IBC overriding effect prevents separate tax recovery during liquidation, supporting defreezing of the corporate debtor's bank account.

During liquidation under the Insolvency and Bankruptcy Code, 2016, a State Tax authority's attempt to freeze a corporate debtor's bank account under the Gujarat Value Added Tax Act was found inconsistent with the insolvency framework. Section 238 of the Code gives it overriding effect over conflicting recovery measures, so claims and recovery actions must be dealt with through the Code's distribution mechanism rather than by separate enforcement. On that basis, the liquidator was entitled to defreezing relief, and the Adjudicating Authority should not have required separate proceedings against the tax authority.

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Issues: Whether the State Tax authority's action to freeze the corporate debtor's bank account could be sustained in liquidation proceedings in view of the overriding effect of the Insolvency and Bankruptcy Code, 2016.

Analysis: The appeal concerned a liquidator's request for defreezing of the corporate debtor's bank account after the State Tax authority issued notice and directed freezing under the Gujarat Value Added Tax Act, 2003. The liquidation process under the Insolvency and Bankruptcy Code, 2016 requires claims to be dealt with in accordance with the statutory distribution mechanism, and section 238 gives the Code overriding effect over any inconsistent law. In that framework, the State Tax authority could not proceed in a manner inconsistent with the insolvency regime, and the Adjudicating Authority ought to have granted relief instead of directing the liquidator to pursue the tax authority separately.

Conclusion: The action of freezing the account was not sustainable against the insolvency process, and the liquidator was entitled to relief in favour of defreezing.

Final Conclusion: The appeal succeeded and the impugned order was set aside, with directions for defreezing of the corporate debtor's account.

Ratio Decidendi: Section 238 of the Insolvency and Bankruptcy Code, 2016 prevails over inconsistent recovery action under other enactments during insolvency and liquidation, and claims must be addressed within the Code's framework.

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