Can Income Tax Attach a RP’s Personal Bank A/c Under IBC?

Can Income Tax Attach a Resolution Professional’s Personal Bank Account Under the IBC?

Based on the facts stated by you, the attachment of the personal bank account of Mr. XXX merely because he is acting as resolution professional (RP) of ABC Pvt. Ltd. appears legally questionable and prima facie unsustainable unless the Income Tax Department can establish a specific statutory basis making him personally liable for the tax dues of the company.

Facts as Explained

• Mr. XXX was appointed as resolution professional in the Corporate Insolvency Resolution Process of ABC Pvt Ltd . During the corporate insolvency resolution process, a forensic audit was conducted. The forensic audit reportedly identified fraud and diversion of funds of approximately ₹39 crore by the erstwhile management involving PNB and other parties. Applications under Sections 43, 45 and 66 of the IBC have been filed before NCLT and are pending adjudication.
• Company has no funds available in its bank accounts. PNB is the major member of the CoC. Income Tax and GST authorities did not lodge their claims during the corporate insolvency resolution process. The resolution professional has not withdrawn, diverted, misappropriated, or received any benefit from company funds. No proceedings alleging personal misconduct, fraud, or tax liability have been initiated against the resolution professional. The resolution professional is acting only in his professional capacity under orders of NCLT and under the framework of IBC.

The notice shared by bank to resolution professional appears to be a proceeding under Sections 226 and 225 of the Income-tax Act seeking recovery of approximately INR 28.98 crore relating to M/s ABC Pvt Ltd . and directing the bank to attach account number Name: XXX Indian Oversea Bank – Current Account – Bank Account No 00650200000VVVV, Bank IFSC Code IOBA00000CC. The notice is addressed to Indian Overseas Bank Janpath branch The screenshot also shows a debit freeze/attachment effect on the personal account. The notice refers to tax dues of the company and not personal tax dues of Mr. Singh.

Legal Position under IBC – Resolution professional is Not Personally Liable for Corporate Debtor’s Tax Dues

• Resolution Professional is Not Personally Liable for Corporate Debtor’s Tax Dues:

A resolution professional is not the owner, director, promoter, or guarantor of the corporate debtor merely because he manages the affairs of the company during the corporate insolvency resolution process. The RP acts as An officer of the insolvency process, A fiduciary for all stakeholders., A professional appointed under the IBC, An officer answerable to NCLT and IBBI. The tax liabilities remain liabilities of the corporate debtor and do not automatically become liabilities of the resolution professional.

• Protection under Section 233 of IBC:

Section 233 expressly provides protection to an insolvency professional or liquidator for actions done in good faith under the IBC. The section states that no suit, prosecution, or other legal proceeding shall lie against an insolvency professional for anything done or intended to be done in good faith under the Code. Therefore, where No fraud is attributable to the RP, no personal gain is established, no misconduct is proved, and actions against the RP personally require strong legal justification.

• Moratorium under Section 14 :

Once CIRP commences, recovery against the Corporate Debtor is governed by the IBC framework and the moratorium provisions. Income tax dues are treated as operational debt and are subject to the insolvency process and claim submitted to RP. Tax authorities are expected to submit claims before the RP.

• In the matter of M/s ABC Pvt Ltd Corporate Debtor’s bank account: Can be subject to IBC-controlled processes, not arbitrary recovery actions during moratorium.
• A resolution professional’s personal bank account cannot ordinarily be attached for the corporate debtor’s income tax dues.
• As per Section 233 of the IBC act, it gives statutory protection to resolution professionals acting in good faith. Any attachment of an RP’s personal account for company tax dues would be open to challenge before the High Court/NCLT depending on the circumstances.

Can income tax attach an RP’s personal account?

Normally, no, the income tax department may recover tax dues from The assessee, a person who is statutorily liable like a director; a representative assessee, a director under specific provisions, A garnishee holding money belonging to the assessee. However, An officer of the insolvency process, a fiduciary for all stakeholders, a professional appointed under the IBC, and an officer answerable to NCLT and IBBI. Merely being a resolution professional does not make a person personally liable for the corporate debtor’s tax dues.

Based on the facts narrated in this matter: The resolution professional has no personal tax liability. The resolution professional has not received any money of the company. The resolution professional has not committed any misconduct. And the resolution professional is pursuing recovery proceedings against former management. The resolution professional is acting under NCLT supervision. No allegation of personal enrichment exists. Therefore, attachment of the resolution professional’s personal savings account merely because the company owes tax appears contrary to the scheme of the IBC.

Supreme Court Position

In Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss ARC (2021),

the Supreme Court held that government authorities, including income tax authorities, are bound by the provisions of the IBC and approved resolution plans. Claims are to be dealt with within the insolvency framework. The Supreme Court judgment reinforces the principle that statutory authorities cannot ignore the IBC mechanism and pursue recoveries outside the Code contrary to its provisions.

• Corporate debtor’s bank account: Can be subject to IBC-controlled processes, not arbitrary recovery actions during moratorium.
• RP’s personal bank account: Cannot ordinarily be attached for the corporate debtor’s income tax dues. Section 233 gives statutory protection to RPs acting in good faith. Any attachment of an RP’s personal account for company tax dues would be open to challenge before the High Court/NCLT depending on the circumstances.

In the circumstances described, the RP may consider filing an immediate representation before the assessing officer/deputy commissioner, explaining that he is only the RP of the corporate debtor. The account is his personal account. He is not the assessee. No personal liability exists.

Approaching the NCLT seeking directions against coercive recovery measures affecting the insolvency process.

Filing a writ petition before the jurisdictional High Court challenging the attachment as without jurisdiction, arbitrary, contrary to IBC, and violative of Section 233 protection. Informing IBBI and CoC regarding the attachment and its impact on discharge of resolution professional functions.

Conclusion

• On the facts provided, we have to consider the view that the Income Tax Department does not appear to have legal authority to attach the personal bank account of the RP solely for recovery of the tax dues of ABC Pvt. Ltd., unless it can independently establish personal liability, personal misconduct, fraud, or statutory responsibility on the part of the RP.
• Since the resolution professional is acting as an officer of the insolvency process, has not derived any personal benefit, has reported fraud committed by the erstwhile management, and is pursuing recovery proceedings before NCLT, the attachment appears prima facie open to challenge before NCLT and/or the High Court. Section 233 of the IBC provides significant protection for actions taken in good faith by an insolvency professional.
• Resolution Professional (RP) XXX appointed in the matter of ABC Pvt Ltd under the Insolvency and Bankruptcy Code, 2016, then the Income Tax Department generally cannot attach the personal bank account of the RP merely because he is acting as RP of a corporate debtor. The Resolution Professional XXX is not personally liable for the tax dues of the corporate debtor and acts as an officer of the insolvency process.