IBC Moratorium Bars Income Tax Department from Adjusting Refund Against Outstanding Demands During CIRP: NCLAT Delhi
Case Overview
| Particulars | Details |
|---|---|
| Case Name | Devarajan Raman Liquidator of M/s Kotak Urja Pvt Ltd Vs PCIT (NCLAT Delhi) |
| Appeal Number | Company Appeal (AT) (Insolvency) No. 977 of 2023 |
| Date of Order | 24/05/2024 |
| Forum | National Company Law Appellate Tribunal, Delhi |
The National Company Law Appellate Tribunal, Delhi Bench, rendered a significant ruling in the matter of Devarajan Raman Liquidator of M/s Kotak Urja Pvt Ltd Vs PCIT, holding that the Income Tax Department's act of adjusting a tax refund of Rs. 90,42,174/- against outstanding demands of the corporate debtor, while the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 ('IBC') remained operative, constituted a clear violation of the moratorium provisions. The NCLAT set aside the order of the Adjudicating Authority and directed refund of the said amount to the Liquidator within two weeks.
Background and Chronology of Events
The facts of this case unfold across a period spanning nearly three years, and an understanding of the timeline is essential to appreciate the legal controversy.
18.11.2019 — M/s Kotak Urja Pvt Ltd was admitted into Corporate Insolvency Resolution Process ('CIRP'). The present Appellant was appointed as the Resolution Professional ('RP'). A moratorium under
Section 14of the IBC came into force simultaneously.20.01.2020 — The Income Tax Department (Respondent) filed a claim of Rs. 11.59 crore with the RP after being duly informed of the CIRP commencement. This claim was admitted by the RP.
21.12.2020 — The maximum permissible CIRP period (including the 90-day extension and Covid-related exclusion) lapsed. However, no resolution plan had been approved and no liquidation order had been passed as of this date.
04.01.2021 — The Committee of Creditors ('CoC') passed a resolution recommending liquidation of the corporate debtor.
10.02.2021 — The Income Tax Department adjusted an income tax refund of Rs. 90.42 lakhs payable to M/s Kotak Urja Pvt Ltd against outstanding tax demands. This action was taken during the interregnum — after the CIRP period had lapsed but before any liquidation order was formally passed.
18.05.2021 — The RP filed an application before the Adjudicating Authority seeking a liquidation order.
03.12.2021 & 07.01.2022 — The RP wrote to the Respondent requesting refund of the adjusted amount.
03.10.2022 — The liquidation order was passed by the Adjudicating Authority. The RP was appointed as Liquidator.
01.02.2023 — The Income Tax Department filed a fresh claim of Rs. 10.69 crore before the Liquidator, which was admitted.
16.06.2023 — The Adjudicating Authority dismissed I.A. No. 117/2022 filed by the Liquidator seeking refund of the adjusted amount.
24.05.2024 — NCLAT Delhi allowed the appeal and directed refund of Rs. 90,42,174/- to the Liquidator.
Core Legal Question Before NCLAT
The NCLAT framed the issue precisely:
Whether the set-off exercised by the Respondent during the interregnum period — after expiry of the maximum CIRP timeline but before passing of the liquidation order — amounted to a violation of the moratorium under
Section 14of the IBC, and if so, whether the Respondent was liable to refund the adjusted amount.