The ruling will set a precedent for liquidators in other cases seeking to release properties from the encumbrance of government departments at the time of selling the assets of companies facing liquidation under the Insolvency & Bankruptcy Code (IBC).
Parag Sheth, the liquidator of Sai InfoSystem, had approached the National Company Law Tribunal (NCLT) with the argument that the department of commercial tax had created a lien on the company’s land parcel of about 3,058 sq m in Ahmedabad district on February 18, 2019, when the company was already under moratorium.
The company was admitted under the corporate insolvency resolution process (CIRP) in November 2017. In August 2019, the tribunal admitted the company under liquidation in the absence of any viable resolution plan and Sheth was appointed the liquidator.
The company has admitted liability of over ₹4,392 crore. Of this, it owes over ₹2,168 crore to the government, including ₹1,610 crore to the state tax department.
“The tribunal has adjudicated an important issue which gives relief to the liquidation process where the VAT department has attached property beyond the legitimate time and this judgement furthers the object of the Insolvency Code and shall help in value maximisation,” said Nipun Singhvi, founder of law firm NSA Legal, who appeared for the liquidator in the case. “This will help liquidators of several companies, where they are facing similar issues from the state or central departments.”
The liquidator had argued that by not removing the encumbrance from the property, the respondents (state tax department) are obstructing the applicant (liquidator) from performing its duty as prescribed under the Code. “Due to the existence of charge/encumbrance on the property of the corporate debtor, the liquidator’s efforts are not bearing result,” he argued through his advocates.
“Since the corporate debtor (Sai InfoSystem) is in liquidation, the commercial state tax department is entitled to receive the amount as per Section 53 of the Code and does not have the right of encumbrance over assets of the company,” argued the liquidator in the tribunal.
The division Bench of judicial member Dr Deepti Mukesh and a technical member Ajai Das Mehrotra, in its order of November 11, which was available recently, while allowing the application of the liquidator directed the state revenue department to vacate its encumbrance on the land parcel within three weeks.