Kolkata Municipal Corporation's attempt to impose retrospective property tax on auction purchasers thwarted by the Insolvency and Bankruptcy Code, 2016.
In a significant ruling, the Calcutta High Court, presided by Justice Rai Chattopadhyay, has reinforced the "clean slate principle" under the Insolvency and Bankruptcy Code, 2016 (IBC), thereby safeguarding auction purchasers from retrospective tax liabilities. The case, Mamta Binani v. Kolkata Municipal Corporation, revolved around the Kolkata Municipal Corporation's (KMC) attempt to levy property tax on a property purchased in an auction, for periods preceding the acquisition by the petitioners, Mamta Binani and another.
The petitioners challenged a notice issued by KMC for revaluation and imposition of property tax dating back to periods before they acquired the office space at Hare Street, Kolkata. The property was part of the liquidation estate of Nicco Corporation Limited, sold under the IBC framework in 2019. The court was tasked with deciding whether municipal dues prior to the liquidation commencement could be enforced against auction purchasers.
Justice Chattopadhyay ruled that municipal dues for periods before the liquidation commencement date could only be claimed within the IBC framework. The court affirmed that claims not submitted to the liquidator during the liquidation process are extinguished and cannot be enforced against auction purchasers, adhering to the "clean slate principle." The judgment emphasized that statutory dues, including property taxes, must follow the "waterfall mechanism" under Section 53 of the IBC, which ranks government dues lower in priority during liquidation.
The court set aside KMC's notice dated July 28, 2022, and subsequent assessment orders, declaring them unsustainable as they sought to impose liabilities on the petitioners for periods before their ownership. It was ruled that any claim for municipal dues had to be asserted before the Liquidator as per the IBC's procedure.
The court's decision underscores the supremacy of the IBC as a comprehensive code governing insolvency and liquidation in India, overriding inconsistent municipal laws. This ruling reinforces that auction purchasers are not liable for past statutory dues of companies under liquidation, unless those claims are part of the liquidation process.
In a statement, Mr. Arindam Banerjee, advocate for the petitioners, lauded the judgment, highlighting its importance in protecting auction purchasers from unforeseen liabilities. The court's directive also mandates that any property tax liabilities for the petitioners commence only from the date of their title transfer, September 26, 2019, ensuring a clear demarcation of liabilities post-acquisition.
The ruling is expected to have significant implications for future insolvency and liquidation proceedings, ensuring clarity and protection for stakeholders involved in auction purchases under the IBC framework.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Municipal dues prior to liquidation commencement date cannot be enforced against auction purchasers post-liquidation unless claimed within the liquidation process.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 - Sections 31, 33, 35, 52, 53, 238; Kolkata Municipal Corporation Act, 1980 - Sections 184, 185
Mamta Binani v. Kolkata Municipal Corporation, (Calcutta) : Law Finder Doc id # 2853915
