The revenue department cannot attach the assets of a company in liquidation if the liquidator has already taken in account its tax dues, the bankruptcy court has said.
The principal bench of the National Company Law Tribunal (NCLT) in New Delhi ruled that the liquidator has overriding powers under the Insolvency and Bankruptcy Code to take over both movable and immovable assets of a corporate debtor.
The June 15 ruling came in a case between the liquidator of S Kumars Nationwide Ltd (SKNL) and the revenue department. It is likely to set a precedent while deciding on other similar matters as well where the revenue department has attached the bank accounts of the corporate debtors.
The lawyers for Om Prakash Agarwal, the liquidator of SKNL, argued that the revenue department had already submitted its claims and those were admitted by the company as well. Moreover, the tax dues are considered as operational creditor claims.
The tax department is entitled to claim its dues under the distribution provisions of the IBC, but cannot appropriate the monies lying in the company’s accounts by showing an attachment order, Agarwal’s lawyers had argued.
The tax department claimed that it had made an attachment against the money lying in the company’s bank account since 2017 and that it had not attached any immovable property.
NCLT acting president BSV Prakash Kumar, while allowing the plea filed by the liquidator, directed the revenue department to vacate the attachment on the bank account.
The tribunal also observed that money lying in the bank account should be construed as an asset of the corporate debtor, even if the order was taken against that money, as long as the money was lying in the account of the corporate debtor, it must be treated as an asset of the corporate debtor. “It does not make any difference whether it is cash or kind,” observed the tribunal.
“The order will certainly set the precedent in all those cases where the revenue department or any other government department has attached bank accounts or immovable assets of the insolvent company,” said Nishit Dhruva, the managing partner of law firm MDP & Partners, who advised the liquidator in the case.
KS Legal managing partner Sonam Chandwani said this order would pave the way to demonstrate the overriding effect of the IBC.
“The premise has been now settled to appreciate that past dues for revenue authorities shall fall within the confines of the claims of the operational creditor and will have no superseding position under the law,” Chandwani added.
In June last year, the Mumbai bench of the NCLT had approved the liquidation application for SKNL after its lenders failed to receive any viable revival plan for the textile company. Mumbai-based SKNL and Reid & Taylor India, both promoted by Nitin Kasliwal, are in liquidation.
The company owed around Rs 7,970 crore to its financial creditors. IDBI Bank filed the insolvency petition against SKNL in April 2018, after the company defaulted on loans of Rs 1,680 crore.
Source: The Economics Times, June 19, 2020