Avenue Realty Vs Assistant Commissioner (Madras High Court)
Conclusion: A statutory tax charge d noidt constitute a secured interest under the Insolvency and Bankruptcy Code (IBC) therefore, the Court directed the removal of the TNVAT Department’s attachment over the corporate debtor’s property.
Held: Appellant emerged as a successful auction purchaser in liquidation proceedings and acquired the property through a public auction conducted by the liquidator on 24.10.2024. The subject property originally belonged to a corporate debtor (RLS Alloys Pvt. Ltd.) which was ordered into liquidation by the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 (IBC) after failure of the resolution process. During liquidation the tax department submitted its claim belatedly which was rejected by the liquidator as time-barred. Subsequent applications before the NCLT were dismissed, including for non-prosecution. The auction purchaser filed a writ petition seeking quashing of the attachment. The learned Single Judge dismissed the petition, holding that tax dues constituted a secured debt and the State was a secured creditor. Aggrieved, the present writ appeal was filed. The issues arose for consideration was whether statutory tax dues creating a “charge” under Section 42 of the TNVAT Act render the State a “secured creditor” under Sections 3(30) and 3(31) of the IBC; whether an auction purchaser under IBC liquidation acquires property free from prior statutory attachments when the creditor had failed to lodge its claim in time; whether reliance on State Tax Officer v. Rainbow Papers Ltd. was applicable to liquidation proceedings post-amendment of Regulation 12; whether the 2026 amendment to Section 3(31) of the IBC excluding statutory charges from “security interest” was retrospective. It was held that statutory tax dues, though creating a charge, did not automatically elevate the State to the status of a secured creditor under the IBC. Failure to lodge a claim within the prescribed timeline extinguished the right to recover dues from liquidation proceeds. The waterfall mechanism under Section 53 prevailed, and government dues rank lower in priority. The 2026 amendment to Section 3(31) clarified that statutory charges were not “security interests” and applied retrospectively. An auction purchaser in liquidation acquired property free from such prior attachments, and such encumbrances must be lifted. Attachment order was set aside. Registering Authority directed to make a contra entry in Encumbrance Certificate indicating that the attachment no longer operated. Rights of parties subject to outcome of any pending proceedings before appellate forums.
