Mrs. Teena Saraswat Pandey, Vs, Regional Provident Fund Commissioner, - Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received.

 NCLT Mumbai-V (10.07.2023) In Mrs. Teena Saraswat Pandey, Vs, Regional Provident Fund Commissioner, [I.A. 962 OF 2022 IN C.P.(IB) No. 3703/MB/2019] held that;

• Accordingly, this Bench is of the considered view that Section 14(1)(a) imposes complete embargo on any proceeding against the Corporate Debtor by any Authority till the completion of CIRP. 

• Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received. 

• It may also be inferred from the circumstances and intent of legislation that in the present cases, the lien created prior to the initiation of the ‘Corporate Insolvency Resolution Process cannot sustain as it will hinder the entire resolution process.

• It is evident that the that amount deducted for `Provident Fund’, purely belongs to an `Employees’ and is not to be treated as an `Asset’ of the ‘Corporate Debtor’ and cannot be touched by an `Interim Resolution Professional’/`Resolution Professional’/ `Liquidator’ as the case may be. 

• However, it is important to note that such `Provident Fund’, has to be an `Establishment Fund’, kept separately by the company and only then this proviso will be applicable. 

• If even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund’, in that event `Interim Resolution Professional/Resolution Professional/Liquidator’ is not expected to provide for same, except under Section 53 of the I & B Code, 2016.

Excerpts of the Order;

# 1. The present Application is filed by the Applicant, namely, Mrs. Teena Saraswat Pandey, under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“Code”) read with rule 11 of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”) seeking directions to the Regional Provident Fund Commissioner (hereinafter referred to as “Respondent”) to remove the lien and release the amount which is held in its custody during the Corporate Insolvency Resolution Process. 

FACTS OF THE CASE 

# 2. The Applicant is the Insolvency Professional of M/s S & H Gears Private Limited (hereinafter referred to as “Corporate Debtor”). 3. Company Petition No. 3703 of 2019 was admitted vide order dated 24.01.2020 under Section 7 of the Code and the Corporate Insolvency Resolution Process was commenced against the Corporate Debtor. Mr. Navin Khendelwal (Erstwhile IRP) was appointed as the Interim Resolution Professional. 

# 4. The Applicant has submitted that even after the erstwhile IRP had published Form A on 18.03.2020, the Respondent issued a notice through its authorised recovery officer on 15.06.2020 in order to initiate recovery proceedings against the Corporate Debtor. 

# 5. The Applicant has submitted that the Respondent had filed its claim vide email dated 01.12.2020 for an amount of Rs.2,98,11,102/- which the erstwhile IRP had accepted vide email dated 01.12.2020. In respect of the said claim, the Respondent had passed multiple orders calling upon the Corporate Debtor to pay the outstanding dues. 

# 6. Referring to the Item No.7 of the minutes of the sixth Committee of Creditors (COC) Meeting conducted by the erstwhile IRP on 16.12.2020, the Applicant has submitted that the erstwhile IRP had specifically taken the permission of the COC to operate the current account of the Corporate Debtor which was maintained in HDFC Bank, Dewas Branch for the receipts and payments during the CIRP Period, until the new current account was opened. 

# 7. The Applicant has submitted that the erstwhile IRP had communicated to the Respondent via email dated 16.04.2021 about the Initiation of CIRP and informed the Respondent that in order to meet the CIRP expenses, the HDFC bank Account needs to be maintained by the erstwhile IRP only and all the other signatories had to be suspended. Further, the erstwhile IRP had also requested the Respondent to instruct the HDFC Bank to remove the lien on the Corporate Debtors Account. The erstwhile IRP had also acknowledged that the Respondent's dues would be distributed as per the provisions of the Code. 

# 8. The Applicant was appointed as the Resolution Professional by the order of this Tribunal 24.06.2021. Subsequent to her appointment, she had taken over the affairs of the Corporate Debtor. It was brought to the notice of the Resolution Professional that one HDFC Bank Account bearing Account Number 08872320000129 (hereinafter referred to as “Bank Account”) was frozen by the Respondent on 24.08.2018 on the ground the Corporate Debtor was a defaulter. Hence the bank account was frozen by the Respondent. 

# 9. The Applicant has submitted that vide emails dated 21.08.2021 and 09.09.2021, she has communicated with the authorized representative of the Respondent and requested the Respondent to release the lien on the bank account in which an amount of Rs.3,81,676.32 was received from the prospective Resolution Applicants during the CIRP. 

# 10. The Applicant has further submitted that she had sent a legal notice on 30.09.2021 to the Respondent and has mentioned about creation of a lien on the accounts of Corporate Debtor which was under moratorium from 24.01.2020. The Respondent had replied to the legal notice through a reply letter dated 13.10.2021 stating that the Corporate Debtor was under liquidation not under CIRP and had asked the Applicant to clear the dues which is totally against the law. 

# 11. With the above averments, the Applicant has prayed to allow the present Applicant. 

REPLY FILED ON BEHALF OF THE RESPONDENT 

# 12. At the outset, the Respondent denied each and every contention raised by the Applicant in the present Application. 

# 13. The Respondent has submitted that the dues as on 23.01.2020 (date of commencement of CIRP) was Rs.3,10,68,057/- for the period from December 2007 to January 2020 under Section 7A, 14 B and 7Q of the EPF and MP Act, 1952 and a further amount of interest of Rs. 41,04,943/- was due under Section 7Q for the period January 2020 to April 2023. 

# 14. The Respondent has further submitted that the Code only provides for moratorium against commercial claims whereas EPF dues are social dues for the welfare of the workers and such statutory dues need to be assessed and recovered in the interest of the workmen so that their financial interests can be secured. 

# 15. The Respondent has further placed its reliance upon Section 529 of Companies Act 1956 and has submitted that the official liquidator is entitled to represent the workmen and enforce such charge. This section specifically empowers the official liquidator to represent the workmen and to enforce pari passu charge in favour of workmen in realization. Therefore, the official liquidator is duty bound to represent workmen even though no claim has been filed with respect to the provident fund dues. This is an obligation to be performed by official liquidator to satisfy the claim of provident fund dues prior to dealing with other debts, being the statutory amount to be paid to the workmen. 

# 16. It has been submitted that under the provision of IBC 2016 and EPF & MP Act, 1952 the Provident Fund dues are one of the most important dues to be considered by the liquidator and has undoubtedly privilege and preference over the other payments due from the corporate debtor. 

# 17. The Respondent has further submitted that the dues of workmen have to be given priority under Section of 53 of the IB Code and EPF & MP Act. It has further submitted that the EPFO Authority submitted a claim before the IRP/Liquidator but the same has not been allowed by the IRP/Liquidator. 

# 18. It has further been submitted that the Resolution Professional, while rejecting the claims of the Respondent, has failed to secure the rights of labourers and also to honour the statutory provisions of EPF Act. The Respondent has further submitted that it is well settled and established law that there is no inconsistency between Section 238 and other provision of IBC and section 11(2) and other provisions of EPF & MP Act. 

# 19. With reference to other contentions and allegation made in the application, the Respondent has denied the same and has prayed for the dismissal of the Application. FINDINGS 

# 20. We have heard the Ld. Counsels appeared for the parties and perused the record. 

# 21. The present Application has been filed by the Applicant against the lien created by the Respondent i.e Regional Provident Fund Commissioner on account of the Corporate Debtor during the pendency of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. 

# 22. It is an undisputed fact that the HDFC Bank Account bearing Account Number 08872320000129 (hereinafter referred to as “Bank Account”) was frozen by the Respondent on 24.08.2018. However, the CIRP was commenced against the Corporate Debtor vide order dated 24.01.2020. 

# 23. The issue which needs to be resolved is – Whether an Attachment on Corporate Debtor's bank account that was imposed before the initiation of CIRP, can continue during Moratorium under Section 14 of IBC? 

# 24. Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 is reproduced as under: Section 14: Moratorium. 

• *14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:— 

• (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; 

# 25. From the above, 14(1)(a), it is clear that continuation of pending suits or proceedings against the ‘Corporate Debtor’ including Execution of any Judgment, decree or order in any `Court of Law’, `Tribunal’, `Arbitration Panel’ or other `Authority’ will temporarily cease to operate during `Moratorium’. The purpose of the Section 14 is to ensure that no depletion of `Assets’ of the ‘Corporate Debtor’ takes place during the ‘Corporate Insolvency Resolution Process’ and the ‘Corporate Debtor’ is allowed to continue as a going concern in order to maximise the value for all the `Stakeholders’. Accordingly, this Bench is of the considered view that Section 14(1)(a) imposes complete embargo on any proceeding against the Corporate Debtor by any Authority till the completion of CIRP. Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received. It may also be inferred from the circumstances and intent of legislation that in the present cases, the lien created prior to the initiation of the ‘Corporate Insolvency Resolution Process cannot sustain as it will hinder the entire resolution process. 

# 26. The Bench is aware about the provision of Section 36(4) of I & B Code 2016 which provides as under:

•  “36(4). The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation- 

• (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;” 

# 27. From the above referred Section, it is evident that the that amount deducted for `Provident Fund’, purely belongs to an `Employees’ and is not to be treated as an `Asset’ of the ‘Corporate Debtor’ and cannot be touched by an `Interim Resolution Professional’/`Resolution Professional’/ `Liquidator’ as the case may be. However, it is important to note that such `Provident Fund’, has to be an `Establishment Fund’, kept separately by the company and only then this proviso will be applicable. If even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund’, in that event `Interim Resolution Professional/Resolution Professional/Liquidator’ is not expected to provide for same, except under Section 53 of the I & B Code, 2016. 

# 28. It is pertinent to note that in the present case, the Resolution Professional in the 6th CoC meeting dated 14.12.2020 had sought permission to operate the Current Account which is being maintained with HDFC Bank, Dewas Branch for receipt and payment for the CIRP period and the same was approved by the members of the CoC. However, the said bank account had been frozen by the Respondent on 24.08.2018. Therefore, the Bench is of the considered view that since the Corporate Debtor had not opened a separate Bank Account for the `Provident Fund', the aforesaid account has to be treated as per Section 53 of the I & B Code, 2016. It would be pertinent to mention here that so far as the EPF claims are concerned, the Resolution Professional had admitted the said claims to the tune of Rs. 1,26,12,838/- , based on the records available with the Corporate Debtor and the admitted amount of EPF is proposed to be paid in the Resolution Plan approved by the CoC in its 21st meeting held on 13.12.2021 and 14.12.2021. Therefore, I.A. 962 OF 2022 IN C.P.(IB) No. 3703/MB/2019 9 the continuation of the lien on the bank account would not serve any purpose. 

# 29. Therefore, the Bench is of the considered view that the `Resolution Professional’ is in its right in seeking lifting of the lien created by the Respondent on Bank Account of the Corporate Debtor. 

# 30. Accordingly, this Interlocutory Application No. 962 of 2022 is “Allowed” with an order that the lien created by the Respondent on the HDFC Bank Account bearing Account Number 08872320000129 is hereby quashed/ set aside and the Resolution Professional shall be at liberty to deal with the same in accordance with the IB Code 2016. A copy of this order shall be forwarded to the Bank concerned for necessary compliance. 

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Mr. Satyendra P. Khorania Vs. Deputy Director, Jaipur Zonal Office, Directorate of Enforcement, - The PMLA would cease to have the power to attach the property at this juncture when the order of the Liquidation has already been passed. Further, the attachment of the properties of the Corporate Debtor under the PMLA has to be lifted in lieu of section 32A of the IBC.

NCLT Jaipur (05.12.2022) in Mr. Satyendra P. Khorania Vs. Deputy Director, Jaipur Zonal Office, Directorate of Enforcement [IA No. 15/JPR/2022 in CP No. (IB)- 601/ND/2018] held that; 

• Notwithstanding the above, the Legislature chose to structure that provision in a manner that the authorities under the PMLA would cease to have the power to attach or confiscate only when a Resolution Plan had been approved or where a measure towards liquidation had been adopted. 

• The statutory injunct against the invocation or utilisation of the powers available under the PMLA was thus ordained to come into effect only once the trigger events envisaged under Section 32A came into effect. 

• The Legislature thus in its wisdom chose to place an embargo upon the continuance of criminal proceedings including action of attachment under the PMLA only once a Resolution Plan were approved or a measure in aid of liquidation had been adopted.

• The PMLA would cease to have the power to attach the property at this juncture when the order of the Liquidation has already been passed. Further, the attachment of the properties of the Corporate Debtor under the PMLA has to be lifted in lieu of section 32A of the IBC.

 

Excerpts of the Order;

# 1. This Interlocutory Application (‘IA’) bearing the IA No. 15/JPR/2022 is filed by Mr. Satyendra P. Khorania (‘Applicant’), the Liquidator of the Corporate Debtor, M/s Emgee Cables and Communication Limited (‘ECCL’) under Section 35(1)(n) of Insolvency and Bankruptcy Code, 2016 (the ‘IBC’/ ‘Code’) and r/w Rule 11 of NCLT Rules for seeking directions to carry out the auction of properties of the Corporate Debtor which are attached by the order of Deputy Director, Directorate of Enforcement (‘Respondent’) in the matter mentioned above.

 

# 2. This Adjudicating Authority vide order dated 27.07.2018 commenced the Corporate Insolvency Resolution Process (‘CIRP’) of M/s Emgee Cables and Communication Limited under section 9 of the Insolvency and Bankruptcy Code (‘IBC’). Thereafter Mr. Pankaj Mahajan (‘Resolution Professional’) filed an application for the liquidation of M/s Emgee Cables and Communication Limited on 22.04.2019. The order for liquidation was passed on 18.09.2019 whereby Applicant has been appointed as Liquidator of the Corporate Debtor vide order dated 25.09.2019.

 

# 3. The Applicant has moved the present Application on the following set of facts:

i. The Applicant submits that the Deputy Directorate Enforcement under section 5(1) of the Prevention of Money Laundering Act, 2002 (‘PMLA’) has passed provisional attachment order on 12.12.2019 with respect to the properties of the Corporate Debtor.

ii. Subsequently, the said order was set aside by this Adjudicating Authority vide order dated 07.09.2020 under IA NO. 444/JPR/2019 stating in the order:

• “ 9. It is observed that if even after initiation of proceedings under this code the creditors are still required to knock other doors, which is time consuming and financially deleterious, it would defeat the object of the Insolvency and Bankruptcy Code, 2016.

• 10. Having regard to the above material and having heard the arguments, we direct the respondent to withdraw the provisional attachment of the movable and immovable properties belonging to the Corporate Debtor (M/s Emgee Cables and Communication Limited) vide order dated 12.12.2019, so that the liquidator can take them being part of the Liquidation Estate of ECCL.”

iii. Further the Applicant contends that the Respondent has filed a Writ Petition No. 14476/2020 before the Hon’ble High Court of Rajasthan, Jaipur against the order of this Adjudicating Authority dated 07.09.2020 and it is pending before the Hon’ble High Court.

iv. The Applicant further mentions that a Contempt Petition has been filed against the Respondent for not complying with an order dated 07.09.2020 passed by this Adjudicating Authority wherein notices have been issued.

v. The Applicant relied on the Judgements of the National Company Law Appellant Tribunal (‘NCLAT’) in Company Appeal (AT) (Insolvency) No. 575/2019 titled The Directorate of Enforcement Vs Manoj Kumar Agarwal & Ors. and in Company Appeal (AT) (Insolvency) No. 576/2019 titled The Directorate of Enforcement Vs Vishal Ghisulal Jain and Others dated 09.04.2021 held that:

• “ In our view, there is no conflict between PMLA and IBC and even if a property has been attached in the PMLA which is belonging to the Corporate Debtor, if CIRP is initiated, the property should become available to fulfill objects of IBC till a resolution takes place or sale of liquidation asset occurs in terms of Section 32A.”

vi. The details of the properties elucidated below for which the Applicant is seeking direction from this Adjudicating Authority for auction: 

• . . . .. . . .

vii. The Applicant submits that the auction of said properties are not carried out till date moreover during the course of the hearing in the Contempt Petition oral submission was made by the Sub-registrar that the noting on the properties of the Corporate Debtor has been removed.

 

# 4. The Applicant has filed Affidavit vide Diary No. 173/2022 dated 20.01.2022, which states the following:

i. The Applicant submitted that the claim form has been received from the Financial Creditor, Dena Bank on 22.10.2019 with respect to the properties attached by the PMLA as the properties were mortgaged by the Financial Creditor and while submitting the claim, the Financial Creditor has relinquished security interest in favour of the Liquidator. Resultantly, the Liquidator was empowered to sell the said properties as the properties are part of the Liquidation Estate as per the provisions of the IBC.

ii. The Applicant vide this affidavit submits the list of the properties which are included in the Liquidation Estate as defined under section 36 of the IBC. The details of the properties are given below:

• (A) Immovable Properties. ,  . . . . .

• (B) Movable Property . . . . . . .

• (i) Balance available in the Bank Accounts:

• (ii) Plant and Machinery along with supporting equipment and Other Movable assets such as Furniture & Fittings, Office Appliances, Laboratory Equipment etc. of ECCL

• (iii) Cars in the name of ECCL

 

# 5. The Respondent filed its reply, vide Diary No. 2752/2022 dated 14.09.2022, stating the following:

i. It is submitted by the Respondent that just because the assets of the Corporate Debtor are subject to a liquidation proceeding under IBC that does not mean that the Corporate Debtor can escape from its liability under the PMLA. The Respondent relied on the Judgement of the Hon’ble High Court of Delhi in the case of Deputy Director, Directorate of Enforcement Delhi vs. Axis Bank & Ors. 2019 SCC Online Del. 7854

• “146…..A view to the contrary, if taken, would defeat the objective of PMLA by opening an escape route. After all, a person indulging in money-laundering cannot be permitted to avail of the proceeds of crime to get a discharge for his civil liability towards his creditors for the simple reason such assets are not lawfully his to claim.”

• 147. To sum up on the issue, the objective of the legislation in PMLA being distinct from the purposes of the three other enactments viz. RDBA, SARFAESI Act and Insolvency Code, the latter cannot prevail over the former. There is no inconsistency. The purpose, the text and context are different. This court thus rejects the arguments of prevalence of the said laws over PMLA.”

 

ii. Further, the Respondent contends that the PMLA is a Special Act and has overriding effects in terms of section 71 of the PMLA. The main objectives of IBC and PMLA are different from each other.

 

# 6. The Applicant has filed its written submission vide Diary No. 3059/2022 dated 17.10.2022 reiterating the same as mentioned in the Application. Additionally, the Applicant has relied on the following Judgements:

• i. The Directorate of Enforcement Vs Manoj Kumar Agarwal & Ors., NCLAT, New Delhi Company Appeal (AT) (Insolvency) No. 575/2019 dated 09.04.2021

• ii. The Directorate of Enforcement Vs Vishal Ghishulal Jain & Ors. , NCLAT, New Delhi Company Appeal (AT) (Insolvency) No. 576/2019 dated 09.04.2021

• iii. Nitin Jain Liquidator PSL Limited Vs Enforcement Directorate, Hon’ble High Court of Delhi dated 15.12.2021

• iv. ABG Shipyard Vs Central Board of Indirect Taxes and Customs Civil, Hon’ble Supreme Court in Appeal No. 7667 of 2021 dated 26.08.2022

 

# 7. The Respondent filed its written submission vide Diary No. 2750/2022 dated 14.09.2022 reiterating the same as mentioned in its reply.

 

# 8. We have closely gone through the facts of the case, documents placed on record before us, submissions made and arguments advanced. We find that a Civil Writ No. 14476/2020 has been filed by the Respondent in the High Court of Rajasthan against the order dated 07.09.2020 which is passed by this Adjudicating Authority whereby the Respondent was directed to withdraw the attachment of the properties of the Corporate Debtor.

 

# 9. The order of the Liquidation has been passed by this Adjudicating Authority on 18.09.2019 in IA 117/JRP/2019. Subsequently, the properties have been attached by the Directorate of Enforcement. List of dates and events which are taken place after the passing of the Liquidation Order by this Adjudicating Authority:

 

Sr. No.	Date	Event
1.	12.12.2019	The Directorate of Enforcement has passed the provisional attachment order under section 5 of PMLA.
2.	08.01.2020	In pursuance of section 5(5) of the PMLA, the Directorate of Enforcement filed original complaint no. 1245 of 2019 before the PMLA seeking confirmation of the attachment of proceeds of crime vide PAO No. 13/2019 dated 12.12.2019.
3.	07.09.2020	This Adjudicating Authority withdraws the provisional attachment of the properties of the Corporate Debtor in IA No. 444/JPR/2019.
4.	24.11.2020	The Directorate of Enforcement has filed Civil Writ Petition No. 14476/2020 against the order dated 07.09.2020 passed by this Adjudicating Authority. Till date no final order has come in Civil Writ Petition No. 14476/2020 filed before the High Court of Rajasthan, Jaipur. No interim order of stay has been issed by the Hon’ble High Court.

 

# 10. The NCLAT in the matter of The Directorate of Enforcement Vs Manoj Kumar Agarwal & Ors. (Supra) held as follows:

• “42. In our view, there is no conflict between PMLA and IBC and even if a property has been attached in the PMLA which is belonging to the Corporate Debtor, if CIRP is initiated, the property should become available to fulfil objects of IBC till a resolution takes place or sale of liquidation asset occurs in terms of Section 32A.”

 

# 11. Further in the matter of Nitin Jain, Liquidator, PSL Limited Vs Enforcement Directorate W.P.(C) 3261/2021 dated 15.12.2021, the Hon’ble Delhi High Court held that:

• “102. Accordingly, and for all the aforesaid reasons, this writ petition shall stand allowed in the following terms. The Liquidator is held entitled in law to proceed further with the liquidation process in accordance with the provisions of the IBC. The respondent shall hereby stand restrained from taking any further action, coercive or otherwise, against the liquidation estate of the corporate debtor or the corpus gathered by the Liquidator in terms of the sale of liquidation assets as approved by the Adjudicating Authority under the IBC. The Court grants liberty to the petitioner to move the Adjudicating Authority for release of the amounts presently held in escrow in terms of the interim order passed in these proceedings.”

 

# 12. Later on in the recent Judgment of the Hon’ble High Court of Delhi in Rajiv Chakraborty Resolution Professional of EIEL Vs Directorate of Enforcement W.P. (C) 9531/2020 dated 11.11.2022, it was held that:

• “105………. Notwithstanding the above, the Legislature chose to structure that provision in a manner that the authorities under the PMLA would cease to have the power to attach or confiscate only when a Resolution Plan had been approved or where a measure towards liquidation had been adopted. The statutory injunct against the invocation or utilisation of the powers available under the PMLA was thus ordained to come into effect only once the trigger events envisaged under Section 32A came into effect. The Legislature thus in its wisdom chose to place an embargo upon the continuance of criminal proceedings including action of attachment under the PMLA only once a Resolution Plan were approved or a measure in aid of liquidation had been adopted.”

 

# 13. Therefore, in view of the above-mentioned Judgements, the PMLA would cease to have the power to attach the property at this juncture when the order of the Liquidation has already been passed. Further, the attachment of the properties of the Corporate Debtor under the PMLA has to be lifted in lieu of section 32A of the IBC which is reproduced below:

Section 32A. Liability for prior offences, etc.

• “(2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person.”

 

# 14. Thus, the IBC creates a specific bar with respect to proceedings that may be initiated under the PMLA by virtue of the provisions contained in Section 32A. Moreover, Section 32A cannot possibly be read as being applicable prior to a Resolution Plan being approved or a liquidation measure being enforced. Further, it can therefore be construed that the objective and intention of the Code is providing a free hand to the creditors if the properties of the Corporate Debtor are attached then it will jeopardize the Liquidation Process.

 

# 15. It is always important to ensure that the object laid down in the preamble of the Code is achieved which enunciates maximization of the value of the Corporate Debtor for proper resolution. In view of the same, this Application filed by the Liquidator numbered as IA No. 15/JPR/2022 is hereby allowed with the following directions:

• I. The Liquidator shall carry out auction of the properties of the Corporate Debtor in an open auction preferably Swiss Challenge Method after due approval from the stakeholders. The auction notice shall be published in widely circulated Two Newspapers, One English and One Vernacular/ Local Language inviting bidders to submit their offers with a view to maximize the value of the properties mortgaged/hypothecated.

• II. The Enforcement Directorate is at liberty to prefer their claim if any, to the Liquidator within three(3) weeks from the date of pronouncement of this order. The Liquidator shall only consider the claim of the Enforcement Directorate and examine the same in accordance with the provisions of the Code.

• III. The Liquidator is further directed to complete the entire auction process within the time as prescribed under the provisions of the Code. The sale proceeds shall be kept in the Liquidation Account and distribution of the said assets shall be carried out as per Section 53 of the Code. The details of the distribution of assets with Form H shall be filed within 15 days before this Adjudicating Authority.

 

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Mr. Hemant Mehta Vs. Asst. Commissioner of State Tax, & Ors. - 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.

 NCLAT (05.08.2022) in Mr. Hemant Mehta Vs. Asst. Commissioner of State Tax, & Ors. [Company Appeal (AT)(Insolvency) No. 328 of 2022] held that;

• 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.

• 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.

• 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 enactments considering the Provision of Section 238 of 1 & B Code, 2016.

Excerpts of the order;

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.

 

# 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 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 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 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: —

 

• “(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.”

 

# 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 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 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 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 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:

• “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. 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 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.

 

# 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.

 

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