Cooperative Society's Statutory Charge Survives Liquidation, Enforceable Against Auction Purchaser: NCLT Mumbai

The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that a cooperative society can enforce its statutory first charge over a property against an auction purchaser even after participating in the liquidation process by filing its claim before the liquidator.

A bench of Judicial Member Ashish Kalia and Technical Member Charanjeet Singh Gulati observed that participation in the liquidation process does not extinguish the statutory charge created under the Maharashtra Co-operative Societies Act.

"Once such a charge comes into existence, the Society is entitled to enforce the same against the property, notwithstanding that it had also lodged its claim before the Liquidator. Accordingly, the mere fact that Respondent No. 1 participated in the liquidation process does not result in extinguishment of the statutory charge created under Section 47 of the MCS Act, nor does it preclude the Society from seeking enforcement of the charge against the property.", the tribunal observed.

The ruling came while dismissing an application filed by Indojewel Jewellery Pvt Ltd. The company had argued that maintenance dues relating to the period before liquidation could not be recovered from it after it purchased the property in the liquidation auction because the cooperative society's claim had already been admitted in the liquidation process and dealt with under the distribution mechanism.

Panache Exports Pvt Ltd entered the corporate insolvency resolution process in November 2019 and went into liquidation in September 2022. The cooperative society filed a claim of about ₹70.60 lakh before the liquidator. Indojewel later purchased the property in the auction for ₹5.31 crore.

After the purchase, the society demanded payment of outstanding maintenance charges relating to the period before liquidation. It relied on the statutory first charge created under the Maharashtra Co-operative Societies Act.

The tribunal agreed with the society. It observed that a significant portion of the maintenance charges collected by the society was payable to the SEEPZ authorities. The dues were therefore not merely personal claims against the corporate debtor but liabilities attached to the property and protected by a statutory first charge.

The tribunal also noted that the property had been sold on an "AS IS WHERE IS, AS IS WHAT IS, WHATEVER THERE IS and NO RECOURSE BASIS."

It held that the auction purchaser was expected to conduct due diligence before submitting its bid.

"That on perusal of the aforesaid auction notice, it is evident that the E-Auction was proposed to be conducted on 'AS IS WHERE IS, AS IS WHAT IS, WHATEVER THERE IS and NO RECOURSE BASIS'. The Applicant was expected to conduct due diligence before submitting its bid and cannot subsequently claim ignorance of liabilities associated with the property.", the tribunal noted.

The tribunal also rejected Indojewel's reliance on Section 32A of the Insolvency and Bankruptcy Code. It held that the provision grants immunity only against actions relating to offences committed before the commencement of insolvency proceedings. It does not extend to outstanding charges or dues.

"A bare reading of the aforesaid provision makes it clear that no action can be taken against the property of the Corporate Debtor in relation to an 'offence' committed prior to the commencement of the CIRP. Therefore, the immunity granted under this provision is limited to liability arising from such prior 'offences' and does not extend to outstanding charges or dues, as involved in the present case.", the tribunal observed.

Holding that the society's statutory first charge remained enforceable against the property, the tribunal dismissed Indojewel's application.

For Applicant: Advocate Manoj Mishra

For Respondents: Advocate Rohit Gupta instructed by Advocate Vaishali Bhilare along with Advocates Somesh Talla, Ramesh Singh