NCLT Mumbai Holds a Municipal First Charge Survives a Liquidation Sale and Binds the Auction Purchaser
Background and Facts
A buyer at a liquidation auction takes the asset with the statutory charges that sit on it. The Mumbai bench of the National Company Law Tribunal has held that a municipal first charge for unpaid property tax is not extinguished by the sale of the property in liquidation, and that the auction purchaser is liable for the arrears. The order in Indojewel Jewellery Private Limited v. Brihanmumbai Municipal Corporation was reported on September 26, 2026.
The corporate debtor was Panache Exports Private Limited. Indojewel bought a unit belonging to the company in liquidation at an e-auction for Rs 5.31 crore. The Brihanmumbai Municipal Corporation then pressed a claim of Rs 86.58 lakh in property tax for the period before the liquidation.
Indojewel applied to the tribunal for a declaration that it was not liable. Its case was that the Corporation, having filed its claim in the liquidation, could not recover the pre-liquidation dues from the purchaser of the property. The Corporation's case was that Section 212 of the Mumbai Municipal Corporation Act, 1888 creates a first charge on the property itself, which survives a transfer.
Key Legal Issue
Whether a statutory first charge for municipal property tax under Section 212 of the Mumbai Municipal Corporation Act, 1888 is extinguished when the property is sold in liquidation under the Insolvency and Bankruptcy Code, 2016, and whether a creditor who has filed a claim in the liquidation may still enforce that charge against the auction purchaser.
The Tribunal's Ruling
The application was dismissed and the purchaser held liable for the arrears. The reasoning on the central point was short:
"the mere fact that Respondent No. 1 participated in the Liquidation process does not result in extinguishment of the statutory charge created under Section 212" of the Mumbai Municipal Corporation Act, 1888.
What Section 212 Actually Creates
The provision is worth reading before arguing about it. Property taxes due under the Act are a first charge upon the building or land in respect of which the tax is levied, and upon the goods and chattels found within or upon that building or land and belonging to the person liable for the tax, subject to the prior payment of land revenue, if any, due to the Government.
Two features of that wording carry the result. The charge attaches to the property, not merely to the person who owned it when the tax fell due, so a change of owner does not displace it. And the only claim the section subordinates the charge to is land revenue owed to the State. Nothing in the section makes the charge conditional on the Corporation abstaining from other remedies.
Filing a Claim Is Not an Election
The purchaser's argument was in substance that the Corporation had elected its remedy by proving in the liquidation. The tribunal did not accept it, and the position is consistent with how security is treated elsewhere in the Code. A secured creditor who proves in a liquidation without relinquishing its security does not lose the security; under Section 53(1)(e) it ranks for what remains unpaid after enforcement, which presupposes that the security is still there to enforce.
The practical consequence is that a charge holder can appear in the process, receive whatever the waterfall yields, and still look to the asset for the balance, unless it has given the charge up. A purchaser who reads the list of stakeholders and assumes that a claim filed is a claim confined to the distribution has misread the Code.
As Is Where Is Means What It Says
The sale was on an "as is where is" basis, and the tribunal treated that as putting the burden of enquiry on the bidder. Sales under the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 are routinely conducted on those terms, and the phrase is not decoration. It allocates the risk of undisclosed encumbrances and statutory dues to the buyer, who is expected to search the property and satisfy itself before it bids.
That allocation is why the price is what it is. A bidder who has not quantified the arrears has not valued the asset, and the discount it thinks it obtained may be smaller than it looks.
Where Section 32A Does Not Help
Section 32A of the Code is sometimes offered in this situation, and it does not answer the question. Sub-section (1) causes the liability of the corporate debtor for an offence committed before the commencement of the process to cease where the resolution results in a change of management to a person who was not a promoter or related party and is not alleged to have abetted the offence. Sub-section (2) protects the property of the corporate debtor from attachment, seizure, retention or confiscation in proceedings in relation to such an offence.
Both limbs are about offences. Neither touches an ordinary statutory due such as property tax, and a purchaser relying on Section 32A against a municipal demand is relying on the wrong provision.
Practice Notes
In practice, the order should change how a bid is prepared rather than how it is argued afterwards:
Search the property before bidding, not after: Obtain the municipal tax position for the property, in writing, for every year that could be open. The cost of that search is trivial against the arrears it reveals, and no argument available after the sale is as cheap.
Price the arrears into the bid: Treat quantified statutory dues as part of the consideration. A bid built on the auction price alone is a bid on the wrong number.
Do not read a filed claim as a waiver: A charge holder that proves in the liquidation has not thereby given up its charge. Ask instead whether it has relinquished security, and get the answer from the record rather than from inference.
Ask the liquidator the question in writing: Put a specific query on municipal and other statutory dues before the bid, and keep the reply. It will not transfer the risk, but it fixes what was disclosed and when.
Check which statute creates the charge: First charge provisions differ between States and between taxes. Section 212 of the Mumbai Municipal Corporation Act, 1888 subordinates the charge only to land revenue; another enactment may rank differently, and the answer turns on its own words.
Key Provisions Discussed
Section 212 of the Mumbai Municipal Corporation Act, 1888: Property taxes due under the Act are a first charge upon the building or land in respect of which the tax is levied and upon the goods and chattels found within or upon it belonging to the person liable, subject to the prior payment of land revenue due to the Government.
Section 53 of the Insolvency and Bankruptcy Code, 2016: The distribution waterfall in liquidation, under which insolvency resolution process costs and liquidation costs come first, workmen's dues for the preceding twenty four months rank equally with secured creditors who have relinquished security, and under clause (e) any amount unpaid to a secured creditor following enforcement of its security ranks with government dues for the preceding two years.
Section 32A of the Insolvency and Bankruptcy Code, 2016: Liability of the corporate debtor for an offence committed before the commencement of the process ceases on approval of a resolution plan involving a change of management to an unconnected person, and the property of the corporate debtor is protected from attachment, seizure, retention or confiscation in proceedings relating to such an offence.
Case Details
Case: Indojewel Jewellery Private Limited v. Brihanmumbai Municipal Corporation
Tribunal: National Company Law Tribunal, Mumbai Bench
Reported: September 26, 2026
Corporate Debtor: Panache Exports Private Limited
Auction Consideration: Rs 5.31 crore
Municipal Dues Claimed: Rs 86.58 lakh in property tax for the pre-liquidation period
Outcome: Application dismissed. The statutory first charge under Section 212 of the Mumbai Municipal Corporation Act, 1888 held not extinguished by the liquidation sale, and the auction purchaser held liable for the arrears.
Sources and References
Section 53 of the Insolvency and Bankruptcy Code, 2016: Distribution of assets
Section 32A of the Insolvency and Bankruptcy Code, 2016: Liability for prior offences
Mumbai Municipal Corporation Act, 1888, Section 212; Insolvency and Bankruptcy Code, 2016, Sections 32A and 53
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.
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