TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 126
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal South Road, Tangra, Kolkata - 700015, West Bengal, in the name of the Petitioners, upon payment of property tax from the date of purchase, i.e., 07.05.2022, without levy of any interest and/or penalty. 2. The facts leading to the present writ petition are as follows: 3. On 18.02.2018, the Bank of India filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal, Kolkata Bench (hereinafter referred to as "NCLT, Kolkata") against M/s Enfield Apparels Ltd. seeking initiation of the Corporate Insolvency Resolution Process (CIRP), as the said company had defaulted in repayment of its debts amounting to Rs.42,40,76,787.43/-. By order dated 06.08.2018, the NCLT, Kolkata appointed Mr. Kanchan Dutta as the Resolution Professional. Since no resolution plan was received for the revival of M/s Enfield Apparels Ltd., the NCLT, Kolkata, vide order dated 04.04.2019, directed the liquidation of the company and appointed Mr. Kanchan Dutta as the Liquidator. 4. In May 2019, the Liquidator issued e-auction sale notices in leading newspapers for the sale of certain assets of M/s Enfield Apparels Ltd., namely, the factory premises ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y stated their willingness to discharge outstanding property tax liabilities accruing from the date of their purchase, i.e., 07.05.2022. 11. Respondent No. 3, vide four separate letters dated 18.11.2024, informed the Petitioners that the mutation would be processed only upon payment of outstanding property tax together with interest and penalty, including arrears pertaining to the erstwhile owner, M/s Enfield Apparels Ltd. A consolidated demand of Rs.1,23,84,142/- was raised, apportioned as follows: Rs. 24,48,118/- against Petitioner No. 1; Rs. 24,48,778/- against Petitioner No. 2; Rs. 24,48,118/- against Petitioner No. 3; and Rs. 50,48,128/- against Petitioners No. 4 and 5. This demand was for the period from 2nd Quarter of 2008 to 2nd Quarter of 2024. 12. Aggrieved by the said demand requiring them to discharge the arrears of property tax of the erstwhile owner, the Petitioners have preferred the present Writ Petition. Submission on behalf of the Petitioner 13. Mr. Jaydeep Kar, learned Senior Counsel appearing for the Petitioners, at the very outset, submits that the Petitioners do not dispute their liability to pay property tax from 19.01.2022 onwards, i.e., from the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is submitted that all claims against the corporate debtor in liquidation are required to be filed before the Liquidator under the provisions of the IBC, 2016. Once the assets are sold, it is the statutory duty of the Liquidator to distribute the sale proceeds among the creditors strictly in accordance with the statutory waterfall mechanism. Consequently, any liability towards outstanding municipal taxes up to the date of sale cannot be fastened upon the auction purchaser, who has bona fide acquired the property for valuable consideration. Such liability, if any, is required to be discharged by the Liquidator out of the sale proceeds realized from the auction. 17. Learned Senior Counsel further submits that the Petitioners were not made aware of any outstanding liability towards property tax. Acting under the bona fide belief that no such liability existed, the Petitioners paid Rs. 15.50 Crores as sale consideration Rs.3.49 Crores (inclusive of GST) as transfer fee to the West Bengal Industrial Development Corporation, and thereafter invested substantial expenditure towards refurbishment of the factory premises. 18. In support of his submissions, learned Senior Counsel places....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utstanding dues. Learned counsel contends that their failure to do so, cannot absolve them of the liability to pay outstanding property tax. 22. It is further submitted that, under Section 232 of the Kolkata Municipal Corporation Act, 1980, outstanding property tax constitutes the first charge on the property. Therefore, the Respondent Corporation has a statutory right to recover arrears of property tax from the current owner. Unless such dues are cleared, the Respondent is legally restrained from effecting mutation of the property. Since the charge created under law runs with the property, the Respondent Corporation is fully entitled to enforce recovery against the Petitioners, as the present owners. 23. Learned Counsel further contends that the property tax collected by the Corporation is not merely a fiscal measure but is intrinsically connected to the discharge of essential municipal functions such as water supply, sewage treatment, garbage disposal, road maintenance, healthcare, education, and heritage conservation. The collection of property tax is therefore vital to public welfare, and the Respondent Corporation cannot be deprived of its legitimate dues, which are mean....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... such outstanding property tax. 2. Whether the Petitioners, being auction purchasers of the premises in question, are liable to discharge the arrears of property tax pertaining to the period prior to the auction sale and delivery of possession. 29. In order to adjudicate upon the issues framed, it is necessary to consider the legal principles laid down in judicial precedents cited by the learned Counsel for both sides. The authorities relied upon not only elucidate the scope of liability of an auction purchaser towards pre-existing statutory dues but also clarify the interplay between the Insolvency and Bankruptcy Code, 2016 and municipal laws governing property tax. This Court shall, therefore, proceed to analyse the ratio of the judgments placed on record and assess their applicability to the facts of the present case. 30. The first issue that arises for consideration is whether the Respondent Corporation is justified in withholding or rejecting the Petitioners' applications for mutation of the premises on the ground of non- payment of such outstanding property tax. 31. Section 183(5) of the Kolkata Municipal Corporation Act, 1980, governs the procedure for muta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Kolkata Municipal Corporation Act, outstanding property tax in respect of any land or building constitutes the first charge upon such land or building. The said section reads as follows: "Section 232. Property tax on lands and buildings to be first charge on property. The property tax on lands and buildings due from any person shall, subject to the prior payment of land revenue (if any) due to the Government thereupon, be a first charge upon the land or the building belonging to such person and upon the movable property (if any) found within or upon such land or building." 38. The property tax, as per the KMC Act is an encumbrance on the property itself. The liability is, therefore, statutory encumbrance in nature and attaches itself to the property. This is not the personal liability of the property owner. The KMC Act further empowers the Corporation to recover the outstanding dues by way of attachment and sale of the property or the movable assets lying therein. 39. On the other hand, the IBC envisages that liquidation proceedings are to be carried out in accordance with the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... takes the property subject to caveat emptor. However, subsequently in AI Champdany and IISCO Ujjain Pipe (supra), the Court clarified that unless the purchaser is specifically put on notice of statutory dues, or the sale notice expressly provides that the property is subject to such liabilities, the burden of such dues cannot be fastened upon him. 44. In view of the aforesaid authorities, this Court is of the considered opinion that, irrespective of whether the sale is conducted under the IBC or under any other statute, an auction purchaser who had no notice of pre-sale liabilities cannot be saddled with such dues. The doctrine of caveat emptor undoubtedly applies to auction sales, but its application is contingent upon the purchaser having been put to sufficient notice of existing liabilities. It is, therefore, necessary to examine the terms and conditions of the Sale Notice and the Expression of Interest to determine whether the Petitioner was put to notice of the outstanding dues or not. 45. A perusal of the Sale Notice reveals that it was specifically stated that the assets of the Corporate Debtor were being sold on an "AS IS WHERE IS, WHATEVER THERE IS AND WITHOUT RECOU....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egistration of documents, texts, GST etc. and all other duties payable in connection with purchase of the sale of assets. Clause 9.4 of EOI The information contained in the invitation is substantially based on estimated information, opinions and informations sourced from the stakeholders, public domain and independent third parties. The invitation does not amount to recommendation either expressly or by implication w.r.t the company or other entities mentioned in the invitation. Expect where specifically mentioned otherwise, the Liquidator has not independently verified such information and the same is being provided by the liquidator for information purpose only. The Liquidator does not make any representation or warranty as to the accuracy, reliability, or completeness of such information and does not assume any undertaking to supplement such information as further information becomes available or in light of changing circumstances. The liquidator shall not have any liability under any law, statue, rules or regulations for any representations or warranties (express or implied) contained in or any omissions from this invitation or any other written or oral commun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce was emphasised at every stage. Clause 7.1.10 provides that the reserve price is exclusive of taxes, levies, duties, and other charges indicating that the tax and other charges are not part of reserve price. Clause 9.7 of the EOI stipulates that each bidder must undertake its own investigation, due diligence, and analysis prior to submitting a bid, and that the information furnished by the Liquidator does not substitute for such independent inquiry. It is further clarified that bidders are required to ensure compliance with all applicable legal and regulatory obligations, and that the information provided cannot be construed as discharging those responsibilities. Accordingly, on a holistic reading, the obligation of due diligence and independent verification of all aspects of the sale asset rested entirely upon the bidders. 49. The Hon'ble Supreme Court, in Union of India v. Naskapara Jute Mills Co. Ltd. (1994 (1) SCC 575), examined issues relating to auction sales conducted by the Official Liquidator and held as follows: "When the Official Liquidator sells the property and assets of a company in liquidation under the orders of this Court and he can not and does not h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the property, but extends to the condition of the title of the property and the extent and state of whatever claims. rights and dues affect the property, unless stated otherwise in the contract. The implication of the expression is that every intending bidder is put on notice that the seller does not undertake any responsibility to procure permission in respect of the property offered for sale or any liability for the payment of dues, like water/service charges, electricity dues for power connection and taxes of the local authorities, among others. .......... 146. To conclude, all prospective auction-purchasers are put on notice of the liability to pay the pending dues when an appropriate "as-is-where-is" clause is incorporated in the auction-sale agreement. It is for the intending auction- purchaser to satisfy themselves in all respects about circumstances such as title, encumbrances and pending statutory dues in respect of the property they propose to purchase. In a public auction-sale, auction-purchasers have the opportunity to inspect the premises and ascertain the facilities available, including whether electricity is supplied to the premises. Information a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... liable for pre- liquidation charges or statutory dues that were neither disclosed nor brought to the notice of the purchaser. 54. This Court examined these cases in detail. (a) In AI Champdany Industries Ltd. (supra), the Company had gone into liquidation and its property was sold on an "AS IS WHERE IS" basis. After the auction, the purchaser was served with a demand notice by the Municipality claiming property tax for the period prior to the sale. The learned Single Judge, while dismissing the writ petition, held that the terms and conditions of sale required bidders to satisfy themselves regarding title and encumbrances and that it was incumbent upon them to enquire into outstanding property tax dues. The Division Bench affirmed this view. However, the Hon'ble Supreme Court allowed the appeal filed by the auction purchaser, holding that property tax dues do not constitute a charge on the property but are in the nature of a personal liability. The Court explained that the term "encumbrance" in the sale notice must be understood as a charge that runs with the property. Since property tax was merely a statutory liability and not a charge on the propert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....text of the Companies Act, and the provisions of the KMC Act were not under consideration. Moreover, the liability in that case pertained to post-liquidation statutory dues and the Court proceeded on the basis that such liability depended entirely on whether the purchaser had been given adequate notice in the sale documents. In contrast, the issue in the present case is whether the statutory charge created under Section 232 of the KMC Act is enforceable against the auction purchaser, which requires interpretation of the relevant clauses of the Sale Notice and Expression of Interest in light of the statutory framework. (c) In Grasim Industries Ltd. (supra), the learned Single Judge of this Court, relying on AI Champdany Industries Ltd. (supra), held that an auction purchaser is not liable to pay property tax in respect of the period prior to the confirmation of sale. However, as was specifically noticed in that judgment itself, the provisions of Section 232 of the Kolkata Municipal Corporation Act, 1980 were not attracted in that case. In contradistinction, in the present matter, Section 232 of the KMC Act squarely applies. The said provision expressly stipulates that arrea....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., assets in liquidation are sold on an "as is where is, whatever there is" basis, which signifies that the auction purchaser acquires the property subject to its condition and potential encumbrances, except as otherwise specifically provided in the terms of sale. An auction purchaser does not step into the shoes of the Corporate Debtor for its revival but merely purchases an asset, and therefore the statutory protection of a clean slate recognized in Ghanshyam Mishra for Resolution Applicants cannot be automatically extended to the auction purchaser in liquidation. 55. In view of the detailed discussion herein above, this Court is of the considered view that the Petitioner, being the auction purchaser of the premises in question, is liable to pay the outstanding property tax dues. The Official Liquidator through Sale Notice and EOI has made it very evident and clear that all the bidders are supposed to make their respective bids based on their own investigation and due diligence. As discussed herein above, the Hon'ble Supreme Court in Union of India (supra) and K.C Ninan (supra), when assets are sold on 'as is where is basis', the purchaser acquires them with full knowledge that....