Prabhat Kumar, Member (Technical):— This Interlocutory Application no IA-616/2023 is filed on 24/11/2022 by the Liquidator, Sh. Gajesh Labhchand Jain of M/s Talwalkars Healthclubs Limited (Corporate Debtor) seeking directions for defreezing of bank accounts maintained with Axis Bank (i.e. Respondent No. 2), which came to be attached by following authorities to recover the dues—
a. ECONOMIC OFFENCE WING i.e. Respondent No. 1
b. INCOME TAX DEPARTMENT i.e. Respondent No. 3
c. GST DEPARTMENT, SECUNDERABAD i.e. Respondent No. 4
d. GST DEPARTMENT, BENGALURU i.e. Respondent No. 5
e. GST DEPARTMENT, VISHAKHAPATNAM i.e. Respondent No. 6
2. Talwalkars Healthclubs Limited (THL or Corporate Debtor) is a listed public company incorporated on 23.04.2016 under the Companies Act, 2013, with the Registrar of Companies, Maharashtra, Mumbai. This Adjudicating Authority vide order dated 09.03.2021 initiated the corporate insolvency resolution process (CIRP) for the Corporate Debtor. However, since no resolution plans were received, this Adjudicating Authority vide order dated 28.04.2022 initiated liquidation proceedings for the Corporate Debtor. Pursuant to said order, the Applicant was appointed as the liquidator of the Corporate Debtor and has been working diligently in accordance with applicable law.
3. The Corporate Debtor maintains following accounts with Respondent No. 2:
Sr. No.
Account number
1
918020063714539
2
918020051650069
3
918020063715150
4
918020052273643
5
918020063717541
6
918020052347087
7
918020063718388
8
918020052280340
9
918020063724646
10
918020052328811
11
918020063723931
12
918020052272459
13
918020063718764
14
918020052338889
15
918020063719385
16
918020052270822
17
575010200005074
18
575010200005067
19
918020052321807
20
917020021975773
21
917020021977601
22
918020052339125
23
918020052827594
24
918020053146179
25
918020063721537
26
918020053323745
27
918020063722307
28
918020052344321
29
918020063722750
30
918020052329144
31
918020063723135
32
918020052827415
33
918020063707667
34
918020052350119
35
918020063708275
36
918020052469048
37
918020063723562
38
918020052321946
39
918020063708754
40
918020052827491
41
918020063708550
42
918020052310726
43
918020052822025
44
918020056305036
45
918020054475995
46
918020037117076
47
918020054476040
48
918020037903880
49
918020037736046
50
918020054475869
51
918020054523492
52
918020054006560
53
916020036877793
54
918020040303912
55
918020054476134
56
918020054804762
57
918020037854306
58
918020054475937
59
918020054641626
60
918020054476095
61
918020054262090
62
918020054475762
63
918020089815643
64
918020063721338
65
918020053324094
66
918020063720275
67
918020052316410
68
918020019577275
69
918020021668705
70
918020063708567
71
918020052340659
72
918020063721951
73
918020052827538
74
918020063708877
75
918020052347003
76
918020063715710
77
918020052316229
78
918020063711404
79
918020052276529
80
918020063713617
81
918020052278428
82
918020063713756
83
918020052274976
84
918020052271087
85
918020052280081
85
918020063714377
86
918020038997222
87
918020063715024
88
918020052338960
89
918020063715341
90
918020052329018
91
918020063715930
92
918020052276862
93
918020063719709
94
918020052275173
95
918020063716962
96
918020052280230
97
918020063717431
98
918020052316290
100
918020063718072
101
918020052339044
102
918020063718557
103
918020052344091
104
918020063718832
105
918020052321496
106
918020063720107
107
918020052293618
108
918020063721977
109
918020052270961
110
918020063709922
111
918020052347045
112
918020052278729
113
918020063712672
114
918020052346945
115
918020063713743
116
918020052311839
117
918020063710113
118
918020052192955
119
918020063710252
120
918020052321632
121
918020063711019
122
918020052278583
123
918020063711488
124
918020052827374
125
918020063724091
126
918020053324023
127
918020063721045
128
918020052827431
129
918020063712216
130
918020051870302
131
918020063712614
132
918020052328918
133
918020063713297
134
918020052943931
135
918020063714364
136
918020063714364
137
918020052350229
138
918020063715167
139
918020052827444
140
918020063718544
141
918020052821996
142
918020063718719
143
918020052350041
144
918020063709595
145
918020063713963
146
918020063711860
147
918020063711983
148
918020063713963
149
918020052280081
150
918020052819922
151
918020052822087
152
918020063716548
153
918020052821970
154
918020063707777
155
918020052822041
156
918020063710689
157
918020052047936
158
918020063717099
159
918020052349986
160
918020063708864
161
918020052827457
162
918020063713471
163
918020052340594
164
918020063710537
165
918020052275115
166
918020063717082
167
918020052293838
168
918020063712371
169
918020052827484
170
918020063711200
171
918020052827512
172
918020063709207
173
918020052276684
174
918020063709430
175
918020052293760
176
918020063710045
177
918020063710552
178
918020063710223
179
918020052827477
180
918020063712999
4. Presently, the Corporate Debtor is under Liquidation under the Insolvency and Bankruptcy Code, 2016, but the continuation of debit freeze on bank accounts of the Corporate Debtor is adversely affecting realisation value of the Corporate Debtor. In this manner, attachment and debit freeze of bank accounts serve as a hinderance in the achievement of value maximization and also makes it difficult for the Applicant to fulfil his duties as liquidator of the Corporate Debtor.
5. Pursuant to the orders dated 12.04.2022, Respondent No. 1 directed the Respondent No. 2 to freeze the bank accounts of the Corporate Debtor as listed in the said order. It is alleged by Respondent No. 1 that the Corporate Debtor availed various loan facilities from their Bank and transferred loan amount in other accounts, such transfer amount to Rs. 237.80 Crores is under investigation and directed Respondent No. 2 debit freeze the accounts stated in the said communication.
6. The Applicant requested for the revocation of the imposition of the debit freeze vide letters dated 16.11.2022 and 07.12.2022 issued to Respondent No. 1. Additionally, the Applicant cooperated and issued a letter to Respondent No. 1 with all the information required by Respondent No. 1 pursuant to the notices dated 11.11.2022 and 15.11.2022 issued under Section 160 and 91 of the Criminal Procedure Code, 1973, by Respondent No. 1 to the Applicant. However, no action to de-freeze the bank accounts has been taken by the Respondents.
7. The Applicant was also informed by Respondent No. 2 that its bank accounts have been put on hold/debit-freeze/freeze pursuant to orders of various other statutory authorities such as inter alia Respondent No. 3, 4, 5 and 6. However, not all such orders were shared with the Applicant. Accordingly, the Applicant had also issued letters dated 21.11.2022 to Respondent No. 3 informing it regarding the initiation of liquidation proceedings and requesting it to direct Respondent No. 2 to revoke the debit freeze/freeze/lien/attachment from bank accounts of Corporate Debtor, stating that the claim of Income Tax Department for a sum of Rs. 141,78,69,532/- has been admitted vide Form C dated 22.07.2022 filed by the Department and the same shall be dealt with in accordance with the provisions of the I&B Code.
8. Additionally, the Applicant came across letter dated 21.03.2019 issued by Respondent No. 4 to Respondent No. 2. Further, the Applicant also came across letter dated 24.07.2019 issued by Respondent No. 5 to Respondent No. 2. In both of the letters Respondent No. 2 was informed regarding amount due to government by the Corporate Debtor, and directing it to freeze the account bearing number 916020036877793 and other bank accounts associated with similar PAN. The Applicant also came across third party recovery notice letter dated 26.11.2021 issued by Respondent No. 6 to Respondent No. 2, informing it regarding amount due to government by the Corporate Debtor, and in effect imposed freeze on accounts of the Corporate Debtor.
9. On 21.11.2022, the Applicant issued letters to Respondent No. 4, 5, and 6 informing them regarding the initiation of liquidation proceedings for the Corporate Debtor, and requesting it to direct Respondent No. 2 to revoke the freeze imposed on bank accounts of Corporate Debtor.
10. Respondent No. 6 has filed reply claiming an outstanding of Rs. 60,000/- for belated filing of GST returns and the Bank account shall be defrozen only after recovery of this Demand.
11. The Applicant liquidator has submitted that the Respondent No. 6 has already filed its claim vide Form C dated 19.07.2022 before the Applicant-Liquidator for a sum of INR 60,000/- (Indian Rupee Sixty Thousand Only), as an operational creditor. The same has already been admitted by the Applicant-Liquidator in the ongoing liquidation proceedings of the Corporate Debtor. Notably, Respondent No. 3 has also submitted a claim amounting to INR 1,41,78,69,532 (Indian Rupee One Hundred Forty-One Crore Seventy-Eight Lakh Sixty-Nine Thousand Five Hundred Thirty-Two only) to the Applicant-Liquidator, which has been admitted in the ongoing liquidation proceeding of the Corporate Debtor.
12. It is further submitted by the Applicant that in accordance with Section 35 of the Code, it is the bounden duty of the Applicant-Liquidator to take into his custody or control all the assets, property, effects and actionable claims of the Corporate Debtor. Also, in accordance with Section 82 of APCGST Act, 2017, an exception has been created with regards to the Code and it does not in any manner mandates the creation of charge over property of the Corporate Debtor. Rather it creates an exception for the same. Section 82 of APGST Act is reproduced below for ready reference:
“Notwithstanding anything to the contrary contained in any law for the time being in force, save as otherwise provided in the Insolvency and Bankruptcy Code, 2016 (Act No. 31 of 2016), any amount payable by a taxable person or any other person on account of tax, interest or penalty which he is liable to pay to the Government shall be a first charge on the property of such taxable person or such person.”
13. The Applicant has also relied upon the decision in the case of Anish Niranjan Nanavaty v. HDFC Bank I.A. 309/MB/2021 in CP (IB)3025 (MB)/2019 to contend that freeze of the account of the Corporate Debtor during the moratorium period is prohibited under Section 14 of the Code; and the decision in the case of Mr. Hemant Mehta v. Commissioner of State Tax. Company Appeal (AT) (Insolvency) No. 328 of 2022 to contend that adjudicating authority is duty bound to exercise the residuary jurisdiction vested in its Section 60(5) of the Code to order de-freezing of the account and transfer the funds lying therein to the liquidation account so to form part of the liquidation estate. It is submitted that in the case of Mr. Hemant Mehta (Supra), the Hon'ble NCLAT had directed to de-freeze the Bank accounts.
14. This Bench heard the counsel and perused the materials available on record.
15. This Bench finds that Respondent No. 1 is investigating into misappropriation of borrowings by Corporate Debtor from the lenders. Pending such investigation, the investigating authority considered it appropriate to freeze the bank accounts so as to avoid further diversion. This Bench finds that this order was passed on 12.04.2022, while moratorium u/s 14 of the Code in the case of Corporate Debtor came into force on 11.01.2021, hence Respondent No. 1 could not have sought debit freeze of the Bank account during the moratorium period. This Bench is of the considered view that the action of the Investigating Officer was to protect further diversion of funds lying in the account of Corporate Debtor, in the interest of its creditors as well as in public interest. At this juncture, this Bench feels that the provisions of the Code take into account the interest of creditors and if any diversion has taken place from the account of the Corporate Debtor to another person, the same is recoverable from such person under the provisions of avoidance transactions under the Code. Hence, it would be appropriate to order revocation of debit freeze on accounts maintained by the Corporate Debtor with Respondent No. 2 in terms of order passed by Respondent No. 1.
16. In the case of Mr. Hemant Mehta (Supra), the Hon'ble NCLAT had revoked the order of Commercial Tax Authority freezing the account of the Corporate Debtor who was in liquidation. This Bench feels that facts of that case and the present case vis-à-vis Respondent No. 3 to 6 are similar and following the decision of Hon'ble NCLAT, this Bench directs the Axis Bank to revoke the attachment of Bank account pursuant to orders/letters issued by Respondent No. 3 to 6 without any further delay.
17. In view of the above, this Application is allowed with direction to the Respondent No. 2 to defreeze the accounts of the Corporate Debtor pursuant to order(s) of Respondent No. 1, 3, 4, 5 & 6.