The Ahmedabad Bench of the National Company Law Tribunal has clarified that where a statutory authority, during the subsistence of a moratorium under Section 14 of the IBC, directs a bank to place lien on and freeze the bank accounts of the Corporate Debtor, and the bank acts on such direction, such action amounts to execution and enforcement of an order against the Corporate Debtor and is barred by Section 14(1)(a) of the IBC. Since such action directly affects the Corporate Debtor’s assets, going concern status, and the conduct of CIRP, the NCLT has jurisdiction under Section 60(5) of the IBC to intervene and grant relief.
The Tribunal held that the application is maintainable notwithstanding the Mining Department’s objection founded on Embassy Property, because the challenge was not to the correctness of the quasi-judicial determination of dues, but to the impermissible enforcement of such dues during moratorium. Statutory authorities may determine dues, but they cannot enforce recovery outside the mechanism of the IBC during CIRP, and Section 238 of the IBC gives overriding effect to the Code over inconsistent recovery powers under other statutes.
The NCLT accordingly allowed the application, and directed IDBI Bank to forthwith remove all liens and defreeze all bank accounts of the Corporate Debtor. The Tribunal also quashed the actions taken pursuant to the Mining Department’s directions, and restrained the Respondents from taking any coercive or recovery action during the subsistence of the moratorium. The Mining Department was left free to pursue its claim in accordance with the IBC, subject to limitation and other applicable provisions.
The Division Bench comprising Shammi Khan (Judicial Member) and Sanjeev Sharma (Technical Member) observed that the application was maintainable because the dispute before it was not about the correctness of the Mining Department’s determination of dues, but about the direction issued to IDBI Bank to create a lien and freeze the Corporate Debtor’s bank accounts during the subsistence of the moratorium. It held that such action directly impacted the functioning of the Corporate Debtor as a going concern and inhibited the Resolution Professional from taking control, custody, protection and preservation of the Corporate Debtor’s assets.
The Tribunal observed that the direction to create lien on bank accounts and the consequent freezing of those accounts resulted in execution and enforcement of an order against the Corporate Debtor, which is expressly prohibited by Section 14(1)(a) of the Code. It emphasized that the placing of lien and freezing of bank accounts constitutes execution or enforcement of a claim against the Corporate Debtor and is therefore barred during the moratorium period.
While considering the effect of moratorium, the Tribunal relied on the principle that once moratorium is imposed, a statutory freeze operates so that the insolvency resolution process may proceed unhindered. It also noted that, in view of Section 238 of the IBC, the Code overrides inconsistent provisions contained in other enactments, and statutory authorities, though entitled to determine dues, cannot enforce recovery during the moratorium.
On relief, the Tribunal observed that the Mining Department was required to follow the mechanism under the IBC by filing its claim before the Resolution Professional for dues quantified prior to commencement of CIRP. Regardless of whether the Department was aware of the CIRP, the instruction to create lien and freeze accounts was held to be in violation of the moratorium, and the Tribunal directed IDBI Bank to defreeze the accounts and allow use of the money lying therein for running the Corporate Debtor as a going concern. It also clarified that any lien or attachment created prior to commencement of CIRP would remain subject to the provisions of the Code and could not be enforced during the moratorium period.
Accordingly, the Tribunal declined to adjudicate upon the Mining Department’s request that its belated claim be admitted and treated as that of a secured creditor. It held that the issue relating to admission, classification or treatment of the Mining Department’s claim did not arise for consideration in the present application and was beyond the scope of these proceedings, leaving the Department at liberty to pursue appropriate remedies in accordance with law before the competent forum.
Briefly, the Applicant, through its Resolution Professional, filed an interlocutory application under Sections 60(5) and 14 of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the NCLT Rules, 2016, seeking directions against IDBI Bank Ltd. and the Mining Engineer (Recovery), Mines and Geology Department, Jaisalmer, on the ground that liens had been placed and the Corporate Debtor’s bank accounts had been frozen during the subsistence of the moratorium. The reliefs sought included restraint against further lien marking, defreezing of accounts, and protection against prejudicial action during CIRP.
The Corporate Debtor had been admitted into CIRP on February 20, 2018, and a moratorium under Sections 13 and 14 of the IBC was imposed. Although a resolution plan had earlier been approved by the CoC, the same was rejected by the Adjudicating Authority on August 24, 2022, and the NCLAT stayed the consequences and effect of that rejection order on September 30, 2022. The Tribunal later recorded that no liquidation order had been passed and the CIRP had not attained finality, and therefore the moratorium continued to remain in operation.
During CIRP, the Mining Engineer issued directions to banks, including IDBI Bank, to mark attachment on the Corporate Debtor’s accounts and not permit operations without prior permission. Acting on those directions, IDBI Bank placed liens on multiple accounts, including a lien of Rs. 25.75 crores pursuant to the Mining Department’s communication, and also disclosed earlier liens aggregating to Rs. 112.83 crores on another account based on orders of various authorities from 2017 to 2023. The Applicant contended that these actions prevented use of funds for running the business as a going concern.
IDBI Bank stated that it had acted bona fide and in compliance with the Mining Department’s directions, while also acknowledging that the issue of contravention of Section 14 was for the Tribunal to decide. The Mining Department raised a preliminary objection to maintainability, arguing that its order was a quasi-judicial action in the public law domain and that the Tribunal could not exercise judicial review over such action. It also argued that its dues under the mines and land revenue framework should be treated as secured dues and that it had filed its claim in Form B on February 7, 2025.
The Resolution Professional clarified in rejoinder that the application did not challenge the determination of royalty dues by the Mining Department, but only challenged the subsequent enforcement action, namely the communication dated August 25, 2023 and the consequent freezing and lien marking of bank accounts during the moratorium. It was specifically argued that such enforcement amounted to execution of an order during CIRP and therefore squarely fell within the jurisdiction of the Tribunal under Section 60(5) read with Section 14 of the IBC.
Appearances:
Advocates Neha Naik and Sanaea Laskari, for the Applicant/ RP
Advocate Priyam Raval, for the Respondent
