Calcutta High Court Upholds Liability of Auction Purchasers for Pre-Liquidation Property Tax Dues
Court dismisses petition challenging demand for outstanding property tax by Kolkata Municipal Corporation, clarifying statutory charge under KMC Act.
In a significant judgment, the Calcutta High Court has ruled that auction purchasers of property sold during liquidation under the Insolvency and Bankruptcy Code (IBC), 2016, are liable to pay outstanding property tax dues for the pre-liquidation period. The court upheld the statutory charge under Section 232 of the Kolkata Municipal Corporation Act, 1980, which attaches to the property itself, thereby dismissing a writ petition filed by Cotton Casuals India Private Limited and others challenging the demand for outstanding property tax by the Kolkata Municipal Corporation (KMC).
The petitioners, who acquired leasehold factory units through an auction conducted during the liquidation of M/s Enfield Apparels Ltd., contested the demand for property tax arrears amounting to Rs. 1,23,84,142, raised by KMC for the period from 2008 to 2024. They argued that the liabilities pertained to the period before they took possession of the property on January 19, 2022, and should not be enforced against them.
The court, presided by Mr. Gaurang Kanth, J., found that the sale was conducted on an 'as is where is, whatever there is and without recourse' basis, transferring all liabilities and encumbrances attached to the property to the auction purchasers. The court underscored the doctrine of caveat emptor, emphasizing the responsibility of purchasers to conduct due diligence regarding encumbrances and statutory dues.
The judgment clarified that under Section 232 of the KMC Act, property tax due constitutes a statutory first charge on the property, making it recoverable from the current owner irrespective of the statute under which the sale was conducted. The court rejected the petitioners' reliance on the overriding effect of the IBC, noting that the statutory charge under the KMC Act operates independently and does not conflict with the provisions of the IBC.
In light of the detailed legal analysis, the court dismissed the writ petition, affirming that the refusal by KMC to mutate the properties in favor of the petitioners until the outstanding dues are cleared was lawful and justified. This decision reinforces the principle that statutory encumbrances attached to a property continue to bind subsequent purchasers, ensuring municipal authorities can recover dues essential for public welfare.
Bottom Line:
Auction purchaser of property sold during liquidation under the Insolvency and Bankruptcy Code (IBC), 2016, is liable to pay outstanding property tax dues for the pre-liquidation period, as the property tax constitutes a statutory charge under Section 232 of the Kolkata Municipal Corporation Act, 1980, and attaches to the property itself.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016, Kolkata Municipal Corporation Act, 1980 Sections 183(5) and 232.
