IN THE HIGH COURT AT CALCUTTA

CONSTITUTIONAL WRIT JURISDICTION

(ORIGINAL SIDE)

Present:

The Hon’ble Justice Rai Chattopadhyay

WPO 2435 of 2022

Mamta Binani & Anr.

Vs.

Kolkata Municipal Corporation & Ors.

For the Petitioners : Mr. Arindam Banerjee

: Md. Danish Taslim

For the KMC : Mr. Biswajit Mukherjee

: Mr. Gopal Chandra Das

: Ms. Manisha Nath

Judgment on : 16.02.2026

Rai Chattopadhyay, J. :-

1. Subject matter of the instant writ petition is the proposed revaluation of the

property and the amount of commensurate outstanding tax claimed by the

respondent/KMC for a period prior to the purchase of the property by the writ

petitioners, with respect to the office space measuring 3430 Sq. Ft. on the 2nd

floor of the building being premises No. 1B and 2, Hare Street, Kolkata-700001,

together with the two car parking spaces therein, which the petitioners have

purchased by executing a deed of conveyance on September 26, 2019, for a

consideration of Rs. 2,54,63,500/-. The present matter requires determination

of issues that whether the respondent/Kolkata Municipal Corporation can

retrospectively revalue property and levy tax for periods prior to purchase;

whether municipal dues survive liquidation under the Insolvency and

Bankruptcy Code, 2016 (IBC); and whether an auction purchaser can be

saddled with past statutory dues.

2. According to the notice dated July 28, 2022, under sections 184 read with

section 185 of the Kolkata Municipal Corporation Act, 1980, for the purpose of

determination of annual valuation related to assessment of property tax, the

respondent Corporation has intended to make the revaluation of the property

effective for the following periods:

i. 1st Quarter 2005-2006

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ii. 1st Quarter 2008-2009

iii. 3rd Quarter 2009-2010

iv. 4th Quarter 2010-2011

v. 2nd Quarter 2012-2013

vi. 1st Quarter 2013-2014

vii. 2nd Quarter 2015-2016

viii. 4th Quarter 2016-2017

ix. 1st Quarter 2017-2018

The percentage of the petitioners‟ pro rata liability to the extent of

2.65 % was also mentioned in the said letter.

4. The petitioners say that considering the background facts of the instant

case, the respondent KMC authority is the operational creditor of the private

respondent company, which is in liquidation. That, the amount payable if

any, to the operational creditors, in case of liquidation of the company, shall

be paid in accordance with section 53 of the Insolvency and Bankruptcy

Code, 2016, and Regulations made amongst all the operational creditors,

whose claims have been filed and duly admitted by the liquidator. They say,

also similarly if any valuation/revaluation are proposed for the period prior

to the date of purchase by the petitioners, that is September 26, 2019, the

same would lie only before the private respondent company and not before

the present petitioners.

5. Therefore, by challenging the impugned notices as mentioned above, the

instant writ petition has been filed by the petitioners with the prayers inter

alia that, the notice dated July 28, 2022 (being Annexure P4 in the writ

petition) may be set aside and the said respondent should act in accordance

with law so far as re-valuation of the property purchased by the petitioners

on September 26, 2019 and imposition of tax thereon, is concerned.

Subsequently assessment of property tax has also been made by the

respondent and challenged by the petitioner by filing supplementary affidavit

here. Assessment for the latest period in terms of the revised valuation has

been challenged too in this writ petition. Let the factual background be

narrated in a nutshell for benefit of discussion, which is as follows:-

6. The National Company Law Tribunal, Kolkata Bench (in short “NCLT,

Kolkata Bench”) vide order dated October 17, 2018, in Company Petition No.

03/KB/2017 (Re- Nicco Corporation Limited) directed liquidation of the said

company in accordance with the provisions of the Insolvency and

Bankruptcy Code, 2016 (in short “ IBC 2016”). Learned Liquidator was

appointed and liquidation proceeding commenced. Part of the premises No.

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1B and 2, Hare Street, Kolkata- 700001 to the extent owned by Nicco

Corporation Limited became a part of the liquidation estate of the company

in liquidation. Accordingly, the liquidator issued invitation for Expressions of

Interest (EOI dated January 10, 2019), for sale of premises namely, “Nicco

House”, on the basis of the reserved price determined in accordance with the

Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations,

2016 through wide publication. In response to the EOI, was bid submitted

by the consortium consisted of 10 members including the present petitioners

in the E-auction conducted on the basis of the EOI as above. The consortium

stood as the highest bidder for purchase of total 50,686 sq. ft. carpet area of

the concerned premises, out of which the petitioners had jointly purchased

an area measuring 3430 sq. ft. on the 2

nd floor of the building together with

two car parking spaces and undivided proportionate share in the land. The

petitioners paid a consideration money to the tune of Rs. 2,54,63,500/- and

the Liquidator executed a registered deed of conveyance in their favour on

September 26, 2019, transferring thereby the right, title and interest of the

said portion of the premises in favour of the petitioners.

7. Vide letter dated June 28, 2022, addressed to the respondent No. 2, the writ

petitioners desired to mutate their names in the records as regards the

property purchased by them and also to pay total amount of tax required to

be paid, for the property they purchased and owned since September 26,

2019. Such letter of the petitioners was however, never replied to by the

respondent Authority.

8. Instead, the petitioners were sent the impugned notice dated June 28, 2022,

under Sections 184 and 185 of the Kolkata Municipal Corporation Act, 1980.

Allegedly, the petitioner‟s reply to the said notice vide letter dated August 01,

2022, as well as August 08, 2022, remained unattended. According to the

petitioners, the impugned notice as above, is not maintainable as against

them and the same should be set aside. Hence, they have filed the instant

writ petition for relief.

9. Mr. Arindam Banerjee, learned advocate for the writ petitioners has

submitted that the petitioner‟s preliminary objection is as regards the

jurisdiction of the respondent authority to conduct an exercise of revaluation

of the concerned property in the hands of the petitioners, on a date when the

petitioners undisputedly were not the owners of the same. In the writ

petition the Court has earlier passed an order granting liberty to the

respondent authority to assess the property tax due for the concerned

property after the date of liquidation, that is after October 13, 2017. which

would be payable by the petitioners after apportionment. The Court directed

that the petitioners shall be liable to pay without prejudice to their rights

and contentions, which the KMC shall accept similarly.

Page 4 of 16

10. Therefore, an order of assessment dated August 19, 2023, was received by

the writ petitioners in which the annual valuation of the property was

considered to be Rs. 12,45,860/- with effect from 4

th Quarter of 2017-2018

and the quarterly property tax was assessed to the tune of Rs. 63,850/- for

the 4

th Quarter of 2017-2018, for the writ petitioners. The petitioners

however, in terms of the Court‟s order dated September 8, 2022, paid

advance sum of Rs. 5,00,000/- to the respondent No.1, without prejudice to

their rights and contentions in the writ petition.

11. Mr. Banerjee, learned Advocate has submitted that the purported

assessment was made by the respondent based on spot inspection, though

in absence of the petitioners. Also, that the order of assessment was passed

by the respondent without affording any opportunity of hearing to them. He

says that the property tax payable by the petitioners as admissible in law

would be that calculated since after the date of purchase of the property by

the petitioners, that is September 26, 2019. In their letter dated September

1, 2023, the petitioners have addressed the purported assessment order as a

flawed one and that the basis of the annual valuation of the property to be

contrary to the law. It is submitted that in the 1st supplementary affidavit

affirmed by the petitioners, prayer has been made for setting aside the order

of assessment dated August 23, 2023. In the 2

nd supplementary affidavit the

petitioners have prayed for setting aside of the property tax bill raised

against them for the year 2024 – 2025.

12. Mr. Banerjee, learned advocate for the writ petitioners has submitted that

the special statute namely the Insolvency and Bankruptcy Code, 2016, has

provided for definite measures for the operational creditor like the

respondent authority, to lodge its claim with respect to the property in

liquidation, on the Liquidation Commencement Date, in statutory format and

with the required documents being submitted with the same. He submits

that the provisions of the said self-contained special statute shall prevail

over all general laws of the contrary. It has been contended that the

respondent authority has never complied with the provisions of the statute

as above, though it has not been disputed ever that the property in question

has gone into liquidation. That, the respondent has never filed any claim to

the Liquidator of the company in liquidation namely, “Nicco Corporation

Limited” and has wrongly issued the impugned notice. Therefore, Mr .

Banerjee has submitted that the proposed assessment is wholly without

jurisdiction and bad in law.

13. Mr. Banerjee has further submitted that the auction purchaser under the

IBC 2016 cannot be fastened with the liability of the Company/Corporate

Debtor prior to the date of purchase by the auction purchaser. This is

irrespective of whether the Notice Inviting Tender says that the intended sale

on “as is where is” or “whatever there is” or “no recourse” basis. The auction

Page 5 of 16

purchaser under IBC, 2016 is made immune from past dues by the statutory

provisions of the said Code. In the instant case, purchase of the subject

property took place on 26th September 2019 and therefore the impugned

notice is not sustainable in the eye of law.

14. Mr. Banerjee learned advocate has further stated that „The Waterfall

Mechanism‟, as envisaged under section 53 of I & B Code, 2016, a trite law,

proceeds on the basis that once a Company goes into liquidation under the

aegis of the IBC, the amount payable to the operational creditors (like the

respondent Kolkata Municipal Corporation) in the present case, would be

paid in accordance with Section 53 of the IBC amongst all the operational

creditors who had duly filed their claims with the Liquidator and whose

claims were duly admitted by the Liquidator. Those operational creditors

who have failed to lodge their claim with the liquidator have no right to claim

from the auction purchaser.

15. Lastly, it has been submitted that in the on-going liquidation process, the

respondent may lodge its claim before the Liquidator, in accordance with the

law. However, the respondent in any event cannot lodge any past claim

against the writ petitioners, owing to the statutory fiction contemplated

under the Code of 2016.

16. In his argument Mr. Banerjee learned advocate has emphasized the “clean

slate principle” and the “waterfall mechanism”, that a new purchaser of

property of company in liquidation is not liable for the past debts thereof if

any; claims not lodged before the resolution professional do not survive in

law and are frozen upon approval of the resolution plan. Government dues,

in case of a company in liquidation fall under the “waterfall mechanism” as

per section 53 of the IBC; the obligation to inquire into the liabilities of the

company in liquidation does not fall on the purchaser of the property in

liquidation. In this regard Mr. Banerjee has relied on the judgments

(i) Tata Power Western Odisha Distribution Limited & Another versus

Jagannath Sponge Private Limited [2023 SCC OnLine SC 2442]

(ii) Shiv Shakti Inter Global Exports Private Limited versus KTC Foods

Private Limited [2022 SCC Online NCLAT 85],

(iii) Sri Vasavi Industries Limited & Another vs West Bengal State

Electricity Distribution Company Limited [WPA No. 1936 of 2022,

judgment dated March 23, 2022],

(iv) Ruchi Soya Industries vs Union of India [(2022) 6 SCC 343] and

(v) Bhatpara Municipality vs Nicco Eastern Private Limited & Anr

[2021 SCC Online NCLAT 612].

In support of his contention that dues prior to resolution plan approval are

treated as extinguished in the eye of law, Mr. Banerjee has referred to the 3

Judges Bench decision of the Supreme Court in Ghanashyam Mishra &

Page 6 of 16

Sons Private Limited versus Edelweiss Asset Reconstruction Company

Limited [(2021) 9 SCC 653].

Decision of the Supreme Court in AI Champdany Industries Limited

versus Official Liquidator & Another [(200 9) 4 SCC 486] has been

referred to on the proposition of law relied on by the petitioners that

purchasers of property in liquidation are not obliged to investigate the

liabilities of the company in liquidation, even if the sale is on “as is where is”

and “whatever there is” basis. Claims against the company in liquidation

must be filed before the Liquidator until the property is sold as per section

457 of the Companies Act. Once the property is sold the company‟s assets

are distributed to the creditors, secured and unsecured, in order of

preference. That property tax past dues of the company in liquidation are not

recoverable from the auction purchaser.

Lastly, the petitioners have contended that the IBC has an overriding effect;

the government dues are subject to the “waterfall mechanism” under section

53 of the IBC. In this regard a judgment of the Supreme Court in

Paschimanchal Vidyut Vitran Nigam Limited vs Raman Ispat Private

Limited [(2023) 10 SCC 60], has been relied on by the petitioners.

17. Furthermore, with reference to Section 55 (1) (g) of the Transfer of Property

Act, 1872 and Section 193 of the Kolkata Municipal Corporation Act, 1980,

Mr. Banerjee has argued that, for all periods prior to the purchase, the writ

petitioners, being strangers to the property, no assessment could have been

made in their hands or tax imposed on them for the period prior to the date

of purchase. Lastly, with reference to the judgment of this Court in

Sahujain Charitable Society and Another Vs. The Kolkata Mu nicipal

Corporation and Others [2018 SCC OnLine Cal 4793 ], it has been

submitted that scope for retrospective assessment of annual valuation for

any period prior to three years from the date of order of assessment is

barred. So also, the purported revision of valuation in case of the present

petitioners which pertains to the year starting from 2005-2006, are also

time-barred in view of the ratio decided in Sahujain’s Case (Supra).

18. For all these reasons, it has been submitted on behalf of the writ petitioners

that, the impugned notice dated July 28, 2022, as well as assessment on the

basis of the purported retrospective revaluation of the property concerned

may be set aside.

19. The respondent/Kolkata Municipal Corporation, being represented by Mr.

Mukherjee, learned Advocate. has raised stern opposition to the contentions

and prayer of the writ petitioners in the instant case. The respondent‟s first

ground of objections is that the petitioners have knowingly, wilfully and

voluntarily responded to the notice inviting Expression of Interest (EOI)

dated September 12, 2018 and January 10, 2019. Mr. Mukherjee says that,

thereby the petitioners have accepted the terms and conditions as prescribed

Page 7 of 16

therein. With reference to the relevant Clauses in the EOI, Mr. Mukherjee

has submitted that, after accepting the Clauses of the EOI, there would not

be any occasion for the petitioners to deny direct and/or constructive notice

regarding the factum of arrear property tax related to the concerned

property, which were yet to be paid even on the date of purchase of property

by the present petitioners. The following terms and conditions in EOI have

been referred to -

“i. The proposed sale will be conducted on “AS IS WHERE IS AND WHATEVER

THERE IS BASIS” and “NO RECOURSE BASIS”.

ii. The submission of the Bid means and implies that the Applicant has read

carefully and unconditionally and irrevocably agreed to and accepted all the

terms and conditions laid herein.

iii. The Purchaser shall take the Sale Asset subject to any statutory liabilities

like arrear of property tax, outstanding electricity charges, license, approval

charges, etc.”

20. He submits that, it is a fact in this case that, there has been a willful and

conscious suppression of material fact by the writ petitioners which actually

disentitle them to seek and get any relief from this Court of equity. According

to Mr. Mukherjee, the petitioners have intentionally suppressed two things,

firstly that the EOI contains contingent clauses and that the petitioners were

granted actual possession of the property from an earlier date than the date

of execution of the sale deed. Therefore allegedly the petitioners have misled

the Court as regards their actual and/or constructive knowledge regarding

pending property tax. In this regard, Mr. Mukherjee has referred to the

judgment of the Supreme Court in Commissioner of Customs (Preventive)

Vs. Aafloat Textiles India Private Limited and Others reported in (2009)

11 SCC 18 to submit that deliberate suppression of material fact is fatal for

the writ petitioners.

21. Mr. Mukherjee has submitted that, the EOI has specified that the

purchasers shall be liable for payment of statutory liability like arrear of

property tax, which imply that, there is an unfinished statutory duty still

remaining overdue with respect to the said property and it is the obligation

of the petitioners to discharge the statutory duty of payment of arrear

property tax with respect to the said property. Mr. Mukherjee has referred to

a Supreme Court judgment in State of Madhya Pradesh and Other s Vs.

Shyama Charan Shukla (1972 4 SCC 371) in which the Supreme Court

has held that, the word „arrear‟ in respect of tax has been used in the sense

of dues or what has become due by way of tax and that does not depend on

assessment proceedings or quantification of the amount.

22. Mr. Mukherjee further refers to the judgment of this Court in Rashmay Das

Vs. the Kolkata Municipal Corporation & Others reported in 2012 Vol 2

CHN Cal 765 and the provision under Section 183 (5) of the Kolkata

Page 8 of 16

Municipal Corporation Act, 1980 to submit that it is an imperative obligation

of the petitioners to make payment of the due property tax of the concerned

premises before mutation of the portion purchased by them in their name in

the Municipal records. He says that the Court in Rashmay Das’s Case

(Supra) has decided that, the Corporation is not legally bound to mutate the

name of the petitioners in respect of their purchased portions in a property

until and unless the petitioners pay the arrears of property tax to the

Corporation.

23. Much emphasis has been given to the terms of EOI that the proposed sale

will be conducted on „as is where is and whatever there is‟ and „no recourse‟

basis. In this regard, the judgment of Supreme Court in Telengana State

Southern Power Distribution Com pany Limited Vs. Srigdhaa Beverages

reported in 2020 (6) SCC 404 and relied on in the subsequent judgment in

K.C. Ninan Vs. Kerala State Electricity Board and Others reported in

(2023) SCC OnLine SC 663 have been mentioned where the the Hon‟ble

Supreme Court while considering a case of auction sale, analysed Clauses

24 and 26 of the auction notice, which stipulated an “as is where is” sale

with respect to all statutory dues and absolved the authorized officer of all

liabilities for any charge, encumbrances and dues, including electricity dues.

It concluded that the auction purchaser was “clearly put to notice” since

there was a specific mention of the quantification of dues of various

accounts including electricity dues. On the liability of the past owners to

bear electricity dues is specifically mentioned this Court categorically held

that the auction purchasers were bound to inspect the premises and provide

for the dues in all respects.

24. He submits that, it is the settled law pursuant to the ratio decided by the

Supreme Court in the judgments as mentioned above, that a sale on „as is,

where is‟ basis postulates that the purchaser would be acquiring the asset

with all its existing rights, obligations and liabilities and when a property is

sold on „as is where is‟ basis, encumbrances on the property stand

transferred to the purchaser upon sale.

25. To counter the petitioner‟s submission on the basis of the ratio decided in

Sahujain’s Case (Supra), Mr. Mukherjee submits that, in the same, the

Court has not considered an earlier judgment in the Calcutta Municipal

Corporation Vs. Abdul Halim Gaznav i Molla & Ors. reported in 1998

SCC OnLine Cal 117 , wherein it was held that, the limitation provided

under Section 573 of the Calcutta Municipal Corporation Act, 1980 cannot

have any application in relation to taxes and if any limitation for recovery of

any taxes was to be provided for the legislature by its own wisdom, should

have incorporated the same in clear and unequivocal language in Chapter –

XVI itself. Mr. Mukherjee says that a provision for limitation can only be

brought about by a statute.

Page 9 of 16

26. Lastly, it has been submitted by Mr. Mukherjee that the petitioners have

prematurely come before this Court in the present writ petition whereas the

statutory remedy of an appeal as against the decision of the concerned

authority in case of any grievance or dissatisfaction is always available to the

writ petitioners. According to Mr. Mukherjee, the impugned notice being only

in the form of proposal and subject to final decision of the authority upon

hearing the party, has been untimely challenged by the petitioners in the

present writ petition. He refers to the decision of the Supreme Court in this

regard in Indo Asahi Glass Company Limited and Another Vs. Income

Tax Officers and Others reported in (2002) 10 SCC 444.

27. Mr. Banerjee, learned advocate for the writ petitioners has stated in reply

that, the proposed revaluation of the property and taxes for a period prior to

the date of purchase of property by the petitioners is not an assessment or

calculation which was pending for realization. Instead, upon receipt of

prayer made by the petitioners for mutation of the property newly

purchased, fresh assessments have been proposed and intended to be levied

from a retrospective date. Mr. Banerjee submits that the proposed

revaluation and tax based upon the same as assessed, were never any

unpaid due particularly that, at the time of auction and purchase of property

by the petitioners. He says that assessment of property tax on the basis of

revaluation of the property of the previous period cannot mature into a

property tax payable until and unless the same is quantified. Mr. Banerjee

has argued that, on the date of purchase of the concerned property by the

petitioners, there was no quantified or proposed property tax, due and

pending as against the concerned property which has been eventually

purchased by the writ petitioners. Therefore, in spite of a clause having been

mentioned in the EOI that the property is saleable on „as is where is and

whatever there is‟ basis, the petitioners were not in a position to gather any

actual or constructive notice as regards any Municipal due on the date of

their purchase. In reply, Mr. Banerjee has referred to the judgments–

i) Paschimanchal Vidyut Vitran Nigham Ltd Vs. Raman Ispat

Pvt Ltd. (2023) 10 SCC 60

ii) Tata Power Western Odisha Distribution Ltd. Vs.

Jagannath Sponge Pvt. Ltd. [2023 SCC OnLine SC 2442]

iii) SPA Steels Rolling Mills Ltd. Vs. Asansol Durgapur

Development Authority 2023 SCC Online Cal 668

28. Admittedly, the property has since been owned by the company in

liquidation and the writ petitioners are the purchasers thereof for valuable

consideration, through auction. the deed of conveyance having been

executed on September 26, 2019. It is also undisputed that the

respondent/Corporation has not lodged any claim as regards the property

tax due, with respect to the said property, for the period as mentioned in the

notice dated July 28, 2022 before the Learned Liquidator.

Page 10 of 16

29. After promulgation of the Insolvency and Bankruptcy Code, 2016, the

process of liquidation of companies in India is intended to be governed

primarily and comprehensively by the provisions of the said Code. The

enactment of Insolvency and Bankruptcy Code, 2016 marked a signifi cant

shift from the earlier fragmented and time-consuming insolvency framework

to a consolidated, creditor-driven and time-bound mechanism. Section 33 of

the Insolvency and Bankruptcy Code, 2016 clearly provides that where no

resolution plan is approved within the prescribed time, or where the

resolution plan fails, the corporate debtor shall be liquidated in the manner

laid down in the Code. This reflects the legislative intent that liquidation is

an integral part of the insolvency process under the Insolv ency and

Bankruptcy Code, 2016 and not an independent procedure under any other

statute. The Insolvency and Bankruptcy Code, 2016 consolidates laws

relating to reorganization and insolvency resolution of corporate persons,

partnership firms and individuals in a time-bound manner. Section 238 of

the Insolvency and Bankruptcy Code, 2016 gives it an overriding effect by

expressly providing that the provisions of the Code shall have effect

notwithstanding anything inconsistent contained in any other law for the

time being in force.

30. Indian Courts and Tribunals have consistently recognized the supremacy of

the Insolvency and Bankruptcy Code, 2016 in matters of insolvency and

liquidation. It has been held that Insolvency and Bankruptcy Code, 2016 is a

special law with a non-obstante clause and, therefore, prevails over general

laws in case of inconsistency. It is now well-settled that once liquidation is

ordered under the Insolvency and Bankruptcy Code, 2016, the process must

strictly follow the Code and the Regulations framed thereunder, reinforcing

that Insolvency and Bankruptcy Code, 2016 is a complete and exhaustive

Code on the subject.

31. The overriding effect of the Code is all pervasive, throughout all the existing

statutes, including municipal laws under which property tax or other local

dues are claimed. Once liquidation proceedings are initiated under the

Insolvency and Bankruptcy Code, 2016 claims of municipal authority must

be dealt with strictly in accordance with the Code, particularly the priority

mechanism prescribed under Section 53 of the Code.

32. Under Section 5(21) of the Insolvency and Bankruptcy Code, 2016,

“operational debt” includes claims in respect of the provision of goods or

services including statutory dues payable to the Central Government, State

Government or any local authority. Property tax levied under municipal laws

squarely falls within the definition. Once classified as “operational debt”

municipal dues cannot claim priority outside the statutory “waterfall

mechanism”, provided under Section 53 of Insolvency and Bankruptcy Code,

2016, during liquidation.

Page 11 of 16

33. The overreaching principle across all the judgments as relied on by the writ

petitioners, is the supremacy of Insolvency and Bankruptcy Code, 2016 and

the „clean slate theory‟. Once a resolution plan is approved by the NCLT, all

prior claims, debts and liabilities of the corporate debtor are extinguished

and creditors must adhere to the „waterfall mechanism‟ under Section 53 of

the Insolvency and Bankruptcy Code, 2016 for asset distribution. Auction

purchasers and Successful Resolution Applicants (SRAs) are not liable for

past dues or liabilities incurring before the sale or resolution plan approval.

34. In a landmark judgment in Principal Commissioner of Income Tax Vs.

Monnet Ispat and Energy Limited reported in (2018) 18 SCC 786, the

Supreme Court has held that “Sections 238 of the Insolvency and

Bankruptcy Code, 2016 will override anything inconsistent contained in any

other enactment, including the Income Tax Act.” Similarly held by the said

Court, in 2023 in Raman Ispat (P) Limited Case (Supra) , with respect to

the electricity laws. The principle laid down in these cases, equally applies to

municipal laws and taxes as all are statutory dues owed to the Government

or local authorities. The verdicts of Supreme Court as above settle the

proposition of law that statutory claim does not enjoy any special status

once insolvency or liquidation proceedings are initiated under the Insolvency

and Bankruptcy Code, 2016.

35. The Supreme Court in Ghanashyam Mishra’s Case (Supra) has further

held to conclusively settle the issue of statutory dues that, “All claims,

including statutory dues owed to Central Government, State Government or

local authorities, which are not part of the resolution plan or liquidation

process, stand extinguished.” The Court emphasized that allowing such

authorities to recover dues under their own statutes after insolvency or

liquidation would defeat the very objective of the Insolvency and Bankruptcy

Code, 2016. This decision of the Supreme Court directly impacts municipal

bodies seeking to enforce property tax dues under municipal laws,

independent of process prescribed under the Insolvency and Bankruptcy

Code, 2016, in case of a property in liquidation.

36. In the case of Sundaresh Bhatt, liquidator of ABG Shipyard Vs. Central

Board of Indirect Taxes and Customs reported in (2022) 7 SCC 540, the

Supreme Court reinforced that once liquidation proceedings commence, all

creditors – including Government and statutory authorities – must submit

their claims to the liquidator and cannot enforce recovery proceedings under

their respective statute. The Court observed that the Insolvency and

Bankruptcy Code, 2016 creates a single, unified mechanism for dealing with

claims during liquidation and no authority can bypass it by relying on its

own enabling legislation.

Page 12 of 16

37. Therefore, in the liquidation of company, the Insolvency and Bankruptcy

Code, 2016 has an overriding effect over municipal laws, under which

property tax is claimed. Municipal dues are treated as operational debts and

must be submitted to the liquidator and satisfied strictly, in accordance with

Section 53 of the Insolvency and Bankruptcy Code, 2016, as it is held by the

NCLAT – New Delhi in Bhatpara Municipality case (Supra) . Any priority,

charge or recovery mechanism provided under the municipal legislation

stands overridden by virtue of Section 238 of the Insolvency and Bankruptcy

Code, 2016.

38. A clear order of priority, being termed as the “waterfall mechanism”, for

distribution of liquidation proceeds, of a company under liquidation prevails.

Government dues including municipal property tax ranks below the

following:-

i) insolvency resolution and liquidation case

ii) secured creditors

iii) workman‟s due

iv) wages and unpaid dues of employees and

v) unsecured financial creditors.

Municipal Authority cannot elevate their claims above this

hierarchy by involing municipal statutes.

39. As per discussions made above, which clearly depicts the settled position

of law, as on date, completely demolishes arguments of the respondents

authority that it was duly entitled to independently exercise rights as

enshrined under Section 183 (5) of the Kolkata Municipal Corporation

Act, 1980. The judgment relied on by the respondent in this regard in

Rashmay Das’s case (supra), is of no help for the respondent, in so far

as, there the Court had no scope to consider consequences of the

Insolvency and Bankruptcy Code, 2016, vis-à-vis, that of the Kolkata

Municipal Corporation Act, 1980.

40. Enough emphasis has been bestowed as to the terms of EOI, by the

respondent. According to the said respondent, the Clauses incorporated

in the EOI of which the petitioners were well-versed at the time of

responding to the same, that the concerned property is to be sold on “as

is where is” basis should bound the petitioners/purchasers to acquire

the asset with all its existing rights, obligations and liabilities. With

reference to K.C. Ninan’s case (supra), it has been contended that,

when a property is sold on “as is where is” basis, encumbrances thereon

stand transferred to the purchasers, upon the sale.

41. The issue is that can the contractual clause override protection under

the IBC 2016. IBC having a non-obstante clause, municipal dues even if

there is any, stands extinguished under the IBC, the contractual clause

cannot revive the same. In the present factual matrix, no quantified

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arrear demand existed at sale, the respondent did not lodge any claim

before the liquidator, but retrospective revaluation was initiated at a

later stage post completion of liquidation sale. Thus, there were no

crystalized encumbrances to pass on to the new purchasers/writ

petitioners under the contractual clauses “as is where is” and “whatever

there is”. Any municipal due under the statute does not survive as an

independently enforceable right outside the IBC mechanism, when the

concerned property has been dealt with under the insolvency law.

Contractual clauses like “as is where is” and “whatever there is” cannot

elevate or preserve a municipal charge which stands subordinated or

extinguished under sections 53 and 238 IBC.

42. It is important to note that, here the respondent authority has made an

endeavor to put forth the proposed revision of property valuation and

consequent enhance tax, as mentioned in the impugned notice dated

July 28, 2022, as the existing and prevailing obligation and liability

attached to the said property, as on the date of transfer by way of sale in

favour of the writ petitioners. That, however, is not the actual state of

affair here and would be guided and governed by one of the most

important and well-settled doctrines that have evolved under the

Insolvency and Bankruptcy Code, 2016, that is, the „clean state

principle‟. Under the „clean state principle‟, a successful resolution

applicant (or the corporate debtor, post resolution) should not be

burdened with undecided, undisclosed or residual claims relating to the

period prior to commencement of insolvency. In other words, once a

resolution plan is approved under the Insolvency and Bankruptcy Code,

2016, all claims that are not part of the plan stand extinguished.

Provision under Section 31 (1) of the Insolvency and Bankruptcy Code,

2016, may be mentioned in this regard, which provides that once a

resolution plan is approved by the adjudicating authority, it has binding

effect including that on the Central or State Government and local

authorities.

43. In liquidation, there is no resolution plan. Therefore section 31 IBC does

not operate. Instead, section 53 IBC governs the distribution. The clean

slate doctrine in liquidation does not flow from section 31 IBC, it must

be derived differently. The key statutory provisions are under section 33

IBC which provides for liquidation order, section 35 IBC which provides

for powers of liquidator, section 52 IBC which enumerates secured

creditors‟ rights, the waterfall principle as provided under section 53 IBC

and the overriding clause as per section 238 IBC. If a municipal law

creates a “first charge” on property, liquidation does not automatically

wipe it out, but it depends on characterization and participation. Under

IBC a “secured creditor” is one in whose favour a “security interest” is

created. A statutory “first charge” may qualify as a “security interest” due

to operation of law and render the authority as the “secured creditor”. In

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that case consequences will follow in terms of section 52 IBC, that the

authority may relinquish security and stand in waterfall or it may realise

security outside liquidation, subject to IBC supervision. All these are

subject to furnishing claim by the statutory authority before the

liquidator without which its claim may not participate in distribution.

Not furnishing a claim before the Liquidator risks the authority losing its

rights of enforcement and the authority cannot continue independent

recovery proceeding. The settled principle of law is to apply clean slate

approach in liquidation in the context of provisions under sections 238

and 53 IBC and not as per section 31 (in case of resolution plan).

44. In a foundational judgment on clean state doctrine, the Supreme Court

in Committee of Creditors of Essar St eel Vs. Satish Kumar Gupta

reported in (2020) 8 SCC 531, has held that, “A successful resolution

applicant cannot suddenly be faced with undecid ed claims after the

resolution plan has been accepted”. In the judgment of Ghanashyam

Mishra’s case (supra), the Supreme Court has expressly reaffirmed the

principle and conclusively settled the issue of statutory and

governmental dues that all claims including statutory dues owed to

Central or State Governments or local authorities stand extinguished if

they are not part of the approved resolution plan. In AI Champdany

Industries Limited case (supra), the Supreme Court has held that

recovery of property tax (municipal tax) past dues of the company in

liquidation are not recoverable from the auction purchaser. The NCLAT –

New Delhi in Bhatpara Municipality’s case (Supra) by relying on AI

Champdany Industries Limited case (supra) has held that the auction

purchaser cannot be held liable to pay any dues relating to the period

prior to confirmation of sale. In Shiv Shakti (supra) the NCLAT has

further held that it is essential to see that new purchaser of property of

company in liquidation is not burdened with past or remaining unpaid

liability after the sale is contemplated.

45. The respondent‟s allegation as regards suppression of material fact by

the petitioners appear unsustainable in view of the averments in the writ

petition, particularly that in paragraphs (4. v) and (4. vi) thereof, where

the petitioners have mentioned about the EOI, in the writ petition.

46. Even if it is understood to be true that the petitioners have obtained

physical possession of the property, prior to the date of execution of the

deed of conveyance, as alleged, that is on March 18, 2019, at best the

respondent could have been considered as empowered to impose tax

against the present petitioners, from that date but not beyond. However,

as discussed earlier, the respondent authority could not have espoused

the provisions of the municipal laws independently, but in case of the

property in question, the same is bound to recover unpaid tax amount

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due, if any, only in compliance with the prescribed procedure as per the

Insolvency and Bankruptcy Code, 2016. The petitioners shall be liable

for any independent assessment of the property in the hands of the

respondent authority as on the date of execution of deed or from the date

of their actual possession over the said property, as the case may be and

not beyond. It is evident in this case that on either of these dates there

were no proposed/declared and/or claimed tax which has remained

unpaid and due, so far as the said asset is concerned. Hence, also there

is no question of any direct or constructive knowledge of the petitioners

regarding any due tax, to be existing on the said relevant date/s. It is

necessary to mention here that the respondent authority has never filed

any claim of it with respect to the concerned property, before the learned

liquidator, in the resolution process, for the period as mentioned in the

notice dated July 28, 2022.

47. The Court finds that the petitioners cannot be held responsible for

payment of any tax with respect to the property, for a period when they

have been only strangers to the same. That too, since the original owner

Company being in liquidation and the petitioners being purchasers of

the property, the tax amount due for the previous period if any, could

only be recovered through the process as prescribed under the

Insolvency and Bankruptcy Code, 2016 and not otherwise.

48. In view of the discussions as above, it has been found that the impugned

notice dated July 28, 2022 of the respondent and its order of assessment

dated August 23, 2022 and the property tax bill for 2024-25 issued to

the writ petitioners are not legally sustainable. The respondent authority

has unauthorisedly and illegally issued the same and those are liable to

be set aside. In view thereof the Court finds it unnecessary to discuss in

detail the other points argued by the petitioners, challenging these as

mentioned above. The writ petition should succeed.

49. Hence, this Writ Petition no. WPO 2435 of 2022 is allowed with the

following directions:

i. The notice dated July 28, 2022, issued under Sections 184

and 185 of the Kolkata Municipal Corporation Act, 1980,

the consequential assessment order dated August 23, 2022,

and the property tax bill for 2024–2025 issued to the

petitioners are hereby set aside insofar as they seek to

impose liability upon the petitioners for any period prior to

September 26, 2019.

ii. It is declared that upon commencement of liquidation

proceedings under the Insolvency and Bankruptcy Code,

2016, any claim for municipal dues pertaining to the period

prior to the liquidation commencement da te could be

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enforced only in accordance with the provisions of the said

Code, particularly Sections 52 and 53 thereof.

iii. If the respondent Corporation had any statutory charge or

claim in respect of property tax dues for the period prior to

liquidation, the same was required to be asserted before the

Liquidator in accordance with the procedure prescribed

under the Insolvency and Bankruptcy Code, 2016 and the

Regulations framed thereunder.

iv. In the absence of the respondent Corporation having lodged

or pursued such claim within the liquidation process, it

shall not be entitled to enforce or recover any such pre-

liquidation dues from the auction purchasers by invoking

independent powers under the Kolkata Municipal

Corporation Act, 1980.

v. The respondent Corporation shall, however, be at liberty to

assess and recover property tax from the petitioners strictly

from the date of transfer of title in their favour, i.e., 26

September 2019, in accordance with law.

vi. The amount of Rs. 5,00,000/- already deposited by the

petitioners shall be adjusted towards their lawful tax

liability arising from the said date.

50. It is clarified that this order shall not be construed as extinguishing any

statutory charge as a matter of abstract legal doctrine, but only holds

that enforcement thereof, if any, must conform to the scheme and

priority framework of the Insolvency and Bankruptcy Code, 2016.

51. The writ petition is accordingly allowed in the above terms.

52. Writ petition No. WPO 2435 of 2022 is allowed and disposed of along with

pending application/s if any.

53. Urgent certified copy of this judgment, if applied for, be supplied to the

parties upon compliance with all requisite formalities.

(Rai Chattopadhyay, J.)