The Calcutta High Court ruled that the Kolkata Municipal Corporation cannot impose retrospective property tax, revaluation, or municipal dues on auction purchasers in liquidation proceedings. Treating property tax as operational debt under Section 5(21), the Court enforced Section 53.
KOLKATA: The Calcutta High Court has ruled that municipal bodies cannot retrospectively revalue property or hold an auction purchaser liable for property tax liabilities that accrued before the purchaser became the owner especially where the property was part of liquidation proceedings.
The Court found it impermissible to begin revaluation in 2022 for periods going back to 2005, particularly as against subsequent buyers, and held that such retrospective assessments offend principles of fairness and statutory limitation.
Granting the writ petition against the Kolkata Municipal Corporation (KMC), Justice Rai Chattopadhyay found that property tax is an “operational debt” under Section 5(21) of the IBC. Accordingly, these dues must be addressed strictly through the liquidation waterfall under Section 53 and cannot be enforced directly against a later purchaser. Municipal authorities are not permitted to circumvent that process.
Factual Background of the Case:
The petitioners had acquired an office of 3,430 sq. ft. on the second floor of premises No. 1B and 2, Hare Street, Kolkata, together with two car parking slots, by way of an auction conducted during the liquidation of Nicco Corporation Limited. The company had been ordered into liquidation by the National Company Law Tribunal, Kolkata Bench, on October 17, 2018.
Following the liquidation, the liquidator issued an Expression of Interest (EOI) in January 2019. A consortium that included the petitioners emerged as the highest bidder. The petitioners paid Rs. 2,54,63,500, and a registered conveyance deed in their favour was executed on September 26, 2019.
After taking title, the petitioners sought mutation and offered to pay property tax from the date of acquisition. Rather than acting on the mutation request, KMC served a notice dated July 28, 2022, proposing retrospective revaluation for several years from 2005–2006 through 2017–2018 and demanding the corresponding tax share.
KMC later issued an assessment order in August 2023 and raised tax bills, including for 2024–2025. The petitioners challenged these measures by filing the present writ petition.
Arguments Of Parties:
PETITIONER:
- Lack of Jurisdiction for Retrospective Assessment:
The petitioners contended that KMC had no authority to assess or revalue property in their hands for periods when they were not the owners. They were complete strangers to the property before September 26, 2019.
Relying on Section 55 of the Transfer of Property Act and Section 193 of the KMC Act, they argued that tax liability could arise only from the date of ownership or possession.
- Supremacy of the Insolvency and Bankruptcy Code:
The petitioners asserted that property tax dues fall within the definition of “operational debt” under Section 5(21) of the IBC. Once liquidation commenced, KMC was required to submit its claim before the liquidator. Since KMC never lodged any claim, it forfeited its right to recover past dues.
They relied upon Tata Power Western Odisha Distribution Ltd. v. Jagannath Sponge Pvt. Ltd. (2023), Ruchi Soya Industries v. Union of India (2022) and Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss ARC (2021). These judgments affirmed that statutory dues not part of the insolvency process stand extinguished.
- Clean Slate Doctrine:
It was argued that auction purchasers under IBC proceedings are protected by the “clean slate” principle. Once assets are sold through liquidation, they are transferred free from past liabilities unless crystallized and admitted in the insolvency process.
The petitioners relied on AI Champdany Industries Ltd. v. Official Liquidator (2009) and Bhatpara Municipality v. Nicco Eastern Pvt. Ltd. (2021). These cases held that past municipal dues cannot be recovered from auction purchasers.
- Absence of Crystallized Dues
The petitioners submitted that on the date of purchase, no quantified or assessed property tax was pending. The impugned notice initiated revaluation only in 2022, long after the sale. Therefore, there was no “arrear” or encumbrance capable of being transferred.
RESPONDENT:
- Binding Effect of EOI Conditions:
KMC argued that the petitioners participated in the auction with full knowledge of the EOI terms, which provided that The sale was on “as is where is” and “no recourse” basis, purchasers would bear statutory liabilities, including arrears of property tax. Accordingly, the petitioners were deemed to have accepted responsibility for pending dues.
- Doctrine of Arrears
Relying on State of Madhya Pradesh v. Shyama Charan Shukla (1972), KMC contended that tax “arrears” do not depend on formal assessment and include all dues that have accrued.
- Obligation Before Mutation
KMC cited Rashmay Das v. KMC (2012) to argue that mutation cannot be granted unless arrears are cleared. Under Section 183(5) of the KMC Act, payment of dues was mandatory.
- Effect of “As Is Where Is” Clause
KMC relied on Telangana State Southern Power Distribution Co. v. Srigdhaa Beverages (2020) and K.C. Ninan v. Kerala State Electricity Board (2023). These cases held that purchasers in auction sales are bound by existing liabilities when sales occur on “as is where is” basis.
- Availability of Alternative Remedy:
It was also contended that the petitioners had an appellate remedy under municipal law and that the writ petition was premature.
Analysis of the Court:
- Overriding Effect of IBC:
The Court emphasized that the IBC is a complete and self-contained code governing insolvency and liquidation. Section 238 gives it overriding effect over all inconsistent laws. Relying on Principal Commissioner of Income Tax v. Monnet Ispat (2018) and Raman Ispat (2023), the Court held that statutory dues under other enactments are subordinate to the IBC framework.
- Classification of Municipal Dues
The Court held that property tax is an “operational debt” under Section 5(21) of the IBC. Consequently, such dues must be processed through liquidation under Section 53. Municipal authorities cannot bypass this mechanism.
- Failure to Lodge Claim
It was undisputed that KMC did not submit any claim to the liquidator. Relying on Sundaresh Bhatt v. CBIC (2022), the Court held that authorities failing to file claims cannot later enforce recovery independently.
- Applicability of Clean Slate in Liquidation
Although Section 31 applies to resolution plans, the Court held that a similar clean slate principle flows from Sections 33, 35, 53, and 238 in liquidation. The Court relied on Committee of Creditors of Essar Steel v. Satish Kumar Gupta (2020), Ghanashyam Mishra (2021) and AI Champdany Industries (2009). It concluded that auction purchasers must not be burdened with undisclosed liabilities.
- Limits of “As Is Where Is” Clauses
The Court distinguished electricity dues cases relied upon by KMC. In those cases, dues were quantified and disclosed. The auction terms like “as is where is” or “whatever there is” cannot be used to resurrect or maintain municipal claims that were neither crystallised nor submitted during the liquidation process.
In the present case no assessment existed at the time of sale, no demand had been crystallized and no claim was filed in liquidation. Therefore, contractual clauses could not revive extinguished statutory claims. It concluded that buyers cannot be held responsible for tax liabilities covering periods when they had no connection to the property.
- Retrospective Revaluation
The Court held that initiating revaluation in 2022 for periods dating back to 2005 was impermissible, particularly against subsequent purchasers. Such retrospective assessment violated principles of fairness and statutory limitation.
- No Suppression of Facts
The Court rejected allegations of suppression, observing that the petitioners had disclosed the EOI and liquidation proceedings in their pleadings.
Directions of the Court and Final Order
The Court issued the following directions:
- The notice dated July 28, 2022, the assessment order dated August 23, 2022, and the property tax bill for 2024–2025 were set aside insofar as they imposed liability prior to September 26, 2019.
- It was declared that pre-liquidation municipal dues could be enforced only in accordance with Sections 52 and 53 of the IBC.
- Any statutory charge had to be asserted before the liquidator under IBC procedures.
- In absence of such claim, KMC was barred from independent recovery.
- KMC was permitted to assess and recover tax only from September 26, 2019 onwards.
- The Rs 5,00,000 deposited by the petitioners was to be adjusted against lawful dues.
The Court allowed Writ Petition No. WPO 2435 of 2022 and disposed of all pending applications. It clarified that while statutory charges are not extinguished in abstract, their enforcement must conform strictly to the IBC framework.
The judgment reaffirmed that municipal authorities cannot retrospectively impose liabilities on auction purchasers when they have failed to participate in insolvency proceedings.
Case Title: Mamta Binani & Anr Vs Kolkata Municipal Corporation & Ors WPO 2435 of 2022
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