NATIONAL COMPANY LAW APPELLATE TRIBUNAL,
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) (Insolvency) No.1062 of 2024
(Arising out of Order dated 19.10.2023 passed by the Adjudicating Authority
(National Company Law Tribunal), Ahmedabad, Division Bench Court-1 in IA/
1111(AHM)/2023 in CP(IB) 387 of 2020)
IN THE MATTER OF:
Employees’ Provident Fund
Organization Regional Office, Vashi, Navi Mumbai
Through Regional PF Commissioner-II (Legal) …Appellant
Versus
Jaykumar Pesumal Arlani
Resolution Professional of
M/s. Decent Laminates Pvt. Ltd. …Respondent
Present:
For Appellant : Mr. Sandeep Vishnu, Advocate.
Appearance not marked.
For Respondents : Mr. Vashisht, Advocate for R-1.
With
Company Appeal (AT) (Insolvency) No.1065 of 2024
& I.A. No.3665 of 2024
(Arising out of Order dated 22.08.2023 passed by the Adjudicating Authority
(National Company Law Tribunal), Mumbai bench, Court-II in IA No.743 of 2023
in C.P.(IB)3484(MB) 2019)
IN THE MATTER OF:
Employees’ Provident Fund
Organization Regional Office, Vashi, Navi Mumbai
Through Regional PF Commissioner-II (Legal) …Appellant
Versus
Sanjay Kumar Lalit,
Resolution Professional of
Apollo Soyuz Electricals P. Ltd. & Anr …Respondents
Present:
For Appellants : Mr. Sandeep Vishnu, Advocate.
Appearance not marked.
For Respondents : Mr. Malak Bhatt, Ms. Neeha Nagpal, Mr.
Shreyansh Chopra, Advocates for R-2.
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 1
JUDGMENT
ASHOK BHUSHAN, J.
These two Appeal(s) raising common questions of facts and law,
have been heard together and are being decided by this common
judgment.
2. Company Appeal (AT) (Ins.) No.1062 of 2024 has been filed
challenging order dated 19.10.2023 passed by National Company Law
Tribunal, Ahmedabad, Division Bench, Court-1 in IA No.1111(AHM) 2023
filed by the Appellant in CP(IB) 387 of 2020. By the impugned order IA
filed by the Applicant/ Appellant has been rejected. Aggrieved by which
order this Appeal has been filed.
3. Company Appeal (AT) (Ins.) No.1065 of 2024 has been filed
challenging order dated 22.08.2023 passed by National Company Law
Tribunal, Mumbai Bench, Court-II in IA No.743/2023 in
C.P.(IB)/3484(MB) 2019. By the impugned order, Application – IA No.743
of 2023 filed by the Applicant/ Appellant has been rejected. Aggrieved by
which order this Appeal has been filed.
4. We need to notice brief background facts giving rise to these two
Appeal(s):
Company Appeal (AT) (Ins.) No.1062 of 2024
(i) The Corporate Insolvency Resolution Process (“CIRP”) against
the Corporate Debtor – Decent Laminate Pvt. Ltd.
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 2
Commenced after an order dated 03.05.2021 passed by
NCLT, Ahmedabad Bench. The Appellant vide email dated
11.06.2021 requested the Resolution Professional (“RP”) to
forward the copy of NCLT order along with other details. On
16.06.2021, the RP replied forwarding the copy of NCLT order
dated 03.05.2021.
(ii) The Appellant initiated proceedings under Section 7A of the
Employees’ Provident Fund & Misc. Provisions Act, 1952 (for
short “EPF & MP Act”). On 22.06.2022, summon was
issued under Section 7A with copy to Interim Resolution
Professional (“IRP”). The IRP appeared and informed that he
does not have relevant records. On 09.05.2023, summons
were again issued to the Establishment under Section 14B &
7Q of the EPF & MP Act to show cause as to why damages
under Section 14B and interest under Section 7Q of the Act
may not be levied and recovered.
(iii) On 11.05.2023, the claim of Rs.76,09,494/- was submitted
before the IRP. On 16.08.2023, order was passed under
Section 14B and 7Q. On 31.08.2023, a revised claim of
Rs.1,58,90,685/- was submitted. On 05.09.2023, RP replied
that claim cannot be considered as the Plan has been
approved by the Committee of Creditors (“CoC”)
(iv) An IA No.1111 of 2023 was filed by the Appellant praying for
direction to the IRP to admit the total claim of
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 3
Rs.2,35,00,179/-. The Adjudicating Authority heard the
Applicant/ Appellant as well as the RP and by the impugned
order rejected the Application. The Adjudicating Authority
noticed in the order that order under Section 7A, 14B and 7Q
was passed only on 11.08.2023 and the Resolution Plan has
been approved by the CoC long back. It was held that IBC
(Insolvency and Bankruptcy Code, 2016) is a time bound
process and the claim, which was submitted by the Applicant
at a belated stage, after the approval of Resolution Plan was
rightly rejected by the RP. With the above observation the
Adjudicating Authority rejected IA No.1111 of 2023.
Aggrieved by which order this Appeal has been filed.
Company Appeal (AT) (Ins.) No.1065 of 2024
(i) CIRP against the Corporate Debtor – Apollo Soyuz Electricals
P. Ltd. commenced on 12.07.2021. On 18.10.2021, IRP
wrote to the Appellant to submit their PF claim and other
related information with proof.
(ii) Inquiry under Section 7A was initiated against the
Establishment in the year 2019. An order dated 29.8.2022
was passed by the Appellant under Section 7A for an amount
of Rs.10,89,938/-. IRP sent a letter dated 12.07.2022 to the
Appellant informing that Resolution Plan of the CD has been
approved by the CoC on 23.06.2022 and RP is prohibited to
accept any claim from any creditor, including the Appellant.
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 4
(iii) The Appellant filed IA No.743 of 2023 on 30.01.2023seeking a
direction to the RP to accept and pay the claim of
Rs.10,89,938/- towards PF dues. During pendency of IA
No.743 of 2023, the NCLT Mumbai Bench passed order dated
13.04.2023 in IA No.1785 of 2022 approving the Resolution
Plan in the CIRP. The Appellant has also filed an Appeal,
challenging the order dated 13.04.2023 in this Tribunal. IA
No.743 of 2023 was heard and rejected by order dated
22.08.2023 passed by the Adjudicating Authority. The
Adjudicating Authority took the view that order under which
amount of Rs.10,89,938/- is claimed was passed by EPFO on
29.08.2022, i.e., during moratorium period. It was also
noticed that Resolution Plan has been approved by the CoC
on 01.06.2022 and prior to approval of Resolution Plan, no
claim by the EPFO was lodged with the RP. It was held that
order dated 29.8.2022 was hit by Section 14 of the IBC. The
Adjudicating Authority held that at this stage, no direction
can be issued to the RP to entertain or pay the claim of
Rs.10,89,938/-. Consequently, IA No.743 of 2023 was
rejected.
5. We have heard learned Counsel for the parties. The submissions,
which have been advanced by learned Counsel for the Appellant
challenging the impugned order being common submissions, we notice
the submissions, as submission of the Appellant.
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 5
6. Learned Counsel for the Appellant submitted that despite
imposition of moratorium under Section 14 of the IBC, proceeding under
Section 7A of the EPF & MP Act can still continue. It is submitted that
moratorium under Section 14 of the IBC, does not prevent proceedings
under Section 7A of the EPF & MP Act. Learned Counsel for the
Appellant has relied on judgments of the Hon’ble Supreme Court of India
in S.V. Kindaskar v. V.M. Deshpande – AIR (1972) SC 878 and
Sundresh Bhatt, Liquidator of ABG Shipyard v. Central Board of
Indirect Taxes and Customs, (2023) 1 SCC 472 to support his
submission that moratorium under Section 14 and 33(5) of the IBC, do
not bar for determination of quantum of dues or taxes or other levies and
the embargo is only against its enforcement. It is submitted that in the
proceedings under Section 7A, the Establishment delayed to give its reply
and it was the CD, who is to blame for delay in passing order under
Section 7A. The CD at no point of time in proceedings under Section 7A
has raised objection to inquiry proceedings and always took time to
produce the relevant records. The assessment under Section 7A related
to period prior to CIRP initiation. By rejection of the Application filed by
the Appellant, prejudice has been caused to the Appellant, since its claim
has not been accepted. PF dues, inclusive of damages and interest, are
excluded from the liquidation estate in light of Section 36(4)(a)(iii) of the
IBC. The order rejecting the claim is in contravention of the law laid
down by NCLAT and Hon’ble Supreme Court of India in Tourism
Finance Corporation of India & Ors. vs. Rainbow Papers Ltd. &
Ors., where it was held that no provisions of the EPF & MP Act is not in
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 6
conflict of IBC. The priority of PF dues operates against all other debts
including secured and unsecured creditors.
7. Learned Counsel appearing for the Respondent refuting the
submissions of learned Counsel for the Appellant(s) submits that no
claim was filed by the Appellant before the Plan was approved by the CoC
and the assessment proceedings were carried out and final order under
Section 7A of the EPF & MP Act was passed during the CIRP is in
violation of the moratorium. When assessment order has been passed
post moratorium, it is bad in law and on the basis of said assessment, no
claim can be admitted in the CIRP. Learned Counsel for the Respondent
has also placed reliance on the judgment of the Hon’ble Supreme Court of
India in Sundresh Bhatt, Liquidator of ABG Shipyard (supra). It is
submitted that post approval of Resolution Plan by the CoC, no claim can
be considered by the RP. In both the Appeal(s), the claims were filed by
the Appellant(s) subsequent to the approval of Plan by the CoC and
further assessment orders were made subsequent to imposition of
moratorium. Hence, the said claims cannot be accepted.
8. We have considered the submissions of learned Counsel for the
parties and have perused the records.
9. From the submissions of learned Counsel for the parties, following
issues arise for consideration:
(1) Whether after imposition of moratorium under Section 14 of
the IBC, assessment proceedings can be carried on by the
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 7
EPFO under Section 7A, 14B and 7Q of the EPF & MP Act,
1952.
(2) Whether any claim on the basis of assessment, subsequent to
imposition of moratorium, can be admitted in the CIRP.
(3) Whether claims, which were filed by the Appellant(s),
subsequent to the approval of Resolution Plan by the CoC,
could have been admitted in the CIRP.
Question Nos.(1) & (2)
Question Nos.(1) & (2) being interrelated, are being taken together.
10. In Company Appeal (AT) (Ins.) No.1062 of 2024, CIRP was initiated
vide order dated 03.05.2021 and the assessment order under Section 7A
was passed on 11.08.2023 and order under Section 14B and 7Q was
issued on 16.08.2023. In Company Appeal (AT) (Ins.) No.1065 of 2024,
the CIRP against the CD commenced on 12.07.2021 and assessment
order under Section 7A was passed on 29.08.2022. It is an admitted
position that in both the cases, assessment orders under Section 7A, 14B
and 7Q were passed subsequent to initiation of CIRP against the CD.
Moratorium under Section 14 was imposed by the Adjudicating Authority,
initiation CIRP. Section 14(1) of the IBC provides as follows:
“14. Moratorium. -
(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
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 8
execution of any judgement, decree or order in any court of
law, tribunal, arbitration panel or other authority;
(b)transferring, encumbering, alienating or disposing
off by the corporate debtor any of its assets or any legal right
or beneficial interest therein;
(c) any action to foreclose, recover or enforce any
security interest created by the corporate debtor in respect
of its property including any action under the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the possession of
the corporate debtor.
Explanation.-For the purposes of this sub-section, it is
hereby clarified that notwithstanding anything contained in
any other law for the time being in force, a licence, permit,
registration, quota, concession, clearance or a similar grant
or right given by the Central Government, State
Government, local authority, sectoral regulator or any other
authority constituted under any other law for the time being
in force, shall not be suspended or terminated on the
grounds of insolvency, subject to the condition that there is
no default in payment of current dues arising for the use or
continuation of the license or a similar grant or right during
moratorium period.”
11. The Hon’ble Supreme Court had occasion to consider effect and
consequence of imposition of moratorium. The Hon’ble Supreme Court in
(2020) 13 SCC 208 – Rejendra K. Bhutta vs. Maharashtra Housing and
Area Development and Anr. held that after the imposition of moratorium, a
statutory freeze takes place. In paragraph 25 of the judgment, following was
held:
“25. There is no doubt whatsoever that important functions
relating to repairs and reconstruction of dilapidated buildings are
given to MHADA. Equally, there is no doubt that in a given set of
circumstances, the Board may, on such terms and conditions as
may be agreed upon, and with the previous approval of the
Authority, hand over execution of any housing scheme under its
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 9
own supervision. However, when it comes to any clash between
MHADA Act and the Insolvency Code, on the plain terms of Section
238 of the Insolvency Code, the Code must prevail. This is for the
very good reason that when a moratorium is spoken of by Section
14 of the Code, the idea is that, to alleviate corporate sickness, a
statutory status quo is pronounced under Section 14 the moment a
petition is admitted under Section 7 of the Code, so that the
insolvency resolution process may proceed unhindered by any of
the obstacles that would otherwise be caused and that are dealt
with by Section 14. The statutory freeze that has thus been made
is, unlike its predecessor in the SICA, 1985 only a limited one,
which is expressly limited by Section 31(3) of the Code, to the date
of admission of an insolvency petition up to the date that the
adjudicating authority either allows a resolution plan to come into
effect or states that the corporate debtor must go into the
liquidation. For this temporary period, at least, all the things
referred to under Section 14 must be strictly observed so that the
corporate debtor may finally be put back on its feet albeit with a
new management.”
12. In (2021) 6 SCC 258 – P. Mohanraj and Ors. Vs. Shah Brothers ISPAT
Pvt. Ltd., the Hon’ble Supreme Court had occasion to interpret the expression
“proceeding” in Section 14. The object and purpose of moratorium has been
captured in paragraph 30 of the judgment, which is as follows:
“30. It can be seen that Para 8.11 refers to the very judgment
under appeal before us, and cannot therefore be said to throw any
light on the correct position in law which has only to be finally
settled by this Court. However, Para 8.2 is important in that the
object of a moratorium provision such as Section 14 is to see that
there is no depletion of a corporate debtor's assets during the
insolvency resolution process so that it can be kept running as a
going concern during this time, thus maximising value for all
stakeholders. The idea is that it facilitates the continued operation
of the business of the corporate debtor to allow it breathing space
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 10
to organise its affairs so that a new management may ultimately
take over and bring the corporate debtor out of financial sickness,
thus benefitting all stakeholders, which would include workmen of
the corporate debtor. Also, the judgment of this Court in Swiss
Ribbons (P) Ltd. v. Union of India [Swiss Ribbons (P) Ltd. v. Union of
India, (2019) 4 SCC 17] states the raison d'être for Section 14 in
para 28 as follows : (SCC p. 55)
“28. It can thus be seen that the primary focus of the
legislation is to ensure revival and continuation of the
corporate debtor by protecting the corporate debtor from its
own management and from a corporate death by liquidation.
The Code is thus a beneficial legislation which puts the
corporate debtor back on its feet, not being a mere recovery
legislation for creditors. The interests of the corporate debtor
have, therefore, been bifurcated and separated from that of
its promoters/those who are in management. Thus, the
resolution process is not adversarial to the corporate debtor
but, in fact, protective of its interests. The moratorium
imposed by Section 14 is in the interest of the corporate
debtor itself, thereby preserving the assets of the corporate
debtor during the resolution process. The timelines within
which the resolution process is to take place again protect
the corporate debtor's assets from further dilution, and also
protects all its creditors and workers by seeing that the
resolution process goes through as fast as possible so that
another management can, through its entrepreneurial skills,
resuscitate the corporate debtor to achieve all these ends.”
13. The plain reading of Section 14, sub-section (1) indicates that expression
‘suits or proceedings against the corporate debtor’ has been used. The word
‘proceeding’ is not qualified, so as to confine it to proceedings before the Civil
Court. The proceedings, which have the effect on the assets of the CD are all
covered in the expression ‘proceeding’. The question to be answered is as to
whether after moratorium has been imposed, it was open for EPFO to proceed
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 11
with the assessment proceeding. Learned Counsel for the parties state that
during moratorium proceeding, no recovery proceeding can be initiated against
the CD. However, submissions of the learned Counsel for the Appellant is that
assessment proceedings against the CD may continue. Hence, the orders of
assessment passed during moratorium period, were fully permissible and the
claim on the basis of the said proceedings had to be admitted in CIRP.
14. Learned Counsel for the Appellant placed reliance on the judgment of the
Hon’ble Supreme Court in S.V. Kindaskar v. V.M. Deshpande – AIR
(1972) SC 878. In the above case, the Hon’ble Supreme Court had
occasion to consider provisions of Section 446 of the Companies
Act, 1956 in context of re-assessment proceedings under Section
148 of the Income Tax Act, 1961. Section 446, which came for
consideration before the Hon’ble Supreme Court has been extracted
in paragraph 4 of the judgment, which is as follows:
“4. Section 446 of the Act reads:
“(1) When a winding up order has been made or the Official
Liquidator has been appointed as provisional liquidator, no suit or
other legal proceeding shall be commenced, or if pending at the
date of the winding up order, shall be proceeded with, against the
company, except by leave of the Court and subject to such terms as
the Court may impose.
(2) The Court which is winding up the company shall,
notwithstanding anything contained in any other law for the time
being in force, have jurisdiction to entertain, or dispose of —
(a) any suit or proceeding by or against the company;
(b) any claim made before against the company (including
claims by or against any of its branches in India);
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 12
(c) any application made under Section 391 by or in respect
of the Company; (sic)
(d) any question of priorities or any other question
whatsoever, whether of law or fact, which may relate to or
arise in course of the winding up of the company;
whether such suit or proceeding has been instituted or is
instituted, or such claim or question has arisen or arises or such
application has been made or is made before or after the order for
the winding up of the company, or before or after the
commencement of the Companies (Amendment) Act, 1960.
(3) Any suit or proceeding by or against the company which
is pending in any Court other than that in which the winding up of
the company is proceeding may, notwithstanding anything
contained in any other law for the time being in force, be
transferred to and disposed of by that Court.
(4) Nothing in sub-section (1) or sub-section (3) shall apply
to any proceeding pending in appeal before the Supreme Court or
High Court.”
15. The words used in Section 446, sub-section (1) is “no suit or other
legal proceeding shall be commenced ..., except by leave of the Court”. The
Hon’ble Supreme Court dwell upon the expression “legal proceeding” in
sub-section (1). The Hon’ble Supreme Court in the above case was
considering the assessment proceeding qua winding up proceeding under
the Companies Act. In paragraph 9 of the judgment, the Hon’ble
Supreme Court made following observations:
“9. In this case the observations already reproduced from the
judgment of the Federal Court in Shakuntla case were approved. It
may also be pointed out that in this decision this Court observed
that the winding up Court assures pro rata distribution of the
assets of the company in the same way in which the Court under
the Presidency Towns Insolvency Act or the Provincial Insolvency
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 13
Act ensures such distribution of assets. Section 232(1) of the Act of
1913 which was held supplemental to Section 171 was also stated
to have reference to legal proceedings in the same way as such
proceedings were envisaged by Section 171. These two decisions in
our opinion do not lay down the assessment proceedings under the
Income Tax Act should be held to be within the contemplation of
Section 171 of the Indian Companies Act, 1913. The next decision
to which reference has been made by Shri Desai is Union of India v.
India Fisheries (P) Ltd. [AIR 1966 SC 35 : (1965) 3 SCR 679] In that
case the respondents, Fisheries (P) Ltd., had been directed to be
wound up by the winding up court and an Official Liquidator had
been appointed by an order of the High Court in October 1950. The
headnote in that cases gives a clear idea of the facts and the
decision. It reads:
“The respondent company was directed to be wound up and an
official liquidator appointed by an order of the High Court in
October 1950. In December 1950, the respondent was assessed to
tax amounting to Rs 8737 for the year 1948-49. A claim made for
this tax on the official liquidator was adjudged and allowed as an
ordinary claim and certified as such in April 1952. The Liquidator
declared a dividend of 9½ annas in the Rupee in August 1954, and
paid a sum of Rs 5188 to the Department, leaving a balance of Rs
3549.
In June 1954, the Department made a demand from the
respondent and was paid Rs 2565 as advance tax for the year
1955-56. On a regular assessment being made for that year, only
Rs 1126 was assessed as payable so that a sum of Rs 1460,
inclusive of interest, became refundable to the respondent.
However, the Income Tax Officer, purporting to exercise the power
available to him under Section 49-E of the Income Tax Act, 1922,
set off this amount against the balance of Rs 3549 due for the year
1948-49. A revision petition filed by respondent in respect of this
set off was rejected by the Commissioner of Income Tax.
Thereafter, petition under Article 226 filed by the respondent to
set aside the orders of the Income Tax Officer and Commissioner
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 14
was allowed by the High Court, mainly on the ground that the
demand for Rs 8737 in respect of 1948-49, being adjudged and
certified came to have all the incidents and character of an
unsecured debt payable by the liquidator to the Department; it was
therefore governed by the provisions of Company Law and no other
remedy or method to obtain satisfaction of the claim was available
to the creditor.
In the appeal to this Court it was contended on behalf of the
appellant that Section 49-E gave statutory power to Income Tax
Officer to set off a refundable amount against any tax remaining
payable and that this power was not subject to any provision of any
other law.
Held :
The Income Tax Officer was in error in applying Section 49-E
and setting off the refund due to the respondent.
The effect of Sections 228 and 229 of the Companies Act, 1913,
is inter alia, that an unsecured creditor must prove his debts and
all unsecured debts are to be paid pari passu. Once the claim of
the Department has to be proved and is proved in liquidation
proceedings, it cannot, by exercising the right under Section 49-E
get priority over other unsecured creditors and thus defeat the very
object of Sections 228 and 229 of the Companies Act. Furthermore,
if there is an apparent conflict between two independent provisions
of law, the special provision must prevail. Section 49-E is a general
provision applicable to all assessees in all circumstances; Sections
228 and 229 deal with proof of debts and their payment in
liquidation. Section 49-E can be reconciled with Sections 228 and
229 by holding that Section 49-E applies when insolvency rules do
not apply.””
16. The Hon’ble Supreme Court held that the Company Court, cannot
be invested with the powers of an Income Tax Officer conferred on him.
The Company Court, which is winding the Company cannot carry on
assessment under the Companies Act. Hence, it was held that
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 15
assessment proceedings are not covered by Section 446 and under both
sub-section (1) and (2), winding up Court cannot deal with the Income
Tax proceedings. There can be no two opinions about the law laid down
by the Hon’ble Supreme Court in the above case in context of Section 446
of the Companies Act. Section 446, sub-section (1) uses the expression
“suit or other legal proceeding”. There is marked difference in the
expression used in Section 14, sub-section (1) of the IBC. Section 446,
sub-section (1) uses expression “other legal proceeding”, while Section 14,
sub-section (1) uses the expression “proceedings”. In view of the law laid
down by the Hon’ble Supreme Court in Rejendra K. Bhutta (supra), it is
clear that no proceeding can continue after imposition of moratorium, which has
effect of depleting the assets of the CD or creating new liabilities on the CD,
since the object or purpose of IBC is to resolve the CD.
17. Now we come to the judgment of the Hon’ble Supreme Court relied
by learned Counsel for the Appellant in Sundresh Bhatt, Liquidator of
ABG Shipyard (supra). In the above case, the Hon’ble Supreme Court
had occasion to consider Section 14, 25 and 33(5) of the IBC in reference
to the provisions of Customs Act. In the above case, CIRP against the CD
commenced on 01.08.2017. Notice for payment of custom dues was
issued by the Customs Authorities on 29.03.2019 and thereafter on
02.04.2019 and 07.04.2019. Five different notices were issued. Order of
liquidation was passed on 25.04.2019. The claim was filed by the
Custom Authorities before the Liquidator. The question, which
essentially came for consideration before the Hon’ble Supreme Court is as
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 16
to whether any demand notice can be issued demanding customs’ due
from the Corporate Debtor, after initiation of CIRP. Sections 14 and 33(5)
was considered by the Hon’ble Supreme Court and in paragraphs 36, 37,
38, 39, 40 and 41, following was observed:
“36. Section 14 of the IBC prescribes a moratorium on the
initiation of CIRP proceedings and its effects. One of the purposes
of the moratorium is to keep the assets of the corporate debtor
together during the insolvency resolution process and to facilitate
orderly completion of the processes envisaged under the statute.
Such measures ensure the curtailing of parallel proceedings and
reduce the possibility of conflicting outcomes in the process. In this
context, it is relevant to quote the February 2020 Report of the
Insolvency Law Committee, which notes as under:
“8.2. The moratorium under Section 14 is intended to keep
‘the corporate debtor's assets together during the insolvency
resolution process and facilitating orderly completion of the
processes envisaged during the insolvency resolution
process and ensuring that the company may continue as a
going concern while the creditors take a view on resolution
of default’. Keeping the corporate debtor running as a going
concern during the CIRP helps in achieving resolution as a
going concern as well, which is likely to maximise value for
all stakeholders. In other jurisdictions too, a moratorium
may be put in place on the advent of formal insolvency
proceedings, including liquidation and reorganisation
proceedings. Uncitral Guide notes that a moratorium is
critical during reorganisation proceedings since it ‘facilitates
the continued operation of the business and allows the
debtor a breathing space to organise its affairs, time for
preparation and approval of a reorganisation plan and for
other steps such as shedding unprofitable activities and
onerous contracts, where appropriate’.”
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 17
From the above, it can be seen that one of the motivations of
imposing a moratorium is for Sections 14(1)(a), (b) and (c) of the
IBC to form a shield that protects pecuniary attacks against the
corporate debtor. This is done in order to provide the corporate
debtor with breathing space, to allow it to continue as a going
concern and rehabilitate itself. Any contrary interpretation would
crack this shield and would have adverse consequences on the
objective sought to be achieved.
37. Even if a company goes into liquidation, a moratorium
continues in terms of Section 33(5) of the IBC which reads as
under:
“33. (5) — Subject to Section 52, when a liquidation order
has been passed, no suit or other legal proceeding shall be
instituted by or against the corporate debtor:
Provided that a suit or other legal proceeding may be
instituted by the liquidator, on behalf of the corporate
debtor, with the prior approval of the adjudicating
authority.”
38. We may note that the IBC, being the more recent statute,
clearly overrides the Customs Act. This is clearly made out by a
reading of Section 142-A of the Customs Act. The aforesaid
provision notes that the Customs Authorities would have first
charge on the assets of an assessee under the Customs Act, except
with respect to cases under Section 529-A of the Companies Act,
1956; Recovery of Debts and Bankruptcy Act, 1993; Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 and the IBC, 2016. Accordingly, such
an exception created under the Customs Act is duly acknowledged
under Section 238 of the IBC as well. Additionally, we may note
that Section 238 of the IBC clearly overrides any provision of law
which is inconsistent with the IBC. Section 238 of the IBC provides
as under:
“238. Provisions of this Code to override other laws.—
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 18
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.”
39. The NCLAT, while playing down the effect of Section 142A of
the Customs Act and Section 238 of the IBC, has held that the
Customs Act is a complete code in itself and no person can seek
removal of goods from the warehouse without paying customs duty.
The NCLAT relies on the judgment in Collector of Customs v.
Dytron (India) Ltd., MANU/WB/0334/1998 : 1999 ELT 342 Cal.,
by the High Court of Calcutta, which laid down that customs duty
carry first charge even during the insolvency process Under Section
529 and 530 of Companies Act, 1956. However, reliance on the
said precedent is not appropriate as the NCLAT has failed to notice
that such interpretation has been legislatively overruled by the
inclusion of Section 142A under the Customs Act, through Section
51 of the Finance Act of 2011.
40. From the above, it is to be noted that the Customs Act and
the IBC act in their own spheres. In case of any conflict, the IBC
overrides the Customs Act. In present context, this Court has to
ascertain as to whether there is a conflict in the operation of two
different statutes in the given circumstances. As the first effort, this
Court is mandated to harmoniously read the two legislations,
unless this Court finds a clear conflict in its operation.
41. At the cost of repetition, we may note that the demand notices
issued by the Respondent are plainly in the teeth of Section 14 of
the IBC as they were issued after the initiation of the CIRP
proceedings. Moratorium Under Section 14 of the IBC was imposed
when insolvency proceedings were initiated on 01.08.2017. The
first notice sent by the Respondent authority was on 29.03.2019.
Further, when insolvency resolution failed and the liquidation
process began, the NCLT passed an order on 25.04.2019 imposing
moratorium Under Section 33(5) of the IBC. It is only after this
order that the Respondent issued a notice Under Section 72 of the
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 19
Customs Act against the Corporate Debtor. The various demand
notices have therefore clearly been issued by the Respondent after
the initiation of the insolvency proceedings, with some notices
issued even after the liquidation moratorium was imposed.”
18. The Hon’ble Supreme Court in paragraph 42 held that demand
notice to seek enforcement of the customs dues during the moratorium
period, clearly violate the provisions of Section 14 or 33(5) of the IBC. In
paragraph 42, following was held:
“42. We are of the clear opinion that the demand notices to seek
enforcement of custom dues during the moratorium period would
clearly violate the provisions of Sections 14 or 33(5) of the IBC, as
the case may be. This is because the demand notices are an
initiation of legal proceedings against the Corporate Debtor.
However, the above analysis would not be complete unless this
Court examines the extent of powers which the Respondent
authority can exercise during the moratorium period under the
IBC.”
19. Ultimately the Hon’ble Supreme Court relied on the its judgment in
S.V. Kandoakar v. V.M. Deshpande (supra) and held following in
paragraphs 44 and 45:
“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.
45. From the above discussion, we hold that the Respondent could
only initiate assessment or re-assessment of the duties and other
levies. They cannot transgress such boundary and proceed to
initiate recovery in violation of Sections 14 or 33(5) of the IBC. The
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 20
interim resolution professional, resolution professional or the
liquidator, as the case may be, has an obligation to ensure that
assessment is legal and he has been provided with sufficient power
to question any assessment, if he finds the same to be excessive.”
20. In paragraph 46, the Hon’ble Supreme Court noticed that demand
notice dated 11.07.2019 was issued under Section 72 of the Customs Act,
which was in clear breach of the moratorium imposed under Section
33(5) of the IBC. In paragraph 46, following was held:
“46. There is another aspect of this case that needs to be
highlighted to portray the inconsistency of the Customs Act vis-à-
vis the IBC during the moratorium period. In the present case, the
demand notice dated 11.07.2019 was issued by the Respondent
Under Section 72 of the Customs Act, in clear breach of the
moratorium imposed Under Section 33(5) of the IBC. Issuing a
notice Under Section 72 of the Customs Act for nonpayment of
customs duty falls squarely within the ambit of initiating legal
proceedings against a Corporate Debtor. Even under the liquidation
process, the liquidator is given the responsibility to secure assets
and goods of the Corporate Debtor Under Section 35(1)(b) of IBC.”
21. Ultimately, the Hon’ble Supreme Court answered the question in
paragraphs 53 and 54 in following manner:
“53. For the sake of clarity following questions, may be answered
as under:
a) Whether the provisions of the IBC would prevail over the
Customs Act, and if so, to what extent?
The IBC would prevail over The Customs Act, to the extent
that once moratorium is imposed in terms of Sections 14 or
33(5) of the IBC as the case may be, the Respondent
authority only has a limited jurisdiction to assess/determine
the quantum of customs duty and other levies. The
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 21
Respondent authority does not have the power to initiate
recovery of dues by means of sale/confiscation, as provided
under the Customs Act.
b) Whether the Respondent could claim title over the goods
and issue notice to sell the goods in terms of the Customs
Act when the liquidation process has been initiated?
answered in negative.
54. On the basis of the above discussions, following are our
conclusions:
i) Once moratorium is imposed in terms of Sections 14 or
33(5) of the IBC as the case may be, the Respondent
authority only has a limited jurisdiction to assess/determine
the quantum of customs duty and other levies. The
Respondent authority does not have the power to initiate
recovery of dues by means of sale/confiscation, as provided
under the Customs Act.
ii) After such assessment, the Respondent authority has to
submit its claims (concerning customs dues/operational
debt) in terms of the procedure laid down, in strict
compliance of the time periods prescribed under the IBC,
before the adjudicating authority.
iii) In any case, the IRP/RP/liquidator can immediately
secure goods from the Respondent authority to be dealt with
appropriately, in terms of the IBC.
22. In the case before the Hon’ble Supreme Court in Sundresh Bhatt,
Liquidator of ABG Shipyard, demand notice was issued subsequent to
initiation of CIRP and that was not the case of any assessment carried
out by Customs Authorities and the liquidation order was passed on
25.04.1999 and notice under Section 72 was issued on 11.07.2019, i.e.
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 22
after the liquidation. Hence, applicability under Section 33, sub-section
(5) found to be there as held in paragraph 46 of the judgment as noted
above. It is well settled law that a judgment of the Court has to be read
in the context of the facts and ratio of judgment has to be read in
reference to the facts, which have come for consideration before the
Court. It is well settled that ratio of a judgment cannot be read as statute
and above judgment of the Hon’ble Supreme Court, does not support the
submission of the Appellant that after imposition of moratorium under
Section 14, sub-section (1), it was open for the EPFO Authority to proceed
with the assessment and conclude the assessment.
23. In the present case, admittedly assessment has been completed
after initiation of the moratorium. We, thus, are of the view that once
order of liquidation is passed, moratorium under Section 14 comes to an
end and moratorium under Section 33(5), which is differently worded,
comes into play. Under Section 33(5), the expression used are “suit or
other legal proceeding”, which occurs in Section 446 of sub-section (1)
noticed above. Thus, bar is only against suit or legal proceeding and
there is no bar against assessment proceeding to be conducted by
statutory Authorities, including the EPFO. Thus, after the liquidation, it
is open for EPFO to carry on the assessment. Section 33(5), cannot be
held to apply on assessment proceedings. However, while looking to the
expression used in Section 14(1), assessment proceedings before the
EPFO, cannot be continued after initiation of CIRP.
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 23
24. In view of the aforesaid, we answer Question Nos.(1) and (2) in
following manner:
(1) We hold that after initiation of moratorium under Section 14,
sub-section (1), no assessment proceedings can be continued
by the EPFO. If after an order of liquidation is passed,
Section 33, sub-section(5), does not prohibit initiation or
continuation of assessment proceedings.
(2) No claim on the basis of assessment carried during the
moratorium period, which is prohibited under Section 14(1)
can be pressed in the CIRP.
Question No.(3)
25. It is an admitted fact that claims were filed by the Appellant
subsequent to approval of Resolution Plan by the CoC. The Adjudicating
Authority has relied on the judgment of the Hon’ble Supreme Court in
RPS Infrastructure Ltd. Vs. Mukul Kumar & Anr. – Civil Appeal
No.5590 of 2021 decided on 11.09.2023, which judgment squarely
applies to the facts of the present case. More so, when the claim on the
basis of assessment, which has been made subsequent to initiation of
moratorium is hit by Section 14, sub-section (1) of the IBC, we are of the
view that no such claim can be admitted in the CIRP.
Question No.(3) is answered accordingly.
26. In view of the foregoing discussions, we do not find any error in the
order impugned in the present Appeal(s) passed by Adjudicating
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 24
Authority. In the result, both the Appeal(s) are dismissed. Pending IAs, if
any, are also disposed of. There shall be no order as to costs.
[Justice Ashok Bhushan]
Chairperson
[Barun Mitra]
Member (Technical)
[Arun Baroka]
Member (Technical)
NEW DELHI
3rd January, 2025
Ashwani
Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 25