Statutory first charge for municipal property tax can make a local body a secured creditor in liquidation.

A municipal taxing statute that creates an express first charge on immovable property gives rise to a statutory charge sufficient to confer secured creditor status in liquidation. Property tax dues under Section 232 of the Kolkata Municipal Corporation Act, 1980 were therefore treated as secured claims rather than mere government dues, because dues payable to a local authority are not automatically confined to the liquidation category of Central or State Government dues. The earlier view relied on by the liquidator was distinguished, and the rejection of secured status was set aside.

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Issues: Whether municipal property tax dues under Section 232 of the Kolkata Municipal Corporation Act, 1980 created a statutory first charge so as to make the appellant a secured creditor in liquidation, and whether such dues were merely government dues or crown debt.

Analysis: Section 232 expressly provides that property tax due on lands and buildings shall be a first charge on the premises. The decision distinguished the present case from the Calcutta High Court view relied upon by the liquidator and held that the question there was not whether the municipal corporation was a secured creditor. The decision relied on the principles laid down in later Supreme Court decisions recognising that a charge may arise by operation of law and that dues of statutory bodies are not automatically classifiable as government dues. It also noted that the definition of operational creditor under the Insolvency and Bankruptcy Code, 2016 is broad enough to include local authority dues, while government dues under the liquidation waterfall are confined to amounts payable to the Central Government or State Government.

Conclusion: The appellant was held to have a statutory charge and to be a secured creditor; the rejection of its secured status was set aside.

Ratio Decidendi: Where a municipal taxing statute creates an express first charge on immovable property, the resulting statutory charge is sufficient to confer secured creditor status in liquidation, and such dues are not to be treated as mere government dues merely because they arise from a public authority.

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