Calcutta High Court: Property Tax Is a First Charge; Auction Buyer Must Pay It Before Sale
The Calcutta High Court has clarified that property tax forms a first charge on immovable property, meaning that an auction purchaser must clear all outstanding property tax dues before completing the sale.
Key Legal Findings
The Court interpreted Section 232 of the Kolkata Municipal Corporation Act, 1980, which grants property tax dues a statutory first charge over the property.
It held that even when a sale takes place under the Insolvency and Bankruptcy Code (IBC) or another legal process, such statutory charges remain binding, and the purchaser cannot rely on Section 238 of the IBC to avoid liability.
The Court reiterated the principle of caveat emptor (“buyer beware”), explaining that auction purchasers are responsible for checking encumbrances beforehand. If the auction terms or notices disclose such liabilities, the buyer cannot later deny responsibility for them.
Background of the Case
The dispute arose from the liquidation proceedings of M/s Enfield Apparels Ltd., initiated by the Bank of India under the IBC. The company’s assets were put up for e-auction by the liquidator. Following a series of bids and a re-confirmation process, the petitioners ultimately emerged as the successful purchasers.
After the sale, the purchasers applied to the Kolkata Municipal Corporation (KMC) for mutation of the property in their names. They offered to pay property tax arrears from the date of purchase but objected to paying older dues. The municipal authorities, however, insisted that all pending taxes — including those incurred before the auction — must be cleared before mutation could be granted.
Court’s Observations and Decision
The High Court ruled that the liability to pay property tax attaches to the property itself, not just to its previous owner. Therefore, an auction purchaser inherits the responsibility to discharge such dues.
It emphasized that the e-auction notice and the expression of interest had clearly instructed bidders to conduct due diligence regarding any encumbrances. Since the purchasers had notice of this obligation, they could not later claim exemption.
The Court concluded that the outstanding property tax dues, by virtue of Section 232 of the KMC Act, must be settled by the buyer before the sale is finalized or mutation granted. The petition challenging the demand for arrears was accordingly dismissed.
