Govt Cannot Maintain Attachment Of Property To Press For Recovery Outside Liquidation Framework: NCLAT Chennai

The tribunal held that the government's attachment of the corporate debtor's property for recovery of tax dues cannot continue during liquidation. The bench ruled that section 238 of the IBC overrides all other laws, and therefore the encumbrance created by the appellant on the said property deserves to be lifted.

Background of the Case

The corporate debtor was admitted into the CIRP, and Mr. Nithiyanantham Ramachandran was appointed as the Interim Resolution Professional (IRP). Due to lack of revival, the committee of creditors resolved for liquidation of the entity, and Mr. Ramachandran was confirmed as the liquidator.

As the liquidation commenced, the liquidator identified that the appellant (Commercial Tax Department of the Government of Tamil Nadu) had created an encumbrance over a land in the Kanchipuram District. The said encumbrance was for the recovery of the GST dues of Rs. 85.4 lakhs under the Tamil Nadu Revenue Recovery Act, 1864.

Issue Before the Adjudicating Authority

The liquidator approached the adjudicating authority seeking directions to remove the attachment of the property. It argued that the tax department had already filed its claim in the Form C, thus, the attachment was unwarranted.

The liquidator also argued that the attachment violated the requirements of the Revenue Act as it failed the criteria of issuance of notice and publication in the District Gazette. It also argued that section 238 of the IBC overrides all other laws, and the attachment, if subsisting, would obstruct the liquidation process.

After hearing the contentions, the adjudicating authority allowed the application and directed the removal of the attachments. It observed that the attachment, if it continued, would hinder the asset realization and delay the settlement of the claims.

Aggrieved by the decision of the adjudicating authority, the Government of Tamil Nadu filed an appeal before the NCLAT Chennai.

Decision of the NCLAT

The appellant contended that the attachment under the Revenue Act is valid as well as necessary to recover the tax dues. It claimed the status of the secured creditor and argued that it has the right to attach the property to secure its claim.

The NCLAT upheld the adjudicating authority's order, saying that section 238 of the IBC overrides other conflicting provisions. It observed that the attachment was made seeking recovery of the dues, and the same claim has also been submitted before the liquidator.

The bench ruled that the lifting of an attachment is not dehors to the interest of the appellant, and more particularly when he has already raised his claim, he cannot simultaneously press upon the claim for recovery of the tax dues by continuance of the attachment of the assets of the corporate debtor.

The tribunal observed that the attachment, if continued, would hinder the recovery process, and the order of lifting an attachment will rather help in the hastening of the process of the liquidation.

Relying on the Hon'ble Supreme Court's ruling in the case of State Tax Officer v. Rainbow Papers Ltd., 2022 SCC Online SC 1162, the tribunal ruled that the claim of the tax authority has precedence, but it must be adjudicated within the framework of IBC.

The bench lastly ruled that the lifting of the encumbrance created is not contrary to the provisions of law or the interest of the appellant and dismissed the appeal.

Case Title: Government of Tamil Nadu v. Nithiyanantham Ramachandran & Anr.

Case Number: Company Appeal (AT) (CH) (Ins) No. 446 of 2024

For Appellant: Mr. I. Arvindhsamy, Advocate, Mr. P. Sathish, Add. Gov. Pleader (AGP)

For Respondent: Mr. A.G. Sathyanarayana, Advocate for Respondent No. 1 (Liquidator)

Bench: Justice Sharad Kumar Sharma (Member – Judicial) and Jatindranath Swain (Member – Technical)

Judgment Date: 30/06/2025

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