Insolvency code overrides vehicle tax recovery against auction purchasers, and ownership transfer cannot be blocked by pre-purchase dues.

Statutory dues relating to vehicles of a corporate debtor in liquidation were held to be claimable only through the liquidator under the Insolvency and Bankruptcy Code, with section 238 overriding inconsistent State taxation recovery, so the auction purchaser could not be fastened with pre-purchase liabilities. Transfer of ownership of the purchased vehicles could not be withheld on the ground of those arrears, because registration was separate from tax recovery and the demand was directed against the debtor in liquidation rather than the purchaser. No final finding was recorded on the pending non-user application, which was left for the authorities to decide in accordance with law.

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Issues: (i) whether statutory dues relating to vehicles sold by the liquidator of a corporate debtor could be recovered from the auction purchaser under the Maharashtra Motor Vehicles Taxation Act instead of being lodged against the corporate debtor in liquidation under the Insolvency and Bankruptcy Code; (ii) whether transfer of ownership of the purchased vehicles could be refused for non-payment of the pre-purchase tax demands; and (iii) whether the petitioner's pending non-user application under the State taxation law barred relief.

Issue (i): whether statutory dues relating to vehicles sold by the liquidator of a corporate debtor could be recovered from the auction purchaser under the Maharashtra Motor Vehicles Taxation Act instead of being lodged against the corporate debtor in liquidation under the Insolvency and Bankruptcy Code

Analysis: The dues claimed by the transport authority were in respect of vehicles belonging to a corporate debtor already in liquidation. The liquidator had custody and control of the assets, was required to receive and verify claims, and statutory dues formed part of the claims process under the Code. The Court held that such dues had to be lodged with the liquidator and dealt with under the liquidation waterfall under section 53. By virtue of section 238, the Code overrides inconsistent State law. The transport authority was not a secured creditor, and therefore could not bypass the insolvency process or fasten pre-purchase liabilities on the auction purchaser.

Conclusion: The statutory dues prior to the petitioner's purchase could not be recovered from the petitioner and had to be pursued against the corporate debtor through the liquidator under the Insolvency and Bankruptcy Code.

Issue (ii): whether transfer of ownership of the purchased vehicles could be refused for non-payment of the pre-purchase tax demands

Analysis: Registration and transfer of ownership under the motor vehicles law was treated as a separate function from recovery of tax arrears. Since the impugned demands were directed against the corporate debtor in liquidation and not against the petitioner, there was no legal impediment to transfer of ownership in the petitioner's favour. The Court also held that the demand notice invoking a deleted rule was unsustainable to that extent.

Conclusion: Transfer of ownership could not be withheld on account of the pre-purchase tax demands, and the petitioner was entitled to the transfer of the vehicles.

Issue (iii): whether the petitioner's pending non-user application under the State taxation law barred relief

Analysis: The Court noted the petitioner's contention that the vehicles had not been in use, but declined to return a final finding on the merits of non-use because the application under section 3(3) was still pending before the authorities. At the same time, the Court considered it to direct payment only from the date of purchase and to leave the statutory authorities to decide the non-user claim expeditiously.

Conclusion: No final finding was recorded on non-user, and the authorities were left to decide the pending application in accordance with law.

Final Conclusion: The petition succeeded substantially: the pre-purchase tax demands against the petitioner were quashed, ownership transfer was directed, and the State authorities were left to pursue their claims, if any, through the liquidation process and to decide the pending non-user application.

Ratio Decidendi: Statutory dues arising from assets of a corporate debtor in liquidation must be pursued through the insolvency liquidation process and cannot be recovered from an auction purchaser in derogation of section 238 and the liquidation waterfall under section 53 of the Insolvency and Bankruptcy Code.

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