2021 (7) TMI 1010 - Tri - Insolvency and Bankruptcy

Liquidation process - demand of tax dues - requirement to pay the tax dues prior to the date of sale of the unit - eligibility to issue enlistment certificate - applicability of municipality by section 118 of the West Bengal Municipal Act and Audit and Accounts Rules, 1999 - requirement ot follow duties under section 55 of the Transfer of Property Act, 1882 - overriding effect of IBC or not - HELD THAT - The Insolvency and Bankruptcy Code, 2016 is a self contained legislation. In cases of liquidation, through chapter III read with the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, the Code provides for a procedure of public announcement calling upon the stakeholders to submit their claims with the liquidator, who then consolidates, verifies and adjudicates upon it - In the present case, the liquidator had made the public announcement on 23.10.2017, however, the Respondent Nos. 2 and 3 did not file their claim with the liquidator. The Respondents cannot by-pass the provisions of the Code and hold the grant of licence or enlistment certificate ransom subject to the payment of their dues. Under section 238, the Code also envisages that the provisions of the Code will override other laws. Therefore, the Respondent's reliance on the provisions of the Transfer of Property Act, 1882, West Bengal Municipal Act, 1993 and Audit and Accounts Rules, 1999 is misplaced. The Applicants are not liable to pay the tax dues prior to the date of sale of the said unit i.e. 08.10.2020. The demand notice dated 01.02.2021 is not sustainable in law. The Respondent Nos. 2 and 3 are hereby directed to consider the application for grant of License or Enlistment Certificate and application for mutation of the said unit on its merit without being affected by the dues pending - Application allowed.

Summary

Issues:
1. Application seeking directions to declare a demand notice null and void, quash the demand notice, grant trade license, stay the demand notice, and others.
2. Dispute over municipal property tax demand against a unit purchased during liquidation.
3. Obligations of liquidator and purchaser under the Transfer of Property Act.
4. Interpretation of the Insolvency and Bankruptcy Code, 2016 in relation to municipal tax dues.
5. Conflict between municipal laws and the provisions of the Insolvency and Bankruptcy Code.

Detailed Analysis:
1. The application filed sought various directions, including declaring a demand notice null and void, quashing the notice, granting a trade license, and staying the demand notice. The Applicant, as the successful bidder of a unit during liquidation, faced a demand for outstanding municipal property tax prior to the sale, which was contested.

2. The Applicant argued that the municipal tax demand was invalid as it pertained to a period before the sale, and the municipality should claim such dues from the liquidator. It was contended that municipal tax does not create an encumbrance on the property and the Applicant was not liable for the demand raised by the municipality.

3. Respondents contended that the liquidator and Applicant failed to fulfill their duties under the Transfer of Property Act by not disclosing the outstanding tax dues. They argued that the Applicant, as the purchaser, should have been aware of and responsible for the tax liabilities associated with the purchased unit.

4. The Tribunal analyzed the Insolvency and Bankruptcy Code, emphasizing the procedure for stakeholder claims during liquidation. It held that the Respondents could not demand payment of tax dues as a condition for granting a license, as it contravened the provisions of the Code overriding other laws.

5. The judgment highlighted the primacy of the Insolvency and Bankruptcy Code over conflicting municipal laws. It concluded that the Applicant was not liable for tax dues predating the sale and directed the Respondents to consider the license application and mutation request without being influenced by pending dues.

This detailed analysis covers the issues raised in the judgment, including the application for directions, the dispute over municipal tax demands, obligations under the Transfer of Property Act, interpretation of the Insolvency and Bankruptcy Code, and the resolution of conflicts between municipal laws and the Code.