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

Search and seizure of records of the corporate debtor and issuance of summons to applicant/resolution profession during moratorium period - HELD THAT - The Karnataka High Court in Associate D cor Limited Rep. by Resolution professional vs Deputy Commissioner of Commercial Taxes 2021 (12) TMI 1408 - KARNATAKA HIGH COURT , after referring Apex court citations held that the notice issued under section 65 the State Goods and Services Tax Act 2017, R/w Rule 101(4) of KGST Rule, informing the discrepancies found in audit and asked the registered person to submit reply, is hit by mortarium order passed under section 14 of IBC 2016 and stayed/kept in abeyance, the proceedings pursuant to the said impugned notice till the lifting of moratorium. The Government of India, Ministry of Finance, finance Department also issued Circular No.134/04/2020-GST under section 168(1) CGST Act, Annexure A1 of the petition explaining that no coercive action to be taken in respect of dues of GST pertaining to corporate debtor, under the CIRP. The respondent despite the supra guidance taken the coercive action - 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. In the circumstances it is concluded that the search and seizure of records of the corporate debtor and issuance summons to applicant/resolution profession are violative of mortarium order passed under section 14 of IBC, 2016 - the respondent are directed to return all the records seized from the premises of the corporate debtor mentioned in seizure mahazar - summon dated 13.03.2023 issued by the respondent to the corporate debtor is hereby set aside - respondent is hereby directed to pay a compensatory cost of Rs.50,000/- to the applicant towards the CIRP cost. Petition allowed.

Summary

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.