidation process is bad in law and hence it was within the remit of the

Adjudicating Authority to issue appropriate directions to the Respondents

No. 1 and 2 to set the matter right and provide statutory relief to the

Appellant.

16. The Learned Counsel for the Appellant has also relied on the Order

of this Tribunal in Pinakin Shah- Liquidator of M/S Brew Berry

Hospitalities Pvt Ltd Vs. Assistant Commissioner of State Tax & Anr.

Company Appeal (AT) (Insolvency) No. 32 of 2021. The relevant

extracts, therefrom, are as placed below:

1

Principal Commissioner of Income Tax Vs. Monnet Ispat and Energy Limited (2018 SCC Online SC 3465) 2 Tata Consultancy Services Limited Vs. Vishal Ghisulal Jain (2020 SCC Online SC 1254) 3 Indus Biotech Pvt. Ltd. v. Kotak India Venture (Offshore) Fund (2021 SCC Online SC 268). Company Appeal (AT)(Insolvency) No. 328 of 2022 12 "The Learned Counsel for the Appellant has

relied on Judgment of the Hon'ble Supreme

Court in the matter of Pr. Commissioner of

Income Tax versus Monnet Ispat and Energy Ltd. in SLP Civil No. 6483 of 2018 ((2018) 18

SCC 786) (Annexure- I page 53) where Hon'ble

Supreme Court in Order dated 10th August,

2018 observed as under:

"Heard.

Delay, if any, is condoned.

Given Section 238 of the Insolvency and

Bankruptcy Code, 2016, it is obvious that the

Code will override anything inconsistent

contained in any other enactment, including

the Income Tax Act.

We may also refer in this connection to Dena

Bank Vs. Bhikhabhai Prabhudas Parekh

and C. & Ors. (2000) 5 SCC 694 and its

progeny, making it clear that income tax dues,

being in the nature of Crown debts, do not take

precedence even over secured creditors, who

are private persons.

Company Appeal (AT)(Insolvency) No. 328 of 2022 13 We are of the view that the High Court of Delhi,

is, therefore, correct in law.

Accordingly, the Special Leave Petitions are

dismissed.

Pending applications, if any, stand disposed

of."

8. The Learned Counsel has referred to this

Order of Hon'ble Supreme Court as well as the

Judgment referred by the Hon'ble Supreme

Court in the Order and submits that the freezing

of Account by the Respondent No. 1 is not

maintainable and the Liquidator cannot be

made to run to the parties and Authorities

under the Sales Tax Act to get the Account

defreezed. Learned Counsel submits, and,

rightly says that Liquidation Proceedings are

time-bound to maximize the value and all the

Creditors are entitled to get their dues only in

terms of Section 53 of 1&B Code, 2016 and

different Creditors cannot be allowed to resort

to different proceedings and enactments only

because they are Authorities under earlier

Company Appeal (AT)(Insolvency) No. 328 of 2022 14 enactments considering the Provision of Section

238 of 1 & B Code, 2016.

9. We accept the submissions made by the

Learned Counsel for the Appellant.

10. We find that the Adjudicating Authority has

failed to exercise jurisdiction vested in it to give

relief to the Appellant in the context of the position

of law under Section 238 of IBC."

17. Given that the persistent efforts on the part of the Appellant to

defreeze the accounts of the Corporate Debtor did not bear any result;

given that there is sufficient proof of reluctance on the part of Respondents

1 to 4 to defreeze the bank accounts of the Corporate Debtor; given that

Section 238 of IBC overrides anything inconsistent contained in any other

enactment and also given that Section 60(5) of the IBC vests residuary

jurisdiction on the Adjudicating Authority to intervene and, above all,

keeping in mind that the cardinal objective of the IBC Code is to obviate

uncalled for derailment of the insolvency resolution process, we find

sufficient merit in the submission made by the Learned Counsel for the

Appellant that the Adjudicating Authority ought to have appreciated the

constraints faced by the Appellant/Liquidator and provided relief by

exercising its residuary jurisdiction rather than remanding the Appellant

once again back in the hands of the government authorities.

Company Appeal (AT)(Insolvency) No. 328 of 2022 15

18. In view of the above discussions, facts and circumstances, we hold

that the Adjudicating Authority erred in not exercising the residuary

jurisdiction vested in it under Section 60(5) of the IBC and having failed to

provide necessary relief to the Appellant, the impugned order is set aside.

The I.A. No. 192 of 2021 in CP(IB)-990/MB/2019 before the Adjudicating

Authority shall be treated as allowed with the following directions: -

(i) Respondents No. 1 and 2 are herewith directed to immediately

withdraw the notices issued by them defreezing the Bank Accounts of the

Corporate Debtor, Pan India Utilities Distribution Co. Ltd., maintained in

IDBI Bank, Khar West Branch, Mumbai and Axis Bank Ltd., Worli Branch,

Mumbai.

(ii) Respondents No. 3 and 4 are herewith directed to defreeze the Bank

Accounts held in the name of the Corporate Debtor.

(iii) The appeal is allowed. There will be no order as to costs.

(Justice Ashok Bhushan) Chairperson

(Justice M. Satyanarayana Murthy) Member(Judicial)

(Barun Mitra) Member(Technical)

Place: New Delhi Date: 05.08.2022 shashi

Company Appeal (AT)(Insolvency) No. 328 of 2022 16