The Bombay High Court has clarified the liability of an auction purchaser under the Insolvency and Bankruptcy Code, 2016 (IBC) for property tax dues, holding that such liability attaches only from the date of the sale certificate and not for any prior period. The judgment resolves a critical question regarding the interplay between IBC proceedings and municipal tax claims, providing much-needed clarity for stakeholders in insolvency processes.
Background & Facts
The Genesis
The petitioner, Macrotech Developers Limited, emerged as the successful bidder in an e-auction conducted by the liquidator under the IBC for the subject property belonging to Shirt Company (India) Pvt. Ltd. (SCIPL), a corporate debtor. The auction was held on 30.11.2023, and the sale certificate was issued on 24.04.2024. The property was sold on an 'as is where is' and 'whatever there is' basis.
Key Facts
- SCIPL availed credit facilities from banks and financial institutions but defaulted in repayment, leading to the initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the IBC on 26.02.2020.
- The CIRP failed, and the National Company Law Tribunal (NCLT) passed an order for liquidation of SCIPL on 22.12.2021, appointing the respondent No.3 as the liquidator.
- The liquidator issued an auction notice on 07.12.2023 and conducted the auction on 30.11.2023, where the petitioner submitted the highest bid of ₹59.64 crores.
- The petitioner deposited the entire bid amount and was issued the sale certificate on 24.04.2024.
- The petitioner submitted a proposal for additions/alterations to an industrial building on the subject property on 21.08.2024, but the same was held up due to the absence of a tax clearance certificate.
- On 07.08.2024, the Municipal Corporation of Greater Mumbai (MCGM) issued a demand letter to the petitioner for property tax dues amounting to ₹3,90,32,426 for the period from 2010 to 31.03.2024.
Procedural History
- June 2025: The petitioner filed the present writ petition before the Bombay High Court, seeking quashing of the demand letter dated 07.08.2024 and a declaration that it is liable to pay property tax only from the date of the sale certificate i.e., 24.04.2024.
- 04.07.2025: The High Court issued notice in the writ petition.
- 21.07.2025: The High Court directed MCGM to process the petitioner's application for additions/alterations but not communicate the final decision.
- 30.06.2026: The High Court granted a last chance to MCGM to file its reply affidavit.
- 23.07.2026: The High Court delivered the judgment under analysis.
The Parties' Positions
The petitioner contended that:
- As per the terms of the e-auction and the sale certificate, it is liable to pay property tax only from the date of the sale certificate i.e., 24.04.2024.
- The liquidator had clarified in an email dated 24.11.2023 that all property tax dues would be settled as per the provisions of the IBC.
- The liquidator had also sent a letter dated 11.02.2025 to MCGM, asserting that it would be liable for property tax dues only for the period of CIRP and liquidation, and that an interim payment of ₹10 lakhs had been made.
- The petitioner relied on Maha Mineral Mining and Benefication P. Ltd. vs. Gram Panchayat, Gowari, 2024 SCC OnLine Bom 3357, where it was held that a Gram Panchayat could not raise a demand for tax dues from a purchaser under the IBC after failing to participate in the insolvency process.
MCGM contended that:
- The property was sold on an 'as is where is' and 'whatever there is' basis, and the petitioner was liable to pay property tax dues for the entire period.
- The provisions of the Mumbai Municipal Corporation Act, 1888 (MMC Act), particularly Sections 147 to 151 and 212, entitled MCGM to pursue the petitioner for property tax dues.
- The Supreme Court's judgment in IISCO Ujjain Pipe and Foundry Company Limited, Through Official Liquidator vs. Ujjain Nagar Palika Nigam and others, (2023) 8 SCC 138, supported its claim that the liquidator was obliged to discharge property tax liabilities.
The liquidator submitted that:
- The question of property tax liability was governed by the IBC, and any claim would be decided as per the waterfall mechanism under Section 53 of the IBC.
- The liquidator was liable for property tax dues only for the period of CIRP and liquidation.
The Legal Issue
The central question was whether an auction purchaser under the IBC can be held liable for property tax dues prior to the date of the sale certificate, where the liquidator had clarified that such dues would be settled as per the IBC and the purchaser had relied on such clarification.
Arguments Presented
For the Petitioner
The petitioner argued that:
- The terms of the e-auction and the sale certificate limited its liability for property tax to the period from the date of the sale certificate.
- The liquidator's clarification dated 24.11.2023 and the letter dated 11.02.2025 confirmed that property tax dues would be settled as per the IBC, and the petitioner could not be saddled with liability for prior periods.
- The judgment in Maha Mineral Mining and Benefication P. Ltd. vs. Gram Panchayat, Gowari supported its contention that MCGM ought to have participated in the insolvency process to raise its claim.
For the Respondent
MCGM argued that:
- The property was sold on an 'as is where is' and 'whatever there is' basis, and the petitioner was liable for property tax dues for the entire period.
- The provisions of the MMC Act entitled MCGM to pursue the petitioner for property tax dues, and the Supreme Court's judgment in IISCO Ujjain Pipe and Foundry Company Limited supported its claim.
- The petitioner's reliance on Maha Mineral Mining and Benefication P. Ltd. vs. Gram Panchayat, Gowari was misplaced, as the said case pertained to a Gram Panchayat under a distinct statute.
The Court's Analysis
The Court examined the rival submissions and the material on record. It noted that the petitioner was an auction purchaser under the IBC, and the property belonged to a corporate debtor that had gone into CIRP in February 2020 and subsequently into liquidation.
The Court observed that the petitioner had specifically raised the question of property tax liability with the liquidator before participating in the auction. The liquidator had clarified in an email dated 24.11.2023 that all property tax dues would be settled as per the provisions of the IBC. The sale certificate dated 24.04.2024 also recorded that the terms and conditions of the e-auction process document would be read as part and parcel of the sale certificate.
The Court held that in such circumstances, the petitioner could not be foisted with liability for property tax dues prior to the date of the sale certificate. The Court noted that the liquidator had also clarified in a letter dated 11.02.2025 that it would be liable for property tax dues only for the period of CIRP and liquidation, and that an interim payment of ₹10 lakhs had been made, with the balance of ₹5,89,441 subsequently deposited.
"We are of the opinion that the petitioner cannot be foisted with the liability for property tax dues prior to 24.04.2024 i.e. the date of sale certificate. To that extent, the demand letter dated 07.08.2024 deserves to be quashed."
The Court declined to delve into the question of whether MCGM's claim stood extinguished, as the petitioner had not raised such a question and had instead sought a declaration that it was liable for property tax dues only from the date of the sale certificate. The Court also noted that the Supreme Court's judgment in IISCO Ujjain Pipe and Foundry Company Limited did not consider the question of sale of property in liquidation under the IBC.
The Verdict
The High Court allowed the writ petition in part. It held that the petitioner was liable to pay property tax only from the date of the sale certificate i.e., 24.04.2024, and not for any prior period. The Court quashed the demand letter dated 07.08.2024 to the extent it sought to recover property tax dues prior to 24.04.2024.
The Court directed MCGM to issue a fresh demand letter/notice for property tax dues against the petitioner for the period from 24.04.2024 till date within two weeks. The petitioner was directed to make payment as per the demand letter/notice within two weeks of service. The Court also directed that the petitioner be given credit for any payments already made for the period from 24.04.2024 till date.
As a consequential relief, the Court directed MCGM not to reject the petitioner's proposal for additions/alterations of the industrial building on the ground of property tax dues, upon the petitioner making payment as per the fresh demand letter/notice.
What This Means For Similar Cases
Auction Purchasers Are Protected from Pre-CIRP Liabilities
- Auction purchasers under the IBC can rely on clarifications from the liquidator regarding the settlement of property tax dues as per the IBC.
- Liability for property tax attaches only from the date of the sale certificate, not for any prior period, where the liquidator has clarified the position.
Liquidators Must Clarify Liabilities Upfront
- Liquidators are advised to issue clear clarifications regarding the settlement of statutory liabilities, such as property tax, in the e-auction process documents and sale certificates.
- Such clarifications can protect auction purchasers from unexpected claims and streamline the insolvency process.
Municipal Authorities Must Participate in Insolvency Processes
- Municipal authorities must participate in the insolvency process to raise claims for property tax dues, failing which their claims may not be enforceable against auction purchasers.
- The judgment underscores the importance of municipal authorities' active participation in insolvency proceedings to safeguard their claims.
