M/s. Regional Provident Fund Commissioner (Compliance), Exployee Provident Fund Vs. M/s. Excel Glass Limited - The applicant knowingly flouted the moratorium order and proceeded with the proceedings under sections 7Q and 14B of the Employees provident funds and Miscellaneous Provisions Act 1952, thus committed an offence punishable under section 74(2) of IBC, 2016.

NCLT Kochi (02.08.2023) In M/s. Regional Provident Fund Commissioner (Compliance), Exployee Provident Fund Vs. M/s. Excel Glass Limited (Under Liquidation) and another  [IA(IBC)/127/KOB/2023 IN IBA/258/CB/2019] held that;

• Rule 16 IBBI of (Liquidation process) Regulation 2016, makes it clear that even if the claim is filed during the CIRP period, the same shall be updated but admittedly no claim is filed by the applicant after the order of liquidation or updated the claim submitted during CIRP period.

• The applicant knowingly flouted the moratorium order and proceeded with the proceedings under sections 7Q and 14B of the Employees provident funds and Miscellaneous Provisions Act 1952, thus committed an offence punishable under section 74(2) of IBC, 2016.

Excerpts of the Order;    

This application is filed under Section 60(5) (c) of the Insolvency & Bankruptcy Code, 2016 by Regional Provident Fund Commissioner, EPFO,  Kochi against the corporate debtor and its Liquidator seeking the following reliefs:

• a. To set aside the Annexure A10 issued by the 2nd Respondent dated 16/08/2022 rejecting the claim of the Applicant

• b. To direct the 2nd Respondent to pay off the entire claim amount of Rs.19,06,277/- (Rupees Nineteen Lakhs Six Thousand Two Hundred and Seventy-Seven Only) on first priority from and out of the liquidation assets/estate of the Respondents

• c. To direct the 2nd Respondent to accept the claim of the Applicant:

• d. To direct the Respondents for the payment of cost thereof.

# 1. The Corporate Debtor, M/s. Excel Glass Limited (hereinafter referred to as CD) was admitted into CIRP by NCLT Chennai bench vide order dated 26.03.2019 and subsequently put to liquidation by this bench vide order dated 21.10.2019. Thereby, Mr. Ravindra Chaturvedi, RP was appointed as liquidator. The liquidator made public announcement of liquidation on 24.10.2019 inviting claims to be submitted by 20.11.2019.

# 2. The applicant states that it is a statutory body and by virtue of section 6, 6A, and 6C of the EPF & MP Act (hereinafter referred to as “EPF Act”) read with EPF and Pension Scheme, the CD is liable to make contributions to the PF without delay and in event of default shall be liable for penal damages. It is stated that the CD committed default in making PF contributions and recovery certificates were issued on 09.09.2015 and 13.05.2020, for damages including interests for period 03/2010 to 09/2011, and 12/1997 to 12/2018 respectively, under section 14B and Section 7Q of EPF Act. It is stated that inquiry proceedings were initiated and summons issued to CD on 22.05.2019 owing to belated remittance of PF contribution for period of 12/1997 to 02/2010 and 01.04.2014 to 31.12.2018. Even though a representative of CD appeared for hearing on 16.07.2019, no reply or cause was shown against the proceedings in consequence, the CD was directed to pay sum of Rs. 9,50,649/- and Rs. 5,93,318/- towards damages and interest to the EPFO.

# 3. Meanwhile on 02.07.2019, the applicant received notice of CIRP, and thereafter applicant submitted the Annexure A5, CIRP claim in Form B for an amount of Rs. 19,05,030/- based on aforesaid recovery certificates for damages and interests under EPF Act. It is stated that the liquidator/erstwhile RP has not rejected the claim so far. Further, it is stated that the enforcement officer under EPF Act, conducted an inspection on 24.01.2020 and reported vide Annexure A8 that the CD has not remitted PF dues for period of January 2019 to December 2019. It is stated that the liquidator has filed the list of stakeholders which includes claims from workmen to the tune of Rs.5,44,59,509/- which was taken on record by this Tribunal on 10.08.2020.

# 4. The applicant states that the EPFO on 13.10.2020 determined the dues under section 7A of EPF Act to the tune of Rs.900/- for period of January 2019 to December 2019. It is stated that the liquidator had appeared in the VC hearing did not raise any dispute and the sum of Rs. 900/- was paid by the liquidator on 20.02.2022. It is stated that the liquidator has disregarded the previous claims of the EPFO and in response to recovery measures, he had replied vide Annexure A10 that the CD is under liquidation and all the claims were already received and processed and list filed before this Tribunal and further that the claim of EPFO has not been received. The applicant states that the contention of liquidator is incorrect and claim of EPFO is submitted vide Annexure A5 to the liquidator. It is stated that the applicant further issued letters to liquidator on 22.08.2022 and 16.12.2022 claiming amount of Rs.19,06,277/- including earlier claim in Annexure A5 also stating that the dues need to be settled as the same falls outside the purview of liquidation estate as per section 36(4)(iii). The applicant states that as per section 36(4)(iii) the amount due to workmen or employee from PF and gratuity fund falls outside liquidation estate and is to be settled from the assets of CD before distribution of assets to stakeholders under section 53 IBC. The applicant states that in spite of raising the claim vide Annexure A5 and correspondence letters, the liquidator failed to reject the same. It is contended that the applicant submitted the claim on time and only vide Annexure A10 letter the liquidator informed the position of claims. It is further stated that the liquidator despite participating in the proceedings of EPFO and being served show cause notice before liquidation proceedings failed to follow the statutory provisions of EPF Act. It is further stated that the EPFO has first charge over assets of CD/ liquidation estate as per section 11 of EPF Act. The applicant also attacks the conduct of the liquidator by invoking section 17 and 18 IBC, which state the duties of IRP and his responsibility to comply with all laws in force. It is stated that the liquidator/RP was duty bound to check and settle the claims of EPFO under law and failed to comply the same.

# 5. On the respondent side, it is stated that the application is not maintainable. R2 states that the applicant EPFO has not filed their claim after initiation of liquidation as liquidation makes fresh cause of action which requires the claimant to file claim again once filed during CIRP or not. The only claim filed by the EPFO was Annexure A5 claim in Form B on 14.08.2019 was during the CIRP. Thereafter the liquidation order was passed on 21.10.2019 and a public announcement in newspapers were made on 24.10.2019. It is stated that the liquidator vide Annexure A10 has not rejected or accepted the claim of the applicant as he has not filed any valid claims in liquidation. Even if it assumed that Annexure A10 communication issued on 16.08.2022 is a rejection of claim in liquidation, the same had to be appealed before this Tribunal within 14 days as per section 42 of IBC or in this instant case by condoning a delay of 196 days. 

# 6. It is further contended by the liquidator that the claim which is impugned arises out of the order dated 30.07.2019 under section 14B of EPF Act which was passed during the moratorium period in CIRP and also without giving opportunity to CD to defend. It is further stated that the applicant having participated in CIRP should have submitted his claim in liquidation. The liquidator state that the stand taken by the applicant that the sum of Rs. 9,50,649 and Rs. 5,93,318 being damages and interest under section 14b and 7q of EPF Act cannot be regarded as coming under section 36(4)(iii) of the IBC, i.e outside purview of liquidation estate. It is stated that the exclusion in the section is provided for sums due to any workmen or employee from the PF, Pension and Gratuity Fund and the said claim of EPFO cannot be regarded as sum due to workmen or employee but only in nature of penalty and damages charged by EPFO due to delay in remittance of PF dues and shall in no way go into the accounts of workmen or employees. The liquidator states that the benefit under this section is for employees/workmen and cannot be passed to EPFO which is a statutory body. It is hence contended that the sum dues payable to PF, pension or gratuity out of liquidation proceeds shall not be exempted as per section 36(4) and the same cannot be settled as outside the liquidation estate. The liquidator further state that the amount to be excluded from the liquidation estate are only those amounts which company retains in a separate account for purpose of PF contributions from the employer/employee under section 16A of EPF Act.

# 7. Finally, with regard to applicant’s contention that the EPFO dues are to be settled in priority to other debts, it is stated that the IBC as per section 238 has overriding effect over EPF Act and the provisions of EPF Act cannot be given weightage. It is further stated by the liquidator that he had in fact paid the dues assessed for period January 2019 to December 2019 i.e., Rs.900/- to EPFO on 23.03.2021 despite same being adjudicated during moratorium period only to buy peace. It is stated that the EPFO were aware of the liquidation proceedings and had communicated the fact that the liquidation claims were not received vide Annexure R-2(a)(Colly) communications on various dates. 

# 8. The points for consideration are:

(1) Whether Annexure A10 letter dated 16.08.2022 can be construed as a claim rejection order of the 2nd respondent?

(2) Whether the Recovery certificates Annexures A3 & A4 dated 30.07.2019 are valid in law?

(3) Whether the claim amount of Rs.19,05,030/-Claimed in Annexure A5 is to be excluded from the liquidation estate under section 36(4)(a)(iii) of IBC 2016?

# 9. Point No.1: The corporate debtor was admitted into CIRP on 26.03.2019, the second respondent was appointed as IRP then as RP. The applicant filed its claim on 20.08.2019 (Annexure A5) subsequently liquidation order was passed against the 1st respondent/corporate debtor on 21.10.2019, the second respondent was appointed as liquidator, claims were invited by the liquidator but no claim was submitted by the applicant after the order of liquidation. Rule 16 IBBI of (Liquidation process) Regulation 2016, makes it clear that even if the claim is filed during the CIRP period, the same shall be updated but admittedly no claim is filed by the applicant after the order of liquidation or updated the claim submitted during CIRP period.

# 10. On the applicant side relies upon Annexure A5 this is the claim submitted by the applicant during the CIRP period.Thus, it is made clear no claim has been presented by the applicant during the liquidation proceeding and the applicant also taken a stand that there is no need to file any claim, if this is the stand of the applicant then the question of rejection of claim does not arise at all. Annexure A10 is the letter dated 16.08.2022 addressed by the second respondent to applicant informing that no claim of EPFO was received, in the letter the second respondent given the details of the liquidation order and claims received by him and approval of list by this Authority. The applicant also has not filed this application under section 42 of IBC 2016, the specific provision available in IBC 2016 to prefer an appeal against the rejection of claim order, but this application is filed under the residuary provision of section 60(5) of IBC 2016. In the scenario the contention of the applicant that Annexure A10 is a rejection order, the same shall be set aside is unsustainable.

# 11. Point No.2: The applicant claims a sum of Rs.19,05,030/- under Annexure 5 on the basis of three recovery certificate as follows:

(i) Recovery certificate dated 09.09.2015 for a sum of Rs.4,11,063/- (Rs.1,57,588/- under section 7Q and a sum of Rs.2,53,475/- under section 14B of EPF Act 1952) /-

(ii) (ii) Recovery certificate dated 30.07.2019 under section 14B of EPF Act 1952 for a sum of Rs.9,50,649/-

(iii) Recovery certificate dated 30.07.2019 under section 7Q of EPF Act 1952 for a sum of Rs.5,93,318/-

# 12. The first respondent corporate debtor was admitted into CIRP on 26.03.2019, the moratorium was declared and came into effect on the same day under section 14 of IBC 2016. Under section 14(1)(a) of IBC 2016 institution or continuation of proceeding against the corporate debtor by any authority is prohibited. In this case, the applicant initiated the proceeding under section 14B and 7Q of EPF Act 1952 after the corporate debtor admitted into CIRP, the fact that the corporate debtor was admitted into CIRP was informed to the applicant  by the second respondent in his letter dated 02.07.2019 forwarding the copy of the CIRP order. The applicant even after the receipt of the CIRP order, continued the proceeding and passed the order on 24.07.2019 and issued Recovery certificates dated 30.07.2019. The Apex court in Sundaresh Bhatt Liquidator of ABG shipyard vs Central Board of Indirect Taxes and Customs 2022 Live Law (SC) 715. observed as follows:

• 44. Therefore this Court held that the authorities can only take steps to determine the tax, Interest, fines, or any penalty which is due. However, the authority cannot enforce a claim for recovery or levy of interest on the tax due during the period of moratorium. We are of the opinion that the above ratio squarely applies to the interplay between the IBC and the Customs Act in this context.

# 13. In the supra citation the Apex court observed that the customs authorities under the Customs Act during the period of moratorium can only take steps to determine the tax, interest, fine or any penalty which is due. However, the authority cannot transgress such boundary and proceed to initiate a recovery in violation of section 14 or 33(5) of IBC, 2016. The above citation squarely applicable to this case.

# 14. The applicant knowingly flouted the moratorium order and proceeded with the proceedings under sections 7Q and 14B of the Employees provident funds and Miscellaneous Provisions Act 1952, thus committed an offence punishable under section 74(2) of IBC, 2016. This section is criminal in nature falls under Chapter VII under the heading Offences and Penalties, under section 236 (1) of IBC, 2016 special court alone have jurisdiction. Further under section 236 (2) of IBC, 2016 cognizance of the offence can be taken only on the compliant of IBBI or Central Government. Hence the 2nd respondent is granted liberty to approach the IBBI to proceed against the applicant’s erred officials in this regard.

# 15. For the reasons stated above it is declared that the recovery certificates dated 30.07.2019 are invalid and Void ab initio.

# 16. Point No.3: On the applicant side submitted that the applicant need not file any claim request because the amount payable to the workmen and employee is excluded from the liquidation estate as provided under section 36(4)(a)(iii) of IBC 2016. As already held that the claim in respect of recovery certificates dated 30.07.2019 are void, in respect of claim in pursuance of the recovery certificate dated 09.09.2015 no claim has been filed. In respect of applicability of section 36(4)(a)(iii) of IBC 2016 is concern it is applicable only if the separate fund kept under section 16A of EPF Act 1952, this position is clarified by NCLAT in Parameshwara Udpa R.P. Vs. Assistant PF Commissioner Company Appeal (AT)(CH) N0.231 of 2021 dated 23.09.2022 held as follows:

• Therefore, taking benefit of the ratio of above discussions in `Godiwala Case’, this `Tribunal’ answers the aforesaid issue in the negative. Therefore, the `Resolution Professional’ is not duty bound to make adequate provisions for ‘Provident Fund’ when the `Corporate Debtor’ did not have separate `Provident Fund Account’. It is again reiterated that the `Resolution Professional’ has to deal with the `Claims’, if any, on this `account’, in terms of Section 53 of the I & B Code 2016, if warranted, and provided as per `Law’.

# 17. The amount payable to the workmen or employee has protection under section 36(4)(a)(iii) of IBC 2016, but the same cannot be extended to the interest and damages covered under sections 7Q and 14B of the Employees Provident Funds and Miscellaneous Provisions Act 1952, The applicant here claims a sum of Rs.19,05,030/- towards penalty and damages under sections 7Q and 14B of EPF Act 1952 these are the amount payable to the applicant department/organization, will not be paid to the workmen or employees hence this interest and damages comes under Government dues as defined under section 53 (1) (e) (i) of IBC 2016. The NCLT-Bengaluru in Shri Addanki Haresh Liquidator vs Recovery Officer, Employees Provident Fund organization, I.A.No.232 of 2022 in C.P.(IB) No.320/BB/2019 dated 20.07.2023, (2023) ibclaw.in 385 held that the damages levied by Respondent Organization under Section 14B of the EPF & MP Act 1952 which are dues of Government and will be paid in order of priority under Section 53 of IBC, 2016. In our case entire claim amount of Rs.19,05,030/- is covered under sections 7Q & 14B of the Employees Provident Funds and Miscellaneous Provisions Act 1952, payable to the organization hence section 36(4)(a)(iii) of IBC 2016 is not applicable, the same cannot be excluded from the liquidation estate.

# 18. In view of the answers arrived to the points, in consequence, this application is Dismissed.

# 19. The Registry is hereby directed to send e-mail copies of the order forthwith to all the parties and their counsel for information and for taking necessary steps. 

# 20. Let the certified copy of the order be issued upon compliance with requisite formalities.

# 21. File be consigned to records.

---------------------------------------------

Consortium of RVR Enterprises Vs. G. Madhusudan Rao - The Corporate Debtor is entitled to get the benefits of brought forward losses, if any, subject to permission of the appropriate authority, if so entitled under the relevant provisions of the Income Tax Act, 1961.

 NCLT Hyderabad-1 (07.08.2023) In Consortium of RVR Enterprises Vs. G. Madhusudan Rao [IA No. 1059/2023 IN CP (IB) NO.1/7/HDB/2020 ] held that;

• The Corporate Debtor is entitled to get the benefits of brought forward losses, if any, subject to permission of the appropriate authority, if so entitled under the relevant provisions of the Income Tax Act, 1961.

Excerpts of the Order;    

1. The successful bidders of M/s Chadalavada Infratech Limited/Corporate Debtor filed this application under Section 60(5)(c) OF Insolvency & Bankruptcy Code 2016, R/W Rule 11 of National Company Law Tribunal Rules, 2016, inter-alia, seeking certain reliefs to them to kickstart the business of the Corporate Debtor.

2. To put concisely, this Tribunal passed an order of liquidation in respect of Corporate Debtor on 11.04.2022 and appointed the Applicant herein as the Liquidator of the Company.

3. It is averred that pursuant to issue of sale notice dated 25.12.2022 for the sale of the Corporate Debtor as a whole and as a going concern for a reserve price of Rs. 80 lakhs, followed by the e-auction held on 06.01.2023, the Consortium of RVR Enterprises, Jasti Venkat Rao and Ch. Rama Krishna were declared as a successful bidder.

4. It is stated that subsequently, the Liquidator issued Letter of Intent (LOI) on 07.01.2023 to the Purchasers/Applicants herein asking them to pay 25% of the Bid amount i.e. Rs. 20,00,000/- within seven days in addition to the EMD already paid, on or before 11.012023 and the balance sale consideration of Rs. 51,75,000/- plus taxes if any, to be paid within 30 days i.e. on or before 04.02.2023 without any interest, else the balance consideration is payable with 12% interest PA within 90 days i.e. on or before 05.04.2023, which terms of LOI have been accepted and acknowledged by the Applicants.

5. It is further stated that the Liquidator after confirming the receipt of total sale consideration with interest amounting to Rs. 80,81,789/- , had issued sale certificate to the Applicants on 06.04.2023.

6. While things stood thus, the Applicants vide letter dated 07.04.2023 requested the Liquidator to seek certain reliefs and concessions from this Tribunal which are required to kick start the business of the Corporate Debtor. Accordingly, the Liquidator filed IA No. 608/2023 and which dismissed on 14.06.2023 on the ground that the Applicants herein is required to seek the reliefs and concessions and not the Liquidator and granted liberty to the Successful Bidder to file fresh application in accordance with law. Case Citation: (2023) 

7. It is averred that the Liquidator sold the Corporate Debtor as a going concern in Liquidation as per Regulation 32 of IBBI Liquidation Process Regulations, 2016, but to ensure smooth running of the Corporate Debtor as a “going concern”, is seeking certain reliefs and concessions.

8. The Applicants have relied on the following rulings:-

• (1) This Bench order passed in CP (IB) No. 329/7/HDB/2018 in IA (IBC) No.157 OF 2021 in the matter of Viswa Infrastructures and Finances Private.

• (2) This Bench Order in CP (IB) No. 675/7/HDB/2018 in IA No. 112/2021 dated 28-04-2021 in the Matter of M/s IFCI Ltd vs M/s KSK Energy Ventures Ltd.

• (3) NCLT, Mumbai Bench passed Orders in similar matter in C.P. (IB) No. 1319/MB/2017 in I.A. No. 741 of 2021 in the matter of M/s Enviro Bulk Handling Systems Pvt Ltd.

• (4) NCLT, Mumbai Bench passed Orders in similar matter in C.P. (IB) No. 1239/MB/2018 in in IA No. 2264 of 2020 in the matter of M/s Topworth Pipes and Tubes Private.

• (5) This Tribunal order in the matter of CP (IB) No. 343/7/HDB/2018 in IA No. 1038/2019 dated 26-11-2019 in the Matter of M/s Southern Online Bio Technologies Limited.

9. The Applicants submit that this Adjudicating Authority is empowered to grant necessary immunities or protection from past liabilities and civil and criminal actions from various creditors including various statutory and non-statutory authorities/parties, direction to ROC for change of the Board of Directors and reduction of the share capital and allotment of new share capital, Case Citation: (2023) ibclaw.in 532 NCLT other reliefs in the sale as a going concern in order to enable the successful bidder/purchaser to kick start the business of the Corporate Debtor.

10. In this backdrop, the point that emerges for consideration of the Tribunal is that,

Whether the successful bidder is entitled for the reliefs prayed for in this Application?

11. We have heard the Counsel for the Liquidator, perused the records and case laws.

12. The Corporate Debtor has been sold as an ongoing concern, in pursuance of the decision taken by the Liquidator in consultation with the creditors / stakeholders and the proceeds from the sale of assets are being distributed to the creditors in the manner specified under Section 53 of the Code.

13. We have perused the facts pleaded and the reliefs prayed in the petition. In the light of the facts of the case and case laws, we are of the view that the following reliefs can be allowed. Accordingly, we pass the following orders:-

• (a) Permission is accorded for reconstitution of Board of Directors of the Corporate Debtor by the Successful Bidder of the Corporate Debtor as under and we further direct the RoC (Hyderabad) to do all such acts deeds and things that are necessary to appoint the individuals recommended by the Successful Bidder/Purchaser, in order to enable the Company to file relevant returns required by applicable law. 

• (b) The existing shares (held by erstwhile promoter group as well as other shareholders) of the Corporate Debtor shall be extinguished without any consideration and the rights and liabilities arising out of the same shall also be extinguished and the Corporate Debtor shall allot new shares as per the request of the successful bidder and the details of new share capital would be as under:-  . . 

• c) We direct RoC (H) to change the status of the Corporate Debtor in the ROC records as ‘active’ from the status of “liquidation”.

• d) The Successful Bidder shall not be responsible for any other claims, liabilities or obligations, under any guarantees, etc. payable by the Corporate Debtor as on this date to the creditors or any stakeholders including the Government dues. All the liabilities of the Corporate Debtor as on date of acquisition stands extinguished, qua the Successful Bidder.

• e) Any proceedings pending against the Corporate Debtor (other than against the erstwhile promoters or former members of the management of the Corporate Debtor) as on date with respect to its liabilities / inquiries / investigations / assessment / claims / disputes/ litigations etc shall not have any bearing against the assets sold in the process. The said assets are free from any financial implications arising out of any pending proceedings before relevant authorities, if any. Further non-compliance of provisions of any laws, rules, regulations, directions, notifications, circulars etc on the Corporate Debtor under various Acts and Regulations stands extinguished, qua the successful bidder.

• f. The Successful Bidder/ Corporate Debtor shall have the right to review and terminate any contract that was entered into prior to the date of this order.

• g The Successful Bidder shall get all the rights, title and interest over whole and every part of the Corporate Debtor, including but not limited to contracts free from security interest, encumbrance, claim, counter claim or any demur.

• h The assets specified in the e-auction memorandum, on payment of the consideration shall vest with the Successful Bidder. The erstwhile promoters or any member, associate of the Existing and Erstwhile promoter groups is hereby restrained from doing any business directly or indirectly in connection with the products and services presently offered by the Corporate Debtor and transferring any such IPR to any other person whether related to them or not.

• i The Successful Bidder shall not be held responsible/liable for any of the past liabilities of the Corporate Debtor. The Liquidator and Successful Bidder shall take all the steps required to make accounting entries for the smooth transmission and clearing the balance sheet.

• j The Liquidator is directed to ensure completion of pending filings with the Registrar of Companies, Income Tax Authorities and any other Government/ Statutory Authorities.

• k. The Corporate Debtor is entitled to get the benefits of brought forward losses, if any, subject to permission of the appropriate authority, if so entitled under the relevant provisions of the Income Tax Act, 1961. As far as the prayer for considering the bid submitted by the successful bidder as Resolution Plan under Section 79 of Income Tax Act, 1961 is concerned, the bidder may approach the authority concerned who would consider such request under the Income Tax Act.

• l. Relief sought with regard to issuance/renewal of all kinds of licenses / permissions/ approvals required is allowed subject to payment of renewal fees, if any, from this date to the Licensing Authorities.

• m. The Liquidator is directed to provide all support and assistance to the successful bidder for the smooth functioning of the Corporate Debtor to complete the acquisition.

• n. With regard to relief sought directing various statutory authorities to exempt income/gain/profits/stamp duty if any, arising pursuant to acquisition of Corporate Debtor and further with regard to exemption from tax liability, it is open to the Successful Bidder to approach the authorities concerned and it is for the authorities to consider the request of the bidder for exemption since the successful bidder purchased the Corporate Debtor Unit as ongoing concern during liquidation.

# 14. With the above directions, the IA stands disposed of.

---------------------------------------------

Tapadia Polyesters Pvt. Ltd. Vs. Sales Tax Officer & Anr. - We thus are of the view that even when there is attachment of the assets, Sales Tax Department cannot be the owner of the assets and the asset continued to be owned by the Corporate Debtor and will be part of the Liquidation Estate.

 NCLAT (22.08.2023) In Tapadia Polyesters Pvt. Ltd. Vs. Sales Tax Officer & Anr. [Company Appeal (AT) (Insolvency) No. 362 & 366 of 2023. (2023) ibclaw.in 556 NCLAT] held that

• We thus are of the view that even when there is attachment of the assets, Sales Tax Department cannot be the owner of the assets and the asset continued to be owned by the Corporate Debtor and will be part of the Liquidation Estate.

Excerpts of the Order;    

22.08.2023: Heard Learned Counsel for the Appellants as well as Learned Counsel for the Respondent.

# 2. Company Appeal (AT) Ins. No. 362 of 2023 has been filed by the Liquidator challenging the Order dated 10th February, 2023.

# 3. Company Appeal (AT) Ins. No. 366 of 2023 has been filed by the Auction Purchaser who claims to be Successful Bidder in the Auction held on 25.09.2021.

# 4. These two Appeals have been filed against the same impugned Order dated 10th February, 2023 passed by the Adjudicating Authority in I.A. No. 1300/MB/C-I, 2020.

# 5. Brief facts of the case necessary to be noticed for deciding these two Appeals are:-

i. Corporate Insolvency Resolution Process for the Corporate Debtor-Linkson International Limited commenced on 06.10.2017.

ii. There were dues of Sales Tax Department of the State of Maharashtra on the Corporate Debtor and to recover the dues of the Sales Tax Department of the State of Maharashtra, the Attachment Orders were passed on 28th May, 2015 attaching the assets of the Corporate Debtor. The Attachment Order continued, however the asset could not be sold by the Sales Tax Department.

iii. Liquidation commenced on 20th July, 2018 in which liquidation proceedings, the claim was filed by the Sales Tax Officer, which claim to the extent of Rs. 101.87 Crore was admitted by the Liquidator. In the Liquidation Proceeding, the Liquidator proceed to issue Auction Notice on 01st August, 2021 and Tapadia Polyesters Pvt. Ltd. was declared the Successful Bidder on 25.09.2021.

iv. I.A. No. 1300 of 2020 was filed by the Liquidator before the Adjudicating Authority praying for direction to the Respondents-Sales Tax Officer to release the attachment on all three properties so as to enable the Applicant to continue the auction/private sale of the assets. The said Application were opposed by the Sales Tax Department and the Adjudicating Authority by the Impugned Order passed on 10th February, 2023 rejected the Application.

v. Aggrieved by the said order, these two Appeals have been filed.

# 6. Learned Counsel for the Liquidator challenging the Order contends that Sales Tax Department cannot be held to be Secured Creditor and the Properties attached by the Department is part of the Liquidation Asset hence the Adjudicating Authority ought to have lifted the Attachment to proceed further with the Liquidation Process. Learned Counsel for the Liquidator has relied on the Judgment of this Tribunal in C.A. (AT) Ins. No. 246 of 2022, “Department of State Tax, Through the Dy. Commissioner of State Tax Vs. Zicom Saas Pvt. Ltd. & Anr” decided on 07.02.2023.

# 7. Learned Counsel appearing for the Successful Bidder challenging the Order contends that the properties were mortgaged to the Punjab National Bank and charge of the PNB was registered with the Ministry of Corporate Affairs and at best the Sales Tax Officer will have Second Charge. It is submitted that even if it is assumed that Sales Tax Department was secured creditor, they have not exercised their right under Section 52 of the Code to proceed with the assets. The assets become part of Liquidation Assets. He further referred to Regulation 21A of Liquidation Process Regulations, 2016. He submits that assets being part of the liquidation assets, Liquidator has rightly declared the Appellant Successful Bidder.

# 8. Learned Counsel appearing for the State Tax Department refuted the submissions of Learned Counsel for the Appellants and submits that attachment which was made of the properties under Section 35 of Maharashtra Value Added Tax Act was never challenged by the Appellant and although the right of Appeal is given under Section 35(6) but they having never exercised the right, the said order of attachment became final. He further submits that the Adjudicating Authority has rightly relied on Judgment of the Hon’ble Supreme Court in M/s Embassy Property Development Pvt. Ltd. Vs. State of Karnataka & Ors. holding that the issue of attachment having become final cannot be brought before the Adjudicating Authority under Section 60(5) of the Code. He has relied on the portion of the Judgment which has been relied on by Learned Adjudicating Authority in paragraph 25 of the Order. Learned Counsel further submits that attachment being continued, the Adjudicating Authority has rightly rejected the Application of the Liquidator.

# 9. We have considered the submissions of Learned Counsel for the parties and have perused the record.

# 10. There is no dispute between the parties regarding the sequence of the events. There is also no dispute that properties of the Corporate Debtor were attached by the Sales Tax Department on 28.05.2015. Attachment was made prior to initiation of CIRP and continued even during the Liquidation Process that is why the Liquidator filed an Application for release of the attachment.

# 11. We may first notice the submission of Learned Counsel for the Respondent relying on the Judgment of the Hon’ble Supreme Court in ‘M/s. Embassy Property Development Pvt. Ltd.’. In paragraph 25 of the Impugned Order, the relevant portion of the Judgment of the Hon’ble Supreme Court which has been relied by Learned Adjudicating Authority is as follows:

• “25. The Respondent has relied on the Judgment of the Hon’ble Apex Court in M/s Embassy Property Development Pvt. Ltd. Vs. State of Karnataka & Ors wherein it was held as under:

• “The only provision which can probably throw light on this question would be Sub-section (5) of Section 60, as it speaks about the jurisdiction of the NCLT. Clause (c) of Sub-section (5) of Section 60 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase “arising out of or in relation to the insolvency resolution” appearing in Clause (c) of Sub-section (5).

• Let us take for instance a case where a corporate debtor had suffered an order at the hands of the Income Tax Appellate Tribunal, at the time of initiation of CIRP. If Section 60(5)(c) of IBC is interpreted to include all questions of law or facts under the sky an Interim Resolution Professional/ Resolution Professional will then claim a right to challenge· the order of the Income Tax Appellate Tribunal 40 (7j-rL before the NCLT, instead of moving a statutory appeal under Section 260A of the Income Tax Act, 1961. Therefore the jurisdiction of the NCLT delineated in Section 60(5) cannot be stretched so far as to bring absurd results. (It will be a different matter, if proceedings under statutes like Income Tax Act had attained finality, fastening a liability upon the corporate debtor, since, in such cases, the dues payable to the Government would come within the meaning of the expression “operational debt” under Section 5(21), making the Government an “operational creditor” in terms of Section 5(20). The moment the dues to the Government are crystalised and what remains is only payment. the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the Adjudicating Authority, namely the NCLT.”

# 12. There cannot be dispute to the preposition laid down by the Hon’ble Supreme Court in the said Judgment. Hon’ble Supreme Court while giving reference of an Order suffered by the Corporate Debtor took the view that Order of the Income Tax Appellate Tribunal which has become final could not have been called in question. There cannot be any dispute to the preposition that orders passed by the Statutory Authorities which have become final against the Corporate Debtor cannot be questioned and the said order can be questioned under the relevant statute only. Present is not a case where the Liquidator has questioned the attachment order. Attachment Order has become final and Attachment continued till date. The question is of consequence of the attachment on the assets of the property. Learned Counsel for the Successful Bidder has rightly relied on Section 52 of the IBC and Regulation 21A of Liquidation Process Regulations. Section 52 and Regulation 21A are as follows:

“Section 52: Secured creditor in liquidation proceedings.- (1) A secured creditor in the liquidation proceedings may—

(a) 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

(b) realise its security interest in the manner specified in this section.

(2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised.

(3) Before any security interest is realised by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either—

(a) by the records of such security interest maintained by an information utility; or

(b) by such other means as may be specified by the Board.

(4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it.

(5) If in the course of realising a secured asset, any secured creditor faces resistance from the corporate debtor or any person connected therewith in taking possession of, selling or otherwise disposing off the security, the secured creditor may make an application to the Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force.

(6) The Adjudicating Authority, on the receipt of an application from a secured creditor under sub-section (5) may pass such order as may be necessary to permit a secured creditor to realise security interest in accordance with law for the time being in force.

(7) Where the enforcement of the security interest under sub-section (4) yields an amount by way of proceeds which is in excess of the debts due to the secured creditor, the secured creditor shall—

(a) account to the liquidator for such surplus; and

(b) tender to the liquidator any surplus funds received from the enforcement of such secured assets.

(8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this section, shall be deducted from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate.

(9) Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the manner specified in clause (e) of sub-section (1) of section 53.”

Regulation 21A: Presumption of security interest.- (1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II:

Provided that, where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate.

(2) Where a secured creditor proceeds to realise its security interest, it shall pay –

(a) as much towards the amount payable under clause (a) and sub-clause (i) of clause (b) of sub-section (1) of section 53, as it would have shared in case it had relinquished the security interest, to the liquidator within ninety days from the liquidation commencement date; and

(b) the excess of the realised value of the asset, which is subject to security interest, over the amount of his claims admitted, to the liquidator within one hundred and eighty days from the liquidation commencement date:

Provided that where the amount payable under this sub-regulation is not certain by the date the amount is payable under this sub-regulation, the secured creditor shall pay the amount, as estimated by the liquidator:

Provided further that any difference between the amount payable under this sub-regulation and the amount paid under the first proviso shall be made good by the secured creditor or the liquidator, as the case may be, as soon as the amount payable under this sub-regulation is certain and so informed by the liquidator.

(3) Where a secured creditor fails to comply with sub-regulation (2), the asset, which is subject to security interest, shall become part of the liquidation estate.]

[Explanation.- It is hereby clarified that the requirements of this regulation shall apply to the liquidation processes commencing on or after the date of the commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019.]

# 13. The argument that even if it is assumed that Sales Tax Department is secured creditor, it has not exercised its right under Section 52, the assets will be part of the Liquidation Estate as per the statutory provisions has substance. Further, Learned Counsel has rightly pointed out to the fact that charge is registered of the PNB as first charge holder. The judgment of this Tribunal in “Department of State Tax, Through the Dy. Commissioner of State Tax Vs. Zicom Saas Pvt. Ltd. & Anr” as has been relied by Learned Counsel for the Liquidator, the provisions of Section 37 of Maharashtra Value Added Tax Act, 2002 which is the provision applicable in the present case have been considered and the Judgment of the Hon’ble Supreme Court in “State Tax Officer Vs. Rainbow Papers Limited” was also taken note and relied on. After quoting the provisions of GVAT Act, Section 48 which was relied in “Rainbow Papers Limited” and Section 37 of MVAT Act, following was stated in paragraphs 9 to 10:

• “9. When we compare the provisions of Section 48 of the provision of Gujarat Values Added Tax which was relied in “Rainbow Papers Limited” and the Provisions of Section 37 which is sought to be relied on in the present Appeal, distinction between the provisions is clear. Section 37 specifically uses the expression “subject to any provision regarding creation of first charge in any central act”. The provision itself contemplated thus that Section 37 was subject to any provision in Central Act. The IBC Section 53 itself provides waterfall mechanism which may be treated to be law which has been contemplated under Section 37 of the MVAT Act, 2002.

• 10. We thus are of the view that the Judgement of the Hon’ble Supreme Court in “Rainbow Paper Limited” relied by Learned Counsel for the Appellant is distinguishable. The Appellant having been treated as Operational Creditor allocation of amount in the Resolution Plan cannot be said to be in violation of Section 30 (2)(b). We thus are of the view that no ground has been made to interfere with the Impugned Order.”

# 14. The above supports the submission of Liquidator that the Respondent Department cannot be treated as secured creditor of the Corporate Debtor. We thus are of the view that even when there is attachment of the assets, Sales Tax Department cannot be the owner of the assets and the asset continued to be owned by the Corporate Debtor and will be part of the Liquidation Estate.

The Adjudicating Authority committed error in rejecting the I.A. filed by the Liquidator relying on the Judgment of Hon’ble Supreme Court in “M/s. Embassy Property Development Pvt. Ltd.” which judgment has no application in the facts of the present case. We thus are of the view that the Order of the Adjudicating Authority in the Appeal cannot be sustained. Order dated 10th April, 2023 is set aside. I.A. No. 1300 of 2020 filed by the Liquidator is allowed. Let attachment be released by the Respondent so as to take further steps in the liquidation. Both the Appeals are allowed accordingly.

---------------------------------------------