2021 (11) TMI 791 - AT - Insolvency and Bankruptcy

Auction sale - Validity of demand notice for pending dues of property tax issued by the Appellant to Respondent No. 1 - Respondent No. 1 was a party to the proceedings under IBC or not - limit of jurisdiction by adjudicating dispute regarding Municipal Tax on a third party - HELD THAT - The liquidator had a duty to prepare an asset memorandum containing the value of the assets. Clause (f) of sub regulation 2 of regulation 34 stipulates the inclusion of any other information that may be relevant for the sale of the asset . Regulation 13 of the said Regulations (supra) enjoins upon the liquidator to submit a preliminary report to the Adjudicating Authority with the Asset Memorandum. Therefore, the liabilities with respect to the assets should have been brought to the notice of the Adjudicating Authority by the liquidator. The outstanding dues of the property tax relating to period prior to sale confirmation are thus dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given in section 53 of IBC. The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale - We are unable to accept the plea made by the Appellant that Respondent No. 1 should not be absolved from paying outstanding dues relating to the property stated in the demand notice dated 1.2.2021 amounting to ₹ 68,09,123.61. The demand notice is quashed. The auction-purchaser is held to be not liable to pay to the Appellant the amount as demanded by its notice dated 1.2.2021 - Appeal dismissed.

Summary

Issues Involved:

1. Jurisdiction of the Adjudicating Authority under IBC.
2. Liability of the auction-purchaser for outstanding property tax dues.
3. Interpretation of "As is Where is and Whatever There is Basis" and "No Recourse Basis" clauses in the sale of liquidation assets.
4. Compliance with the liquidation process regulations.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Adjudicating Authority under IBC:

The Appellant argued that the Adjudicating Authority exceeded its jurisdiction by adjudicating a dispute involving municipal tax on a third party (the auction-purchaser). The Appellant cited the judgment of the Hon’ble Supreme Court in Embassy Property Developments v. State of Karnataka, asserting that NCLT does not have jurisdiction over property disputes once the property is out of the liquidation process. The Learned Counsel for Respondent No. 1 countered that the CIRP of the Corporate Debtor commenced on 18.1.2017, and the Appellant did not file any claim with the Resolution Professional (RP) during the CIRP. The Tribunal concluded that the auction-purchaser is not liable for dues prior to the sale confirmation, thus upholding the jurisdiction exercised by the Adjudicating Authority.

2. Liability of the Auction-Purchaser for Outstanding Property Tax Dues:

The Appellant issued a demand notice to the auction-purchaser (Respondent No. 1) to liquidate outstanding property tax dues amounting to ?68,09,123.61. The Tribunal noted that the auction sale was completed on 5.10.2020, and the possession was handed over on 9.10.2020. The demand notice was issued on 1.2.2021, for dues accruing before the sale confirmation. The Tribunal referred to the Hon’ble Supreme Court judgment in AI Champdany Industries Ltd. vs. The Official Liquidator & Anr., which held that municipal tax dues do not create an encumbrance and are akin to the claim of an unsecured creditor. Thus, the auction-purchaser cannot be held liable for such dues.

3. Interpretation of "As is Where is and Whatever There is Basis" and "No Recourse Basis" Clauses:

The sale was conducted under clauses stating "As is Where is and Whatever There is Basis" and "No Recourse Basis." The Tribunal interpreted these clauses to mean that the seller does not take responsibility for the property's size, dimension, shape, and overall quantity and quality in liquidation. The purchaser has no recourse if any deficiency or shortcoming is discovered post-sale. The Tribunal upheld that these clauses absolve the auction-purchaser from liabilities of outstanding dues prior to the sale confirmation.

4. Compliance with the Liquidation Process Regulations:

The Tribunal emphasized the liquidator's duty to make a public announcement and prepare an asset memorandum under Regulation 12 and Regulation 34 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The liquidator should have included all relevant information, including liabilities, in the asset memorandum. The Tribunal noted that the outstanding dues should be treated as claims of unsecured creditors and discharged per section 53 of IBC. The auction-purchaser is not liable for dues prior to the sale confirmation.

Conclusion:

The Tribunal quashed the demand notice dated 1.2.2021 for ?68,09,123.61 and upheld the Impugned Order, absolving the auction-purchaser from liability for outstanding property tax dues prior to the sale confirmation. The appeal was dismissed with no order as to costs.