2023 (8) TMI 176 - Tri - Insolvency and Bankruptcy

Tribunal rules against violation of moratorium order, directs return of seized documents, and imposes compensatory cost.

The Tribunal found the raid and summons to be in violation of the moratorium order under section 14 of IBC, 2016. It directed the return of seized ... Moratorium under section 14 of IBC, 2016 - Prohibition on recovery during moratorium - Power to determine tax liability despite moratorium - Search and seizure under section 67(2) of GST Act - Summons and judicial proceeding under section 70(2) of GST Act - Return of seized documents and compensatory costsMoratorium under section 14 of IBC, 2016 - Search and seizure under section 67(2) of GST Act - Summons and judicial proceeding under section 70(2) of GST Act - Power to determine tax liability despite moratorium - Search, seizure of the corporate debtor's records on 10.03.2023 and issuance of summons to the resolution professional during the moratorium period are violative of the moratorium under section 14 of IBC, 2016. - HELD THAT: - The tribunal found the material facts admitted and accepted that the respondent conducted a raid and seized books on 10.03.2023 during the moratorium that began on 25.01.2023. While authorities under the GST Act may take steps to determine tax liability, the tribunal held that the respondent transgressed the protections of the moratorium by invoking coercive measures and initiating proceedings against the corporate debtor during the CIRP. The tribunal noted guidance that determination of tax is permissible but enforcement or recovery during moratorium is prohibited, and observed that the respondent issued a summons invoking the criminal-consequence imprimatur of section 70(2) as part of the inquiry. Having regard to the admitted facts, the government circular advising against coercive action during CIRP, and the need to protect the authority of the resolution professional and the time-bound conduct of CIRP, the tribunal concluded the search, seizure and summons were in violation of section 14 and therefore set aside the summons and directed return of seized records. [Paras 15, 17]Search and seizure of records and issuance of summons to the resolution professional during the moratorium were violative of section 14 of IBC, 2016; seized documents to be returned and the summons set aside.Prohibition on recovery during moratorium - Return of seized documents and compensatory costs - Appropriate remedial measures and forum for penal action for alleged violation of moratorium by tax officials. - HELD THAT: - The tribunal declined to entertain criminal prosecution under the penal provision invoked by the applicant because offences under that Chapter are triable only by the special court and cognizance can be taken on complaint by IBBI or the Central Government. Consequently the tribunal granted the applicant liberty to approach IBBI for initiating proceedings against erring officials. Separately, as a civil remedy and to compensate interference with CIRP, the tribunal ordered return of seized records, set aside the summons, and imposed a compensatory cost to be paid by the respondent and recoverable from erring officials after payment. [Paras 16, 17]Liberty given to applicant to approach IBBI for penal action; respondent directed to return seized documents, summons set aside, and respondent ordered to pay compensatory cost recoverable from erring officials after payment.Final Conclusion: The tribunal held that the search, seizure and summons issued during the moratorium violated section 14 of the IBC; it directed immediate return of seized documents, set aside the summons, imposed a compensatory cost payable by the respondent (recoverable from erring officials after payment), and granted liberty to the resolution professional to approach IBBI for any penal action. Issues involved:The issues involved in this judgment are the violation of the moratorium order passed under section 14 of IBC, 2016 through the search and seizure of records of the corporate debtor and the issuance of summons to the applicant/resolution professional.Summary:Background:The case involves a corporate debtor engaged in the amusement park business admitted into Corporate Insolvency Resolution Process (CIRP) under IBC 2016. The respondent conducted a raid during the moratorium period, seizing documents, claiming it was part of tax assessment proceedings.Applicant's Argument:The applicant contended that the raid and seizure violated the moratorium order, hindering the resolution process.Respondent's Defense:The respondent justified the raid as part of tax assessment under GST Act, claiming it did not violate the moratorium.Key Legal Points:- The respondent cited court cases to support their actions but failed to establish a direct link to the present case.- The Apex court clarified that authorities can assess taxes during moratorium but cannot initiate recovery proceedings.Decision:The Tribunal found the raid and summons to be in violation of the moratorium order, directing the return of seized documents and setting aside the summon. A compensatory cost of Rs.50,000 was imposed on the respondent, with liberty granted to recover from the responsible officials.Conclusion:The Tribunal's ruling emphasized the importance of upholding the moratorium order to facilitate the resolution process efficiently and protect the authority of the resolution professional. The judgment serves as a reminder of the legal boundaries during insolvency proceedings and the consequences of violating the moratorium order.