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of <h1>Municipal corporation's pre-resolution property tax claims extinguished under Section 31 IBC following Ghanshyam Mishra precedent</h1> <h3>Srei Infrastructure Finance Limited And Anr. Versus The Kolkata Municipal Corporation And Ors.</h3> Srei Infrastructure Finance Limited And Anr. Versus The Kolkata Municipal Corporation And Ors. - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter are:(a) Whether the retrospective enhancement of the annual value of the petitioner's property by the municipal corporation, effective from 2017, and the consequent property tax demands are legally valid and enforceable.(b) Whether the claims and demands of the municipal corporation for property tax dues prior to the approval of the Resolution Plan under the Insolvency and Bankruptcy Code, 2016 (IBC) stand extinguished by operation of law under Sections 31 and 32A of the IBC.(c) Whether the municipal corporation's failure to submit its claims during the Corporate Insolvency Resolution Process (CIRP) bars it from recovering statutory dues retrospectively from the petitioner post-approval of the Resolution Plan.(d) Whether the writ petition filed by the petitioner is maintainable, particularly concerning the authority of the petitioner's representative to institute the proceedings.(e) Whether the municipal corporation's retrospective reassessment under the Unit Area Assessment method, including the invocation of Sections 174 and 180(2)(ii) of the Kolkata Municipal Corporation Act, 1980 (KMC Act), is valid, especially in light of the IBC proceedings.2. ISSUE-WISE DETAILED ANALYSIS(a) Validity of Retrospective Enhancement of Annual Value and Property Tax DemandsRelevant Legal Framework and Precedents: The municipal corporation invoked Sections 174 and 180(2)(ii) of the KMC Act to revise the annual value of the property retrospectively. Section 182A mandates the filing of a self-assessment return by the assessee, failing which the Municipal Commissioner may make suo motu assessments. The petitioner contended that the retrospective enhancement is impermissible and invalid.Court's Interpretation and Reasoning: The Court noted that the municipal corporation relied on the absence of a self-assessment return under Section 182A and on evidence such as leave and license agreements to determine the annual value. The petitioner had paid property tax based on prior assessments and raised objections to the retrospective revision, which were allegedly not duly considered. However, the Court focused primarily on the impact of the IBC on the validity of such retrospective demands.Key Evidence and Findings: The petitioner submitted 'All Demand Details' showing regular payment of property tax as per prior demands up to the date of the Resolution Plan approval. The municipal corporation argued that the petitioner deliberately suppressed material facts by not filing the self-assessment return, amounting to fraud.Application of Law to Facts: The Court acknowledged the municipal corporation's statutory powers to reassess under the KMC Act but emphasized that such powers are subject to the overriding effect of the IBC provisions once a Resolution Plan is approved.Treatment of Competing Arguments: The municipal corporation's contention of fraud and non-filing of returns was noted, but the Court held that the extinguishment of claims under the IBC supersedes such assessments for the period prior to Resolution Plan approval.Conclusion: The retrospective enhancement and demands for periods prior to the Resolution Plan approval are invalid and unenforceable due to the overriding effect of the IBC.(b) Extinguishment of Claims under Sections 31 and 32A of the IBCRelevant Legal Framework and Precedents: Sections 31 and 32A of the IBC provide that upon approval of a Resolution Plan by the Adjudicating Authority, all claims and dues not included in the plan stand extinguished, including statutory dues owed to government authorities or local bodies. The Supreme Court judgments in Essar Steel India Ltd., Ghanshyam Mishra & Sons Pvt Ltd, and Vaibhav Goel & Anr. reaffirmed that the Resolution Plan is binding on all creditors and stakeholders, and claims not included therein cannot be pursued thereafter.Court's Interpretation and Reasoning: The Court extensively analyzed the statutory provisions and judicial precedents, emphasizing that the Resolution Plan approved on 11.08.2023 binds the petitioner and all creditors, including the municipal corporation. Since the municipal corporation's claims were not included in the Resolution Plan, such claims stand extinguished by operation of law.Key Evidence and Findings: The Resolution Plan was approved by the Adjudicating Authority on 11.08.2023. The municipal corporation's demands pertain to periods prior to this date and were not part of the Resolution Plan.Application of Law to Facts: The Court applied the settled legal position that all claims prior to the date of approval of the Resolution Plan are extinguished and cannot be revived or enforced subsequently.Treatment of Competing Arguments: The municipal corporation argued that it was unaware of the IBC proceedings and thus could not submit claims timely, and that statutory dues are not extinguished. The Court rejected this, relying on the clear statutory mandate and judicial precedents that all claims, including statutory dues, must be submitted during CIRP and that non-submission results in extinguishment.Conclusion: All statutory dues and claims of the municipal corporation prior to 11.08.2023 are extinguished and cannot be recovered.(c) Effect of Non-Submission of Claims by Municipal Corporation During CIRPRelevant Legal Framework and Precedents: The IBC prescribes a strict regime for lodging claims during CIRP. Supreme Court rulings in Essar Steel, Ghanshyam Mishra, and Vaibhav Goel clarified that failure to submit claims before the Resolution Professional bars creditors from asserting such claims post-approval.Court's Interpretation and Reasoning: The Court held that the municipal corporation's failure to participate or submit claims during CIRP means it cannot now enforce retrospective demands. The Resolution Plan's binding nature ensures certainty and finality in insolvency proceedings.Key Evidence and Findings: The municipal corporation admitted it was unaware of the CIRP and did not submit claims. The Resolution Plan did not include municipal dues.Application of Law to Facts: The Court applied the principle that the Resolution Plan is a 'clean slate' for the new management and that claims not included are extinguished.Treatment of Competing Arguments: The municipal corporation's plea that statutory dues are excepted was rejected based on authoritative Supreme Court precedents.Conclusion: The municipal corporation's claims are barred due to non-submission during CIRP and stand extinguished.(d) Maintainability of the Writ PetitionRelevant Legal Framework: The writ petition was filed by petitioner No. 1 through petitioner No. 2, who was authorized by the Board of Directors to represent petitioner No. 1.Court's Interpretation and Reasoning: The Court examined the authorization documents and found no infirmity in the representation.Key Evidence and Findings: Authorization letters and Board resolutions were on record.Application of Law to Facts: The Court held that the writ petition was maintainable.Treatment of Competing Arguments: The preliminary objection by the municipal corporation on maintainability was rejected.Conclusion: The writ petition is maintainable.(e) Validity of Reassessment under the KMC Act in Light of IBCRelevant Legal Framework: The municipal corporation invoked Sections 174 and 180(2)(ii) of the KMC Act for reassessment. However, Section 238 of the IBC provides that the Code's provisions override inconsistent laws.Court's Interpretation and Reasoning: The Court held that while the municipal corporation has statutory powers to reassess, such powers cannot override the extinguishment of claims under the IBC. The retrospective reassessment for periods prior to Resolution Plan approval is thus invalid.Key Evidence and Findings: The notices dated 04.06.2024 proposed retrospective reassessment from 2017 onwards.Application of Law to Facts: The Court applied the overriding effect of the IBC to invalidate the retrospective reassessment and demands.Treatment of Competing Arguments: The municipal corporation's reliance on statutory powers was acknowledged but held subordinate to the IBC provisions.Conclusion: The retrospective reassessment and demands are invalid for the period prior to Resolution Plan approval.3. SIGNIFICANT HOLDINGS'Once a resolution plan is duly approved under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, the claims as provided in the resolution plan shall be frozen and will be binding on the corporate debtor and its employees, members, creditors (including the Central Government, any State Government, or any local authority), guarantors, and other stakeholders. As of the date of such approval, all claims not included in the resolution plan shall stand extinguished, and no person shall be entitled to initiate or continue any proceedings in respect of such excluded claims.''The Insolvency and Bankruptcy Code, 2016, being a special legislation, has an overriding effect over any other inconsistent laws including the Kolkata Municipal Corporation Act, 1980, under Section 238 of the IBC.''The municipal corporation's claims for property tax dues prior to the date of approval of the Resolution Plan, which were not included in the Resolution Plan, stand extinguished by operation of law.''The writ petition filed by the petitioner through an authorized representative is maintainable.''The respondent municipal corporation is at liberty to reassess and recover property tax dues for the period subsequent to the approval of the Resolution Plan in accordance with law and after complying with principles of natural justice.'
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