Whether Statutory First Charge on property survives Auction under IBC.
1. Recently, Hon’ble NCLT Mumbai (2026.09.22) in Indojewel Jewellery Private Limited vs. Brihanmumbai Municipal Corporation [I.A. 2513/2025 IN C.P. NO. 2607(IB)/MB/2019] held that “Statutory First Charge” on property survives Auction under IBC & claims on auction purchaser are recoverable.
“# 16. . . . . . A bare reading of the aforesaid provision makes it clear that any property taxes due under the said Act in respect of any building or land constitute a statutory first charge upon such building or land, subject to the prior payment of land revenue, if any, due to the State Government. Consequently, any transfer of such property would not extinguish or override the statutory charge created in favour of the Municipal Authority in respect of the outstanding property tax dues.
# 18. As can be seen from the above provision, Section 203 of the MMC Act empowers the BMC to recover unpaid property taxes by attachment and sale of the immovable property of the defaulter. Thus, the statutory scheme expressly contemplates recovery of outstanding property tax dues through the attachment and sale of the property against which such dues are recoverable.
# 19. . . . . . .The rationale is that a statutory charge attached to the property constitutes an encumbrance running with the property and is distinct from a mere personal claim against the Corporate Debtor, and that there is no inconsistency between the enforcement of such statutory charge and the provisions of the IBC, and therefore the overriding effect of Section 238 of the Code is not attracted.
2. Now the following questions arise;
Whether filing of claim for dues by a creditor/stakeholder before the liquidator in IBC is optional or mandatory.
Whether dues/claims of operational creditor (Govt. Dues - either claim filed or not with the liquidator in IBC), will survive the liquidation process.
In case the dues/claims of operational creditor (govt. dues) do not survive the liquidation process in IBC, whether statutory first charge (for dues) attached with the property of CD will survive.
Whether a creditor/stakeholder can enforce/recover its dues from CD or its property outside the liquidation process.
Whether the provisions of section 55(1)(g) of TPA (Rights and liabilities of buyer and seller), which imposes certain statutory obligations on the seller of an immovable property, are not applicable on the liquidator
Whether equivalence cannot be drawn between auctions under SARFAESI & IBC. Auction under SARFAESI is for the benefit of a single creditor, whereas auction under IBC is for the benefit of all the creditors/stakeholders.
3. Liquidation Regulations
# 16. Submission of claim.
(1) A person, who claims to be a stakeholder, shall submit its claim where not submitted during the corporate insolvency resolution process as on insolvency commencement date, within fourteen days of the liquidation commencement date.
(2) A person shall prove its claim for debt or dues to him, for the newly submitted claims, if any, as on the insolvency commencement date.
(3) A stakeholder shall update its claim as and when the claim is satisfied, partly or fully, from any source in any manner, after the insolvency commencement date.
The above regulations signify that submission of claims by a creditor/stakeholder is mandatory in the liquidation process, if not submitted during the corporate insolvency resolution process.
4. IBC, 2016.
# 53. Distribution of assets.- (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:—
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(e) the following dues shall rank equally between and among the following:—
(i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;
Explanation.––For the removal of doubts, it is hereby clarified that any amount, whether or not a security interest is created to secure such amount by an act of two or more parties or merely by operation of law, due to the Central Government and the State Government, in respect of the whole or any part of the period of two years preceding the liquidation commencement date, shall be distributed under this sub-clause and any remaining amount, whether or not such security interest is created to secure the amount, due to the Central Government and the State Government, shall be distributed under clause (f);
The above provisions of the Code (with non-obstante clause) signify that dues of all creditors/stakeholders, have to be paid as the waterfall provided in section 53 & none of the claim/dues of creditor/stakeholders will survive distribution under section 53 of the Code.
Sale of liquidation assets with statutory charge by the liquidator, will effectively provide preferential treatment for such statutory charge holders, in violation of the statutory waterfall for distribution under section 53.
5. Transfer of Property Act.
# 55. Rights and liabilities of buyer and seller.—In the absence of a contract to the contrary, the buyer and the seller of immoveable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following, or such of them as are applicable to the property sold:
(1) The seller is bound—
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(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 incumbrances on such property due on such date, and, except where the property is sold subject to incumbrances, to discharge all incumbrances on the property then existing.
5.1. Hon’ble Supreme Court in “AI Champdany Industries Ltd. vs. The Official Liquidator and Anr”. while examining section 55 of TPA held that;
# 19. In terms of the aforementioned provisions, therefore, the seller is bound to pay all public charges due in respect of the property upto the date of sale, when a property is sold in auction. Section 55 refers to a contract only. Unless there is a contract to the contrary, the rights and obligations of the parties to a sale would be as indicated in Section 55. Such a contract to the contrary must be express and not implied, as a result whereof the meaning of term encumbrance would be expanded.
The advertisement did not specify that all public charges have to be paid.
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Concurrent reading of the provision of section 55 of TPA & ruling of Hon’ble Supreme Court signify mandatory payment of all public charges and rent accrued due in respect of the property up to the date of the sale, and interest on all incumbrances on such property due on such date by the liquidator (seller in the present case). The moment all public charges in respect of the property are paid/settled by the liquidator in terms of the statute, the statutory first charge of the Municipal Corporation towards property tax gets satisfied.
Further, as per the provisions of section 55(1)(g) of TPA, the liquidator (seller) is required to satisfy all encumbrances on the property under auction, unless there is a contract to the contrary & such a contract to the contrary must be express and not implied.
6. IBC liquidation is different from SARFAESI enforcement
The distinction between an auction under the SARFAESI Act and a liquidation sale under the IBC is fundamental.
A SARFAESI auction is ordinarily conducted by a secured creditor to enforce its own security interest. The proceeds are principally connected with the enforcement of that creditor’s security.
By contrast, a liquidation sale under the IBC is conducted as part of a collective insolvency process. Its purpose is to realise the value of the corporate debtor’s assets and distribute the proceeds among stakeholders in accordance with the statutory waterfall under Section 53 of the IBC.
Therefore, principles applicable to a secured creditor’s enforcement sale under SARFAESI cannot automatically be imported into an IBC liquidation sale.
This distinction is also reflected in Section 26E of the SARFAESI Act, which gives secured creditors priority over government dues after registration of the security interest. However, the explanation to Section 26E expressly recognises that, where insolvency or bankruptcy proceedings are pending, the priority of secured creditors is subject to the provisions of the IBC.
Accordingly, the IBC occupies the field once liquidation proceedings are underway.
6.1. SARFAESI
# Section 26E. Priority to secured creditors.—Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.
Explanation.—For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.
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7. Case Laws;
1). NCLT Chennai-II (2025.04.08) in M/s Sri Gomathi Energy Private Limited, Vs. The State of Tamil Nadu & Ors [(2025) ibclaw.in 593 NCLT, I.A.(IBC)/1395/ 2024 IN TCP/130/IB/CB/2017 ] held that;
# 4.13 We are of the considered view that once the Liquidation sale has been completed and the Certificate of Sale has been executed followed by handing over of the possession of purchased properties to the Auction Purchaser, any claim relating to such property for dues prior to the Auction cannot be raised against the Auction Purchaser, specifically when the Company is in Liquidation and the dues were already claimed by the said party as an Operational Creditor, during the CIRP process, as the Company was in Liquidation and the respondent had already approached the Liquidator by filing a Form-B and the Liquidator has intimated to the respondent that the claim cannot be considered as it is filed belatedly. Hence, we are of the considered view that the Auction Purchaser cannot be made liable for any dues arising on the property before the purchase of the said property.
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2). NCLAT (2023.12.05) in Paschimanchal Vidyut Vitran Nigam Ltd. Vs. HSA Traders [Company Appeal (AT) (Insolvency) No. 527 of 2023] held that.
# 9. The above judgment having been rendered in a case under SARFAESI Act, there was no occasion for extinguishment of dues of the power distribution company since it was not under IBC process. The distinguishing feature in the present case is that the present is a case arising out of IBC where in liquidation process, the Appellant was required to file its claim against the electricity dues outstanding towards the Corporate Debtor who was undergoing liquidation process. The above judgment is thus clearly distinguishable in the facts of the present case.
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3). NCLAT (2022.09.16) in Haryana State Industrial and Infrastructure Development Corporation Ltd. Vs. M/s. AAR AAR Technoplast Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 606 of 2021] held that;
# 16. We are of the considered view that once the Liquidation sale has been completed and the Certificate of Sale has been executed followed by handing over possession to the Auction Purchaser, any claim relating to such property for dues prior to the Auction cannot be raised against the Auction Purchaser specifically when the Company is in Liquidation and the dues were already claimed by the said party as an ‘Operational Creditor’, during the CIRP process as the Company was in Liquidation and the Appellant had already approached the Liquidator by filing a Form-B and the Liquidator has intimated to the Appellant that there is no amount left for the payment to any ‘Operational Creditor’, we are of the earnest view that the Auction Purchaser cannot be made liable for any dues arising on the property before the purchase of the said property in this case.
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4). NCLAT (2022.02.25) in M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. Vs. M/s KTC Foods Private Limited [Company Appeal (AT) (Insolvency) No. 650 of 2020] held that;
# 21. Adverting to the contention of the Learned Counsel for the Appellant that the Adjudicating Authority has erred in denying the sale of the ‘Corporate Debtor’ as a ‘going concern’ to the Appellant without including any contingent liabilities, we hold that it is a settled law that when the sale proceeds of a ‘Corporate Debtor’ are duly distributed in the Order of priority and in the manner prescribed under Section 53 of the Code, claims of any other Creditor cannot be entertained contrary to the provisions entailed under Section 53; subsequent to the distribution of sale proceeds under Section 53 no other entity including any Government entity can claim any past unpaid or outstanding dues against the Appellant who has purchased the ‘Corporate Debtor Company’ as a ‘going concern’. It is significant to mention that the second Respondent/Liquidator has specifically submitted that even these claims by the Uttar Haryana Bijili Vitran Nigam were not submitted in the prescribed form either during the CIRP Process or at the Liquidation stage. We are of the considered view that at this stage subsequent to the sale of the ‘Corporate Debtor Company’ as a ‘going concern’, these claims cannot be foisted upon the Appellant. The scope and objective of the Code is to extinguish all claims specifically the ones which were not even made during the CIRP or in the Liquidation stage, to aid the purchaser of the Company as a ‘going concern’ to start on a ‘clean slate’. The Hon’ble Supreme Court in ‘Ghanshyam Mishra & Sons Pvt. Ltd.’ Vs. ‘Edelweiss Asset Reconstruction Company Ltd. & Ors.’, Civil Appeal No. 8129 of 2019 and in ‘CoC of Essar Steel India Ltd.’ Vs. ‘Satish Gupta & Ors.’ (2020) 8 SCC 531 has laid down the proposition that the purchaser of the Company even in the Liquidation stage cannot be burdened with past liabilities when it is not mentioned in the ‘Sale Notice’.
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5). NCLT Mumbai-I (2021.03.09) in Gaurav Jain Vs. Sanjay Gupta, [IA No. 2264 of 2020 in C.P. (IB) No. 1239/MB/2018] held that;
# 27. As far as the Liquidator is concerned, when the sale consideration is received from the bidder / purchaser, the same will be distributed to the Creditors in accordance with Section 53 of the Code. Since the amount is paid to the Creditors in terms of the Code, the liabilities of the Corporate Debtor towards the Creditors are treated as settled and the purchaser takes the assets free of any encumbrances or whatsoever.
# 28. In the normal parlance “going concern” sale is transfer of assets along with the liabilities. However, as far as the ‘going concern’ sale in liquidation is concerned, there is a clear difference that only assets are transferred and the liabilities of the Corporate Debtor has to be settled in accordance with Section 53 of the Code and hence the purchaser of this assets takes over the assets without any encumbrance or charge and free from the action of the Creditors.
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6). SCI (2009.02.19) in AI Champdany Industries Ltd. vs. The Official Liquidator and Anr. [(2017) ibclaw.in 1204 SC, Civil Appeal No. 1118 of 2009 (Arising out of SLP (C) No. 15285 of 2008)] held that;
# 19. In terms of the aforementioned provisions, therefore, the seller is bound to pay all public charges due in respect of the property upto the date of sale, when a property is sold in auction. Section 55 refers to a contract only. Unless there is a contract to the contrary, the rights and obligations of the parties to a sale would be as indicated in Section 55. Such a contract to the contrary must be express and not implied, as a result whereof the meaning of term encumbrance would be expanded.
The advertisement did not specify that all public charges have to be paid.
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Link - Do Statutory First Charges Survive an IBC Liquidation Sale?
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