RTO Cannot Demand Pre-Liquidation Motor Vehicle Tax From IBC Auction Purchasers: Bombay High Court

On 22 April, the Bombay High Court, allowing a writ petition filed by My Ideal Transport, held that Regional Transport Offices (RTOs) cannot demand pre-liquidation Motor Vehicle Tax (MVT) dues from auction purchasers of vehicles sold during liquidation under the Insolvency and Bankruptcy Code, 2016 (IBC).

A Division Bench of Justices Manish Pitale and Shreeram V. Shirsat reiterated that statutory authorities must lodge their claims before the liquidator and have them resolved under the IBC's waterfall mechanism, rather than recover them from successful auction purchasers. It observed:

“In the present case also, we find that the respondent Nos.2 to 6, being the respective regional transport offices concerned with the said vehicles, have issued demand notices for MTV allegedly pending in the context of the said vehicles to the two petitioners, who were the successful auction purchasers in an auction conducted under the provisions of the IBC.”

The petitioners purchased the vehicles through public auctions conducted by Subash Laxminarayan Nathuranka, the liquidator of a corporate debtor undergoing insolvency. Petitioner No. 1 bought 24 vehicles, while Petitioner No. 2 purchased five vehicles in auctions held between November 2024 and June 2025.

After the auctions, RTOs (respondents 2–6) issued demand notices for pending MVT dues and refused to transfer ownership unless the petitioners cleared these liabilities. The petitioners challenged these demands, arguing that they violated the IBC framework and binding precedents.

Counsel for the petitioners submitted that RTOs cannot impose their dues as a condition for transfer of ownership and relied on East India Enterprise v. Ministry of Finance (2021). They argued that such demands defeat the IBC's objective of granting a clean slate to auction purchasers and disrupt the liquidation process.

The liquidator supported the petitioners and submitted that the issue no longer remained res integra. He relied on the Bombay High Court's Division Bench ruling in Raman Roadways Pvt. Ltd. v. State of Maharashtra (2021), which had quashed similar demands and directed authorities to file claims as operational creditors in liquidation.

He also clarified that while the petitioners were entitled to relief on transfer of ownership, one purchaser withheld part of the sale consideration due to the RTO demands, which arose independently and did not relate to the liquidator.

Relying on Raman Roadways, the Court reiterated that authorities must lodge statutory dues relating to vehicles of a corporate debtor in liquidation before the liquidator. It held that if they fail to do so, such claims stand extinguished. It further held that authorities can recover dues relating to the corporate debtor's vehicles only through the waterfall mechanism under Section 53 of the IBC and cannot proceed against auction purchasers.

The judges also referred to a similar view taken by the Gujarat High Court, which reinforced that statutory authorities must participate in the liquidation process by filing claims instead of issuing recovery demands to purchasers.

The Bench allowed the petition in terms of prayer clauses (a), (b), and (c). It set aside the impugned RTO demands and directed the authorities to transfer ownership of the vehicles upon production of sale certificates and requisite forms, without insisting on payment of pre-liquidation dues. It also held that authorities cannot recover pre-liquidation statutory dues from auction purchasers and must claim them under the IBC liquidation process.

The High Court clarified that RTOs remain free to lodge their claims before the liquidator as operational creditors in the ongoing liquidation proceedings.

For Petitioners: Advocates Prasahant Phophale and Reena L

For Respondents: Advocate GR Raghuwanshi for R1-R6 Advocates Shyam Kapadia, Abdullah Qureshi and Samuel Abraham for R7