Tax authorities can’t issue notice to freeze accounts of the company during liquidation: NCLAT


Status as on- 20/08/2022


Hon’ble NCLAT Three Judge Principal Bench while adjudicating the case “Mr. Hemant Mehta vs. Asst. Commissioner of State Tax and Ors” orders the Tax Authorities to withdraw their notices, issued to freeze the accounts of Corporate Debtor during its Liquidation.

In this case, the Corporate Debtor went into CIRP vide the Adjudicating Authority (AA) order dated 20.09.2019 and Mr. Hemant Mehta (Appellant) got appointed as Interim Resolution Professional (IRP). Later, the order of liquidation was passed by the AA on 11.08.2020 as no resolution plans were filed with IRP.

Thereafter, the Assistant Commissioner of State Tax (R1) and the Commercial Tax Officer (R2) issued notices to IDBI Bank and Axis Bank respectively, directing them to freeze the current account of the Corporate Debtor towards clearance of outstanding liabilities of VAT. Accordingly, IDBI Bank and Axis Bank froze the accounts of the Corporate Debtor.

Thereafter, Appellant sent several mails to banks requesting them to de-freeze the accounts of Corporate Debtor but it was of no use. So, the Appellant filed I.A. No.192 of 2021 before the AA to order the Tax authorities to withdraw their notices.

Adjudicating Authority vide its order dated 31.01.2022, directed the Liquidator to take up with the relevant government authorities and the redressal of their grievance’s mechanism to de-freeze the bank accounts of the Corporate Debtor. Hence, the Appellant filed an appeal against the order dated 31.01.2022 before the NCLAT.


Whether the Liquidator has already made sufficient efforts and still has failed to persuade the government authorities and the banks to de-freeze the relevant bank accounts of the Corporate Debtor, does it become incumbent upon the Adjudicating Authority in terms of the IBC to intervene and issue appropriate directions to the relevant government authorities/banks to lift the debit freeze on the accounts of Corporate Debtor, if it is so requested by the Liquidator?

The contention of Parties: –

Appellants contended that: –

  • Regulation 44(1) of IBBI (Liquidation Process) Regulations, 2016 mandates that the Liquidator liquidates the Corporate Debtor within one year. Hence, the liquidator is liable to take over the accounts of the Corporate Debtor within the time frame, or else it would fail the objective of value maximization.
  • AA refused to exercise its powers vested under IBC and directed the Appellant to seek relief from government authorities.

Respondent No.1 appeared before the Hon’ble NCLAT while the remaining Respondents didn’t appear. Hence, Respondent No.1 contended that: –

  • The direction given by AA to the Appellant to seek relief under government authorities to defreeze the account of the corporate debtor is justified.

Hon’ble NCLAT decision: –

Hon’ble NCLAT held that: –

  • Section 35 of IBC empowers the liquidator to exercise authority to seek the de-freezing of the accounts of the Corporate Debtor and transfer the funds lying therein to the Liquidator’s account to form part of the liquidation estate. The Liquidator had made genuine and sustained efforts to bring the bank accounts of the Corporate Debtor into the liquidation estate and thus cannot be faulted for any inaction or non-compliance on his part.
  • Section 238 of IBC overrides anything inconsistent contained in any other enactment. The IBC is thus a complete code and prevails over all other laws which are inconsistent with or in conflict with the IBC.
  • The directions issued by R1 and R2 to freeze the accounts of the Corporate Debtor during the liquidation process were bad in law and it was within the remit of the Adjudicating Authority to issue appropriate directions to the R1 and R2 to set the matter right and provide statutory relief to the Appellant rather than remanding the matter back to government authorities.
  • Adjudicating Authority has erred in not exercising the residuary jurisdiction vested in it under Section 60(5) of IBC and had failed to provide necessary relief to the Appellant.
  • R1 and R2 are directed to immediately withdraw the notices issued by them to de-freeze the Accounts of the Corporate Debtor and appeal allowed accordingly.

Conclusion: –

From the above information, it is concluded that Tax Authorities can’t give the notice to freeze the accounts of Corporate Debtor during Liquidation.


Disclaimer- The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at



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