Pranav B Prem

The National Company Law Tribunal (NCLT), Hyderabad Bench-I, comprising Dr. Venkata Ramakrishna Badrinath (Member - Judicial) and Shri Charan Singh (Member - Technical), has held that once the Corporate Insolvency Resolution Process (CIRP) is initiated, property tax recovery proceedings cannot be continued against the Corporate Debtor. The tribunal emphasized the overriding effect of the Insolvency and Bankruptcy Code, 2016 (IBC) and affirmed that the moratorium under Section 14 prohibits all forms of coercive action during CIRP.

Background

Prithvi Asset Reconstruction and Securitisation Company Ltd., a financial creditor, moved the Adjudicating Authority for initiating CIRP against the Corporate Debtor. Upon admission into CIRP, a Resolution Professional (RP) was appointed to manage the Corporate Debtor’s hotel in Hyderabad.

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The Greater Hyderabad Municipal Corporation (GHMC) issued notices to the Corporate Debtor for property tax arrears amounting to Rs 38.54 lakhs. Out of this amount, Rs 26.29 lakhs were due for the pre-CIRP period, while Rs 12.24 lakhs were for the CIRP period. GHMC cited violations of Sections 521 and 622 of the GHMC Act for non-renewal of trade licenses and unpaid taxes.

The RP informed GHMC to file its claim as per IBC procedures, but the municipal authority failed to submit the claim for pre-CIRP dues. Regarding the tax arrears of the CIRP period, the RP sought permission to pay them in installments. However, GHMC insisted that the outstanding pre-CIRP arrears be cleared first and warned that failure to do so would result in sealing the hotel. GHMC also stated that it would not accept the payment of tax arrears for the CIRP period unless the pre-CIRP dues were cleared.

The RP, in response, highlighted the moratorium under Section 14 of the IBC and asserted that the respondent authority must submit its claims before the Committee of Creditors as per the provisions of the Code. Despite this, GHMC continued to insist on recovering the pre-CIRP dues directly from the Corporate Debtor.

Observations of NCLT Hyderabad

The tribunal framed the primary issue as follows:

“Whether Greater Hyderabad Municipal Corporation can initiate recovery proceedings of property tax against the Corporate Debtor under the provisions of the GHMC Act, post initiation of CIRP process and declaration of 'Moratorium' against the corporate debtor?”

The tribunal categorically ruled that the moratorium under Section 14 prohibits any action to foreclose, recover, or enforce security interest against the Corporate Debtor’s property. It stressed that once a Corporate Debtor enters CIRP, all recovery actions for past dues must cease, and creditors are required to file claims before the RP in the prescribed manner.

Referring to the Hon’ble Supreme Court’s decision in ABG Shipyard Liquidator v. Central Board of Indirect Taxes & Customs,[(2023) 1 SCC 472],  the tribunal observed: "The respondent authority has a limited jurisdiction to assess/determine the quantum of property tax but does not have the power to initiate recovery of dues by means of sale/confiscation etc., as provided under the GHMC Act." Thus, GHMC’s claim could only be processed under the IBC framework.

Additionally, the tribunal highlighted Section 14(2), which mandates that the supply of essential goods or services to the Corporate Debtor cannot be interrupted during CIRP. The only exception to this rule, under Section 14(2A), permits discontinuation if the Corporate Debtor defaults on payments during the moratorium period. The tribunal clarified that such a default must pertain specifically to the CIRP period and not pre-CIRP arrears.

The tribunal further noted that the GHMC’s coercive stance—demanding pre-CIRP arrears as a condition for accepting CIRP-period dues—was in direct violation of the moratorium provisions under IBC. It emphasized: "The moment CIRP is initiated and moratorium is declared, all recovery actions for past dues, including tax arrears, come to a standstill, and the respondent is required to file its claim before the RP in the proper form."

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The tribunal held that GHMC had no legal authority to impose conditions for the payment of CIRP-period taxes and that its insistence on clearing pre-CIRP dues was unlawful. The tribunal directed GHMC to strictly adhere to the IBC framework and submit its claims for the pre-CIRP period to the RP within 15 days.

Appearance

For Applicant: Mr. Ch. Srinivasulu, Ld. Counsel , Mr. Raghu Babu Gunturu, Resolution Professional

For Respondent: NA

Cause Title: M/s. Sri Pavana Keerthi Hotels India Private Limited v. The Commissioner, Greater Hyderabad Municipal Corporation

Case No: I.A. No. 250 of 2024 In C.P. (IB) No.153/7/HDB/2021

Coram: Dr. Venkata Ramakrishna Badrinath [Member (Judicial)],  Shri Charan Singh [Member (Technical)]

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