NCLAT Rules, Income Tax Refund Received By Bank During CIRP In Corporate Debtor's Account Cannot Be Withheld
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, has held that a bank cannot retain an Income Tax refund received in the corporate debtor’s account during the Corporate Insolvency Resolution Process (CIRP), and the amount must be remitted to the liquidation account of the corporate debtor. The decision was delivered by a Bench comprising Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member), and Arun Baroka (Technical Member) in Company Appeal (AT) (Insolvency) Nos. 85 & 96 of 2025, arising from orders passed by the NCLT Mumbai Bench.
The CIRP of Topsgroup Services & Solutions Ltd. was initiated on 19.02.2021 on an application filed by Punjab National Bank (International) Ltd. Indian Bank, the appellant, had filed its claim in Form-C for ₹38.85 crores. On 08.06.2021, during the CIRP, the corporate debtor received an Income Tax refund of ₹4,65,58,425.87/- into its account maintained with Indian Bank. Despite repeated requests by the Resolution Professional (RP), including several emails and letters between October and December 2021, the bank did not transfer the amount to the CIRP account maintained in Yes Bank.
Consequently, the RP filed I.A. No. 2967/2021 seeking directions for the bank to transfer the refund amount. The NCLT allowed the application on 20.12.2022 and directed Indian Bank to remit the sum to the liquidation account. However, the bank did not comply. In response, the liquidator filed I.A. No. 2074/2023 seeking initiation of contempt proceedings. The bank then filed I.A. No. 2481/2023 seeking recall of the transfer order, which was dismissed by the NCLT on 19.12.2024.
In its appeal before the NCLAT, Indian Bank argued that it held a valid hypothecation over receivables, including government refunds, and since it had opted not to relinquish its security interest, it was not obligated to transfer the amount. It also contended that the amount was part of its secured receivables and that the order dated 20.12.2022 was passed ex parte due to internal miscommunication between its branches.
The NCLAT rejected these arguments, noting that the bank had been served notice in the earlier proceedings but failed to appear. It emphasized that the refund was credited to the corporate debtor's account during the moratorium period imposed under Section 14 of the Insolvency and Bankruptcy Code (IBC), and hence the RP was entitled to take control of the funds. The Bench observed that the amount “belonged to the corporate debtor, even though as receivable from the Income Tax Department,” and that Indian Bank “could not have denied the transferring of the amount in the corporate debtor’s account.”
The Tribunal also noted that after liquidation commenced on 21.09.2022, the liquidator was authorized to control all assets and direct their transfer into the liquidation estate. It held that the Income Tax refund was part of the estate, and Indian Bank had no right to retain it or impose conditions on its transfer to a bank of its choice, especially since the liquidation account was already designated in Yes Bank.
Addressing the bank’s claim that the refund was covered under its security interest, the Tribunal held that even if it was a receivable, the RP had the right to possess it under Section 18 of the IBC, and the process of enforcement of security was not the issue in question before the NCLT in I.A. 2967/2021.
Ultimately, the NCLAT upheld the orders of the Adjudicating Authority and dismissed both appeals, directing Indian Bank to comply with the transfer orders. It clarified that while the bank could pursue its claims and enforce security under liquidation rules, it had no authority to withhold the refund during CIRP or liquidation in defiance of the Resolution Professional’s directions.
Appearance
For Respondent: Mr. Milan Singh Negi, Mr. Nikhil Kumar Jha and Ms. Aakriti Gupta, Advocates.
Cause Title: Indian Bank V. Anshul Gupta, Liquidator Topsgroup Services & Solutions Ltd.
Case No: Company Appeal (AT) (Insolvency) No. 85 of 2025
Coram: Ashok Bhushan [Judicial Member], Mr. Barun Mitra [Technical Member], Mr. Arun Baroka [Technical Member]
