In a landmark decision, the NCLT Mumbai upheld statutory first charges under the Maharashtra Co-operative Societies Act, 1960, emphasizing the liabilities of auction purchasers in liquidation sales.
In a decisive ruling, the National Company Law Tribunal (NCLT), Mumbai Bench, has declared that Indojewel Jewellery Private Limited, as an auction purchaser, is responsible for bearing statutory dues attached to a property bought under the "as is where is" basis. The judgment, delivered by Mr. Ashish Kalia, Member (Judicial), and Mr. Charanjeet Singh Gulati, Member (Technical), highlights the enforceability of statutory first charges under Section 47 of the Maharashtra Co-operative Societies Act, 1960, independent of the Insolvency and Bankruptcy Code (IBC) liquidation process.
The case arose when Indojewel Jewellery contested a demand of Rs. 96,77,048 made by the Multistoried IT & Gems Commercial Premises Cooperative Society Limited for dues predating the liquidation order of the corporate debtor, Panache Exports Private Limited. Despite having participated in the liquidation process and obtained settlement through the IBC framework, the Society sought to enforce its statutory charge on the property for unpaid dues.
The tribunal underscored that assets sold on an "as is where is" basis carry existing liabilities and encumbrances, including statutory dues, which the auction purchaser must bear. The tribunal referred to the auction notice and sale certificate that explicitly stated the terms of sale, reiterating the principle of "caveat emptor" (buyer beware) in auction sales. It emphasized that auction purchasers are deemed to accept all known liabilities and must conduct due diligence before bidding.
Drawing parallels with similar judgments, the tribunal highlighted that statutory charges under the Maharashtra Co-operative Societies Act remain enforceable against the property, even if the creditor participated in the liquidation process. The court reaffirmed that such statutory charges are distinct from personal claims and are not extinguished by the provisions of the IBC.
The tribunal's ruling reinforces the critical importance of due diligence by auction purchasers, especially in sales conducted under liquidation. It also clarifies the interplay between the IBC and other statutes with statutory charges, asserting that the latter can be enforced independently.
This judgment serves as a significant precedent for auction sales conducted under the IBC and underscores the responsibilities of auction purchasers in bearing statutory liabilities tied to the purchased assets.
Bottom line:-
Auction purchaser of an asset sold on "as is where is" basis during liquidation is liable to bear statutory dues attached to the property, including those predating the liquidation order, as such dues constitute a statutory first charge under the Maharashtra Co-operative Societies Act, 1960.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 53, Maharashtra Co-operative Societies Act, 1960, Section 47
