Lien Created On CD’S Account Prior To CIRP Cannot Continue After Moratorium Is Imposed U/S 14 Of IBC: NCLT Mumbai

Background Facts

The Employees Provident Fund and Miscellaneous Provisions Act, 1952 (“EPF Act”) was applicable to S & H Gears Private Limited (“Corporate Debtor”). An inquiry was initiated under Section 7A of the EPF Act and Regional Provident Fund Commissioner found Rs. 3,10,68,057/- to be outstanding from the Corporate Debtor.

Alleging the Corporate Debtor to be a defaulter, the Regional Provident Fund Commissioner (“EPFO”) attached the current account of Corporate Debtor in HDFC bank on 24.08.2018 and created its lien on the said account.

Subsequently, on 24.01.2020 the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. EPFO also filed its claim in the CIRP, which was admitted by the Resolution Professional.

In a meeting of Committee of Creditors (“CoC”) dated 14.12.2020, permission was granted to the Resolution Professional to operate the current account in HDFC Bank for receipt and payment for the CIRP period.

In the meanwhile, a Resolution Plan was approved for the Corporate Debtor and it proposed to pay the EPFO dues.

When the Resolution Professional became aware of the attachment of bank account by EPFO, it filed an application before NCLT seeking de-freezing of the account.

ISSUE

Whether an Attachment on Corporate Debtor's bank account that was imposed before the initiation of CIRP, can continue during Moratorium under Section 14 of IBC?

NCLT Verdict

Lien created on Corporate Debtor’s account prior to CIRP commencement cannot continue during moratorium

The Bench observed that moratorium under Section 14 of IBC is imposed post initiation of CIRP to ensure that no depletion of assets take place and the Corporate Debtor continues as a going concern. It has been held that moratorium would cover attachment of bank account by EPFO. Any lien created prior to CIRP cannot sustain post initiation of CIRP to avoid hindering the resolution process.

“Accordingly, this Bench is of the considered view that Section 14(1)(a) imposes complete embargo on any proceeding against the Corporate Debtor by any Authority till the completion of CIRP. Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received. It may also be inferred from the circumstances and intent of legislation that in the present cases, the lien created prior to the initiation of the ‘Corporate Insolvency Resolution Process cannot sustain as it will hinder the entire resolution process.”

The Bench has set aside the lien created by EPFO on the Corporate Debtor’s account. The Resolution Professional has been granted liberty to deal with the said account.

Case Title: Rani Agro Private Limited v S & H Gears Private Limited

Case No.: C.P.(IB) No. 3703/MB/2019

Counsel For the Applicant: Mr. Maulik Chokshi

Counsel For the Resolution Professional: Adv. Kunal Kanungo a/w Adv. Tanushree Sogani

Counsel For the CoC: Mr. Akshaya Purthran, Advocate i/b S. K. Singhi and Partners LLP

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