Legal Updates (Oct 13– Oct 17, 2025)
Rule 68B of the Second Schedule to the Income Tax Act has no mandatory application to recoveries under the RDDB Act, and any irregularity in timing does not nullify the auction sale
The Kerala High Court in the case of Binu Vincent vs Federal Bank [Writ Petition (C) No. 19544 of 2025] dated October 09, 2025, has held that Rule 68B of the Second Schedule to the Income Tax Act, which provides that no sale of immovable property attached towards the recovery of tax, penalty, etc., shall be made after the expiry of three years from the end of the financial year in which the order giving rise to a demand of any tax, interest, fine, penalty or any other sum, for the recovery of which the immovable property has been attached, has become conclusive under relevant provisions of the Income Tax Act, does not mandatorily apply to recovery proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act). Since the RDDB Act is a self-contained code enacted to secure speedy recovery of bank debts, the Court found that importing the time bar in Rule 68B would frustrate the statutory object.
The Court further held that even if there were procedural irregularities relating to timing, those do not render a sale, or consequent orders, void unless the adjudicating authority lacked inherent jurisdiction. The Court examined Rule 68B and observed that its references to “financial year,” “finality under Section 245-I,” and “Chapter XX” are specific to the Income Tax regime.
The RDDB Act itself provides a complete framework for recovery under Sections 19(22) and 25 without prescribing any time limit. Whereas, Section 29 of the RDDB Act adopts provisions of the Income Tax Rules only “as far as possible” and “with necessary modifications.” Therefore, only procedural parts that aid recovery may apply, not substantive restrictions that impede it. The provision is thus directory, not mandatory.
The Court observed that the legislative intent of the RDDB Act is to ensure the speedy recovery of debts due to banks and financial institutions, and subjecting recovery to a rigid limitation would defeat this purpose. Unlike the Income Tax regime, which involves recovery by the State, proceedings under the RDDB Act are adversarial, conducted by an independent Tribunal. Delays could arise due to administrative or procedural reasons beyond a bank’s control, such as transfer of officers, tribunal vacancies, or obstruction by debtors. Therefore, penalising banks for such delays would contradict the legislative purpose.
A charge created under the SARFAESI Act prior in time to the charge under the GST Act would prevail over the GST Act, and vice versa
The Karnataka High Court in the case of Canara Bank vs State of Karnataka [Writ Petition No. 103730 of 2025] dated September 23, 2025, has held that the charge created under the SARFAESI Act prior in time to the charge under the GST Act would prevail over the GST Act and vice versa. The ruling came after noting that the transaction under the GST Act is not reflected in public records, and the GST order in the present case was passed on April 16, 2019, and the entry was made on November 06, 2019, while the charge in favour of the petitioner bank under the SARFAESI Act was created on July 15, 2017 and was already entered into the property card.
The Court clarified that the decision of the Apex Court in the case of State Tax Officer vs Rainbow Papers Limited [Civil Appeal No. 1661 of 2020], which talks of the precedence of taxing authorities over the claims of secured creditors, including financial institutions, under the IBC, still holds the field; however, the said precedent would be applied only after considering the date of creation of the charge. Accordingly, the Court ruled that in the present case, the bank’s charge takes precedence over that of the GST authorities.
The Court further observed that the claim under the GST Act is not directly enforceable until the tax authorities have made an assessment and an entry is made on public records, like the encumbrance certificate or property card. In contrast, a secured creditor’s claim under the SARFAESI Act is based on a charge on the property, which is usually available in the public domain and can be acted upon by third parties.
The Court also pointed out that the dispute arises when two or more of these enactments are invoked concerning the same property or security, and then it becomes necessary to determine the priority of charges and the order of recovery under the conflicting enactments. The Bench therefore concluded that the priority of the charge must be determined based on the order in which the charges were created.
Approval of a resolution plan can’t be interfered with merely on the grievance of a single financial creditor regarding improper asset valuation of the corporate debtor
The NCLAT, New Delhi, in the case of Central Bank of India vs. Bijendra Kumar Jha [Company Appeal (AT) (Insolvency) No. 713 of 2025] dated August 18, 2025, has held that approval of a resolution plan cannot be interfered with merely on the grievance of a single financial creditor regarding improper asset valuation of the corporate debtor, when the valuer has, in fact, duly considered all assets and submitted its report.
The NCLAT found it evident from the third valuer’s report that the MoU and the allotment letter for 66 units were considered, and that these flats were given to the contractors against outstanding dues; hence, they were rightly excluded from the valuation of the corporate debtor. The Tribunal held that the valuers appointed in the CIRP process are the registered valuers who are experts in the job, and valuations given by them are not to be lightly interfered with by the Adjudicating Authority in the exercise of judicial review.
The NCLAT further observed that in the present case, the CoC, in its commercial wisdom, has approved the Resolution Plan. The valuation report, as required by Regulation 35 of the CIRP Regulations, is shared with all members of the CoC, and all members of the CoC have deliberated on the valuation report and approved the plan. It also held that the Appellant, as a dissenting financial creditor, cannot achieve what was not secured through voting.
Auction purchasers are liable to discharge outstanding property tax dues, including those that are accrued before the sale, if the sale was explicitly on an “as is where is, whatever there is and without recourse” basis, requiring bidders to undertake independent due diligence
The Calcutta High Court in the case of Cotton Casuals India Pvt Ltd. vs State of West Bengal [WPO 1235 of 2024] dated September 25, 2025, has held that the auction purchasers are liable to discharge outstanding property tax dues, including those that are accrued before the sale. The Court ruled so after referring to Section 232 of the Kolkata Municipal Corporation Act, 1980 (KMC), which states that property tax is a first charge on the property and thus constitutes a statutory encumbrance running with the land.
The Court observed that the sale was explicitly on an “as is where is, whatever there is and without recourse” basis, requiring bidders to undertake independent due diligence. Thus, an “as is where is” sale transfers both assets and liabilities unless expressly excluded. The Court also negated the applicability of the overriding clause of Section 238 of the Insolvency & Bankruptcy Code, 2016 (IBC), citing no conflict between the IBC and the KMC Act. Accordingly, KMC’s refusal to mutate the property until arrears were cleared was lawful under Sections 183(5) and 232 of the KMC Act.
The Court referred to Section 183(5) of the KMC Act and explained the 1997 amendment, which permitted the Corporation to refuse mutation where there are arrears of dues of the transferor/predecessor, and empowers the KMC to withhold mutation. The Court added that auction purchasers are subject to caveat emptor; however, the burden to fasten a pre-sale liability on a purchaser depends on whether the purchaser was put on sufficient notice of the liability. If the sale documents give appropriate notice, the purchaser cannot later disavow the liability.
On the interplay between IBC and municipal law, the Court explained the IBC/ liquidation regime (claims to be lodged with Liquidator under Regulations/Section 53 waterfall) but distinguishes that where a statutory first charge attaches to property (e.g., property tax under Section 232 KMC Act), the municipal authority may enforce that charge independently; and hence an overriding effect under Section 238 of IBC does not displace a statutory charge that runs with the property.
A bank cannot retain a fixed deposit belonging to one company to recover dues from another, even if they are part of the same group
The NCLAT, New Delhi, in the case of Industrial and Commercial Bank of China Limited vs Anish Niranjan Nanavaty [Company Appeal (AT) (Insolvency) No.69 of 2024] dated September 25, 2025, has held that the Industrial and Commercial Bank of China Limited (ICBC) was not entitled to retain a fixed deposit of Rs. 27.60 crore belonging to Reliance Communication Infrastructure Limited (RCIL), as no dues were owed by the corporate debtor and the lien letter did not extend to the liabilities of other group companies.
The Tribunal observed that the wording of the lien letter referred only to “us,” which clearly meant RCIL, and explained that the lien could apply only to dues owed by RCIL and not to debts of any other group company. Further, RCIL had never availed any credit facility from ICBC and was not jointly liable with any other entity.
The Tribunal also pointed out that under Section 171 of the Contract Act, a general lien can only be exercised for the customer’s own debts, and not for those of third parties. The NCLAT, therefore, upheld the NCLT’s order directing the release of the fixed deposit with interest, holding that ICBC could not retain the amount as RCIL owed no dues to it.
Guarantees and the Loan Agreement operate together, and the arbitration clause in the Loan Agreement applies to guarantors. The arbitration clause in the Loan Agreement incorporated into the contemporaneous Deeds of Guarantee executed by the respondents binds them to arbitration
The Delhi High Court in the case of Intec Capital Ltd vs Shekhar Chand Jain [ARB. A. (COMM.) 25/2024] dated September 04, 2025, has held that Clause 4 of the Deeds of Guarantee, which records that the guarantor “has read and understood the terms and conditions governing the LOAN, agrees to be bound by the same” and that the “Guarantee shall form an integral part of the Agreement”, manifests an intention to incorporate the Loan Agreement in its entirety into the Guarantees. Therefore, Section 7(5) of the Arbitration Act applies, and the arbitration clause is incorporated.
The High Court treated the Loan Agreement and Guarantees as part of a single composite transaction, and added that the arbitrator erred in treating the reference as a mere general reference, and the respondents remain bound by the arbitration clause and must remain parties to the arbitration.
The Court framed the issue that the respondents did not sign the Loan Agreement but executed contemporaneous Deeds of Guarantee, and held that the test is whether there is a clear intention to import the other document’s terms into the contract. The Court found the phrase “integral part” and the explicit acknowledgement that the guarantor “agrees to be bound by the same” go beyond a mere general reference. On its construction, Clause 4 of the agreement demonstrates the intention to incorporate the Loan Agreement in its entirety into the Guarantees, and this satisfies Section 7(5) threshold for incorporation of an arbitration clause.
The Court observed that where standard form documents or contemporaneous documents form part of a single commercial relationship, a general reference to such standard form may be sufficient to incorporate its arbitration clause. The Loan Agreement and Guarantees, though separate in form, are part of a single composite transaction executed on the same date and intended to govern the same commercial arrangement; this brings the case within a ‘single contract’ principle.
The Court observed that contemporaneous documents forming part of a single transaction must be read together to give effect to the parties’ intention, and the Guarantees and Loan Agreement operate together, and that the arbitration clause applies to guarantors.
Money laundering is a continuing offence, and even if the accused continues to possess or deal with the proceeds of crime, liability under PMLA persists regardless of when the predicate offence occurred or was notified
The Kerala High Court in the case of P.R. Sandhya vs Directorate of Enforcement [Criminal MC No. 4107 of 2022] dated October 09, 2025, has held that the complaint under Section 3 read with Section 4 of the Prevention of Money Laundering Act, 2002 (PMLA) shall be maintainable, as money laundering is a continuing offence, and even if the criminal activities may have been committed before the same had been notified as a scheduled offence for the purpose of the PML Act, 2002, if a person has indulged in or continues to indulge directly or indirectly in dealing with proceeds of crime, derived or obtained from such criminal activity even after it has been notified as scheduled offence, is liable to prosecuted be even if the criminal activities may have been committed before the same had been notified as a scheduled offence for the purpose of the PML Act, 2002, if a person has indulged in or continues to indulge directly or indirectly in dealing with proceeds of crime, derived or obtained from such criminal activity even after it has been notified as scheduled offence, is liable to be
The Court observed that the possession of tainted property after the PMLA came into force constitutes an actionable offence, even if the predicate acts predate its inclusion, and the petitioner’s claim of lack of knowledge or intent (mens rea) to be treated as a matter of evidence has to be determined only at trial. The Court noted that whether the petitioner possessed the proceeds of crime with or without knowledge was a question of fact requiring evidence. Since the properties were admittedly bought from funds alleged to be bribe money, continuing possession itself raised a prima facie inference of knowledge sufficient to attract Section 3 of the PMLA.
Thus, the Court concluded that if a person continues to possess or use property derived from illegal gain after its notification as a scheduled offence, prosecution under Section 3 of PMLA is maintainable.
In circumstances where the arbitrator has recused, need not be compelled to institute a fresh petition under Section 11 of the Arbitration Act. Instead, recourse may appropriately be taken under Section 15 of the Arbitration Act, which specifically provides for the substitution of an arbitrator
The Delhi High Court in the case of PM Projects and Services Private Limited vs. Ben and Gaws Private Limited [O.M.P. (T) (COMM.) 71/2025] dated September 03, 2025, has held that the once an arbitrator has been appointed by the Court under Section 11(6), the parties forfeit their original contractual right to appoint the arbitrator. Therefore, the substitution of the recused arbitrator must be effected by the same authority, the Court under Section 15(2) of the Arbitration Act, which specifically provides for substitution when an arbitrator withdraws from office. Compelling the parties to institute a fresh Section 11 petition would defeat the legislative intent, especially considering the parties’ original intent for expeditious resolution under the Section 29B fast-track procedure.
The Court held that the parties’ intent, as manifested in Clause 6 of the Indemnity Bond, was to secure a quick and efficient resolution by consciously electing to adopt the fast-track procedure under Section 29B of the Arbitration Act. Recourse must, therefore, be appropriately taken under Section 15 for substitution to preserve the continuity of proceedings and the expeditious resolution intended by the parties.
The Court drew a clear distinction between cases where arbitration is initiated under the mechanism stipulated in the agreement itself, and the cases where the Court exercised its power under Section 11 to make the appointment because the parties forfeited their contractual right. In the latter case, the arbitrator must be substituted in exercise of the Court’s power under Section 15(2) of the Act, and the substitute arbitrator would be appointed in the same manner by the Court.
Dual recovery is not permitted once an investor of the Corporate Debtor has received an amount under the Settlement Agreement and has given an unconditional undertaking to forgo all claims under the Resolution Plan
The NCLAT, New Delhi, in the case of Shobhana Thakkar vs Monitoring Committee of Ashiana Landcraft Realty Pvt Ltd. [Company Appeal (AT) (Insolvency) No. 2156 of 2024] dated August 20, 2025, has held that once an investor of the Corporate Debtor has received an amount under the Settlement Agreement and has given an unconditional undertaking to forgo all claims under the Resolution Plan, they are barred from claiming the same amount under the Resolution Plan, as such dual recovery is impermissible.
The NCLAT observed that the investors were given the choice to opt either for the settlement and file an undertaking to forgo all the claims under the Resolution Plan or forfeit rights under the Settlement Agreement and claim rights under the Resolution Plan, but not both. Since the Appellants are trying to claim the amount both under the settlement agreement and the resolution plan, they having received their dues under the settlement agreement and given an unconditional undertaking to forgo all the claims under the Resolution Plan, such dual recovery is impermissible.
Attachment of assets by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA) ceases to have effect once a resolution plan is approved under the Insolvency and Bankruptcy Code (IBC)
The NCLAT, New Delhi, in the case of Vantage Point Asset Management P Ltd vs Gaurav Misra, Resolution Professional of Alchemist Infra Reality Ltd. [Company Appeal (AT) (Ins) No. 1495 of 2024] dated October 14, 2025, has held that any attachment of assets by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA) ceases to have effect once a resolution plan is approved under the Insolvency and Bankruptcy Code (IBC).
The Tribunal observed that Section 32A of the IBC, extinguishing all prior criminal liabilities of the Corporate Debtor, will come into force once a resolution plan is approved. Thus, there is no need to obtain any order from the PMLA authority for the release of the same, and the Provisional Attachment Order shall cease to operate after the resolution plan is approved, bringing into effect Section 32A.
The Tribunal emphasised the supremacy of Section 32A post approval of the resolution plan, and clarified that there is no exception in the scheme of Section 32A of the IBC that where Provisional Attachment Orders have been passed before initiation of CIRP or before approval of the resolution plan, assets have to be kept out of the resolution. It further observed that there is no impropriety in including the attached assets in the information memorandum.
The Court also observed that by the attachment of the assets, the ownership rights of the corporate debtor are not divested, nor can it be said that the corporate debtor does not continue to be the owner of the asset. The scheme under the PMLA itself clarifies that, despite attachment, the corporate debtor is entitled to enjoy the property.
