Tribunal rules auction-purchaser not liable for property tax pre-sale. Liquidation process compliance emphasized.

The Tribunal upheld the Adjudicating Authority's jurisdiction under the IBC, ruling that the auction-purchaser is not liable for outstanding property tax dues prior to sale confirmation. The demand notice for dues was quashed, citing clauses "As is Where is and Whatever There is Basis" and "No Recourse Basis," which absolve the purchaser from such liabilities. Compliance with liquidation process regulations was emphasized, treating outstanding dues as claims of unsecured creditors. The appeal was dismissed, and the auction-purchaser was relieved of liability, with no costs awarded.

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Issues Involved:

1. Jurisdiction of the Adjudicating Authority under IBC.
2. Liability of the auction-purchaser for outstanding property tax dues.
3. Interpretation of "As is Where is and Whatever There is Basis" and "No Recourse Basis" clauses in the sale of liquidation assets.
4. Compliance with the liquidation process regulations.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Adjudicating Authority under IBC:

The Appellant argued that the Adjudicating Authority exceeded its jurisdiction by adjudicating a dispute involving municipal tax on a third party (the auction-purchaser). The Appellant cited the judgment of the Hon’ble Supreme Court in Embassy Property Developments v. State of Karnataka, asserting that NCLT does not have jurisdiction over property disputes once the property is out of the liquidation process. The Learned Counsel for Respondent No. 1 countered that the CIRP of the Corporate Debtor commenced on 18.1.2017, and the Appellant did not file any claim with the Resolution Professional (RP) during the CIRP. The Tribunal concluded that the auction-purchaser is not liable for dues prior to the sale confirmation, thus upholding the jurisdiction exercised by the Adjudicating Authority.

2. Liability of the Auction-Purchaser for Outstanding Property Tax Dues:

The Appellant issued a demand notice to the auction-purchaser (Respondent No. 1) to liquidate outstanding property tax dues amounting to Rs. 68,09,123.61. The Tribunal noted that the auction sale was completed on 5.10.2020, and the possession was handed over on 9.10.2020. The demand notice was issued on 1.2.2021, for dues accruing before the sale confirmation. The Tribunal referred to the Hon’ble Supreme Court judgment in AI Champdany Industries Ltd. vs. The Official Liquidator & Anr., which held that municipal tax dues do not create an encumbrance and are akin to the claim of an unsecured creditor. Thus, the auction-purchaser cannot be held liable for such dues.

3. Interpretation of "As is Where is and Whatever There is Basis" and "No Recourse Basis" Clauses:

The sale was conducted under clauses stating "As is Where is and Whatever There is Basis" and "No Recourse Basis." The Tribunal interpreted these clauses to mean that the seller does not take responsibility for the property's size, dimension, shape, and overall quantity and quality in liquidation. The purchaser has no recourse if any deficiency or shortcoming is discovered post-sale. The Tribunal upheld that these clauses absolve the auction-purchaser from liabilities of outstanding dues prior to the sale confirmation.

4. Compliance with the Liquidation Process Regulations:

The Tribunal emphasized the liquidator's duty to make a public announcement and prepare an asset memorandum under Regulation 12 and Regulation 34 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The liquidator should have included all relevant information, including liabilities, in the asset memorandum. The Tribunal noted that the outstanding dues should be treated as claims of unsecured creditors and discharged per section 53 of IBC. The auction-purchaser is not liable for dues prior to the sale confirmation.

Conclusion:

The Tribunal quashed the demand notice dated 1.2.2021 for Rs. 68,09,123.61 and upheld the Impugned Order, absolving the auction-purchaser from liability for outstanding property tax dues prior to the sale confirmation. The appeal was dismissed with no order as to costs.

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