Calcutta High Court Holds Pre-Liquidation Municipal Dues Cannot Be Fastened On Auction Purchaser; ‘As Is Where Is’ Clause Subordinate To IBC

Calcutta High Court Holds Pre-Liquidation Municipal Dues Cannot Be Fastened On Auction Purchaser; ‘As Is Where Is’ Clause Subordinate To IBC

Introduction

The Calcutta High Court has ruled that municipal dues pertaining to a corporate debtor undergoing liquidation under the Insolvency and Bankruptcy Code (IBC) cannot be independently enforced against an auction purchaser. The Court held that once liquidation commences, statutory claims must be addressed strictly within the framework of the IBC and cannot survive outside it through reliance on contractual clauses such as “as is where is” or “whatever there is.”

Factual Background

The petitioners purchased 3,430 sq. ft. of office space along with two car parking spaces in Kolkata through an e-auction conducted by the liquidator of Nicco Corporation Limited. The company had been ordered into liquidation by the National Company Law Tribunal (NCLT), Kolkata, on October 17, 2018.

Subsequently, on July 28, 2022, the Kolkata Municipal Corporation (KMC) issued a notice proposing retrospective revaluation of the property from the first quarter of 2005–2006 and raised consequential tax demands. An assessment order followed on August 23, 2022.

The Corporation sought to rely on standard auction conditions stating that the property was sold on an “as is where is” and “whatever there is” basis.

Procedural Background

Aggrieved by the retrospective tax demands, the auction purchasers filed a writ petition challenging the validity of the notice and assessment order. They contended that KMC, being an operational creditor, was required to lodge its claim before the liquidator during liquidation proceedings and could not raise fresh demands post-sale.

Issues

1. Whether municipal dues for pre-liquidation periods can be recovered from an auction purchaser after liquidation under the IBC.

2. Whether contractual clauses such as “as is where is” override the statutory scheme of the IBC.

3. Whether the IBC’s overriding provision bars independent enforcement of municipal claims.

Contentions of the Parties

The petitioners argued that no quantified arrears existed at the time of auction and that the municipal corporation had not lodged any claim before the liquidator during the liquidation process. Therefore, no enforceable encumbrance could pass to them.

The municipal authority sought to justify its action by invoking auction conditions and its statutory powers under the Kolkata Municipal Corporation Act, contending that the purchaser acquired the property along with all liabilities attached thereto.

Reasoning and Analysis

Justice Rai Chattopadhyay held that contractual clauses like “as is where is” and “whatever there is” cannot override the statutory framework of the IBC. The Court observed that Section 238 of the IBC confers overriding effect over inconsistent laws, including municipal statutes.

The Court clarified that municipal dues must be dealt with in accordance with Sections 53 and related provisions of the IBC during liquidation. If no claim was lodged before the liquidator and no demand crystallised prior to sale, such dues cannot be enforced independently against the auction purchaser. It was further held that contractual terms cannot elevate or preserve a municipal charge that stands extinguished or subordinated under the IBC scheme.

Decision

The High Court set aside the impugned notice and assessment order to the extent they imposed liability for periods prior to September 26, 2019. It held that any pre-liquidation municipal dues could only be recovered within the IBC mechanism and not from the auction purchaser independently.

In this case the petitioner was represented by Mr. Arindam Banerjee and Mr. Danish Taslim, Advocates.