M/s Sri Gomathi Energy Private Limited, Vs. The State of Tamil Nadu & Ors - 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.

 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;

• The Successful Auction Purchaser cannot be saddled with the past electric dues of the CD as the same has to be dealt in accordance with the process clearly laid down in IBC. It is made clear that the applicant shall not be liable to pay the past dues and shall be liable to pay the taxes and charges to get the new connection subsequent to the purchase date as per the sale deed.

• 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.

Excerpts of the order;

This application has been filed by Mr. L.K.Sivaramakrishnan, Liquidator for M/s. Auro Mira Bipower India Private Limited, under 60(5) of Insolvency and Bankruptcy Code 2016, seeking the following reliefs,

• i) Direct the 1st and/ or 2nd respondent to restore the existing power connection to the immovable property purchased by the Applicant from the 4th respondent, by issuing a no-due certificate in respect of the alleged past electricity due within a stipulated time frame, without insisting on the payment of any past dues by the Corporate Debtor, M/s. Auro Mira Bipower India Private Limited.; and 

• ii) Pass any such other order/ direction as deemed appropriate in the fact and circumstances of this case.

2. APPLICANT SUBMISSIONS:

2.1 . The applicant contends that the Corporate Debtor, M/s. Auro Mira Biopower India Pvt. Ltd., was admitted into CIRP, under section 9 vide order dated 01.09.2017. Subsequently vide order dated 16.07.2018, Liquidation was ordered and the 4th Respondent was appointed as Liquidator and vide order on 27.09.2019 private sale of the Corporate Debtor’s assets was approved.

2.2 . It is submitted that the Applicant purchased the Immovable Property, including land, buildings, plant, and machinery, for Rs.10,53,60,000/- through a Sale Deed executed on 12.02.2021, under Regulation 33 of the IBC Liquidation Process Regulations, 2016 and  property was sold free of encumbrances.

2.3 . It was further submitted that the Applicant submitted the Sale Deed for registration with the 3rd Respondent, paying Rs.8,20,560/- in stamp duty and registration fees. However, registration was refused, citing the absence of an NOC from the 2nd Respondent due to alleged unpaid electricity tax dues of Rs.3,04,16,748/- by the CD for the period July 2011–March 2014 and further submitted that no proof of claim was submitted by respondents regarding the same.

2.4 . It is submitted that vide order dated 01.06.2022 in IA(IBC)/1005/CHE/2021, we directed the 3rd Respondent to register the Sale Deed dated 12.02.2021. However, it is noted that the 3rd Respondent continues to deny registration, citing alleged inadequate stamp duty and non-payment of past electricity dues.

2.5 . It was emphasized that the past electricity dues of the CD cannot be enforced against the Applicant, as highlighted with recent legal precedents, including Paschimanchal Vidyut Vitran Nigam Ltd. v. HSA Traders, which establish that a new purchaser is liable only for fresh electricity dues. Further, the claim for past dues was made after the liquidation order and is barred under Section 33 of the IBC, which imposes a moratorium on proceedings against the CD. 

2.6 . It is submitted that the Applicant has taken possession of the property but cannot commence operations due to non-registration and denial of an electricity connection. This continued obstruction is causing financial loss and hardship to the applicant.

2.7 It was contented in the rejoinder that the Applicant was not aware of the tax dues and they stated that they are so far not the consumers. And non-payment of alleged dues does not entitle 3rd respondent to withhold the registration and the matter itself was held as time barred.

3. RESPONDENTS SUBMISSIONS:

3.1 It was averted that as of 12.02.2021, electricity tax dues of Rs.3,04,16,784/- were outstanding on the subject property. The Corporate Debtor was repeatedly notified since 2012 but failed to clear the dues. Consequently, the matter was referred to the District Collector, Tirunelveli, under the Revenue Recovery Act, leading the 3rd Respondent to refuse the register of the sale deed.

3.2 . It was submitted that the CD suppressed the initiation of CIRP from the authorities, causing a delayed Form-B claim submission on 22.04.2022, which the Liquidator (4th Respondent) rejected as belated. The Revenue Recovery Act invocation in 2019 was a continuation of recovery efforts initiated in 2012 and predates the liquidation process under IBC, 2016. 

3.3 . It is further submitted that the Liquidator failed to account for government dues before finalizing the liquidation, while Respondents 1 to 3 acted lawfully under the Electricity Tax Act, 2003. Non-payment of dues would result in a significant revenue loss and set a precedent for tax evasion.

3.4 . It was further submitted that Respondents 1 and 2 are not obstructing registration but enforcing statutory dues under Section 7(b) of the Electricity Tax Act, 2003. The Applicant or the CD must clear the dues before registration.

4. FINDINGS OF THIS TRIBUNAL

4.1 Heard to the learned counsel and perused the document place on record, under adjudication is an application filed by Sri Gomathi Energy private limited purchaser of the property from the liquidator of Auro Mira Biopower India Private Limited .

4.2 At this juncture it is relevant for us to discuss on the background of this case, The corporate debtor Aura Mira Biopower India Private Limited was admitted to CIRP vide order dated 01.09.2017, Liquidation was ordered against the corporate debtor vide order dated 16.07.2018 and vide order dated 27.09.2019 this tribunal permitted to conduct the private sale of the assets of the Corporate debtor.

4.3 The Applicant herein had expressed interest in purchasing the plant and machinery of 18 megawatt plant land and building of the corporate debtor measuring 8 Hectares and 95 Ares, i.e., 22.11 Acres as per patta 25.66 Acres, comprised in various Revenue Survey no.’s of  Melamaruthappapuram village, Veera Keralapudur Taluk, Tamil Nadu which is within the registration ambit of District of Tenkasi and sub registration district of Uthumalai. Upon payment of sale consideration of Rs.10,83,60,000/- the sale deed dated 12.02.2021 is executed between the applicant and 4th respondent.

4.4 Applicant has approached this tribunal seeking relief for restoring the existing power connection to the immovable property purchased by the applicant from the 4th respondent by issuing the no due certificate in respect of past electricity dues of the CD.

4.5 The respondent contended that CD Company has not paid the electricity dues and it will lead to major revenue loss to the government if the said dues are not paid.

4.6. On perusal of record it is seen that on 27.04.2021 Form B is submitted by the Director of electricity Tax and chief Electrical Inspector of government to the liquidator for the claim of Rs.3,04,16,784 , vide e mail dated 27/04/2022 the liquidator returned the Form B reasoning that the as per the public announcement date 18.07.2018 the last date for submission of claims 16.08.2018 and the claim of the department is not filed within the stipulated period hence cannot be admitted at the belated stage.

4.7 Meanwhile, IA(IBC)/1005(CHE)/2021 was filed by Sri Gomathi energy seeking directions against the Tirunelveli electricity distribution circle and electrical inspectorate government of Tamil Nadu restraining and restricting them from taking any further proceedings against the property purchased by them which will hinder them in getting fresh electricity connection from the 2nd respondent. It was noted in an order dated 01.06.2022 that the sale of the corporate debtor was executed as “As is where is, whatever there is basis”. Vide order dated 01.06.2022 realying on the decision of Hon’ble Apex court in Telengana State Southern Power Distribution Company Limited Vs Srigdhaa Beverages where it was stated by the Hon’ble apex court that dues can be claimed from the purchaser. The factual scenario of the case is that respondent auction purchaser of Srigdhaa beverages which failed to pay the dues and auction was done under securitisation and reconstruction of financial assets and enforcement of security interest act 2002. Relaying on the same this tribunal had stated that liability with regard to the property is not extinguished.

4.8 The applicant at this stage has placed reliance on the decision of Hon’ble NCLAT decision on Paschimanchal Vidyut Vitran Nigam Ltd vs HAS Traders and others. The Hon’ble NCLAT relied on the Decision in Company Appeal AT 1355 of 2022 in Chinar steel segments centre Pvt Ltd v Samir Kumar Agarwal and stated in Para 18 as follows, 

• We, thus, are of the view that submission raised by learned counsel for the Appellant that Successful Auction Purchaser was liable to pay the arrears of electricity dues which were dues of the erstwhile Corporate Debtor and without payment of said dues electricity connection cannot be granted are not in accord with the statutory scheme of IBC. The Adjudicating Authority did not commit any error in issuing direction in Para 16 of the impugned order, as extracted above, to energise the electricity connection without insisting on the payment of pre-CIRP dues. It is made clear that the Successful Auction Purchaser shall be liable to pay all dues for getting the new connection except the arrears of the electricity dues of Rs. 39,15,625/- as was being claimed by the Appellant.

4.9 Hon’ble NCLAT in the judgement mentioned above had discussed on the specific scenario of a corporate debtor in liquidation and the sale is done as per “as is what is whatever there is basis” and contented that successful auction purchaser shall not be liable for payment of the pre-existing CIRP dues of the Corporate debtor. 

4.10 The sale of the asset of the corporate debtor is done by the liquidator as per the provisions of IBC and the government dues comes within the ambit of operational debt and under section 5(21) making the government as operational creditor in terms of section 5(2) the said claim should be adjudicated as per the terms of IBC. The duty is cast on the authority to file the claim before the Liquidator as given in Regulation 16 of the Liquidation process regulation. As per reg 16(1) of the liquidation process regulation a person shall submit the claim before the last date mentioned in the public announcement and the payment of the dues is based on the claim submitted. In this case the respondent has belatedly filed the claim to the liquidator which couldn’t have been admitted. Subsequently the assets of the corporate debtor are sold to the applicant.

4.11 We are of the considered view that relying on the decision of Hon’ble NCLAT decision on Paschimanchal Vidyut Vitran Nigam Ltd vs HAS Traders and others is applicable to this case is answered by Hon’ble NCLAT and the on perusal of record that the claim was,submitted by the authority belatedly and was not admitted as it was not submitted in due time the contention of the respondent to cast the liability on the purchaser of the corporate debtor doesn’t hold any water as the said claim was already filed before the Liquidator which

is not admitted and the purchaser brought the CD as ”As is what is, whatever there is basis”. It is not implied that the belated claim which is not admitted falls under the said ambit hence we are of the considered opinion that pre CIRP dues should not be cast upon the successful auction purchaser.

4.12 Where the past dues of the corporate debtor cannot cause hindrance to the applicant to successfully take over the business and utilize the resources only to run the affairs of the CD or take forward the utilization of assets brought under auction. The Successful Auction Purchaser cannot be saddled with the past electric dues of the CD as the same has to be dealt in accordance with the process clearly laid down in IBC. It is made clear that the applicant shall not be liable to pay the past dues and shall be liable to pay the taxes and charges to get the new connection subsequent to the purchase date as per the sale deed.

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.

4.14 For the above mentioned reasons and considerations the IA(IBC)/1395(CHE)/2024 is allowed and Respondent no 1 and 2 is directed to restore the connection and 4th respondent is directed to issue no due certificate in respect of past due of the CD, it is hereby clarified that any due/fees/taxes payable for getting the new connection or for the restoration of the said connection, after the sale deed has to be borne by the Applicant.

--------------------------------------------------------- 

 

 

Haryana State Industrial and Infrastructure Development Corporation Ltd. Vs. M/s. AAR AAR Technoplast Pvt. Ltd. - 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.

NCLAT (06.09.2022) 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;

• 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.

Excerpts of the order;

# 1. Aggrieved by the Order dated 12.11.2020 in IA 3169/2020 in C.P. (IB) No.- 201/PB/2019 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Court IV, New Delhi), the Appellant M/s. Haryana State Industrial and Infrastructure Development Corporation Limited preferred this Appeal under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘The Code’) seeking to set aside the Impugned Order, wherein the Adjudicating Authority has allowed the Application IA 3169/2020 preferred by the Applicant/M/s. AAR AAR Technoplast Private Limited/the Auction Purchaser seeking a direction to the Appellant herein to acknowledge and record the transfer of ownership in the name of the Auction Purchaser.

 

# 2. Succinctly put, the facts in brief are that the CIRP was initiated against M/s. Neosis Industries Ltd./the ‘Corporate Debtor’ vide Order dated 28.09.2018 and Mr. Yogender Kumar Gupta was appointed as the IRP who was later confirmed as the RP. Subsequently, the ‘Corporate Debtor’ went into Liquidation vide Order dated 28.11.2019 and the RP was also appointed as the Liquidator of the ‘Corporate Debtor’. The Liquidator published the sale of notice on 05.03.2020 for e-Auction of the property admeasuring 4050 sq. mts. and the constructed building of 2552 sq. mts. at Sector 8, IMT, Manesar District Haryana, fixing 17.03.2020 as the e-Auction date and Rs.6,50,00,000/- as the Minimum Reserve Price for the said property. While so, the applicant was declared as the ‘Successful Bidder’ and a letter of intent dated 18.03.2020 was issued in his name. The Liquidator, on receiving full consideration of the property, issued a possession letter dated 08.06.2020 and a Sale Deed dated 09.06.2020 was duly registered with the Sub-Registrar, Manesar. A Sale Certificate was also issued showing the manner of payment of sale consideration. Subsequently, the applicant sent a Letter dated 10.06.2022 to the Appellant/Haryana State Industrial Infrastructure Development Corporation Limited intimating the Auction and purchase of the property through the Liquidator. In response to the said Letter, the Appellant herein issued a Letter dated 19.06.2020 raising payment of Rs.4,46,35,445/– towards water, storage charges and additional interest. Hence, the Auction Purchaser preferred IA 3169/2020 before the Adjudicating Authority which has allowed the Application.

 

# 3. Learned Counsel for the Appellant submitted that the subject plot was allotted to M/s. Media Video Private Limited, whose name was later changed to M/s. Neosis Industrial Ltd./(the ‘Corporate Debtor’); permission to mortgage was granted vide Letter dated 24.06.2011, wherein the Appellant was having first charge on the plot against any outstanding recoverable dues; subsequent to the Liquidation Order dated 28.11.2019, the Liquidator published a notice for sale of the subject plot on an ‘as is where is basis’; and ‘nonrecourse basis’; the asset was being sold with all existing and future encumbrances and therefore the Successful Bidder was required to discharge all the liabilities of the ‘Corporate Debtor’; a Sale Deed dated 09.06.2020 was registered in favour of the Auction Purchaser who approached the Appellant seeking mutation in its favour; as per Section 55(4)(b) of the Transfer of Property Act, the Appellant asked the Auction Purchaser for Liquidating the unpaid sale consideration in respect of the subject plot; it is open for the Liquidator to conduct any Auction on any asset on ‘as is where is basis’ and the Auction Purchaser is bound by the terms of such sale and the concept of ‘clean slate’ is not applicable in this case as the asset has not passed to the Auction Purchaser in pursuance of Successful Resolution, but in fact it has passed on to him on account of Liquidation of the ‘Corporate Debtor’.

 

# 4. It is further submitted by the Learned Counsel for the Appellant that the dispute in hand does not pertain to determination of hierarchy of disbursement and there is no question of attraction of Section 238 of the Code. Learned Counsel placed reliance on the Judgement of the Hon’ble Supreme Court in ‘Municipal Corporation of Greater Mumbai’ Vs. ‘Abhilash Lal & Ors.’, (2020) 13 SCC 234 and also relied on the ratio of the Hon’ble Apex Court in the Judgement of ‘Telangana State Southern Power Distribution Company Ltd.’ Vs. ‘Srigdhaa Beverage’, (2020) 6 SCC 4040, wherein the Hon’ble Apex Court has observed as follows:

• “It was noted by the Hon’ble Supreme Court that as an auction purchaser bidding in an “as is where is, whatever, there is an without recourse basis”, the purchaser would have inspected the premises and made inquiries about the dues in all respects and as there is a specific mention of electricity dues as liability of the purchaser the purchaser was clearly put to notice in this behalf. Hence it was held that the liability to pay electricity dues exists on the purchaser.”

 

# 5. Learned Counsel for the first Respondent/Auction Purchaser submitted that pursuant to the Order dated 12.11.2020, the first Respondent had addressed letters dated 05/01/2021, 25/01/2021 and 01.03.2021 to the Appellant to comply with the directions of the Adjudicating Authority and transfer the said property in the name of the first Respondent Company, but there was no response. Subsequently, vide Order dated 16.08.2021 the Adjudicating Authority directed the Appellant to transfer the said property in the name of the first Respondent within seven days, which was informed to the Appellant herein on the very next date. Learned Counsel drew our attention to the relevant para of the Order dated 16.08.2021, which is reproduced here for ready reference:

• “Learned Counsel along with the HOD Legal, make a joint statement that letter with respect to the transfer will be issued with one week without any further condition”. Appeal against the said order is pending and is listed on 27.08.2021. Mr. Nagesh, Learned Senior Counsel further states that the appeal is barred by limitation, hence no notice is still issued. On perusal of advance Copy Mr. Nagesh states that there is gross delay and the appeal is required to be dismissed at threshold. In view of the same the letter as undertaken by the Learned Counsel along with the HOD legal is required to be issued and this order be complied.”

 

# 6. It is submitted that the Appellant had intentionally delayed in filing the present Appeal and is only seeking to delay the proceedings further.

 

# 7. It is submitted that the first Respondent is a bona fide purchaser and now cannot be fastened with the liabilities relating to pre-sale confirmation; that the Order dated 12.11.2020 passed by the Adjudicating Authority conforms with the Principles of Doctrine of clean slate; that it is a settled law that post Admission of the Liquidation, the Auction Purchaser is not liable to discharge the dues relating to the property. Once the sale is confirmed, prior dues of the Municipal Authorities are to be discharged by the Liquidator out of the sale proceeds and the Auction Purchaser cannot be settled for any further liability.

 

# 8. The dues of the Appellant have already been dealt with by the Liquidator in accordance with Section 53 of the Code and therefore is estopped from raising any claims which have already been dealt with during the Liquidation Process.

 

Assessment:

# 9. The main point which falls for consideration in this Appeal is whether the Successful Bidder in an Auction conducted on ‘as is where is basis’ is liable to pay prior dues attached to such Auction property, when the Company is in Liquidation and the dues were claimed under ‘Operational Debt’ before the Liquidator?

 

# 10. At the outset, it is relevant to see the terms of the Auction sale relied upon by the Learned Counsel for the Appellant:

 

# 11. It is the case of the Appellant that as the Auction was held on an ‘as is where is basis’ and on a ‘non-recourse basis’, it is stated that the assets of the ‘Corporate Debtor’ have been sold with all the existing and future encumbrances, ‘the Auction Purchaser’ is liable to pay the dues outstanding with the Appellant. It is seen from the record that the Company went into Liquidation on 28.11.2019 and the Successful Auction Purchaser, on paying the full sale consideration was issued a Sale Certificate subsequent to executing a Sale Deed for the subject property on 09.06.2020.

 

# 12. The material on record establishes that the Appellant herein had filed their Form-C on 09.03.2020 which was defective and the Liquidator vide email dated 09.03.2020 pointed out the deficiency and sought clarifications on the information provided. A reminder was also sent on 12.03.2020 to consider the claim of the Appellant herein as an ‘Operational Creditor’. Subsequent to the e-Auction conducted and the receipt of the sale consideration, the Liquidator allocated the funds in accordance with Section 53 of the Code in a waterfall mechanism. The Liquidator submitted in his Reply Affidavit before the Adjudicating Authority that the 

• ‘dues of the Secured Financial Creditors against the ‘Corporate Debtor’ was much higher than the proceeds from the sale of Liquidation Assets of the ‘Corporate Debtor’ and therefore the dues of the Appellant herein could not be paid by the Liquidator under the Liquidation Process’. 

 

The same was also communicated to the Appellant herein vide email dated 19.06.2020. The relevant portion of the said email is reproduced as hereunder:

• “The sale proceeds were insufficient even to meet the claims of the secured creditors. Since your claim has been raised as an operational creditor, so even after an assuming such claim to be in Order there is no amount left for the payment to any operational creditor and hence your claim has not been paid”.

 

# 13. Having regard to the fact that the Appellant herein has already submitted his ‘Claim’ in Form-B as an ‘Operational Creditor’ when the ‘Corporate Debtor Company’ was in Liquidation and the Liquidator has already distributed the proceeds as per Section 53 of the Code, the contention of the Learned Counsel for the Appellant that the dues raised prior to the Auction are liable to be paid by the Auction Purchaser, has to be examined on the touchstone of the ratio of the Hon’ble Apex Court in the Judgement of ‘Committee of Creditors Essar Steels Standard Chartered Bank’ Vs. ‘Satish Kumar Gupta’, 2019 SCC OnLine 388, in which it was held as follows:

• “107. For the same reason, the impugned NCLAT judgement [Standard Chartered Bank Vs. Satish Kumar Gupta, 2019 SCC OnLine 388] in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” all claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution application knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does not on a fresh slate, as has been pointed out by us hereinabove. For these reasons, NCLAT judgement must also be set aside on this count.”

 

# 14. We also find it relevant to place reliance on the principle laid down by the Hon’ble Supreme Court in ‘Ghanshyam Mishra and Sons Private Limited’ Vs. ‘Edelweiss Asset Reconstruction Company Limited’ (2021) SCC OnLine 313, wherein the Hon’ble Apex Court has observed as follows:

• “61. All these details are required to be contained in the information memorandum so that the resolution applicant is aware, as to what are the liabilities, that he may have to face and provide for a plan, which apart from satisfying a part of such liabilities would also ensure that the Corporate Debtor is revived and made a running establishment. The legislative intent of making the resolution plan binding on all the stakeholders after it gets the seal of approval from the Adjudicating Authority upon its satisfaction that the resolution plan approved by CoC meets the requirement as referred to in sub-section (2) of Section 30 is, that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. The dominant purpose is that he should start with fresh slate on the basis of the resolution plan approved.”

 

# 15. The Judgement in ‘Telangana State Southern Power Distribution Company Ltd.’ (Supra), relied upon by the Learned Counsel for the Appellant is not applicable to the facts of this case as under the provisions of the Code, the Appellant had claimed the amount as an ‘Operational Creditor’, though his claim was rejected. The principle of ‘clean slate’ laid down in the Judgement of the Hon’ble Apex Court in ‘Committee of Creditors Essar Steels Standard Chartered Bank’ is applicable to the facts of this case, though it pertains to a successful Resolution Applicant. The scope and purpose of this Code and the ratio of the Judgement is to be interpreted in its truest sense, i.e., not to saddle the ‘purchaser’ with any ‘hydra head’ popping up.

 

# 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.

 

# 17. Hence, we do not see any illegality or infirmity in the Order of the Adjudicating Authority and hence this Appeal fails and is accordingly dismissed. No order as to costs.

----------------------------------------

M/s Alpesh Gems Vs Surat Municipal Corporation - Section 100 of the Transfer of Property Act was the general prohibition that no charge could be enforced against any property in the hands of a transferee for consideration without notice of the charge;

 HC Ahmedabad (18.04.2022) in M/s Alpesh Gems Vs Surat Municipal Corporation [R/Special Civil Application No. 4905 of 2022] held that

• Section 141(1) of the Bombay Provincial Municipal Corporation Act merely created a charge in express language; this charge was subject to prior payment of land revenue due to the State Government on such building or land; 

• the Section, apart from creating a statutory charge, did not further provide that this charge was enforceable against the property charged in the hands of a transferee for consideration without notice of the charge; 

• Section 100 of the Transfer of Property Act was the general prohibition that no charge could be enforced against any property in the hands of a transferee for consideration without notice of the charge; 

• According to Section 3 of the Transfer of Property Act, which is described as the interpretation clause, a person is said to have notice of a fact when he actually knows that fact or when, before wilful abstention from an enquiry or search which he ought to have made or gross negligence, he would have known it;  

• A charge may not be enforced against a transferee if s/he has had no notice of the same, unless, by law, the requirement of such notice has been waived.

 

Excerpts of the order;

# 1 By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs:

• “(a) That the Hon’ble Court be pleased to issue a writ of mandamus and/or a writ in the nature of mandamus and/or any other appropriate writ, order or direction directing the Surat Municipal Corporation to demand/recover the property tax dues aggregating to Rs.19,87,171/- for the period prior to 26.02.2021 from the Liquidator of Kohinoor Diamonds Private Limited;

• (b) That the Hon’ble Court may be pleased to issue a writ of mandamus and/or a writ in the nature of mandamus and/or any other appropriate writ, order or direction directing the Surat Municipal Corporation to lodge a claim with respondent No.2 for the property tax dues with respect to the subject property for the period prior to 26.02.2021 in accordance with law, if at all the said tax dues are to be recovered;

• (c) That the Hon’ble Court may be pleased to issue a writ of mandamus and/or a writ in the nature of mandamus and/or any other appropriate writ, order or direction directing the Surat Municipal Corporation to issue bills for recovery of property tax with respect to the subject property for the period after 26.02.2021, if at all the said tax is to be levied;

• (d) Pending the hearing and final disposal of this petition, the Hon’ble Court may be pleased to restrain the Surat Municipal Corporation from taking any coercive measures against the petitioner and/or the subject property with respect to the property tax dues aggregating to Rs.19,87,171/- for the period prior to 26.02.2021;

• (e) Ad-interim relief in terms of prayer clause (c) hereinabove;

• (f) Such other and further reliefs that the Hon’ble Court deems fit in the interest of justice.”

 

# 2 The facts giving rise to this writ application may be summarized as under:

 

# 3 The writ applicant is a partnership firm. The firm is engaged in the business of Diamonds. The subject matter of dispute is an immovable property in the form of 12 units admeasuring 12,996 sq. ft. situated at Ashoka Tower, Kesarba Market, Gotalwadi, Katargam, Surat. The subject property was earlier owned by the Kohinoor Diamonds Private Limited. 

 

# 4 It appears that the Corporate Insolvency Resolution Process was initiated for the Kohinoor Diamonds by the National Law Tribunal, Ahmedabad Bench in the C. P. (IB) No.206/NCLT/AHM/2017. However, the resolution process was unsuccessful and vide order dated 13th November 2018, the company went into liquidation and the respondent No.2 herein was appointed as the Official Liquidator.

 

# 5 It also appears that the Liquidator vide his letter dated 18th September 2020 informed the Surat Municipal Corporation about the initiation of the liquidation process of the Kohinoor Diamonds. 

 

# 6 In the process of liquidation, a public advertisement dated 1st February 2021 was issued for E-auction of the subject property at a base price of Rs.2,33,31,000/-. The writ applicant participated in the Eauction proceedings and was declared as a successful bidder. The writ applicant paid the entire sale consideration of Rs.2,35,31,000/- to the Liquidator. The writ applicant was put in possession of the subject property. A formal deed of the sale transaction is yet to be executed by the Official Liquidator in favour of the writ applicant.

 

# 7 It is the case of the Surat Municipal Corporation that it has to recover an amount of Rs.19,87,171/- from the Kohinoor Diamonds towards arrears of property tax. According to the Surat Municipal Corporation, it has the first right or precedence to recover this amount towards arrears of property tax from the immovable assets of the Kohinoor Diamonds. To put it in other words, the Surat Municipal Corporation has an objection as regards the proceedings undertaken by the Liquidator of putting the subject property to E-auction.

 

# 8 The writ applicant had to come before this Court with the present writ application as despite the fact that the writ applicant has purchased the subject property in the E-auction proceedings conducted by the Liquidator, the Surat Municipal Corporation thought fit not to issue any property tax bills to the writ applicant for the period after the auction proceedings. Prima facie, it appears that the writ applicant has an apprehension that since the Surat Municipal Corporation has thought fit not to issue the property tax bills in the name of the writ applicant, it has declined to recognize the writ applicant as the lawful owner of the subject property. The writ applicant clarified with the Surat Municipal Corporation that it is liable to pay property tax for the period after the auction proceedings and not for the liability which Kohinoor Diamonds incurred in the past i.e. before the liquidation proceedings.

 

# 9 We have heard Mr. Aadit R. Sanjanwala, the learned counsel appearing for the writ applicant, Mr. Chandresh Vin, the learned counsel appearing for the Surat Municipal Corporation and Mr. Vishal Dave, the learned counsel appearing for the respondent No.2 (Official Liquidator).

 

# 10 The short point that falls for our consideration is whether the Surat Municipal Corporation can claim any first charge or precedence over the subject property for the purpose of recovering the arrears towards the liability of property tax incurred by the Kohinoor Diamonds by virtue of Section 141 of the Gujarat Provincial Municipal Corporations Act, 1949 (for short, the GPMC Act”). 

 

# 11 It is not in dispute that what is sought to be recovered by the Surat Municipal Corporation from the erstwhile Kohinoor Diamonds are the statutory dues towards the property tax.

 

# 12 As observed by the Supreme Court in the case of AI Champday Industries Ltd vs. Official Liquidator and another reported in (2009) 4 SCC 486, if the property tax was merely a statutory dues without creating any encumbrance on the property, then it is not obligatory on the part of the auction purchasers to make an investigation as regards the title etc. It would mean that auction purchasers need not find out all the liabilities of the company in liquidation in their entirety.

 

# 13 We cannot find any fault with the Official Liquidator in putting the subject property to E-auction. We also cannot find any fault with the writ applicant in participating in the auction proceedings. It is not in dispute that the writ applicant was the successful bidder. We quote the relevant observations made by the Supreme Court in the case of AI Champday Industries Ltd (supra) as under:

• “12. The terms and conditions of the sale must be read as a whole. It must be given a purposive meaning. The word `encumbrance' in relation to the word `immovable property' carries a distinct meaning. It ordinarily cannot be assigned a general and/or dictionary meaning.

• 13. We may however notice some dictionary meanings of the said word as reliance thereupon has been placed by Mr. Sibaji Sen. In Stroud's Judicial Dictionary of Words and Phrases 5th Edition Encumbrance is defined as:

• "being, `a claim, lien, or liability, attached to property'; and this definition is wide enough to cover the plaintiff's claim," which was, as assignee for value of a reversionary interest, against a person coming in under a subsequent title."

• In Supreme Court on Words and Phrases it is stated that "the word `encumbrance' means a burden or charge upon property or a claim or lien upon an estate or on the land." In Advanced Law Lexicon Encumbrance is defined as:

• "an infringement of another's right or intrusion on another's property."

• In Black's Law Dictionary Encumbrance is defined as:

• "any right to, or interest in, land which may subsist in another to diminution of its value, but consistent with the passing of the fee."

• Encumbrance, therefore, must be capable of being found out either on inspection of the land or the office of Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or depreciates in its value may be a mortgage or a deed of trust or a lien or an easement. Encumbrance thus must be a charge on the property. It must run with the property. If by a reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance.

• 14. If the property tax was merely a statutory dues without creating any encumbrance on the property which had cast a duty upon all the auction purchasers to make an investigation, it would mean that he must try to find out all the liabilities of the company in liquidation in their entirety. 

• 15. Respondent-Municipality was an unsecured creditor. In that capacity it cannot stand on a higher footing than an ordinary unsecured creditor who is required to stand in queue with all others similarly situated for the purpose of realization of their dues from the sale proceeds.

• 16. Companies Act or any other law does not impose any additional obligation upon the purchaser to make an enquiry with regard to the liabilities of the companies other than those which would impede its value.

• 17. Reliance has been placed by Mr. Sen on a decision reported in Ahmedabad Municipality Vs. Haji Abdul [AIR 1971 SC 1201] wherein it was held :

• "12…...The plaintiff purchased the property in November, 1954 and in our opinion it could not have reasonably been expected by him that the receivers would not have paid to the municipal corporation, since 1949 the taxes and other dues which were charged on this property by statute. According to Section 61 of the Provincial Insolvency Act, 1920 the debts due to a local authority are given priority, being bracketed along with the debts due to the State."”

 

# 16 The matter on hand can be examined from a different angle too. In the case of AI Champday Industries Ltd (supra) referred to above, we find reference of the decision of the Supreme Court in the case of Ahmedabad Municipal Corporation vs. Haji Abdul Gafur Haji Hussenbhai reported in (1971) 1 SCC 757. We must give some idea how this litigation originated and reached upto the Supreme Court.

 

# 17 In Ahmedabad Municipal Corporation of the City of Ahmedabad (supra), the defaulter was in arrears of property tax due under the Bombay Provincial Municipal Corporation Act, and the property was brought to sale in execution of a mortgage decree. When the municipality purported to exercise their charge over the property, the purchaser, in the court auction, filed a suit for declaration that he was the owner of the property and, therefore, arrears of municipal taxes due by the transferor were not recoverable by attachment and sale of the property in the hands of the purchaser. A Division Bench of this High Court in the case of Haji Abdul Gafuf Haji Hussenbhai vs. The Ahmedabad Municipal Corporation reported in (1967) 8 GLR page 65 accepted the case of the purchaser, and decreed the suit, holding that the charge created in favour of the municipal corporation was not enforceable against the property. Before the Supreme Court it was contended that there was an express provision in Section 141(1) of the Bombay Provincial Municipal Corporation Act, 1949 for holding the present property to be liable for the recovery of municipal taxes, and, though the property was subject only to a charge not amounting to mortgage and did not involve transfer of interest in the property, the same could nevertheless be sold, for realizing the amount charged, even in the hands of a transferee for consideration without notice; Section 141 was an express saving provision as contemplated by Section 100 of the Transfer of Property Act; the saving provision, contemplated by Section 100 of the Transfer of Property Act, without using express words, could, in effect, provide that the property was liable to sale in enforcement of the charge; if this liability was fixed by a provision expressly dealing with the subject, then the charge would be enforceable against the property even in the hands of a transferee for consideration without notice of the charge; it was not necessary for the saving provision to expressly provide for the enforceability of the charge against  the property in the hands of a transferee for consideration without notice of the charge; the plaintiff must be deemed to have constructive notice of the arrears of municipal taxes; as an auction purchaser, he must be held liable to pay these taxes; and the property purchased must also be held subject to this liability in his hands.

 

# 18 It is in the aforesaid context that the Supreme Court held that Section 141(1) of the Bombay Provincial Municipal Corporation Act merely created a charge in express language; this charge was subject to prior payment of land revenue due to the State Government on such building or land; the Section, apart from creating a statutory charge, did not further provide that this charge was enforceable against the property charged in the hands of a transferee for consideration without notice of the charge; what was enacted in the second half of Section 100 of the Transfer of Property Act was the general prohibition that no charge could be enforced against any property in the hands of a transferee for consideration without notice of the charge; the exception to this general rule must be expressly provided by law; the real core of the saving provision of the law must not be the mere enforceability of the charge against the property charged, but enforceability of the charge against the said property in the hands of a transferee for consideration without notice of the charge; Section 141 was clearly not such a provision; according to Section 3 of the Transfer of Property Act, which is described as the interpretation clause, a person is said to have notice of a fact when he actually knows that fact or when, before wilful abstention from an enquiry or search which he ought to have made or gross negligence, he would have known it; there were three explanations to this definition dealing with three contingencies when a person acquiring immovable property is to be deemed to have notice of certain facts; the circumstances, which by a deeming fiction, impute notice to a party are based on his wilful abstention to enquire or search which a person ought to make or on his gross negligence; this presumption of notice is commonly known as constructive notice; though originating in equity, this presumption of notice is now a part of the statute and has to be interpreted as such; wilful abstention suggests conscious or deliberate abstention and gross negligence, and is indicative of a higher degree of neglect; negligence is, ordinarily, understood as an omission to take such reasonable care as, under the circumstances, is the duty of a person of ordinary prudence to take; in other words, it is an omission to do something which a reasonable man, guided by consideration which normally regulate the conduct of human affairs, would do or doing something which a normally prudent and reasonable man would not do; the question of wilful abstention or gross negligence and, therefore, of constructive notice considered from this point of view is generally a question of fact or at best a mixed question of fact and law depending primarily on the facts and circumstances of each case; except for cases directly falling within the three explanations, no inflexible rule can be laid down to serve as a straight- jacket covering all possible contingencies; the question is not whether the purchaser had the means of obtaining, and might with prudent caution have obtained, knowledge of the charge, but whether in not doing so he acted with wilful abstention or gross negligence; and, being a question depending on the behaviour of a reasonably prudent man, the Courts have to consider it in the background of Indian conditions.

 

# 19 In Deputy Tax Commercial Tax Officer vs. R. K. Steels Ltd. (1998) 108 STC 161 (Mad), a Division Bench of the Madras High Court held that the judgment of the Supreme Court, in Ahmedabad Municipal Corporation (supra), was comprehensive in all respects, and should be taken note of while dealing with the cases of a transferee for value without constructive notice of sales tax arrears; the emphasis laid down by the Supreme Court, to avoid Section 100 of the Transfer of Property Act, was to have an express provision providing for the contrary; mere enforcement of a charge, resorting to the Revenue Recovery Act, was not an answer to Section 100 of the Transfer of Property Act; Section 24(2) of the Tamil Nadu General Sales Tax Act did not provide anything contrary to Section 100 of the Transfer of Property Act; and unless a provision was made in any statute, contrary to the rule of Section 100 of the Transfer of Property Act, a bona fide purchaser for consideration, without notice of the charge, was protected.

 

# 20 In State of Karnataka vs. Shreyas Papers (P) Ltd. [(2006) 144 STC 331 (SC)], it was contended before the Supreme Court that, since Section 13(2)(i) of the Karnataka Sales Tax Act created a charge on the property of the defaulting company, the charge would continue on the properties even if it changes hands by transfer. It is in this context that the Supreme Court held:-

“..While the expression "charge" is not defined by the KST Act, this concept is well known in property law and has been defined by Section 100 of the Transfer of Property Act, 1882 (hereinafter "the TP Act") … As the section itself unambiguously indicates, a charge may not be enforced against a transferee if s/he has had no notice of the same, unless, by law, the requirement of such notice has been waived. This position has long been accepted by this Court in Dattatreya Shanker Mote v. Anand Chitaman Datar, and Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai (hereinafter "Ahmedabad Municipal Corporation"). In this connection, we may refer to the latter judgment, which is particularly relevant for the present case In these circumstances, we are of the view that the First Respondent was a purchaser for value without notice of the sales tax arrears of the Defaulting Company or the consequent charge on the property. This would, therefore, attract the principle laid down by this Court in Ahmedabad Municipal Corporation, which is also embodied in the proviso to Section 100 of the TP Act. Thus, the property in the hands of the First Respondent was free of the charge and it is not open to the appellants to enforce the liabilities of the Defaulting Company in this manner against the First Respondent. The High Court, rightly in our view, held that the First Respondent before us was not liable for the tax arrears of the Defaulting Company. No issue as to the liability of the Corporation was raised or argued before, or decided by the High Court. In the present case, firstly, no provision of law has been cited before us that exempts the requirement of notice of the charge for its enforcement against a transferee who had no notice of the same. It remains to be seen, therefore, if in the facts of the present case, the first respondent had notice actual or constructive of the charge. .

• ..Thus, it is evident that the first respondent had no actual notice of the charge prior to the transfer. As to whether the first respondent had constructive notice of the charge, no substantive argument on this issue was made, either before the High Court or at any rate before us. Hence, we cannot hold that the first respondent had constructive notice of the charge. In these circumstances, we are of the view that the first respondent was a purchaser for value without notice of the sales tax arrears of the defaulting company or the consequent charge on the property. This would, therefore, attract the principle laid down by this Court in Ahmedabad Municipal Corpn. (supra) which is also embodied in the proviso to Section 100 of the TP Act. Thus, the property in the hands of the first respondent was free of the charge and it is not open to the appellants to enforce the liabilities of the defaulting company in this manner against the first respondent...” (emphasis supplied).

 

# 21 In Rukmani vs. Deputy CTO (Mad) [(2013) 62 VST 369], the Madras High Court held that, as the proviso to Section 24-A of the T.N.G.S.T. Act itself indicated, a charge may not be enforced against a transferee if he/she has had no notice of the same unless, by law, the requirement of such notice had been waived; the principle laid down, in Ahmedabad Municipal Corporation (supra), had been applied in Shreyas Papers P.Ltd (supra); though the respondent had contended that the petitioner ought to have obtained a 'No Objection' from the revenue, before purchasing the property, no provision had been quoted by the respondent in the counter affidavit; a purchaser, in the normal course, would only verify from the Registration Department as to whether the property to be purchased has any encumbrance; unless the charge is duly registered in the Registration Department, it would not be possible for any prospective buyer to know whether there is any charge over the property for arrears of tax or statutory dues to be paid to the Government or statutory body; no material had been produced before the Court to prove that the notice, demanding arrears of tax, had been served on the defaulter; no material had been placed before the Court to prove that steps had been taken, under the provisions of the Revenue Recovery Act, against the defaulter or the subsequent first purchased from whom the petitioner had purchased the property six years after the date of finalisation of the assessment; there was no material to indicate that the petitioner had any constructive notice of the charge; there was no pleading to that effect and, rightly, no arguments had been advanced; and, therefore, the Court was of the view that the case on hand would squarely fall within the ambit of the judgment of the Apex Court in Ahmedabad Municipal Corporation (supra).

 

22 At this stage, we may also refer to few provisions of the Insolvency and Bankruptcy Code, 2016 (for short, “the Code, 2016”). Section 14 provides for Moratorium. Section 14 reads thus: .  . . . . . . .

 

# 23 We are concerned with sub-clause (b) of sub-section (1) of Section 14 of the Code, 2016. Thus, on the insolvency commencement date, the Adjudicating Authority would have to declare moratorium by an order prohibiting transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or interest therein.

 

# 24 Section 38 of the Code, 2016 provides for consolidation of claims. Section 38 of the Code, 2016 reads thus:

• “38. Consolidation of claims.- (1) The liquidator shall receive or collect the claims of creditors within a period of thirty days from the date of the commencement of the liquidation process.

• (2) A financial creditor may submit a claim to the liquidator by providing a record of such claim with an information utility: Provided that where the information relating to the claim is not recorded in the information utility, the financial creditor may submit the claim in the same manner as provided for the submission of claims for the operational creditor under sub-section (3).

• (3) An operational creditor may submit a claim to the liquidator in such form and in such manner and along with such supporting documents required to prove the claim as may be specified by the Board.

• (4) A creditor who is partly a financial creditor and partly an operational creditor shall submit claims to the liquidator to the extent of his financial debt in the manner as provided in sub-section (2) and to the extent of his operational debt under sub-section (3).

• (5) A creditor may withdraw or vary his claim under this section within fourteen days of its submission.”

 

# 25 In the last, we may look into Section 238 of the Code, 2016, which reads thus:

• “238. Provisions of this Code to override other laws.- The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

 

# 26 The only option now left with the Surat Municipal Corporation is to put forward its claim with the Liquidator as one of the creditors who has to recover a particular amount towards property tax from Kohinoor Diamonds.

 

# 27 In view of the aforesaid, we declare that the Surat Municipal Corporation cannot claim any first charge or precedence over the subject property by virtue of Section 141 of the BPMC Act. The auction proceedings have attained finality. The writ applicant as on date is the lawful owner of the subject property. The Surat Municipal Corporation may recover the property tax from the writ applicant from the date of purchase of the subject property in the E-auction proceedings. If the entries as regards the sale in the revenue record of rights have not been mutated, the revenue authority shall proceed to do so in favour of the writ applicant.

 

# 28 We reserve the liberty in favour of the Surat Municipal Corporation to recover the requisite amount towards the property tax by taking up the issue with the Official Liquidator i.e. the respondent No.2 in accordance with the provisions of the Companies Act.

 

# 29 At this stage, Mr. Sanjanwala pointed out that the Official Liquidator has yet to execute the sale deed in favour of his client. The Official Liquidator shall now proceed to execute the sale deed in accordance with law.

 

# 30 With the aforesaid, this writ application stands disposed of.

 

----------------------------------------------

Blogger’s Comments; I think the question for consideration before the Hon’ble Court should have been;

• “ Whether a secured creditor can enforce security interest beyond the provisions of the Code (I & BC,2016), after liquidation of a company has been ordered by Adjudicating Authority under the provisions of the Code, irrespective of the constructive notice of the charge (Statutory or otherwise) on the property.”

 

After public announcement by the liquidator under section 35(1)(j), its obligatory on the part of all the creditors to file claims with the Liquidator. Statutory Dues have been defined as operational debt;

Section 3 (11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;

Section 5 (21) “operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the 2[payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;

 

Section 52 of the Code provides the option to a secured creditor, either to enforce his security interest or to relinquish his security interest  in favour of the Liquidator and receive the proceeds of realisation of the assets as per the priority laid down under Section 53.

In my opinion, none of the charge holders (statutory or otherwise) on the property of the company can proceed against the auction purchaser of the property after the Liquidation order has been issued by the Adjudicating Authority. 

 

----------------------------------------------------------