Statutory Charge Upheld: NCLAT Declares Kolkata Municipal Corporation a Secured Creditor

Statutory Charge Upheld: NCLAT Declares Kolkata Municipal Corporation a Secured Creditor

Introduction

The National Company Law Appellate Tribunal (NCLAT) has held that the Kolkata Municipal Corporation is a secured creditor by virtue of Section 232 of the Kolkata Municipal Corporation Act, 1980.

Factual Background

The corporate debtor had an outstanding property tax due to the Kolkata Municipal Corporation, which led to the issuance of a warrant of distress. The CIRP was initiated, and the appellant issued a demand notice for the property tax dues. The liquidation order was passed, and the appellant sealed the property, which was later de-sealed.

Procedural Background

The appellant filed its claim before the liquidator, which was rejected and categorized as an unsecured operational creditor. The adjudicating authority partly allowed the appeal, directing the liquidator to admit the dues but ruled that the Kolkata Municipal Corporation is not a secured creditor.

Contentions of the Parties

Appellant : Contended that by virtue of Section 232 of the Kolkata Municipal Corporation Act, 1980, the dues are a statutory charge, and the appellant is a secured creditor of the corporate debtor. Relied on the ruling of 'State Tax Officer' vs. 'Rainbow Papers Ltd.'.

Respondent: Contended that the ruling of 'Rainbow Papers Ltd.' is not applicable, as it considered Section 48 of the Gujarat Value Added Tax Act, which contained a non-obstante clause, whereas Section 232 of the Kolkata Municipal Corporation Act does not contain any non-obstante clause.

Reasoning and Analysis

The NCLAT discussed the decision of Pashchimanchal Vidyut Vitran Nigam Ltd. and observed that the dues payable for statutory corporations do not fall within the amount due to the Central or State Government. The bench considered the decision of Kolkata Municipal Corporation & Anr. vs. Union of India & Ors. but did not find it applicable due to the lack of discussion on the point of secured creditor. The NCLAT referred to the decisions of 'Pashchimanchal Vidyut Vitran Nigam', 'State Tax Officer' (supra), and 'Greater Noida Industrial Development Authority' (supra) and observed that the appellant has a statutory charge by virtue of Section 232 of the Kolkata Municipal Corporation Act, and the appellant is a secured creditor.

Decision

The bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical) modified the order of the adjudicating authority and declared the 'Kolkata Municipal Corporation' a secured creditor.

Implications

The decision highlights the importance of statutory charges and the rights of secured creditors in insolvency proceedings.

In this case the appellant was represented by Ms. Anju Thomas, Ms. Pratibha Yadav, Ms. Astha Sharma, Ms. Kritika Sethia and Mr. Piyush Agarwal, Advocates. Meanwhile the respondent was represented by Mr. Mohit Rohatgi, Mr. Ashwini Kumar Tak, Ms. Aditi Nemakal and Mr. Karan Trehan, Advocates.