Tata Capital Limited vs Mr. Sanjay Mahajan - We further observe that per combined reading of Section 52(2) of the Insolvency and Bankruptcy Code and also Regulations 21A, 31A(2) and 39BA of Liquidation Process Regulations, the Appellant cannot be permitted to simultaneously participate in the liquidation process and preserve an option to withdraw the secured assets at a later stage depending upon the result of the Scheme.

 NCLAT (2026.10.06) in Tata Capital Limited vs Mr. Sanjay Mahajan   [Company Appeal (AT) (Insolvency) No. 1067 of 2026] held that; 

• We are unable to accept the submission that the pendency of the Scheme under Section 230 of the Companies Act, 2013 kept the statutory requirements of the liquidation process in abeyance. The consideration of a Scheme for revival and value maximization does not dispense with the statutory requirement applicable to a secured creditor seeking to realize its security outside the liquidation estate. The Appellant could not retain an uncommunicated option and seek to exercise it after the Scheme had failed.

• The requirement of making the election within the prescribed period is part of the statutory scheme. Its applicability does not depend upon the existence of a competing security interest. Once the Appellant failed to exercise the option in the prescribed manner and within the prescribed period, it cannot seek to revive that option at a later stage on the ground that no third-party equity had intervened.

• We further observe that per combined reading of Section 52(2) of the Insolvency and Bankruptcy Code and also Regulations 21A, 31A(2) and 39BA of Liquidation Process Regulations, the Appellant cannot be permitted to simultaneously participate in the liquidation process and preserve an option to withdraw the secured assets at a later stage depending upon the result of the Scheme.

• The Liquidator was justified in treating the assets as part of the liquidation estate in view of the Appellant's failure to make a timely and valid election.

• The distinction between the existence of a security interest and the exercise of the statutory option is material. The loan documents may establish the existence of the security, but they do not by themselves establish compliance with the separate requirement of communicating the election contemplated by Regulation 21A. The Adjudicating Authority has correctly applied this distinction.

Excerpts of the order;

Analysis and Findings

# 46. Appellant/Tata Capital Ltd. claims that it is a secured financial creditor having a valid hypothecation over the assets of the Corporate Debtor. It submits that it had filed its claim in Form D and had stated that it had not relinquished its security interest. According to the Appellant, its participation in the stakeholders' Consultation Committee (SCC) meetings and in the consideration of the Scheme under Section 230 of the Companies Act, 2013 was without prejudice to its right under Section 52 of the Code. It submits that the email dated 19.02.2025 was a valid intimation of its decision to realize the secured assets outside the liquidation estate after the Scheme was rejected. The Appellant further contends that the existence of the security interest is established by the loan and hypothecation documents and that any deficiency in Form D cannot defeat its substantive right under Section 52. It also relies upon Action Ispat and Power Private Limited (supra), Y. Shivram Prasad (supra) and Swiss Ribbons Pvt. Ltd. (supra) to submit that the Code is intended to promote revival and value maximization and that participation in the revival process cannot amount to waiver or relinquishment of its security interest.

# 47. The Respondent/Liquidator claims that the Appellant did not validly and timely exercise the option contemplated by Section 52 of the Code read with Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016. The liquidation commenced on 13.08.2024, whereas the Appellant submitted Form D on 01.10.2024 and did not communicate within the prescribed period its decision to realize the security outside the liquidation estate. In Form D, Serial No. 8 was stated as 'NIL', while Serial No. 8A stated 'No' to relinquishment, which, according to the Respondent, did not constitute a clear election to stand outside the liquidation estate. The Appellant thereafter participated in the SCC meetings and exercised its voting rights, including in relation to the Scheme of Compromise under Section 230 of the Companies Act, 2013. The Respondent submits that the first clear written request for exclusion and delivery of the assets was made only by email dated 19.02.2025, after the Scheme had failed on 04.02.2025 and more than six months after commencement of liquidation. The Respondent therefore contends that the belated email could not cure the statutory non-compliance. It is further submitted that the existence of a security interest is distinct from the timely exercise of the statutory option and that Section 52(3) cannot be invoked without a valid election under Regulation 21A. The Respondent submits that the Impugned Order is reasoned and calls for no interference.

# 48. We have considered the submissions of the learned Counsel for the Appellant and the learned Liquidator and have perused the record placed before us. The principal question which arises for consideration is whether the Appellant, as a secured creditor, validly and within the prescribed period exercised its option under Section 52 of the Code to stand outside the liquidation estate and realize the secured assets.

# 49. There is no dispute that the Appellant is a secured financial creditor and that the hypothecation documents relied upon by it record a security interest over the concerned assets. However, the existence of a security interest and the exercise of the statutory option to realize that security outside the liquidation estate are two distinct matters. The present Appeal is required to be examined with reference to the latter issue.

# 50. Before proceeding further let us extract the provisions of Section 52(2) of the Insolvency and Bankruptcy Code and also Regulation 21A, 31A(2) and 39BA of Liquidation Process Regulations, which provides for the presumption of security interest and which are helpful in deciding the case in hand. 

"52. Secured creditor in the liquidation proceedings 

(1) A secured creditor in the liquidation proceedings may--

(a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or

(b) realise its security interest in the manner specified in this section.

(2) Where the secured creditor realizes security interest under clause

(b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realized."

[Prior to amendment of 2026] 

Regulation 21A. Presumption of security interest.

(1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II.

Provided that, where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be deemed to be relinquished to the liquidation estate."

[Prior to latest amendments of 2026] 

Regulation 31A: Stakeholders' consultation committee. 

(1) XXX (2) The voting share of a member of the consultation committee shall be in proportion to his admitted claim in the total admitted claim:

Provided a secured creditor who has not relinquished his security interest under section 52 shall not be part of the consultation committee; Provided that the promoters, directors, partners or their representatives may attend the meeting of the consultation committee, but shall not have any right to vote.

Provided further that a financial creditor or his representative, if he is a related party of the corporate debtor, shall not have right to vote. (3)...."

"Regulation 39BA: Assessment of Compromise or Arrangement. 

(1) While deciding to liquidate the corporate debtor under section 33, the committee shall examine whether to explore compromise or arrangement as referred to under sub -regulation (1) of regulation 2B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation, 2016 and the resolution professional shall submit the committee's recommendation to the Adjudicating Authority while filing application under section 33.

(2) Where a recommendation has been made under sub-regulation (1), the resolution professional and the committee shall keep exploring the possibility of compromise or arrangement during the period the application to liquidate the corporate debtor is pending before the Adjudicating Authority."

# 51. The liquidation commenced on 13.08.2024. The record shows that the Appellant submitted Form D on 01.10.2024. In the said Form, Serial No. 8 contained an entry of 'NIL' in relation to the details of security held, whereas Serial No. 8A contained the answer 'No' to the question whether the security interest had been relinquished. The Adjudicating Authority considered these entries together and held that the Appellant had not clearly communicated the option to realize its security interest outside the liquidation estate. We find no error in this approach.

# 52. The statutory scheme requires a secured creditor who seeks to stand outside the liquidation estate to exercise and communicate its option within the prescribed period. The Appellant admittedly did not make a clear written request for exclusion of the hypothecated assets and their delivery for realization within that period. The first clear written communication relied upon by the Appellant is the email dated 19.02.2025. This communication was issued after the Scheme of Compromise under Section 230 of the Companies Act, 2013 had been rejected on 04.02.2025. Thus, the Appellant did not opt to stand outside the liquidation estate within the prescribed thirty days and waited until the Scheme had failed.

# 53. The explanation of the Appellant that it had orally communicated its intention or that the entries in Form D were sufficient cannot be accepted in the facts of the present case. There is no contemporaneous record placed before us showing a clear and valid election within the prescribed period. The subsequent email dated 19.02.2025 cannot retrospectively cure the failure to exercise the statutory option within time.

# 54. The participation of the Appellant in the SCC meetings is also a relevant circumstance. The Appellant remained a member of the SCC, attended its meetings and exercised its voting rights - to further confirm that it has relinquished its security interest else would not have been part of SCC per Regulation 31A. The Appellant was aware of the taking of custody of the assets and the valuation process. It did not, during the relevant period, take the position in a manner and within the time prescribed by Regulation 21A that the assets were to be excluded from the liquidation estate for independent realization. The conduct of the Appellant, therefore, has to be considered along with the entries made in Form D and the belated email dated 19.02.2025.

# 55. We are unable to accept the submission that the pendency of the Scheme under Section 230 of the Companies Act, 2013 kept the statutory requirements of the liquidation process in abeyance. The consideration of a Scheme for revival and value maximization does not dispense with the statutory requirement applicable to a secured creditor seeking to realize its security outside the liquidation estate. The Appellant could not retain an uncommunicated option and seek to exercise it after the Scheme had failed.

# 56. The judgments relied upon by the Appellant, including Action Ispat and Power Private Limited (supra), Y. Shivram Prasad (supra) and Swiss Ribbons Pvt. Ltd. (supra), emphasize the object of revival, continuation and value maximization under the Code. Those principles cannot be read as dispensing with the specific statutory requirements governing the exercise of an option under Section 52 read with Regulation 21A. The object of the Code has to operate within the statutory framework governing liquidation.

# 57. The submission that no prejudice was caused because there were no competing claims over the assets also does not advance the Appellant's case. The requirement of making the election within the prescribed period is part of the statutory scheme. Its applicability does not depend upon the existence of a competing security interest. Once the Appellant failed to exercise the option in the prescribed manner and within the prescribed period, it cannot seek to revive that option at a later stage on the ground that no third-party equity had intervened.

# 58. We also do not find merit in the contention that the Liquidator made the Appellant's right subject to approval of the SCC. The record, as noticed in the submissions of the Liquidator, shows that the issue was considered in the context of its effect upon the liquidation estate and the interests of the stakeholders. The Appellant's application was rejected by the Adjudicating Authority primarily because the statutory option had not been validly and timely exercised. The requirement of SCC approval was not treated as a statutory precondition for exercise of the right under Section 52.

# 59. We further observe that per combined reading of Section 52(2) of the Insolvency and Bankruptcy Code and also Regulations 21A, 31A(2) and 39BA of Liquidation Process Regulations, the Appellant cannot be permitted to simultaneously participate in the liquidation process and preserve an option to withdraw the secured assets at a later stage depending upon the result of the Scheme. Here we observe that the appellant had not relinquished its security interest and continued to participate in the stakeholder consultation committee meeting and also participated in the scheme of compromise and arrangement scheme. Thereafter only, it elected to stand outside, which is totally impermissible as per the existing Code and regulations. The regulation governing the scheme of compromise and arrangement (39BA) doesn't grant extension of time for Appellant with the security interest to stand out of the liquidation estate at a later point in time. Such a course would unsettle the liquidation estate after custody and valuation of the assets and after other steps in the liquidation process had been undertaken. The Liquidator was justified in treating the assets as part of the liquidation estate in view of the Appellant's failure to make a timely and valid election.

# 60. The distinction between the existence of a security interest and the exercise of the statutory option is material. The loan documents may establish the existence of the security, but they do not by themselves establish compliance with the separate requirement of communicating the election contemplated by Regulation 21A. The Adjudicating Authority has correctly applied this distinction.

# 61. On an overall consideration of the record, we are satisfied that the Appellant did not validly exercise its option to stand outside the liquidation estate within the prescribed thirty days. The Appellant waited until after the Scheme of Compromise had failed and thereafter sought to assert its right by email dated 19.02.2025. Such a belated assertion cannot be accepted to the prejudice of the liquidation process and other stakeholders.

# 62. We, therefore, find no infirmity in the Impugned Order dated 13.04.2026 passed by the Adjudicating Authority in IA/2828/2025 in CP(IB) No. 3138 (MB)/2019. The submissions of the Appellant seeking exclusion of the hypothecated assets and permission to realize the security interest outside the liquidation estate are unsustainable. The submissions of the Liquidator that the Appellant failed to comply with the statutory requirement and that the belated exercise of the option cannot be permitted are supported by the statutory scheme and the facts borne out from the record.

# 63. In view of the foregoing discussion, we are of the considered view that the Appeal does not merit interference by this Appellate Tribunal. The Impugned Order calls for no interference.

Conclusion

# 64. For the reasons stated above, the Appeal is dismissed. The Impugned Order dated 13.04.2026 passed by the Adjudicating Authority in IA/2828/2025 in CP(IB) No. 3138 (MB)/2019 is affirmed. The Appellant is not entitled to exclusion of the hypothecated assets from the liquidation estate or to realize the said assets outside the liquidation process on the basis of its belated communication dated 19.02.2025.

Order

# 65. The Appeal is dismissed. The Impugned Order dated 13.04.2026 passed by the National Company Law Tribunal in IA/2828/2025 in CP(IB) No. 3138 (MB)/2019 is affirmed. All related IAs are also accordingly disposed of. No order as to costs.

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Bhatpara Municipality Through its Chairperson Vs. Nicco Eastern Pvt. Ltd. - The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale.

 NCLAT (22.11.2021) In Bhatpara Municipality Through its Chairperson Vs. Nicco Eastern Pvt. Ltd.[Company Appeal (AT) (Ins) No. 714 of 2021] held that;

• # 16. The outstanding dues of the property tax relating to period prior to sale confirmation are thus dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given in section 53 of IBC. The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale as has been held by the Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (supra).

Excerpts of the order;

# 2. By the Impugned Order the Adjudicating Authority has rejected the claim of the Appellant in respect of past dues of property holding numbers 70, 71, 73 and 74 located in E.G.P. Road, 27B N.C. Road, 1 and 2 Uttarpara Road, Bhatpara Municipality, District North 24 Parganas which are in possession of Respondent No. 1, Nicco Eastern Private Limited and quashed the related demand notice for pending dues of property tax issued by the Appellant to Respondent No. 1.

 

# 3. In brief, the facts of the case are that the property Shyam Nagar Cable Manufacturing Unit was sold by the liquidator of the Corporate Debtor, Nicco Corporation Limited (Respondent No. 2) which is in liquidation. The sale was effected in accordance with terms and conditions stipulated in the invitation for Expression of Interest (in short EOI), wherein in clause 12.1 it is stated that the proposal will be conducted on “As is Where is and Whatever There is Basis” and “No Recourse Basis”. The purchaser of the said property (Respondent No.1), after the auction and confirmation of sale applied to the Appellant for obtaining trading licence and mutation of the said property in its name. In response to these applications, the Appellant issued a demand notice dated 1.2.2021 to the auction-purchaser (Respondent No. 1) to liquidate outstanding dues of property tax of the above mentioned properties from the1st quarter of 2015-2016 to the 4th quarter of 2020-2021 amounting to Rs. 68,09,123.61.

 

# 4. It is further claimed by the Appellant that Respondent No. 1 was not party to the proceedings under IBC before the Adjudicating Authority, but is only auction-purchaser and therefore, he cannot claim any protection under IBC. The Appellant has claimed that the Adjudicating Authority has exceeded its jurisdiction by adjudicating dispute regarding Municipal Tax on a third party.

 

# 5. The Appellant has provided a list of important dates relevant to the present appeal, which is given below:-

17.10.2017	Vide order of NCLT, Kolkata, Vinod Kumar Kothari was appointed as the Liquidator of Respondent No. 2
23.09.2020	Liquidator invited EOI for sale of Shyam Nagar Cable Manufacturing Unit by auction at reserve price of Rs.20.63 crores.
05.10.2020	E-auction started. Ms. Vinita Bajoria emerged as highest H-1 bidder at Rs. 23.33 crores. Liquidator accepted the bid.
07.10.2020	Ms. Vinita Bajoria nominated Respondent No. 1 to complete the sale of Shyamnagar Unit in its favour.
09.10.2020	Possession of sold unit handed over to Respondent No. 1.
02.12.2020	Respondent No. 1 changed its name from Sourenee Enterprises Pvt. Ltd. to Nicco Eastern Pvt. Ltd.
04.01.2021	Respondent No. 1 sent letter to Appellant to accept payment of 3rd quarter of Municipal tax and allow rebate and also to issue instructions for issue of mutation form for effecting mutation, issue trade licence application and grant trade licence.
01.02.2021	Demand notice to liquidate outstanding dues of property tax from 1st quarter of 2015-16 to 4Th quarter of 2020-21 against holding nos. 70, 71, 73 74, E.G.P. Road, 27B NC Road, 1 and 2 Uttarpara Road of total amount Rs. 68,09,123.61
15.02.2021	IA(IB)/264/KB/2021 in CP (IB) No. 03/KB/2017 for declaring null and void and quashing the Demand Notice of municipal tax dated 1.2.2021.
13.07.2021	NCLT, Kolkata Bench allowed the said IA and absolved Respondent No. 1 from all liabilities with reference to tax dues prior to date of sale confirmation.

# 6. The arguments of the parties were heard by us. The Learned Counsel for Appellant has argued that the auction sale of the property in question was carried out after passing the order for liquidation by the Adjudicating Authority. Once the auction sale is completed and the property is transferred in the name of the auction-purchaser, it goes out of the liquidation estate. He has pointed out that the demand notice was issued on 1.2.2021, whereas the sale was completed much earlier on 8.10.2020, and sale certificate was executed in favour of Respondent No. 1. Thereafter the possession of the said properties was delivered to the auction purchaser on 9.10.2020. He has further argued that this appeal is therefore not covered under sub section (a), (b) and (c) of section 60(5) of the IBC. Therefore, the Adjudicating Authority does not have jurisdiction to adjudicate any dispute between the auction- purchaser (Respondent No.1) and Appellant Bhatpara Municipality. The Learned Counsel for appellant has  also contended that the auction-purchaser, if aggrieved by the Demand Notice dated 1.2.2021, has other remedies which include representation to the Chairman of Bhatpara Municipality or Assessment Authority or in the writ jurisdiction of the relevant Hon’ble High Court. The purchaser did not take course to any such remedy. He has further referred to section 3(33) of the IBC to show that the transfers of the properties have taken place after completion of the transaction of auction sale. He has adverted to the judgment of Hon’ble Supreme Court in the matter of Embassy Property Developments v. State of Karnataka [2019 SCC Online SC 1742] wherein it has been held that the NCLT does not get jurisdiction to adjudicate any dispute relating to the property in liquidation once the property is out of the liquidation process. The Learned Counsel for Appellant has thus argued that the Adjudicating Authority has quashed the demand notice and also directed that the trade licence be given, when the said properties were not in the purview of IBC and the NCLT did not have jurisdiction to pass such order.

 

# 7. The Learned Counsel for Respondent No. 1 has stated that during the pendency of this appeal, the Bhatpara Municipality has granted trade licence to Respondent No.1 and also effected mutation in its name vide certificates attached at pp. 145-152 of the reply affidavit filed by Respondent No. 1 and therefore, the appeal has become infructuous. She has argued that the CIRP of the Corporate Debtor commenced on 18.1.2017 and the Bhatpara Municipality (Appellant) did not file any claim with the Resolution Professional (RP) in the CIRP. She has referred to the judgment of Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (2009) 4 SCC 486, wherein it has been held that dues of municipal tax do not create any encumbrance. She has pointed to page 149 of the Appellant’s appeal to show that the dues of property tax are prior dues, which have accrued before the properties were purchased by the Respondent No. 1 in auction sale. She has also referred to the judgment of Hon’ble Supreme Court in the matter of Ghanshyam Mishra & Sons vs. Edelweiss (2021 SCC Online SC 313), wherein the principle of clean slate has been propounded. On this basis, she has claimed the same principle will be applied in the process of liquidation and the liability of old outstanding dues of property tax is attached not to the property in question but to the erstwhile Corporate Debtor. Finally she has argued that the Appellant is now participating in the liquidation proceedings, evidenced by page 106 of the Appeal paperbook, and it has filed its claim to the liquidator and therefore the appeal should be dismissed.

 

# 8. It is undisputed that the said properties were auctioned by the liquidator through an Invitation of EOI (attached at pp.98-119 of Appeal Paperbook). The terms and conditions of the proposed sale include the following clause 12.1 and clause 12.10:-

• “12.1 The proposed sale will be conducted on “AS IS WHERE IS AND WHATEVER THERE IS BASIS” AND “NO RECOURSE BASIS”. The liquidator of the Company will undertake no liability as to any continuing, pending litigation, dispute, etc. to vacate premises, or any other liability whatsoever in relation to Sale Asset”.

Furthermore clause 12.10 is as follows:-

• “The Applicant should thoroughly satisfy itself about the nature, conditions and quality of the Sale Asset. The Liquidator gives no guarantee or warranty as to title, encumbrance and state of the Sale Asset or the conditions of the assets/material or/its quality for any specific purpose or use. It should be clearly understood that no claim/complaint about the stability/quality/condition/fitness for use will be entertained by the Liquidator. The Liquidator gives no assurance as to clear possession of the Sale Asset/Property or any part thereof, or connected litigation.”

 

# 9. The terms and conditions of the proposed sale insofar as clause 12.1 is concerned should be taken to mean that the seller does not take responsibility for the size, dimension, shape and overall quantity and quality of property in liquidation and that the purchaser will have no recourse in case any deficiency or shortcoming is discovered in the property, after the sale has been confirmed.

 

# 10. The Appellant has contended that once the liquidation sale has been completed and the certificate of sale executed followed by giving possession to the auction purchaser, any action relating to such property ceases to be under the purview of IBC. It is undisputed that the auction sale was completed on 5.10.2020 and the possession of these sold units was handed over to Respondent No. 1 on 9.10.2020. Thus, Respondent No. 1 became the owner of said properties on 9.10.2010. Thereafter a demand notice was issued to Respondent No. 1 of an amount of Rs. 68,09,123.61 on 1.2.2011, over 4 months after the auction sale was completed. This demand of outstanding property tax relates to the period before the sale confirmation.

 

# 11. The Learned Counsel for Respondent No. 1 has referred to the judgment of Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (supra) to claim that dues of municipal tax do not create any encumbrance on the properties in question. They are simply a charge on the properties which is akin to claim of an unsecured creditor, and hence such a charge should stand in queue of claims to be paid out of sale assets, if such a claim has been filed in accordance with law and regulations.

 

# 12. Duty has been cast upon the liquidator to make a public announcement in Form B of Schedule II under with Regulation 12 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 to issue a public announcement calling upon the stakeholders to submit their claims in stipulated time period. 

 

# 13. Furthermore Regulation 34 of the said Regulations (supra) casts on the liquidator the duty to prepare Asset Memorandum specifying certain details. 

 

# 14. Thus the liquidator had a duty to prepare an asset memorandum containing the value of the assets. Clause (f) of sub regulation 2 of regulation 34 stipulates the inclusion of “any other information that may be relevant for the sale of the asset”. Regulation 13 of the said Regulations (supra) enjoins upon the liquidator to submit a preliminary report to the Adjudicating Authority with the Asset Memorandum. Therefore, the liabilities with respect to the assets should have been brought to the notice of the Adjudicating Authority by the liquidator.

 

# 15. Clause (g) of sub section 1 of section 55 of the Transfer of Property Act, 1882 binds the seller as hereunder:-

• “(1) The seller is bound –

• (g) to pay all public charges and rent accrued due in respect of the property up to the date of the sale, the interest on all encumbrances on such property due on such date, and, except where the property is sold subject to encumbrances, to discharge all encumbrances on the property then existing.”

 

# 16. The outstanding dues of the property tax relating to period prior to sale confirmation are thus dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given in section 53 of IBC. The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale as has been held by the Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (supra).

 

# 17. In the above mentioned situation, we are unable to accept the plea made by the Appellant that Respondent No. 1 should not be absolved from paying outstanding dues relating to the property stated in the demand notice dated 1.2.2021 amounting to Rs.68,09,123.61. The demand notice is quashed. The appeal fails and the Impugned Order is upheld. The auction-purchaser is held to be not liable to pay to the Appellant the amount as demanded by its notice dated 1.2.2021. No order as to costs.

 

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Positron Biogenics Pvt. Ltd. vs Uttar Pradesh State Industrial Development Authority and Anr. - The outstanding dues of the property tax relating to period prior to sale confirmation are thus dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given in section 53 of IBC. The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale as has been held by the Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (supra).”

 NCLT All. (2026.09.02) in Positron Biogenics Pvt. Ltd. vs Uttar Pradesh State Industrial Development Authority and Anr. [(2026) ibclaw.in 3509 NCLT, IA No. 485 of 2023 in CP(IB) No. 55/ALD/2017] held that; 

• In view of the above, the mere “as is where is” condition or the subsequent transfer of the leasehold interest cannot convert the pre-CIRP liability of the Corporate Debtor into an independent personal liability of the Applicant. The pre-CIRP dues of the Corporate Debtor were required to be dealt with through the liquidation process in accordance with Section 53 of the Code, particularly when the Respondent No. 1 had already lodged its claim in the liquidation proceedings of the Corporate Debtor.

• The outstanding dues of the property tax relating to period prior to sale confirmation are thus dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given in section 53 of IBC. The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale as has been held by the Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (supra).”

• Thus, in view of the law laid down by the Hon’ble NCLAT in Bhatpara Municipality Through its Chairperson v. Nicco Eastern Pvt. Ltd. (supra), the outstanding dues pertaining to the period prior to the issuance of the Sale Certificate/handing over of possession are to be treated as pre-CIRP liabilities of the Corporate Debtor and dealt with in accordance with the waterfall mechanism prescribed under Section 53 of the Code, and cannot simultaneously be recovered from the auction purchaser merely because the purchaser required transfer of the leasehold interest in its favour. Accordingly, the Applicant/Auction Purchaser cannot be held liable to pay the pre-CIRP dues of the Corporate Debtor.

• 
  

Excerpts of the order;

# 1. The instant application has been filed on 08.10.2023, by M/s Positron Biogenics Private Limited (hereinafter referred as “Applicant/ Auction Purchaser”) under section 60(5) and Section 53(1) of the Insolvency and Bankruptcy Code, 2016 (“IBC/Code”) read with Rule 11 of National Company Law Tribunal Rules, 2016 against Uttar Pradesh State Industrial Development Authority (hereinafter referred to as “Respondent No.1/UPSIDA”) and the Liquidator (hereinafter referred to as “Respondent No.2”) of M/s L.M.L. Limited i.e., Corporate Debtor. The Applicant inter alia seeks the following prayers:

• a) Allow the present application;

• b) Kindly pass an order to the Respondent No.1 Uttar Pradesh State Industrial Development Authority (UPSIDA) to Transfer the Part of Parcel A,B & C, Site-03, Panki Industrial Area, Kanpur and Refund an Amount of Rs 82, 53,013.37 (INR Eighty Two Lakhs Fifty Three Thousand Thirteen and Paise Thirty Seven Only) to Applicant which paid UNDER PROTEST towards the dues of Respondent No 2 i.e. LML Limited to avoid the delay in implementation of the Project;

• c) Pass an order declaring that Respondent No.1 Uttar Pradesh State Industrial Development Authority (UPSIDA) is not entitled to claim any dues of Respondent no 2 over the property of the Applicant;

• d) Pass such other or further order(s) as may be deemed fit and proper the facts and circumstances of the instant case.”

# 2. The brief facts as submitted by the Applicant are as follows:

• a. The Corporate Debtor i.e., M/s L.M.L Limited was admitted into Liquidation on 23.03.2018, on an application filed by the Resolution Professional.

• b. Pursuant to the issuance of Public Announcement in Form-A, the Respondent No.1 has filed a claim to the tune of Rs. 2,77,12,397/-, which has been admitted in toto by the Resolution Professional under the category of ‘Operational Creditor’.

• c. Subsequently, the Liquidator issued an auction notice dated 07.09.2022 for sale of assets of the Corporate Debtor and thereafter, E-auction was held on 04.10.2022. The Applicant herein was declared as the successful bidder for Property No. Parcel A, B and C, Site-III, Panki Industrial Area, Kanpur. A sale certificate was executed ‘as is where is basis’, ‘no recourse basis’ on 28.12.2022, and possession of the aforesaid property was handed over to the Applicant on 30.12.2022.

• d. However, on application for transfer of the aforesaid plot to the Applicant being the auction purchaser, the Respondent No.1 rejected the transfer and raised a demand of Rs. 82,53,013.53 being the rental dues for the year 2000-2008 in order to execute the transfer of the aforesaid plot. Detailed distribution of outstanding demand over the period of 2000 to 2008 as stated in the Application has been reproduced below: . . . . 

• e. The Applicant submits that the demand of Rs. 82,53,013.53 was paid under protest by the Applicant to the Respondent No.1 to register the transfer of land on the understanding that the same shall be repaid by the Respondent No.1 pending the outcome of this application.

# 3. The Applicant submits that it is a bona fide purchaser of the said property conducted through the legally established procedure under the Code, and has already deposited the entire sale proceeds in the liquidation account of the Corporate Debtor. The Applicant also submits that the sale proceeds received by the Liquidator were also duly distributed in accordance with Section 53(1) of the IBC.

# 4. It is further submitted that the creditors of the Corporate Debtor would receive their dues in terms of the waterfall mechanism provided under Section 53(1) of the IBC. In this regard reliance has been placed on the Judgement of Hon’ble NCLAT in Bhatpara Municipality Th. Chairperson v. Nicco Eastern Pvt. Ltd., (Company Appeal (AT) (Ins) No. 714 of 2021).

# 5. The Applicant finally submits that the demand of Respondent No.1 is not maintainable in terms of provisions of the Code and the Applicant cannot be asked to pay the alleged dues for pre-CIRP period.

REPLY OF RESPONDENT NO.1

# 6. The Respondent No.1 /UPSIDA in its reply filed vide diary no. 656 dated 13.03.2024 disputes and denies the relief made in the present application and submits as follows:

a. The Respondent No.1/ UPSIDA submits that the aforesaid property was leased to the Corporate Debtor for a period of 66 years vide lease deed dated 23.12.1994 and the Corporate Debtor being the original lessee should have informed Respondent No.1/lessor that the company is undergoing insolvency proceedings.

b. The Respondent No.1 contends that a Transfer memorandum was issued by UPSIDA on 05.09.2023 only on execution of an affidavit and indemnity bond by the Applicant on 05.09.2023 in favour of Respondent No.1 stating that the Applicant shall immediately pay all demands raised by UPSIDA.

c. Furthermore, as submitted, Clause 2 of the said Transfer Memorandum stipulates as follows:

• “2. Deposits made by ex-allottee against the plot will be adjusted first towards interest and Lease Rent upto payment and balance if any, towards premium. In case a balance playability is found after adjustment as above, the same shall be payable by you.”

d. It is further submitted that the Applicant is bound by covenants of lease deed and thus cannot evade payment of arrears of lease rentals as well as rentals thereon.

e. The Respondent No.1 further submits that sale was made in “as is where is basis”, “As is what is basis”, “Whatever there is basis” and “No recourse basis” as per certificate of sale deed dated 28.12.2022, which in itself creates contractual obligations to discharge the payment of past lease rentals and interest thereon.

REPLY OF RESPONDENT NO.2

# 7. The Respondent No.2 / Liquidator has filed his reply dated 24.01.2024, in which he submits as follows:

a. The Applicant was declared as successful bidder for aforementioned property and it was sold on “as is where is basis”, “As is what is basis”, “Whatever there is basis” and “No recourse basis” as mentioned in clause Q of e-auction process document dated 07.09.2022 as well as certificate of sale dated 19.10.2022.

b. The Respondent No.2 further submits that the claim of Respondent No.1 has been admitted and it will be distributed to stakeholders by the liquidators as per Section 53 of the Code and payment to operational creditors are covered under Section 53(1)(f) of the Code.

c. It is also submitted that he does not have any role in the present matter and all allegations are bought up against Respondent No.1.

WRITTEN SUBMISSIONS

# 8. The Applicant also filed written submissions on 14.03.2024, wherein the submissions already dealt with in the preceding paragraphs have been reiterated.

FINDINGS AND ORDER

# 9. We have heard the learned counsels for the Applicant and Respondents and perused the material on record.

# 10. The instant application has been filed by the Applicant/Auction Purchaser under section 60(5) of the Code against U.P. State Industrial Development Authority (UPSIDA) claiming refund of the amount which has been deposited under protest as per the demand raised by UPSIDA on the property sold through e-auction by the liquidator during liquidation of the Corporate Debtor. The principle issue for consideration is whether the amount paid by the Applicant under protest to the Respondent No.1/UPSIDA is liable to be refunded.

# 11. It is not in dispute that the Applicant was declared the successful auction purchaser of the said properties pursuant to the e-auction held on 04.10.2022. The Certificate of Sale dated 28.12.2022 and the Possession/Delivery Letter dated 30.12.2022 have been placed on record as Annexure-5 and Annexure-6, respectively. Accordingly, the Applicant acquired the leasehold interest in the said properties pursuant to the sale conducted in the liquidation proceedings on 28.12.2022.

# 12. In the facts of the present case, it is also relevant to consider the circumstances in which the Applicant deposited the amount of Rs.82,53,014/- with Respondent No.1. Upon perusal of the letters dated 17.08.2023 and 25.08.2023 addressed by the Applicant to UPSIDA attached as Annexure 10, it is evident that the Applicant had, at the outset, disputed its liability to discharge the pre-liquidation dues of the Corporate Debtor and specifically requested Respondent No.1 to lodge its claim with the Liquidator in accordance with the provisions of the Code.

# 13. In the aforesaid letters, the Applicant further stated that its pharmaceutical project was being stalled on account of the pending transfer of the subject property and, therefore, while reserving its rights and proposing to approach this Adjudicating Authority under Section 60(5) of the Code, deposited the demanded amount of Rs.82,53,014/- vide Demand Draft No.496798 dated 25.08.2023 under protest. The Applicant also expressly recorded its understanding that the said amount would be refunded to it, with interest, in the event of the application being decided in its favour. Also, the affidavit and indemnity executed by the Applicant formed part of the documents furnished in connection with the transfer of the assets, and was given in the context of the payment made under protest. Therefore, the documents furnished for seeking transfer of the assets were consequential to the protest payment and cannot be treated as an independent undertaking or deposit by the Applicant towards the pre-CIRP dues of the Corporate Debtor.

# 14. Further, during the course of hearing held on 03.08.2026, the learned Counsel appearing for the Applicant submitted that, as UPSIDA was not executing the transfer documents, the Applicant was compelled to deposit the pre-CIRP dues under protest. Thus, the payment cannot be construed as a voluntary acceptance of the underlying liability or as an admission that the pre-CIRP dues of the Corporate Debtor were payable by the Applicant.

# 15. Further, on perusal of the E-Auction Process Document it is noted that the asset was sold on “AS IS WHERE IS, AS IS WHAT IS, WHATEVER THERE IS AND WITHOUT RECOURSE BASIS” and required the bidder to make their own independent inquiries regarding “claims/rights/dues” affecting the asset. Thus, while the Applicant was put on notice regarding the dues affecting the asset, the said document does not specifically provide that the Applicant would assume the pre-CIRP debt of the Corporate Debtor towards UPSIDA as its own liability over and above the sale consideration of Rs. 26.73 crore.

# 16. This position is further borne out from the Terms and Condition attached as Annexure-1 to the Certificate of Sale. Though Clause 7 thereof records that the Applicant has conducted due diligence and has satisfied itself regarding the “dues in respect of Asset”, the Certificate of Sale does not contain any express undertaking by the Applicant to discharge the pre-CIRP dues of Corporate Debtor towards UPSIDA. On the contrary, Clause 12 records that the original lease deed dated 04.07.2000 between UPSIDC and Corporate Debtor was handed over as a title document. Thus, what was transferred was the leasehold interest of the Corporate Debtor in the asset pursuant to the liquidation sale and not, in express terms, the pre-CIRP liabilities of the Corporate Debtor.

# 17. The nature of UPSIDA’s claim is also corroborated by the claim record available on the IBBI website, which records a claim of Rs. 2,77,12,397/- lodged by UPSIDA. The said claim was lodged more than one year prior to the auction sale in favour of the Applicant and it has been admitted in full. Although the said amount differs from the subsequent demand of Rs. 82,53,013.37/-, the record establishes that UPSIDA had already asserted its monetary claim against the Corporate Debtor in the insolvency proceedings prior to the Applicant’s acquisition of the property.

# 18. Now, proceeding to examine the nature of the demand, it is evident from the demand letter dated 14.08.2023 that Respondent No.1/UPSIDA demanded an amount of Rs.82,53,013.37/- towards maintenance charges, interest on maintenance charges, lease rent and GST on lease rent. The period-wise computation shows that the maintenance charges relate to the period from 01.07.2000 to 31.03.2009. The Respondent No.1/ UPSIDA has not specifically denied, in its reply, the period to which the aforesaid maintenance charges pertain. Thus, the principal maintenance dues had accrued during the period when the Corporate Debtor was the lessee of the subject properties, much prior to commencement of the CIRP on 30.05.2017 and the subsequent acquisition of the properties by the Applicant pursuant to the liquidation sale in 2022. Accordingly, the liability towards the principal maintenance charges had accrued against the Corporate Debtor, being the lessee during the relevant period, and could not merely by virtue of the subsequent liquidation sale, be treated as a liability originally incurred by the Applicant.

# 19. Further, the amount of Rs. 63,30,997.37/- towards interest on maintenance charges was thereafter calculated on the aforesaid defaults up to 31.08.2023 and the demand also includes Rs. 30,638/- towards lease rent and Rs. 5,515/- towards GST on lease rent. The fact that interest was computed up to a date subsequent to commencement of CIRP or even subsequent to the auction sale does not alter the character of the underlying principal liability. The interest is consequential upon the failure of Corporate Debtor to discharge the maintenance charges which had already fallen due between 2000 and 2009. All these amounts are therefore arising from a pre-CIRP liability demanded from the Applicant on account of Corporate Debtor.

# 20. The subsequent Lease Deed dated 06.11.2023 also does not alter the above position. The said Lease Deed creates continuing obligations upon the Applicant as the present lessee, including payment of lease rent and maintenance/service charges during its own tenure. It does not expressly state that the Applicant has assumed the already accrued pre-CIRP debt of the Corporate Debtor. The condition in the Transfer Memorandum dated 05.09.2023 that dues of the “ex-allottee” found payable in future may be recovered from the “current transferee” also cannot, in the facts of the present case, be treated as an unequivocal novation of UPSIDA’s already lodged and collated pre-CIRP claim, particularly when the Applicant’s payment was expressly made under protest.

# 21. Further, during the course of hearing on 03.08.2026, on the point of distribution in accordance with Section 53 of the Code, the Ld. Counsels representing the respective parties submitted as follows:

• “1. Ld. Counsel representing the applicant states that she is the successful Auction Purchaser and has purchased the assets in an open e-auction as a going concern in the auction process conducted by the Liquidator.

• 2. She states that there was a claim lodged by UPSIDA during the CIRP / liquidation process and the claim has been collated for pre-CIRP outstanding amount. However, UPSIDA was not executing the documents of transfer/ mutation. Ld. Counsel further submits that since the UPSIDA was not executing the documents, therefore it was compelled to deposit the dues of the pre-CIRP under protest.

• 3. The present applications have therefore been filed for seeking refund of the amount paid by the applicants to the UPSIDA on account of the formalities to be completed for the said purpose.

• 4. Ld. Counsel representing the Liquidator states that the liquidation assets have already been sold to the extent of about 280 crore, and out of which, approximately Rs. 259 crore has already been distributed. The remaining amount is also in the process of being distributed in accordance with the provisions of section 53 of Code.

• 5. Ld. Counsel, Mr. Rahul Kr. Jadaun, has put in appearance for UPSIDA and states that he would not have any grievance, if the distribution takes place in accordance with Section 53 of the Code and as per the entitlement of the UPSIDA.”

# 22. In view of the above, the mere “as is where is” condition or the subsequent transfer of the leasehold interest cannot convert the pre-CIRP liability of the Corporate Debtor into an independent personal liability of the Applicant. The pre-CIRP dues of the Corporate Debtor were required to be dealt with through the liquidation process in accordance with Section 53 of the Code, particularly when the Respondent No. 1 had already lodged its claim in the liquidation proceedings of the Corporate Debtor.

# 23. At this juncture, it would be apposite to refer to the law laid down by the Hon’ble NCLAT in Bhatpara Municipality Through its Chairperson v. Nicco Eastern Pvt. Ltd., (2021) (Company Appeal (AT) (Ins) No. 714 of 2021) wherein it was held as follows:

• “14. Thus the liquidator had a duty to prepare an asset memorandum containing the value of the assets. Clause (f) of sub regulation 2 of regulation 34 stipulates the inclusion of “any other information that may be relevant for the sale of the asset”. Regulation 13 of the said Regulations (supra) enjoins upon the liquidator to submit a preliminary report to the Adjudicating Authority with the Asset Memorandum. Therefore, the liabilities with respect to the assets should have been brought to the notice of the Adjudicating Authority by the liquidator.

• 15. Clause (g) of sub section 1 of section 55 of the Transfer of Property Act, 1882 binds the seller as hereunder: –

• “(1) The seller is bound –

• (g) to pay all public charges and rent accrued due in respect of the property up to the date of the sale, the interest on all encumbrances on such property due on such date, and, except where the property is sold subject to encumbrances, to discharge all encumbrances on the property then existing.

• 16. The outstanding dues of the property tax relating to period prior to sale confirmation are thus dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given in section 53 of IBC. The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale as has been held by the Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (supra).”

# 24. Thus, in view of the law laid down by the Hon’ble NCLAT in Bhatpara Municipality Through its Chairperson v. Nicco Eastern Pvt. Ltd. (supra), the outstanding dues pertaining to the period prior to the issuance of the Sale Certificate/handing over of possession are to be treated as pre-CIRP liabilities of the Corporate Debtor and dealt with in accordance with the waterfall mechanism prescribed under Section 53 of the Code, and cannot simultaneously be recovered from the auction purchaser merely because the purchaser required transfer of the leasehold interest in its favour. Accordingly, the Applicant/Auction Purchaser cannot be held liable to pay the pre-CIRP dues of the Corporate Debtor.

# 25. In view of the foregoing discussion, the amount of Rs. 82,53,013.37/-, as demanded by UPSIDA vide letter dated 14.08.2023 and paid by the Applicant under protest towards the pre-CIRP dues of the Corporate Debtor, is not liable to be borne by the Applicant merely on account of its purchase of the asset in liquidation. The Applicant is accordingly entitled to refund of the said amount. UPSIDA shall remain entitled to receive its admissible claim against the liquidation estate in accordance with Section 53 of the Code, as also recorded in the order dated 03.08.2026, wherein the Ld. Counsel representing UPSIDA submitted that UPSIDA would have no grievance if the distribution takes place in accordance with Section 53 of the Code and as per its entitlement.

# 26. The Respondent No.1/ UPSIDA is directed to refund an amount of Rs. 82,53,013.53/- to the Applicant.

# 27. Accordingly, the present application bearing IA No. 485 of 2023 is allowed in the aforesaid terms.

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