NCLT Kochi Imposes Rs. 50,000/- Cost On GST Department For Raiding Corporate Debtor During Moratorium
The National Company Law Tribunal (“NCLT”), Kochi Bench, comprising of Shri P. Mohan Raj (Judicial Member) and Shri Satya Ranjan Prasad (Technical Member), while adjudicating a petition filed in Kosamattam Finance Ltd. v Mangomeadows Agriculture Pleasure Land Pvt. Ltd. has imposed a cost of Rs. 50,000/- on the Goods and Services Tax Department (GST) for raiding the...
The National Company Law Tribunal (“NCLT”), Kochi Bench, comprising of Shri P. Mohan Raj (Judicial Member) and Shri Satya Ranjan Prasad (Technical Member), while adjudicating a petition filed in Kosamattam Finance Ltd. v Mangomeadows Agriculture Pleasure Land Pvt. Ltd. has imposed a cost of Rs. 50,000/- on the Goods and Services Tax Department (GST) for raiding the premises of Corporate Debtor during the moratorium period and seizing account documents. The Bench held the raid and seizure of documents by GST Department during CIRP is violative of moratorium under Section 14 of IBC. The summons issued to the Resolution Professional by the GST Department have also been set aside.
Background Facts
Kosamattam Finance Ltd. (“Financial Creditor”) filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Mangomeadows Agriculture Pleasure Land Pvt. Ltd. (“Corporate Debtor”).
The Corporate Debtor was admitted into CIRP on 25.01.2023 and moratorium was imposed. The Goods and Services Tax Department (“GST Department”) submitted its claim of Rs. 36 Lakhs to the Interim Resolution Professional. Suddenly, on 10.03.2023 the GST Department conducted a raid on the premises of Corporate Debtor despite being aware of the moratorium and seized all account documents. Summons were also issued to the Resolution Professional to appear for inquiry.
The Resolution Professional filed an application under Section 60(5) of IBC, seeking direction to GST Department to release the documents.
The GST Department argued that raid was conducted merely to determine the tax due and was not a proceeding to recover dues from Corporate Debtor.
NCLT Verdict
The Bench observed that as per a Circular No. 134/04/2020-GST of Ministry of Finance, no coercive action can be taken in respect of a Corporate Debtor under CIRP. The GST Department has violated the direction.
“The acts of the Respondent undermined the authority of Resolution Professional and because of seizure of Books of accounts of the Corporate Debtor causes much inconvenience and paralyzed the Resolution process, the same shall be completed in time bound manner.”
It has been concluded that the search and seizure of the Corporate Debtor’s records and issuance of summons to Resolution Professional are violative of moratorium under Section 14 of IBC.
The Bench has issued the following directions:
- GST Department to return the documents seized from the Corporate Debtor’s premises;
- The summons issued by the GST Department to Resolution Professional is set aside; and
- GST Department to pay a compensatory cost of Rs. 50,000/- to the Resolution Professional, towards the CIRP cost. GST Department can recover the compensatory cost from erred officials.
Case Title: Kosamattam Finance Ltd. v Mangomeadows Agriculture Pleasure Land Pvt. Ltd.
Case No.: CP (IBC)/06/KOB/2022
Counsel for Applicant: Mr. Aditya Gauri, Mr. Jayesh Gupta, Advocates. Mr. E Easwara Pillai, RP.
Counsel for Respondent: Mr. Arun Chandy, Govt. Pleader and Mr. Dhananjaya Sud (for RP).