The Himachal High Court in a recent case held that no legal proceedings could be instituted by tax dept on property of corporate debtors once liquidated by the National Company Law Tribunal ( NCLT ) under section 33(5) of Insolvency & Bankruptcy Code ( IBC ). The High Court clarified that the red entry/charge created by the Revenue Department on the property of the petitioner-company during the currency of the moratorium imposed by the NCLT, would be void in law.
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The petitioner company/ assessee, Su-Kam Power System Ltd. was engaged in the business of manufacturing and trading of Inverters & Batteries and has its factory premises in Himachal Pradesh. For running its operations, it had availed various facilities from financial creditors and also with SBI. On account of default in adherence to the financial discipline by the erstwhile management of the Company, the SBI initiated Corporate Insolvency Resolution Process ( CIRP ) of petitioner under section 7 of IBC, 2016 before the NCLT.
Resultantly, a Resolution Professional was appointed replacing the earlier management which stood suspended, and by operation of Section 14 of the IBC, 2016 a moratorium was imposed. Pursuant to the initiation of the CIRP process, expressions of interest were invited from prospective resolution applicants, but to no avail.
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It was viewed that the moratorium was imposed by the NCLT prohibiting any action/proceedings against the Corporate Debtor or enforcing any security interest created by the Corporate Debtor in respect of its property. Further, stated that as per Section 14(4) of IBC, the order of moratorium would have effect from the date of such order till the completion of the CIRP.
Since the provisions of the IBC had overriding effect on all laws in view of Section 238, it was not permissible for the respondents to create a charge on the property of the petitioner-company during the currency of the moratorium in violation of the provisions of the IBC, observed the Bench,
The Coram explained that the “Clean Slate” principle of IBC as per amended Section 31 of the IBC, which stated that taking over Corporate Debtor under a Resolution Plan, will also apply to taking over by way of acquisition plan.
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The Division Bench of Justice M.S. Ramachandra Rao ( Chief Justice ) and Justice Satyen Vaidya observed that Prior approval of the Adjudicating Authority under Section 33(5) of IBC, 2016 is mandatory before initiating any legal proceedings on behalf of the Corporate Debtor under Liquidation.
While allowing the petition, the court directed the fourth respondent to remove its charge/red entries/ claim for the tax dues of the erstwhile management of the first petitioner company on the properties of the said petitioner from the revenue record.
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