NCLAT Declares Kolkata Municipal Corporation as Secured Creditor in Talwalkars Liquidation Case
Tribunal Overturns NCLT's Decision, Recognizing Statutory Charge for Unpaid Property Tax
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has overturned the decision of the National Company Law Tribunal (NCLT), recognizing Kolkata Municipal Corporation (KMC) as a secured creditor in the liquidation proceedings of Talwalkars Better Value Fitness Ltd. The Principal Bench in New Delhi, led by Justice Ashok Bhushan and Member Technical Barun Mitra, ruled on September 26, 2025, that the statutory charge created under Section 232 of the Kolkata Municipal Corporation Act, 1980, establishes KMC's secured creditor status for unpaid property taxes.
The case arose when KMC levied property taxes on assets owned by Talwalkars within its jurisdiction, with Rs.30,28,233 remaining unpaid since 2018. Despite the commencement of Corporate Insolvency Resolution Process (CIRP) against Talwalkars in January 2021 and subsequent liquidation proceedings, the liquidator categorized KMC as an unsecured operational creditor, rejecting its claim for secured status. KMC appealed the decision, citing Section 232 of the Kolkata Municipal Corporation Act, which creates a statutory first charge on the property for unpaid taxes.
NCLAT noted the statutory charge provision and drew parallels with the Supreme Court's ruling in the 'Rainbow Papers Ltd.' case, where similar statutory provisions under Gujarat Value Added Tax Act established secured creditor status. The appellate tribunal dismissed the NCLT's reliance on a Calcutta High Court judgment categorizing KMC's debt as crown debt, emphasizing that the statutory charge conferred secured creditor status.
The judgment underscores the distinction between government dues and statutory corporation dues, as articulated by the Supreme Court in the Paschimanchal Vidyut Vitran Nigam Ltd. case. It clarified that KMC's dues do not constitute government dues under Section 53(1)(e) of the Insolvency and Bankruptcy Code (IBC), thereby affirming KMC's right to be treated as a secured creditor.
This ruling has significant implications for statutory bodies collecting dues, reinforcing their ability to claim secured status based on statutory provisions. Legal experts anticipate this decision will influence similar cases concerning statutory charges under municipal laws.
Bottom Line:
Kolkata Municipal Corporation is a secured creditor by virtue of Section 232 of the Kolkata Municipal Corporation Act, 1980, which creates a statutory charge on the property for unpaid property tax.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Section 42, Insolvency and Bankruptcy Code, 2016 - Section 53, Kolkata Municipal Corporation Act, 1980 - Section 232
