Uttar Pradesh State Industrial Development Authority Directed to Refund Rs. 82.53 Lakhs Paid Under Protest; Pre-CIRP Claims to Be Settled Through Insolvency Code Waterfall Mechanism
In a significant judgment delivered on September 2, 2026, the National Company Law Tribunal (NCLT), Allahabad Bench, has ruled in favor of M/s Positron Biogenics Private Limited, clarifying that an auction purchaser of a property sold during liquidation proceedings is not personally liable for pre-Commencement of Insolvency Resolution Process (pre-CIRP) dues of the Corporate Debtor. The Tribunal directed the Uttar Pradesh State Industrial Development Authority (UPSIDA) to refund an amount of Rs. 82,53,013.37 paid by the purchaser under protest.
The case arose when Positron Biogenics Pvt. Ltd., successful bidder and purchaser of certain industrial properties formerly leased by M/s L.M.L. Limited (the Corporate Debtor), was asked by UPSIDA to pay outstanding dues amounting to over Rs. 82 lakhs. These dues related to lease rent, maintenance charges, interest, and GST for the period between 2000 and 2008, i.e., before the insolvency proceedings of L.M.L Limited commenced in May 2017.
Despite the property being sold "as is where is" and "no recourse" basis during liquidation, UPSIDA refused to transfer the leased property until the dues were paid. Positron Biogenics paid the amount under protest but subsequently filed an application before the NCLT under Sections 60(5) and 53(1) of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking a refund.
The NCLT bench, comprising Mr. Praveen Gupta (Judicial Member) and Mr. Ashish Verma (Technical Member), analyzed the facts and relevant law. It noted that:
- - The Corporate Debtor's liquidation process had admitted UPSIDA's claim as an operational creditor for the pre-CIRP dues.
- - Positron Biogenics acquired leasehold interest in the property via an auction conducted by the Liquidator under the provisions of the IBC.
- - The payment made by the Applicant was under protest and not a voluntary acceptance of liability.
- - The auction sale terms did not expressly transfer pre-CIRP liabilities to the purchaser.
- - The pre-CIRP dues are akin to unsecured claims of creditors and must be resolved under the IBC's waterfall mechanism (Section 53), which prioritizes distribution of liquidation proceeds to various stakeholders.
- - Reliance was placed on the precedent set by the National Company Law Appellate Tribunal (NCLAT) in Bhatpara Municipality Through its Chairperson v. Nicco Eastern Pvt. Ltd., where it was held that pre-sale dues do not transfer to the auction purchaser.
- - UPSIDA itself acknowledged it had no objection to receiving dues as per the IBC's distribution mechanism.
The Tribunal thus held that the auction purchaser cannot be held liable for pre-CIRP dues merely by virtue of purchasing the property in liquidation. The dues are to be settled through the liquidation estate in accordance with the statutory waterfall mechanism. Consequently, the demand for payment by UPSIDA from the purchaser was not maintainable, and the Rs. 82.53 lakh paid under protest was ordered to be refunded.
This ruling reinforces the principle that pre-insolvency liabilities of a corporate debtor remain with the debtor's estate and cannot be transferred to auction purchasers unless explicitly stated. It protects bona fide purchasers from unforeseen liabilities and upholds the integrity of the insolvency resolution process by ensuring that creditors' claims are settled through the prescribed statutory mechanism.
Bottom Line:
An auction purchaser of a property sold during liquidation proceedings is not liable to pay pre-CIRP dues of the Corporate Debtor. Such dues are to be dealt with under the waterfall mechanism of Section 53 of the Insolvency and Bankruptcy Code, 2016.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 53(1), 60(5)
