Auction Purchaser Cannot Be Compelled To Clear Previous Owner's Dues: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has held that an auction purchaser under the Insolvency and Bankruptcy Code cannot be compelled to clear the previous owner's outstanding dues, in a dispute arising from the transfer of a flat sold during liquidation proceedings.

The ruling came on an application filed by AJS Impex Private Limited, the auction purchaser, against the respondent society, in relation to a unit sold from the assets of Archisha Steels Private Limited, the corporate debtor undergoing liquidation.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar, after hearing the parties, observed,

“Society cannot compel an auction purchaser under the Insolvency and Bankruptcy Code, 2016 to clear the previous owner's outstanding dues, as these dues are to be settled in accordance with Section 53 of the I&B Code. Accordingly, the Applicant is not liable for any outstanding dues or charges allegedly owed by the Corporate Debtor prior to the date of the issuance of the said Sale Certificate in favour of the Applicant.”

AJS Impex had purchased Unit No 201 along with five podium-level car parking spaces from the property of the corporate debtor through an auction conducted by the liquidator under the orders of the tribunal. It paid the entire sale consideration and complied with all formalities, including payment of membership and transfer fees to the respondent society.

Despite this, the society demanded that the applicant clear past outstanding dues allegedly owed by the corporate debtor in respect of the unit. Aggrieved, the auction purchaser approached the tribunal contending that such dues could not be recovered from it under the IBC framework.

The respondent society submitted that it had filed its claim on October 10, 2022, for Rs 17.27 lakh towards principal dues, Rs 6.49 lakh towards interest, along with applicable GST.

Out of this, a sum of Rs. 21.95 lakh was acknowledged by the resolution professional and continued to remain admitted even after the liquidation commencement date.

Rejecting the society's stand, the tribunal reiterated that dues of the corporate debtor are required to be settled only in accordance with the waterfall mechanism under Section 53 of the IBC. It directed the liquidator to consider the claim of the respondent society and inform it accordingly.

The NCLT further directed that the respondent society shall not withhold the transfer of the flat in the name of AJS Impex Private Limited merely on account of pendency of its dues relating to the period prior to the issuance of the sale certificate.