Imposition Of Moratorium Bars Recovery Of Pre-CIRP Tax Dues During CIRP: NCLT Hyderabad

Background

The financial creditor, Prithvi Asset Reconstruction and Securitisation Company Ltd., approached the Adjudicating Authority for the initiation of CIRP against the corporate debtor. The Corporate Debtor was admitted into the CIRP and the Resolution Professional (RP) was appointed to look after the Corporate Debtor's hotel in Hyderabad.

GHMC issued notices to the corporate debtor for the tax arrears of Rs 38.54 lakhs, out of which Rs 26.29 lakhs were due for the pre-CIRP period and Rs 12.24 lakhs for the CIRP period. The notice cited violation of GHMC Act, specifically sections 521 & 622 for non-renewal of trade licenses and unpaid taxes.

The resolution professional informed the GHMC to lodge their claim as per IBC, but the respondent authority failed in lodging the claim for the pre-CIRP period. For the payment of arrears during CIRP period the resolution professional sought permission to pay the same in installments. However, the respondent authority informed the resolution professional that the arrears of the CIRP period will not be accepted unless the old arrears of tax are cleared, and the authority also warned the resolution professional to cease and seal the hotel if the dues are not cleared within the specified time.

Observations of NCLT Hyderabad

After taking into account the facts and circumstances of the case the tribunal framed the following question:

“Whether Greater Hyderabad Municipal Corporation can initiate recovery proceedings of property tax against the Corporate Debtor under the provisions of the GHMC act, post initiation of CIRP process and declaration of 'Moratorium' against the corporate debtor?”

The Adjudicating Authority held that since the moratorium under section 14 has been declared, any action to foreclose, recover, or enforce any security interest created by the Corporate Debtor in respect of its property is prohibited by virtue of section 14. The tribunal emphasized that once a Corporate Debtor is admitted into CIRP, all recovery action for the past dues come to a standstill. To recover such dues, the creditors are required to file the claim, in proper form, before the resolution professional.

While discussing the Hon'ble Supreme Court's ruling in the case of ABG Shipyard Liquidator v. Central Board of Indirect Taxes & Customs the tribunal held that, the respondent authority only has a limited jurisdiction to assess/determine the quantum of property tax but the respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation etc, as provided under the GHMC Act. Hence, claims can be submitted in terms of the procedure laid down under the IBC.

Also, section 14(2) lays down that the supply of essential goods or services to the Corporate Debtor shall not be terminated or suspended or interrupted during the CIRP period, and the only restriction that applies to this rule is of section 14(2A), which allows for such suspension if the Corporate Debtor defaults on payments during the moratorium period.

The Adjudicating Authority granted the liberty to the respondents to lodge its claim of arrears of tax for the pre-CIRP period within 15 days.

Case Title: M/s. Sri Pavana Keerthi Hotels India Private Limited v. The Commissioner, Greater Hyderabad Municipal Corporation

Case Number: I.A. No. 250 of 2024 In C.P. (IB) No.153/7/HDB/2021

Tribunal: National Company Law Tribunal, Hyderabad Bench-I, Hyderabad

Judge: Dr. Venkata Ramakrishna Badrinath (Member - Judicial) and Shri Charan Singh (Member - Technical)

For Appellant: Mr. Ch. Srinivasulu, Ld. Counsel and Mr. Raghu Babu Gunturu, Resolution Professional

For Respondent: NA (ex parte)

Date of Judgement: 04.03.2025 

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