IBC Moratorium Operates Automatically, Not Dependent On Creditor's Knowledge Of CIRP: NCLT Indore

The National Company Law Tribunal (NCLT) at Indore has recently observed that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, operates automatically from the insolvency commencement date and is binding even if the creditor or statutory authority had no knowledge of the admission of the Corporate Insolvency Resolution Process (CIRP).

A bench of Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta observed, “The statutory prohibition under Section 14(1) is absolute and automatic, and does not depend upon whether a creditor or statutory authority had actual knowledge or notice of the admission order. Any person, authority or institution whether a private creditor or a statutory instrumentality of the State is equally bound by the moratorium from the date of its commencement.”

The tribunal made the observation while allowing an application filed by Nishant Agrawal, resolution professional of Shree Geeta Textile Mills Private Limited, challenging the adjustment of an income tax refund of Rs. 4,95,720/- by the Income Tax Department during the subsistence of the moratorium.

The company was admitted into CIRP on November 13,2024 and the moratorium came into force from that date. The resolution professional contended that the department adjusted the refund for Assessment Year 2024–25 on 22.11.2024 against an outstanding tax demand for Assessment Year 2022–23, which related to the pre-CIRP period, after the moratorium had already commenced.

The department argued that the adjustment had been carried out automatically through the Centralised Processing Centre and that the Income Tax Officer was informed about the CIRP only on 01.01.2025, after the adjustment had already been effected.

Rejecting the defence, the tribunal held that the relevant date is the date on which the actual recovery was made and not the date on which the adjustment process was initiated.

The coram recorded, “Even if the CPC system effected the adjustment automatically, the legal consequence of the adjustment — i.e., recovery of a pre-CIRP debt by appropriating an asset of the Corporate Debtor during the moratorium — is squarely prohibited under Section 14(1)(a) of the Code. The moratorium is a statutory prohibition directed at the legal effect of an action, not at the intention of the actor or the manner of execution. The Respondent cannot be permitted to circumvent the moratorium by attributing the recovery to an automated system."

Holding that adjustment of a refund payable to the corporate debtor against pre-CIRP dues amounts to recovery during the moratorium, the tribunal declared the action to be in violation of Section 14 of the Code.

The tribunal directed the Income Tax Department to reverse the adjustment of Rs. 4,95,720/- and credit the amount, along with interest under Section 244A of the Income Tax Act, to the CIRP bank account of the corporate debtor.