NCLT Mumbai Rules Pre-CIRP Statutory Liens Survive Moratorium; RP Cannot Seek Removal Of Lawfully Created Attachments
NCLT Mumbai Rules Pre-CIRP Statutory Liens Survive Moratorium; RP Cannot Seek Removal Of Lawfully Created Attachments
Introduction
The National Company Law Tribunal, Mumbai Bench, has ruled that a Resolution Professional (RP) cannot seek removal of statutory attachments or liens that were validly created prior to the commencement of Corporate Insolvency Resolution Process (CIRP). The Bench comprising Judicial Member Mohan Prasad Tiwari and Technical Member Charanjeet Singh Gulati clarified that while the Insolvency and Bankruptcy Code (IBC) mandates preservation and control of assets, it does not empower the RP to alter or extinguish pre-existing statutory rights.
Factual Background
Vemb Lifestyle Pvt Ltd was admitted into CIRP on February 27, 2024. However, prior to initiation of insolvency proceedings, the Income Tax Department had issued attachment directions in October and November 2019 under the Income Tax Act, creating a lien of approximately ₹4.01 crore on the company’s bank accounts.
During CIRP, the Resolution Professional contended that the subsisting lien hindered the insolvency process and sought directions for transfer of the attached funds to the designated CIRP account.
Procedural Background
An application was filed before the NCLT seeking removal of the statutory lien on the ground that continuation of such attachment during the moratorium period was inconsistent with the objectives of the IBC and impeded effective resolution.
Issues
1. Whether the moratorium under Section 14 of the IBC invalidates statutory liens created prior to commencement of CIRP.
2. Whether the Resolution Professional has authority under Section 25 of the IBC to seek removal of such statutory attachments.
Contentions of the Parties
The applicant argued that the continued subsistence of the income tax lien during the moratorium period obstructed the CIRP and frustrated the objective of preserving the corporate debtor’s assets for resolution. It was submitted that the funds should be made available for insolvency purposes.
The opposing view maintained that the attachment had been lawfully created well before commencement of CIRP and that the moratorium does not operate retrospectively to nullify valid statutory liens.
Reasoning and Analysis
The tribunal examined the scope of Sections 14 and 25 of the IBC. It observed that Section 25 mandates the Resolution Professional to preserve and protect the assets of the corporate debtor and to take custody and control thereof. However, the provision does not confer any specific authority to remove statutory attachments or liens lawfully created prior to CIRP.
The Bench further clarified that the moratorium under Section 14 prohibits initiation or continuation of fresh proceedings but does not invalidate attachments already in existence before the commencement of insolvency proceedings.
It held that the IBC does not envisage enhancement or alteration of rights created under other statutes merely upon commencement of CIRP. In absence of any inconsistency warranting invocation of the overriding clause under Section 238 of the IBC, the statutory lien could not be nullified.
Decision
The NCLT dismissed the application and held that a statutory lien validly created before initiation of CIRP cannot be removed solely because insolvency proceedings have commenced.
In this case the appellant was represented by Mr. Aniruth Purushothaman G (PH), Advocate.
