Kolkata: Holding that municipal bodies can possess statutory charges that qualify as security interests under insolvency law, the National Company Law Appellate Tribunal (NCLAT) has allowed the Kolkata Municipal Corporation (KMC) to recover Rs 51.72 lakh in unpaid property tax from a property in Kolkata owned by Talwalkars Better Value
Fitness Ltd.
The order by Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) of the NCLAT’s Principal Bench in New Delhi, modified a July 19, 2024 ruling of the National Company Law Tribunal (NCLT), Mumbai Bench. The NCLT had partly admitted KMC’s appeal but declined to treat the civic body as a secured creditor, classifying its dues as ordinary government debt. According to the appellate order, the corporate debtor’s property within KMC limits had tax arrears of Rs 30.28 lakh, for which a warrant of distress was issued in 2018. The corporate insolvency resolution process (CIRP) against Talwalkars began on January 11, 2021, followed by liquidation on April 28, 2022. KMC subsequently filed a Form-C claim on May 12, 2023, seeking Rs 51.72 lakh, which included the unpaid principal along with interest and statutory charges.
The liquidator, by letter dated July 21, 2023, admitted only part of the claim and categorised KMC as an unsecured operational creditor. KMC challenged this classification, arguing that under Section 232 of the Kolkata Municipal Corporation Act, 1980, unpaid property tax creates a statutory first charge on land and buildings, giving the civic body a secured status under the Insolvency and Bankruptcy Code (IBC).
The NCLAT agreed, holding that such a statutory charge constitutes a security interest and that not all statutory dues are government dues under Section 53 of the IBC. “The dues of a municipal corporation cannot be treated as mere government dues,” the bench observed, directing the liquidator to treat KMC’s admitted claim as secured. The tribunal’s order enables KMC to recover the entire amount from the company’s Kolkata property, with both parties directed to bear their own costs. Legal experts said the judgment will strengthen the ability of municipal bodies to recover property tax dues on par with banks and other secured creditors in future insolvency proceedings.