Property Sale Drama: High Court Says IBC prevails over Old VAT Attachments

The petitioner, a partnership firm represented by its managing partner, purchased immovable property belonging to a company in liquidation proceedings. The sale certificate was given in January 2025 when the petitioner had remitted over Rs. 3.05 crore. Registration of the property was declined since the asset was still under an attachment order dated 03.02.2016 made under the Tamil Nadu VAT Act for dues over Rs. 2.11 crore for the assessment years 2007-08 to 2014-15.

The petitioner went before the High Court under Article 226, asking to cancel the attachment and order the Sub-Registrar to remove it from the encumbrance certificate. It was contended that as soon as liquidation began under the Insolvency and Bankruptcy Code, 2016, the Department ought to have enforced its claim before the liquidator and that Section 238 of the Code prevails over inconsistent enactments. The Department raised an objection referring to the subsisting attachment and its interests in the property.

Issue Raised: Whether an attachment made before commencement of IBC proceedings under the TNVAT Act continues to bind property sold in liquidation, and whether registration of the auction purchaser’s sale certificate can be compelled despite the encumbrance.

HC’s Ruling:  The Court held that the attachment dated 03.02.2016 conferred on the Department the status of a secured creditor under Section 3(30) of the IBC. The liquidator could not ignore such rights, and the auction was conducted on an “as is, where is” basis. Therefore, the petitioner took the property subject to the encumbrance. It was concluded that registration of the sale certificate dated 23.01.2025 could not be compelled until the Department’s dues were satisfied.

The Court held that Section 238 of the IBC has an overriding effect, and once liquidation proceedings commence, prior statutory attachments cannot obstruct registration of sale certificates. The VAT attachment, being prior to the initiation of CIRP and liquidation, could not prevail over the IBC. The registering authority was directed to register the sale certificate.

The writ petition was dismissed, with liberty to the petitioner to seek adjustment or recovery from sums already distributed in liquidation. The Court directed that the attachment will stand lifted once the arrears are discharged.

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