NCLAT held that the moratorium remains effective until the resolution plan is approved or the liquidation order is passed, not merely upon the expiry of the CIRP period.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashiok Bhushan ( Chairperson) and Barun Mitra & Arun Baroka (Technical Members) was hearing an appeal and observed that the adjustment of a tax refund by the Respondent (Income Tax Department) against the outstanding tax liability of the Corporate Debtor during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code (IBC) is impermissible. The NCLAT clarified that the moratorium continues until either a resolution plan is approved or a liquidation order is passed, regardless of the expiration of the CIRP period. It was determined that such adjustments violate the moratorium provisions and cannot be considered an exercise of security interest by a secured creditor.
The National Company Law Appellate Tribunal (NCLAT) reviewed an appeal filed under Section 61 of the Insolvency and Bankruptcy Code (IBC) 2016 by a Liquidator against an order dated 16.06.2023, passed by the National Company Law Tribunal (NCLT), Mumbai Bench-IV. The NCLT had dismissed the Liquidator's application seeking a refund of Rs. 90,42,174/- from the Respondents, who had adjusted this amount against the outstanding tax liability of the Corporate Debtor during the moratorium period of the Corporate Insolvency Resolution Process (CIRP).
The Corporate Debtor, M/s Kotak Urja Pvt Ltd, entered CIRP on 18.11.2019, with the Appellant appointed as the Resolution Professional (RP). The Respondent had filed a claim of Rs. 11.59 crores, which was admitted by the RP. On 10.02.2021, while the moratorium was in force, Rs. 90.42 lakhs received as a tax refund was adjusted by the Respondent against outstanding tax dues. Subsequently, the Committee of Creditors (CoC) resolved to liquidate the Corporate Debtor, and the RP applied for liquidation on 18.05.2021. Liquidation was ordered on 03.10.2022, and the RP became the Liquidator. Despite letters sent to the Respondent for a refund, the adjustment remained.
The Appellant argued that the NCLT misinterpreted the IBC provisions, asserting that adjustments during the moratorium were impermissible. The Respondent contended that their right to set off was valid as the CIRP period had expired before the liquidation order. The NCLAT held that the moratorium remains effective until the resolution plan is approved or the liquidation order is passed, not merely upon the expiry of the CIRP period. Thus, any set-off during this period violated the moratorium provisions.
The NCLAT directed the Respondent to refund the adjusted amount of Rs. 90,42,174/- to the Liquidator within two weeks, allowing the Respondent to file their claim with the Liquidator for recovery of their dues as per the IBBI (Liquidation Process) Regulations, 2016. The appeal was allowed, and the NCLT order was set aside.
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