Housing Society Cannot Recover Admitted Insolvency Dues From Auction Buyers: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has held that a housing society which has lodged and secured admission of its claim in a corporate debtor's insolvency proceedings cannot seek to recover the same dues directly from purchasers of the debtor's property sold during liquidation.

A Bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar passed the ruling while allowing an application filed by auction purchasers Anil Patel, Kiran Patel and Madhav Patel in relation to a flat purchased by them in the liquidation of C. Mahendra Export Ltd.

“Having submitted its claim before the Resolution Professional/Liquidator and having participated in the statutory mechanism prescribed under the Code, Respondent No. 1 Society cannot now be permitted to bypass or circumvent the framework of the Insolvency and Bankruptcy Code, 2016 by independently seeking to recover the very same dues directly from the Applicants, who are auction purchasers of the Subject Property,” the tribunal observed.

The dispute concerned Flat No. 1204 on the 12th floor of Panchratna Building at Opera House in Mumbai. The flat formed part of the assets of C. Mahendra Export Ltd, which was ordered to be liquidated on July 29, 2025.

The liquidator conducted an e-auction of the property. The applicants emerged as the successful bidders.

On December 26, 2025, the liquidator issued a letter of intent in their favour for Rs. 3.01 crore. After they paid the entire consideration, a sale certificate was issued on January 19, 2026.

According to the applicants, the housing society subsequently demanded Rs. 28.24 lakh towards alleged maintenance arrears relating to periods before they acquired the flat.

The society also forwarded an indemnity deed. It called upon the applicants to execute the document before processing membership and transfer formalities.

The applicants approached the Tribunal challenging the demand and the conditions imposed by the society.

After examining the record, the Tribunal noted that the society had lodged its claim before the resolution professional during the corporate insolvency resolution process of C. Mahendra Export Ltd.

The Tribunal further noted that the claim was subsequently considered during liquidation. The liquidator admitted the society's claim to the extent of Rs. 25.99 lakh under the category of operational creditors.

The Tribunal ruled that having submitted its claim and participated in the statutory mechanism under the Code, the society could not seek recovery of the same dues from the auction purchasers.

“Such an attempt would be contrary to the scheme and object of the Code, which mandates that the creditor's claims against the corporate debtor undergoing liquidation process are to be settled in accordance with with the waterfall mechanism prescribed under Section 53 of the Code, and the proceeds of liquidation estate of corporate debtor is to be distributed accordingly,” the Tribunal observed.

The bench noted that creditors whose claims have been admitted in liquidation must await distribution in accordance with the statutory framework governing liquidation proceeds.

“Section 53 of the Insolvency and Bankruptcy Code, 2016 prescribes the order of priority for distribution of proceeds realised from the sale of assets of the Corporate Debtor during liquidation proceedings. Therefore, any creditor whose claim has been lodged and admitted in the liquidation process is required to await distribution strictly in accordance with the statutory waterfall mechanism contemplated under the said provision,” the tribunal observed.

The tribunal observed that if any claims remain unsettled, such claims stand extinguished.

It held that maintenance dues claimed by the society for periods before the liquidation sale could not be recovered from the applicants.

“In view of the aforesaid legal position, Respondent No. 1 Society cannot compel or insist that an auction purchaser under the Insolvency and Bankruptcy Code, 2016 should clear the outstanding dues of the previous owner/Corporate Debtor, particularly when such dues are already subject matter of the liquidation process and are liable to be dealt with in accordance with Section 53 of the Code,” the Tribunal held.

The tribunal directed the liquidator to consider and process the society's claim in accordance with law. It also directed the liquidator to communicate the status of the claim to the society.

The bench further ruled that the society cannot withhold, obstruct or delay transfer of the flat and corresponding membership or share certificates merely on account of alleged outstanding dues pertaining to the period before January 19, 2026.

However, the tribunal clarified that the applicants must comply with procedural formalities. They must also pay any fee or charge incidental to the transfer of the flat in the society's records.