Madras HC Rejects Sundaram Finance’s Unlocking Plea, Says Former Owner’s Tax Arrears Can Be Pursued Against Auction Buyer After Fresh Demand

Sundaram Finance purchased, through a court auction, a leasehold interest in the sixth floor of Rayala Towers, Chennai.

It sought a writ of mandamus directing the Greater Chennai Corporation to de-seal and unlock the property, alleging that the Corporation had locked and sealed it without notice. The Corporation denied taking that action and stated that the property was already under lock and seal at the time of auction.

The petitioner acknowledged that the Corporation had affixed a demand notice dated 6 January 2026 for property-tax arrears of ₹44,67,153, but argued that the arrears were owed by the previous owner and were not recoverable from it.

The demand notice was addressed to the previous owner, and the Court found that no enforcement action under Section 116A of the Tamil Nadu Urban Local Bodies Act and Rule 269 of the 2023 Rules had yet been initiated against the petitioner.

Section 116A of the Tamil Nadu Urban Local Bodies Act, read with Rule 269 of the Tamil Nadu Urban Local Bodies Rules, 2023, provides the procedure for recovery of property-tax arrears and must be followed before enforcement action is taken against a purchaser.

In Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdulgafur Haji Hussenbhai, (1971) 1 SCC 757, the Supreme Court held that an auction purchaser’s constructive knowledge of municipal taxes and the reasonable possibility of arrears must be determined on the facts of each case; the judgment does not categorically bar recovery from an auction purchaser.

The Court also applied the principle of caveat emptor, reasoning that a purchaser must make inquiries about property-tax and other public dues before purchase.

The Court found that the petitioner, a finance company that acquired the property at public auction, could not plead ignorance of tax arrears that were available on the Corporation’s website. It held that the cited Supreme Court decision did not prevent recovery where the purchaser had constructive knowledge of the arrears.

At the same time, the Corporation had issued its demand to the previous owner and had not yet initiated enforcement proceedings against the petitioner. The Corporation could therefore proceed against the petitioner only by following Section 116A and Rule 269, including issuing a revised demand notice; the petitioner could contest that demand through the available legal process.

The Court declined to order de-sealing, noting the Corporation’s position that it had not locked or sealed the property.

It granted the Corporation liberty to initiate recovery proceedings in accordance with Section 116A and Rule 269, and granted the petitioner liberty to defend against any revised demand in accordance with law. No order directing the property to be de-sealed or unlocked was made.