TaxTMI 
TaxTMI 
2026 (2) TMI 849
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....rty and levy tax for periods prior to purchase; whether municipal dues survive liquidation under the Insolvency and Bankruptcy Code, 2016 (IBC); and whether an auction purchaser can be saddled with past statutory dues. 2. According to the notice dated July 28, 2022, under sections 184 read with section 185 of the Kolkata Municipal Corporation Act, 1980, for the purpose of determination of annual valuation related to assessment of property tax, the respondent Corporation has intended to make the revaluation of the property effective for the following periods: i. 1st Quarter 2005-2006 ii. 1st Quarter 2008-2009 iii. 3rd Quarter 2009-2010 iv. 4th Quarter 2010-2011 v. 2nd Quarter 2012-2013 vi. 1st Quarter 2013-2014 vii. 2nd Quarter 2015-2016 viii. 4th Quarter 2016-2017 ix. 1st Quarter 2017-2018 The percentage of the petitioners' pro rata liability to the extent of 2.65 % was also mentioned in the said letter. 4. The petitioners say that considering the background facts of the instant case, the respondent KMC authority is the operational creditor of the private respondent company, which is in liquid....
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....ing the present petitioners in the E-auction conducted on the basis of the EOI as above. The consortium stood as the highest bidder for purchase of total 50,686 sq. ft. carpet area of the concerned premises, out of which the petitioners had jointly purchased an area measuring 3430 sq. ft. on the 2nd floor of the building together with two car parking spaces and undivided proportionate share in the land. The petitioners paid a consideration money to the tune of Rs. 2,54,63,500/- and the Liquidator executed a registered deed of conveyance in their favour on September 26, 2019, transferring thereby the right, title and interest of the said portion of the premises in favour of the petitioners. 7. Vide letter dated June 28, 2022, addressed to the respondent No. 2, the writ petitioners desired to mutate their names in the records as regards the property purchased by them and also to pay total amount of tax required to be paid, for the property they purchased and owned since September 26, 2019. Such letter of the petitioners was however, never replied to by the respondent Authority. 8. Instead, the petitioners were sent the impugned notice dated June 28, 2022, under Sections 184 and....
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....ion of the property to be contrary to the law. It is submitted that in the 1st supplementary affidavit affirmed by the petitioners, prayer has been made for setting aside the order of assessment dated August 23, 2023. In the 2nd supplementary affidavit the petitioners have prayed for setting aside of the property tax bill raised against them for the year 2024 - 2025. 12. Mr. Banerjee, learned advocate for the writ petitioners has submitted that the special statute namely the Insolvency and Bankruptcy Code, 2016, has provided for definite measures for the operational creditor like the respondent authority, to lodge its claim with respect to the property in liquidation, on the Liquidation Commencement Date, in statutory format and with the required documents being submitted with the same. He submits that the provisions of the said self-contained special statute shall prevail over all general laws of the contrary. It has been contended that the respondent authority has never complied with the provisions of the statute as above, though it has not been disputed ever that the property in question has gone into liquidation. That, the respondent has never filed any claim to the Liquidat....
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....nquire into the liabilities of the company in liquidation does not fall on the purchaser of the property in liquidation. In this regard Mr. Banerjee has relied on the judgments (i) Tata Power Western Odisha Distribution Limited & Another versus Jagannath Sponge Private Limited [2023 SCC OnLine SC 2442] (ii) Shiv Shakti Inter Global Exports Private Limited versus KTC Foods Private Limited [2022 SCC Online NCLAT 85], (iii) Sri Vasavi Industries Limited & Another vs West Bengal State Electricity Distribution Company Limited [WPA No. 1936 of 2022, judgment dated March 23, 2022], (iv) Ruchi Soya Industries vs Union of India [(2022) 6 SCC 343] and (v) Bhatpara Municipality vs Nicco Eastern Private Limited & Anr [2021 SCC Online NCLAT 612]. In support of his contention that dues prior to resolution plan approval are treated as extinguished in the eye of law, Mr. Banerjee has referred to the 3 Judges Bench decision of the Supreme Court in Ghanashyam Mishra & Sons Private Limited versus Edelweiss Asset Reconstruction Company Limited [(2021) 9 SCC 653]. Decision of the Supreme Court in AI Champdany Industries Limited versus Official Liquidat....
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....r of the writ petitioners in the instant case. The respondent's first ground of objections is that the petitioners have knowingly, wilfully and voluntarily responded to the notice inviting Expression of Interest (EOI) dated September 12, 2018 and January 10, 2019. Mr. Mukherjee says that, thereby the petitioners have accepted the terms and conditions as prescribed therein. With reference to the relevant Clauses in the EOI, Mr. Mukherjee has submitted that, after accepting the Clauses of the EOI, there would not be any occasion for the petitioners to deny direct and/or constructive notice regarding the factum of arrear property tax related to the concerned property, which were yet to be paid even on the date of purchase of property by the present petitioners. The following terms and conditions in EOI have been referred to - "i. The proposed sale will be conducted on "AS IS WHERE IS AND WHATEVER THERE IS BASIS" and "NO RECOURSE BASIS". ii. The submission of the Bid means and implies that the Applicant has read carefully and unconditionally and irrevocably agreed to and accepted all the terms and conditions laid herein. iii. The Purchaser shall take the Sale....
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....decided that, the Corporation is not legally bound to mutate the name of the petitioners in respect of their purchased portions in a property until and unless the petitioners pay the arrears of property tax to the Corporation. 23. Much emphasis has been given to the terms of EOI that the proposed sale will be conducted on 'as is where is and whatever there is' and 'no recourse' basis. In this regard, the judgment of Supreme Court in Telengana State Southern Power Distribution Company Limited Vs. Srigdhaa Beverages reported in 2020 (6) SCC 404 and relied on in the subsequent judgment in K.C. Ninan Vs. Kerala State Electricity Board and Others reported in (2023) SCC OnLine SC 663 have been mentioned where the Hon'ble Supreme Court while considering a case of auction sale, analysed Clauses 24 and 26 of the auction notice, which stipulated an "as is where is" sale with respect to all statutory dues and absolved the authorized officer of all liabilities for any charge, encumbrances and dues, including electricity dues. It concluded that the auction purchaser was "clearly put to notice" since there was a specific mention of the quantification of dues of various accounts including elec....
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....tion which was pending for realization. Instead, upon receipt of prayer made by the petitioners for mutation of the property newly purchased, fresh assessments have been proposed and intended to be levied from a retrospective date. Mr. Banerjee submits that the proposed revaluation and tax based upon the same as assessed, were never any unpaid due particularly that, at the time of auction and purchase of property by the petitioners. He says that assessment of property tax on the basis of revaluation of the property of the previous period cannot mature into a property tax payable until and unless the same is quantified. Mr. Banerjee has argued that, on the date of purchase of the concerned property by the petitioners, there was no quantified or proposed property tax, due and pending as against the concerned property which has been eventually purchased by the writ petitioners. Therefore, in spite of a clause having been mentioned in the EOI that the property is saleable on 'as is where is and whatever there is' basis, the petitioners were not in a position to gather any actual or constructive notice as regards any Municipal due on the date of their purchase. In reply, Mr. Banerjee ha....
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....aw with a non-obstante clause and, therefore, prevails over general laws in case of inconsistency. It is now well-settled that once liquidation is ordered under the Insolvency and Bankruptcy Code, 2016, the process must strictly follow the Code and the Regulations framed thereunder, reinforcing that Insolvency and Bankruptcy Code, 2016 is a complete and exhaustive Code on the subject. 31. The overriding effect of the Code is all pervasive, throughout all the existing statutes, including municipal laws under which property tax or other local dues are claimed. Once liquidation proceedings are initiated under the Insolvency and Bankruptcy Code, 2016 claims of municipal authority must be dealt with strictly in accordance with the Code, particularly the priority mechanism prescribed under Section 53 of the Code. 32. Under Section 5(21) of the Insolvency and Bankruptcy Code, 2016, "operational debt" includes claims in respect of the provision of goods or services including statutory dues payable to the Central Government, State Government or any local authority. Property tax levied under municipal laws squarely falls within the definition. Once classified as "operational debt" muni....
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....the case of Sundaresh Bhatt, liquidator of ABG Shipyard Vs. Central Board of Indirect Taxes and Customs reported in (2022) 7 SCC 540, the Supreme Court reinforced that once liquidation proceedings commence, all creditors - including Government and statutory authorities - must submit their claims to the liquidator and cannot enforce recovery proceedings under their respective statute. The Court observed that the Insolvency and Bankruptcy Code, 2016 creates a single, unified mechanism for dealing with claims during liquidation and no authority can bypass it by relying on its own enabling legislation. 37. Therefore, in the liquidation of company, the Insolvency and Bankruptcy Code, 2016 has an overriding effect over municipal laws, under which property tax is claimed. Municipal dues are treated as operational debts and must be submitted to the liquidator and satisfied strictly, in accordance with Section 53 of the Insolvency and Bankruptcy Code, 2016, as it is held by the NCLAT - New Delhi in Bhatpara Municipality case (Supra). Any priority, charge or recovery mechanism provided under the municipal legislation stands overridden by virtue of Section 238 of the Insolvency and Bankrup....
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....s "as is where is" and "whatever there is". Any municipal due under the statute does not survive as an independently enforceable right outside the IBC mechanism, when the concerned property has been dealt with under the insolvency law. Contractual clauses like "as is where is" and "whatever there is" cannot elevate or preserve a municipal charge which stands subordinated or extinguished under sections 53 and 238 IBC. 42. It is important to note that, here the respondent authority has made an endeavor to put forth the proposed revision of property valuation and consequent enhance tax, as mentioned in the impugned notice dated July 28, 2022, as the existing and prevailing obligation and liability attached to the said property, as on the date of transfer by way of sale in favour of the writ petitioners. That, however, is not the actual state of affair here and would be guided and governed by one of the most important and well-settled doctrines that have evolved under the Insolvency and Bankruptcy Code, 2016, that is, the 'clean state principle'. Under the 'clean state principle', a successful resolution applicant (or the corporate debtor, post resolution) should not be burdened wit....
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....eld that, "A successful resolution applicant cannot suddenly be faced with undecided claims after the resolution plan has been accepted". In the judgment of Ghanashyam Mishra's case (supra), the Supreme Court has expressly reaffirmed the principle and conclusively settled the issue of statutory and governmental dues that all claims including statutory dues owed to Central or State Governments or local authorities stand extinguished if they are not part of the approved resolution plan. In AI Champdany Industries Limited case (supra), the Supreme Court has held that recovery of property tax (municipal tax) past dues of the company in liquidation are not recoverable from the auction purchaser. The NCLAT - New Delhi in Bhatpara Municipality's case (Supra) by relying on AI Champdany Industries Limited case (supra) has held that the auction purchaser cannot be held liable to pay any dues relating to the period prior to confirmation of sale. In Shiv Shakti (supra) the NCLAT has further held that it is essential to see that new purchaser of property of company in liquidation is not burdened with past or remaining unpaid liability after the sale is contemplated. 45. The respondent's alle....
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....espondent and its order of assessment dated August 23, 2022 and the property tax bill for 2024-25 issued to the writ petitioners are not legally sustainable. The respondent authority has unauthorisedly and illegally issued the same and those are liable to be set aside. In view thereof the Court finds it unnecessary to discuss in detail the other points argued by the petitioners, challenging these as mentioned above. The writ petition should succeed. 49. Hence, this Writ Petition no. WPO 2435 of 2022 is allowed with the following directions: i. The notice dated July 28, 2022, issued under Sections 184 and 185 of the Kolkata Municipal Corporation Act, 1980, the consequential assessment order dated August 23, 2022, and the property tax bill for 2024-2025 issued to the petitioners are hereby set aside insofar as they seek to impose liability upon the petitioners for any period prior to September 26, 2019. ii. It is declared that upon commencement of liquidation proceedings under the Insolvency and Bankruptcy Code, 2016, any claim for municipal dues pertaining to the period prior to the liquidation commencement date could be enforced only in accordance with the prov....