Tribunal says statutory first charge under Mumbai Municipal Corporation Act survives liquidation sale; “as is where is” purchaser cannot avoid outstanding dues attached to the property.
The National Company Law Tribunal (NCLT), Mumbai Bench, has ruled that a successful auction purchaser of a liquidation asset cannot escape pre-liquidation municipal property tax dues when such dues are protected by a statutory first charge under the Mumbai Municipal Corporation Act, 1888.
In an order passed in the matter of Indojewel Jewellery Private Limited versus Brihanmumbai Municipal Corporation (BMC) and another, the Tribunal dismissed the applicant’s plea seeking a declaration that municipal dues of Rs. 86,58,080, along with interest and penalty, were not recoverable from it after purchase of a property from the liquidation estate of Panache Exports Private Limited.
The applicant had purchased Unit No. 3 at SEEPZ, Andheri (East), Mumbai, through e-auction conducted by the liquidator on 5 July 2023. The sale certificate issued on 16 August 2023 recorded that the property was sold on an “as is where is”, “as is what is”, “whatever there is” and “no recourse” basis. The buyer later argued that all dues arising before the liquidation date of 23 September 2022 had already been dealt with in the liquidation process under Section 53 of the Insolvency and Bankruptcy Code, 2016, and that BMC could not separately recover the same amount from it.
Rejecting this contention, the Tribunal held that property tax dues under Section 212 of the Mumbai Municipal Corporation Act constitute a statutory first charge on the property. Such a charge, the Bench observed, runs with the property itself and is enforceable independently by the municipal authority. Merely filing a claim in liquidation does not extinguish that statutory charge.
The Tribunal relied on the auction notice, letter of intent and sale certificate, all of which made it clear that the sale was on a no-recourse basis. It held that a purchaser in such a sale is expected to conduct due diligence regarding title, encumbrances and statutory liabilities. Since the applicant bought the asset with those terms, it could not later plead ignorance of the outstanding municipal dues.
The NCLT also distinguished the case from “clean slate” principles applicable in certain resolution plan scenarios. It observed that the protection under Section 32A of the IBC is limited to offences and does not wipe out outstanding statutory dues attached to property. The Bench further noted that liquidation sales are different from resolution plans, and an auction purchaser of liquidation assets cannot be placed on the same footing as a resolution applicant.
Citing decisions including the Supreme Court’s ruling in K.C. Ninan v. Kerala State Electricity Board and the Calcutta High Court’s judgment in Cotton Casuals India Pvt. Ltd. v. State of West Bengal, the Tribunal reiterated that where a property is sold on an “as is where is” basis, the buyer takes it with existing liabilities and encumbrances unless the sale terms expressly provide otherwise.
Finding no merit in the application, the Tribunal held that BMC’s statutory first charge survived the liquidation sale and that the auction purchaser was liable to pay the pre-liquidation municipal dues attached to the property. The application was accordingly dismissed and disposed of.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 - Liquidation sale of asset on "as is where is", "as is what is", "whatever there is" and "no recourse" basis - Municipal property tax dues secured by statutory first charge under Section 212 of Mumbai Municipal Corporation Act, 1888 do not get extinguished merely because Municipal Corporation lodged claim in liquidation - Successful auction purchaser is liable to bear pre-liquidation property tax dues attached to property.
Statutory provision(s): Section 60(5) of the Insolvency and Bankruptcy Code, 2016, Section 53 of the Insolvency and Bankruptcy Code, 2016, Section 32A(2) of the Insolvency and Bankruptcy Code, 2016, Section 35(1)(f) of the Insolvency and Bankruptcy Code, 2016, Regulation 32(d) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, Sections 203 and 212 of the Mumbai Municipal Corporation Act, 1888, Rule 11 of the National Company Law Tribunal Rules, 2016
