Full Judgment Text
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PETITIONER:
AHMEDABAD MUNICIPAL CORPORATION OF THE CITY OF AHMEDABAD
Vs.
RESPONDENT:
HAJI ABDULGAFUR HAJI HUSSENBHAI
DATE OF JUDGMENT18/03/1971
BENCH:
DUA, I.D.
BENCH:
DUA, I.D.
BHARGAVA, VISHISHTHA
CITATION:
1971 AIR 1201 1971 SCR 63
ACT:
Transfer of Property Act (4 of 1882), s. 100--Applicability
to auction sales--Whether s. 141(1) of the Bombay Provincial
Municipal Corporatiun Act, 1949, falls within the saving
provision of s. 100, T.P. Act--Constructive notice of
existence of arrears of municipal taxes--If and when can be
imputed to auction purchaser.
HEADNOTE:
In 1950, a building vested in the receivers on its owner
being adjudicated an insolvent. In 1951, the receivers
secured necessary orders from court for paying off municipal
taxes then due, but the receivers did not pay and the
municipal corporation did not also pursue the matter. In
1954, the property was brought to sale in execution of a
mortgage decree obtained by a mortgagee of the property and
the respondent purchased it at the court sale. Before the
purchase he made enquiries from the receiver if there were
any dues against the property, but he was not informed about
the arrears of municipalpal taxes. In 1955, the municipal
corporation attached the property for arrears of municipal
taxes due from 1949, and the purchaser filed a suit for a
declaration that the arrears were not recoverable by sale of
the property.
On the questions: (1) whether under s. 141(1) of the Bombay
Provincial Municipal Corporation Act, 1949, read with s. 100
of the Transfer of Property Act, 1882, the property could be
sold for the arrears in the hands of the respondent even if
he was a transferee for consideration without notice, and
(2) whether the respondent, who was an auction purchaser at
a court sale, could be held liable to pay the arrears of
taxes and the property could be held subject to the
liability on the ground that he had constructive notice of
the existence of the arrears.
HELD: (1) Section 100, Transfer of Property Act, lays
down that no charge is enforceable against any property in
the hands of a transferee for consideration without notice
of the charge except when it is otherwise expressly provided
by any law for the time being in force. The real core of
the saving provision of law is not mere enforceability of
the charge against the property but enforceability of the
charge against the property in the hands of a transferee for
consideration without notice of the charge. S. 141 of the
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Bombay Municipal Act is not such a provision. It merely
creates a charge in express language, but apart from
creating a statutory charge, it does not further provide
that the charge is enforceable against the property in the
hands of a transferee for consideration without notice of
the charge. [67A-B; 68E]
(2) (a) There is no basis for the contentions that s. 100
of the Transfer of Property Act does not apply to auction
sales and that therefore the execution purchasers purchase
the property subject to all the charges and encumbrances
which would bind the judgment debtor. This Court in Laxmi
Devi v. Mukand Kunwar, [1965] 1 S.C.R. 726 pointed out that
a. 100 applies to proceedings by operation of law also.
[69A-B]
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(b) According to s. 3, Transfer of Property Act, a person
is said to have notice of a fact when he actually knows the
fact or when but for wilful abstention from enquiry or
search which he ought to have made, or gross negligence, he
would have known it. In the latter case he is presumed to
have constructive notice. For drawing the presumption in
the present case, therefore, the question is not whether the
purchaser had the means of obtaining, and might with prudent
caution have obtained, knowledge of the charge but whether
in not doing so, he acted with wilful abstention or gross
negligence. There is no principle of law imputing, to all
Intending purchasers of property in municipal areas where
municipal taxes are a charge on the property, constructive
knowledge of the existence of such municipal taxes and of
the reasonable possibility of those taxes being in arrears.
It is a question of fact or a mixed question of fact and law
depending on the facts and circumstances of the case. The
material in the present case does not justify that the
respondent purchaser should be fixed with any constructive
notice of the existence of the arrears, because (i) lie
could not reasonably have thought the municipal corporation
had not cared to secure payment of the taxes due since 1949;
(ii) the municipal corporation was far more negligent and
blameworthy than the respondent in allowing the arrears to
accumulate; (iii) though he made enquiries from the
receivers they did not give any intimation about the
arrears; and (iv) the building was in the occupation of
tenants and the rent was recovered by the receivers and the
reasonable assumption would be that the municipal tax, which
was a charge on the property and given priority under s. 61
of the Provincial Insolvency Act, 1920, had been paid by the
receivers. [71G-H ; 72H 73D-G 74C-H; 75B-D]
Nawal Kishore v. Municipal Board, Agra, I.L.R. [1943] All.
453, Municipal Board, Lucknow v. Ramjilal, I.L.R. [1916] 16
Luck. 607, Chandu Ram v. Municipal Commissioner of Kurseong
Municipality, A.I.R. 19,51 Cal. 398 and Municipal Board,
Lucknow v. Lala Ramji Lal, A.I.R. 1941 Oudh 305, overruled.
Municipal Board, Cawnpore v. Roop Chand Jain, I.L.R. [1940]
All. 669, approved.
Akhoy Kumar Banerjee v. Corporation of Calcutta, I.L.R 42
Cal. 625, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1161 of
1967.
Appeal from the judgment and order dated April 28, 29, 1966
of the Gujarat High Court in Letters Patent Appeal No. 19 of
1961
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S. T. Desai and I. N. Shroff, for the appellant.
The respondent did not appear.
The Judgment of the Court was delivered by
Dua, J.-In this appeal on certificate granted by the High
Court of Gujarat under Article 133(1)(c) of the Constitution
of India the question raised relate to the liability of
auction purchaser of property at court sale for the arrears
of municipal taxes due on the date of sale to the municipal
corporation of the City of Ahmedabad which dues are a
statutory charge on the property sold and of which the
purchaser had no actual notice. On the
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question of constructive notice there is a sharp conflict of
judicial decisions in the various High Courts and in the
Allahabad High Court itself there have been conflicting
expression of opinion. In this Court there being no
representation on behalf of the respondent the appeal was
heard ex parte.
The property which is the subject matter of controversy in
this litigation originally belonged to one Haji Nur-Mahammad
Haji Abdulmian. He apparently ran into financial
difficulties in February, 1949, and insolvency proceedings
were started against him in March, 1949. By an interim
order receivers took charge of his estate and finally on
October 14, 1950 he was adjudicated insolvent. The property
in question accordingly vested in the receivers. This
property had been mortgaged with a firm called Messrs.
Hargovind Laxmichand. In execution of a mortgage decree
obtained by the mortgagee this property was auctioned and
purchased at court sale by the plaintiff Haji Abdulgafur
Haji Hussenbhai, (respondent in this Court) for Rs. 22,300.
He was declared purchaser on November 28, 1954. At the time
of this purchase there were municipal taxes in respect of
this property in arrear for the years 1949-50 to 1953-54,
which means that the receivers had not cared to pay the
municipal taxes during all these years. The property was
attached by the municipal corporation by means of an
attachment notice dated- July 20, 1955 for the arrears of
the municipal taxes amounting to Rs. 543.79 ps. As the
municipal corporation threatened to sell the property
pursuant to the attachment proceedings the purchaser
instituted the suit (giving rise to this appeal) for a
declaration that he was the owner of the property and that
the arrears of municipal taxes due from Haji Nurmohammad
Haji Abdulmian were not recoverable by attachment of the
suit property in the plaintiff’s hands and that the warrant
of attachment of the property issued by the municipal
corporation was illegal and ultra vires. Permanent injunc-
tion restraining the municipal corporation from attaching
the property for arrears of municipal taxes was also sought.
The trial court declined the prayer for a declaration that
the property was not liable to be attached for recovery of
the arrears of municipal taxes. But the war-rant of
attachment actually issued in this case was held to be
illegal and void with the result that an injunction was
issued restraining the municipal corporation from enforcing
the impugned warrant of attachment against the plaintiff in
respect of the suit property. Both parties feeling aggriev-
ed appealed to the District Court. The Assistant Judge who
heard the appeals dismissed both of them. The plaintiff
thereupon presented a second appeal to the Gujarat High
Court which was summarily dismissed by a learned single
Judge. Leave to appeal to a Division Bench under cl. 15 of
the Letters Patent was however granted. The Division Bench
hearing the Letters
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5-1 S.C. India/71
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Patent appeal in a fairly lengthy order allowed the
plaintiffs appeal and decreed his suit holding that the
plaintiff is the owner of the suit property and the charge
of the municipal corporation for arrears of municipal tax is
not enforceable against his property and also restraining
the municipal corporation by a permanent injunction from
proceeding to realise from this property the charge in
respect of the arrears of municipal taxes. On appeal in
this Court three main questions were raised by Shri S. T.
Desai, learned counsel for the appellant.
To begin with it was contended that there is no warranty of
title in an auction sale. This general contention seems to
us to be well-founded because it is axiomatic that the
purchaser at auction sale takes the property subject to all
the defects of title and the doctrine caveat emptor (let the
purchaser beware) applies to such purchaser. The case of
the judgment debtor having no saleable interest at all in
the property sold such as is contemplated by 0. 21, R. 91,
C. P. C. is, however, different and is not covered by this
doctrine. The second point canvassed was that there is an
express provision in Section 141(1) of the Bombay Provincial
Municipal Corporation Act, 1949 (hereinafter called the
Bombay Municipal Act) for holding the present property to be
liable for the recovery of municipal taxes and, therefore
though the property was subject only to a charge not
amounting to mortgage and, therefore, involving no transfer
of interest in the property, the same could nevertheless be
sold for realizing the amount charged, even in the hands of
a transferee for consideration without notice. Section 141
of the Bombay Municipal Act is an express saving provision
as contemplated by Section 100 of Transfer of Property Act,
contended Shri Desai. This submission has no merit as would
be clear from a plain reading of Section 100 of the Transfer
of Property Act, 1882 and Section 141 of the Bombay
Municipal Act, the only relevant statutory provisions.
Section 100 of the Transfer of Property Act dealing with
’charges’ provides .
S. 100 "Where immoveable property of one
person is by act of parties or operation of
law made security for the payment of money to
another, and the transaction does not amount
to a mortgage, the later person is said to
have a charge on the property; and all the
provisions hereinbefore contained which apply
to a simple mortgage shall, so far as may be,
apply to such charge.
Nothing in this section applies to the charge
of a, trustee on the trust-property for
expenses properly incurred in the execution of
his trust, and;, save as otherwise expressly
provided by any law for the time being in
force,
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no charge shall be enforced against any
property in the hands of a person to whom such
property has been transferred for
consideration and without notice of the
charge."
This section in unambiguous language lays down
that no charge is enforceable against any
property in the hands of a transferee for
consideration without notice of the charge
except where it is otherwise expressly
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provided by any law for the time being in
force. The saving provision of law must
expressly provide for enforcement of a charge
against the property in the hands of a
transferee for value without notice of the
charge and not merely create a charge. We now
turn to Section 141 of the Bombay Provincial
Municipal Corporation Act, 1949 to see if it
answers the requirements of Section 100 of
Transfer of Property Act. This section reads
:-
Section 141. "Property taxes to be a first
charge on premises on which they are assessed:
(1) Property taxes due under this Act in
respect of any building or land shall, subject
to the prior payment of the land revenue, if
any, due to the State Government thereupon, be
a first charge, in the case of any building or
land held immediately from the Government,
upon the interest in such building or land of
the person liable for such taxes and upon the
movable property, if any, found within or upon
such building or land and belonging to such
person ; and, in the case of any other
building or land, upon the said building or
land and upon the moveable property, if any,
found within or upon such building or land and
belonging to the person liable for such taxes.
Explanation.-The term "Property taxes" in this
section shall be seemed to include charges
payable under section 134 for water supplied
to any premises and the costs of recovery of
property-taxes as specified in the rules.
(2) In any decree passed in a suit for the
enforcement of the charge created by sub-
section (1), the Court may order the payment
to the Corporation of interest on the sum
found to be due at such rate as the Court
deems reasonable from the date of the
institution of the suit until realisation, and
such interest and the cost of enforcing the
said charge, including the costs of the suit
and the cost of bringing the premises or
moveable property in question to sale under
the decree, shall, subject as aforesaid, be a
fresh charge on such premises and moveable
property along with the amount found to be
due, and the Court may direct payment thereof
to be made to the Corporation out of the sale
proceeds."
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Sub-section (1). as is obvious, merely creates a charge in
express language. This charge is subject to prior payment
of land revenue due to the State Government on such building
or land. The section, apart from creating a statutory
charge, does not further provide that this charge is
enforceable against the property charged in the hands of a
transferee for consideration without notice of the charge.
It was contended that the saving provision, as contemplated
by Section 100 of the Transfer of Property Act, may, without
using express words, in effect provide that the property is
liable to sale in enforcement of the charge and that if this
liability is fixed by a provision expressly dealing with the
subject, then the charge would be enforceable against the
property even in the hands of a transferee for consideration
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without notice of the charge. According to the submission
it is not necessary for the saving provision to expressly
provide for the enforceability, of the charge against the
property in the hands of a transferee for consideration
without notice of the charge. This submission is
unacceptable because, as already observed, what is enacted
in the second half of Section 100 of Transfer of Property
Act is the general prohibition that no charge shall be
enforced against any property in the hands of a transferee
for consideration without notice of the charge and the
exception to this general rule must be expressly provided by
law. The real core of the saving provision of law must be
not mere enforceability of the charge against the property
charged but enforceability of the charge against the said
property in the hands of a transferee for consideration
without notice of the charge. Section 141 of the Bombay
Municipal Act is clearly not such a provision. The second
contention accordingly fails and is repelled.
The third argument, and indeed this was the principal argu-
ment which was vehemently pressed with considerable force by
Shri Desai. is that the plaintiff must be deemed to have
constructive notice of the arrears of municipal taxes and as
an auction purchaser he must be held liable to pay these
taxes and the property purchased must also be held subject
to this liability in his hands. In support of this
submission he cited some decisions of our High Courts. The
first decision relied upon by Shri Desai is reported as
Arumilli Suravya v. Pinisetti Venkataramanamma(1) in which
relying on Creet v. Ganga Ram Gool Rai(2) it was observed by
Horwill J., that Section 100 of the Transfer of Property Act
does not apply to auction sales because the transfer within
the meaning of the Transfer of Property Act does not include
an auction sale. It was added that the position of a
purchaser at an execution sale is the same as that of the
judgment-debtor and his position is somewhat different from
that of a
(1) A.I.R. 1940 Mad. 701. (2) I.L.R. [1937] 1 Cal. 203.
69
purchaser at a private sale. Execution Purchasers.
according to this decision, purchase the property subject to
all the charges and encumbrances legal and equitable which
would bind the debtor$. We do not agree with the view taken
in this decision. We how,ever, do not consider it necessary
to go into the matter at length because we find that this
decision was expressly overruled by this Court in Laxmi Devi
v. Mukand Kunwar(1) and the High Court, relying on this
Court’s decision, had also repelled a similar contention
pressed on behalf of the Municipal Corporation there. This
Court pointed out in Laxmi Devi’s case(2) that the provi-
sions of Section 2(d) of the Transfer of Property Act
prevail over Section 5 with the result that the provisions
of Section 57 and those contained in Chapter IV of the
Transfer of Property Act must apply to transfer, by
operation of law. Section 100, it may be pointed out, falls
in Chapter IV. Reliance was next placed on a Full Bench
decision of the Allahabad High Court in Nawal Kishore v. The
Municipal Board, Agra (1). According to this ,decision the
question of constructive notice is a question of fact which
falls to be determined on the evidence and circumstances of
each case. But that Court felt that there was a principle
on which question of constructive notice could rest, that
principle being that all intending purchasers of the
property in municipal areas where the property is subject to
a municipal tax which has been made a charge on the property
by statute have a constructive knowledge of the tax and of
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the possibility of some arrears being due with the result
that it becomes their duty before acquiring the property to
make enquiries as to the amount of tax which is due or which
may be due and if they fail to make this enquiry such
failure amounts to a wilful abstention or gross negligence
within the meaning of Section 3 of the Transfer of Property
Act and notice must be imputed to them. The reference to
the Full Bench in the reported case was necessitated because
of conflict of judicial opinion between that Court and Oudh
Chief Court. The earlier decision of a Division Bench in
Municipal Board, Cawnpore v. Roop Chand Jain (2) was
overruled and the Bench decision of Oudh High Court in
Municipal Board, Lucknow v. Ramjilal (4) was approved. The
next decision to which reference was made by Shri Desai is
reported as Akhoy Kumar Banerjee v. Corporation of Calcutta
(5). In this case, after distinguishing a mortgage from a
charge, it was observed-that the statutory charge in that
case could not be enforced against the property in the hands
of bona fide purchaser for value without notice. While
dealing with the question whether the appellants in that
case were purchasers for value without notice, it was
observed that they had
(1) [1965] 1 S.C.R. 726.
(2) I.L.R. [1943] All. 453.
(3) I.L.R. [1940] All. 669.
(4) I.L.R. [1916] 16 Lucknow 607.
(5) I.L.R. 42 Cal. 625.
70
not pleaded in their written statement that they were
Purchasers for value without notice. Having not pleaded
this defence they were held disentitled to avail of it.
Having so observed the Court dealt with the case on the
assumption that the defence though not expressly taken in
the pleadings was available to the defendants. The Court
said :
"But even if we assume that the defence,
though not expressly taken in their written
statement, is available to the defendants,
they are in a position of difficulty from
which there is no escape. The appellants are
private purchasers of the property and if they
had enquired at the time of their purchase,
they would have discovered that the rates were
in arrears; as a matter of fact, they would be
personally liable under Section 223 for the
arrears of the year immediately prior to the
date of their purchase, and they admit that
they have satisfied such arrears, though they
do not disclose whether by enquiry they had
ascertained the existence of the arrears
before they made the purchase.
The Court then, proceeded to deal with the position of the
vendor from whom the appellants had purchased the property
in order to see if he could raise the defence of being a
purchaser for value without notice. The appellant’s vendor
was a mortgagee who had acquired title by foreclosure-an
involuntary alienation by his mortgagor-and it was held that
to him constructive notice could not be imputed to the same
extent as to a purchaser at a private sale. But had he made
enquiries from the municipal authorities he could still have
ascertained whether any arrears of consolidated rates were
due. When he had taken the mortgage ,be was aware that if
the rates were not paid the arrears would be fiat charge on
the property with the result that before becoming full owner
by foreclosure he should have ascertained the true state of
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affairs. On this reasoning he was held to have constructive
notice and the purchasers from him could not claim greater
protection. These circumstances clearly disclose that the
reported case is not similar to the one before us and is of
little assistance.
Chandu Ram v. Municipal Commissioner of Kurseong Muni-
cipality (1) was the next decision cited. The Bench in that
case followed the Full Bench decision of the Allahabad High
Court in Nawal Kishores case (supra). A Division Bench of
the Oudb Chief Court in Municipal Board, Lucknow v. Lala
Ramji Lal (2) disagreeing with the Bench decision of the
Allahabad High Court in Roop Chand Jain’s case (supra)
observed that it must be presumed that a person who buys
house property situate in a municipality is acquainted with
the law by which a charge is imposed
(1) A.I.R. 1951 Cal. 398.
(2) A.I.R. 1941 Oudh 305.
71
on that property for the payment of taxes. The charge
having been expressly imposed by the Municipal Act upon the
property for payment of municipal taxes the municipality was
entitled to follow the property in the hands of a transferee
who had not cared to make any enquiry as to whether the
payment of taxes was in arrears. The Court approved the
Calcutta decision in Akhoy Kumar’s case (supra). The next
decision cited is reported as Laxman Venkatesh Naik v. The
Secretary of State for India (1) but being a case of takkavi
loans it is of no assistance in the present case.
We may now turn to the Bench decision of the Allahabad High
Court in Roop Chand Jain’s case (supra). The reasoning for
the view adopted there may be reproduced :
"A bona fide purchaser takes property he buys
free of all charges of which he has no notice
actual or constructive. He is said to have
constructive notice when ordinary prudence and
care would have impelled him to undertake an
enquiry which would have disclosed the charge.
If for instance the charge is created by a
registered document then the purchaser would
be held to have constructive notice of that
charge inasmuch as a prudent purchaser would
in ordinary course search the registers before
effecting the purchase. There is no register,
as far as we know, of arrears of taxes or of
charges in respect thereof. It has not been
shown that the municipality of Cawnpore
intimate to the public in the "Press" or by
other publication a list of the properties
which are charged in respect of arrears of
taxes. There is nothing upon the record to
justify the conclusion that the defendants
could have demanded any information from-the
municipality in regard to charges on immovable
property within the municipal limits."
The Court then noticed the fact that the Kanpur Corporation
had allowed II years’ arrears of taxes to accumulate and it
was observed that no intending purchaser was bound to
presume that taxes upon the property, he contemplates
purchasing had not been paid in the ordinary course, in the
absence of special intimation by the municipality. On this
reasoning the suggestion of constructive notice was
negatived.
According to Section 3 of the Transfer of Property Act which
is described as interpretation clause, a person is said to
have notice of a fact when he actually knows that fact or
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when before wilful abstention from an enquiry or search
which he ought to have made or gross negligence he would
have known it. There
(1) XLI B.I.R. 257.
72
are three explanations to this definition dealing with three
contingencies when a person acquiring immovable property is
to be deemed to have notice of certain facts. Those
-explanations are:
"Explanation I.-Where any transaction relating
to immoveable property is required by law to
be and has been affected by a registered
instrument, any person acquiring such property
or any part of. or share of such instrument as
from the date of registration or, where the
property is not all situated in one sub-
district, or where the registered instrument
has been registered under subsection (2) of
Section 30 of the Indian Registration Act,
1908, from the earliest date on which any
memorandum of such registered instrument has
been filed by any Sub-Registrar within whose
sub-district any part of the property which is
being acquired, or of the property wherein a
share or interest is being acquired, is
situated
Provided that-
(1) the instrument has been registered and
its registration completed in the manner
prescribed by the Indian Registration Act,
1908, and the rules made thereunder.
(2) the instrument or memorandum has been
duly entered or filed, as the case may be, in
books kept under section 51 of that Act and
(3) the particulars regarding the
transaction to which the instrument relates
have been correctly entered in the indexes
kept under section 55 of that Act.
Explanation II.-Any person acquiring any
immoveable property or any share or interest
in any such property shall be deemed to have
notice of the title, if any, of any person who
is for the time being in actual possession
thereof.
Explanation III.-A person shall be deemed to
have had notice of any fact if his agent
acquires notice thereof whilst acting on his
behalf in the course of business to which that
fact is material.
Provided that, if the agent fraudulently
conceals the fact, the principal shall not be
charged with notice thereof as against any
person who was a party to or otherwise
cognizant of the fraud."
Now the circumstances which by a deeming fiction impute
notice to a party are based, on his wilful abstention to
enquire or search, which a person ought to make or, on his
gross negligence. This presumption of notice is commonly
known as constructive notice.
73
Though originating in equity, this presumption of notice is
now ;a part of our statute and we have to interpret it as
such. Wilful abstention suggests conscious or deliberate
abstention and gross negligence is indicative of a higher
degree of neglect. Negligence is ordinarily understood as
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an omission to take such reasonable care as under the
circumstances is the duty of a person of ordinary prudence
to take. In other words it is an omission to do something
which a reasonable man guided by consideration which nor-
mally regulate the conduct of human affairs would do or
doing something which a normally prudent and reasonable man
would not do. The question of wilful abstention or gross
negligence and, therefore, of constructive notice considered
from this point of view is generally a question of fact or
at best mixed question of fact and law depending primarily
on the facts and circumstances of each case and except for
cases directly falling within the three explanations, no
inflexible rule can be laid down to serve as a straight-
jacket covering all possible contingencies. The question
one has to answer in circumstances like the present is not
whether the purchaser had the means of obtaining and might
with prudent caution have obtained knowledge of the charge
but whether in not doing so he acted with wilful abstention
or gross negligence. Being a question depending on the
behaviour of a reasonably prudent man, the Courts have to
consider it in the background of Indian conditions. Courts
in India should, therefore, be careful and cautious in
seeking assistance from English precedents which should not
be blindly or too readily followed.
Adverting now to the case before us, as already noticed. the
property in question had vested in the receivers in
insolvency proceedings since March, 1949 by an interim
order, and in ,October, 1950 the original owner was
adjudicated as an insolvent and the property finally vested
in the receivers in insolvency. The plaintiff purchased the
property in November, 1954 and in our opinion it could not
have reasonably been expected by him that the receivers
would not have paid to the municipal corporation since 1949
the taxes and other dues which were charged on this property
by statute. According to Section 61 of the Provincial
Insolvency Act, 1920 the debts due to a local authority are
given priority, being bracketed along with the debts due to
the State. Merely because these taxes are charged on the
property could not constitute a valid ground for the
official receiver not to discharge this liability. In fact
we find from the record that on January 15, 1951 the
receivers had submitted a report to the insolvency court
about their having received bills for Rs. 6283-0 in respect
of municipal taxes of the insolvent’s property and leave of
the court was sought for transferring the said property to
the names of the receivers in the municipal and Government
records. The court recorded an order on February 8,
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1951 that the municipal taxes had to be paid. On the
receivers stating that they did not possess sufficient funds
the court gave notice to the, counsel for the opposite party
and on February 24, 1951 made the following order :
"Mr. Pandya absent. The taxes have to be
paid. The Receivers state that they can pay
only by sale of some properties of the
insolvent from which they want. Sanctioned.
The property in which the insolvent stays
should first be disposed of. The terms arc
accordingly so authorised."
It is not known what happened thereafter. It is, however,
difficult to appreciate why after having secured the
necessary order from the court municipal taxes were not paid
off by the receivers and why the municipal corporation did
not pursue the matter and secure payment of the taxes due.
May be that the municipal corporation thought that since
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these dues were a charge on the property they need not
pursue the matter with the receivers and also need not
approach the insolvency court. If so, then this, in our
opinion, was not a proper attitude to adopt. In any event
the plaintiff could not reasonably have thought that the
municipal corporation had not cared to secure payment of the
taxes due since 1949. On the facts and circumstances of
this case, therefore, we cannot hold that the plaintiff as a
prudent and reasonable man was bound to enquire from the
municipal corporation about the existence of any arrears of
taxes due from the receivers. It appears from the record,
however, that he did in fact make enquiries from the
receivers but they did not give any intimation. The
plaintiff made a statement on oath that when he purchased
the building in question it was occupied by the tenants and
the rent used to be recovered by the receivers. There is no
rebuttal to this evidence. Now, if the receivers were
receiving rent from the tenants, the reasonable assumption
would be that the municipal taxes which were a charge on the
property and which were also given priority under Section 61
of the Provincial Insolvency Act, 1920, had been duly paid
by the receivers out of the rental income. The plaintiff
could have no reasonable ground for assuming that they were
in arrears. From the plaintiff’s testimony it is clear that
he did nevertheless make enquiries from the receivers if
there were any dues against the property though the enquiry
was not made specifically about municipal dues. Apparently
he was not informed about the arrears of municipal taxes.
This seems to us explainable on the ground that the
receivers had, after securing appropriate orders, for some
reasons not clear on the record, omitted to pay the arrears
of municipal taxes and they were, therefore, reluctant to
disclose this lapse on their part. On these facts and cir-
cumstances we do not think that the plaintiff could
reasonably be fixed with any constructive notice of the
arrears of municipal taxes
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since 1949. So far as the legal position is concerned we
are inclined to agree with the reasoning adopted by the
Allahabad High Court in Roop Chand Jain’s case (supra) in
preference to the reasoning of the Full Bench of that Court
in Nawal Kishore’s case (supra) or of the Division Bench of
Oudh Chief Court in Ramji Lal’s case (supra). We do not
think there is any principle or firm rule of law as
suggested in Nawal Kishore’s case (supra) imputing to all
intending purchasers of property in municipal area where
municipal taxes are a charge on the property, constructive
knowledge of the existence of such municipal taxes and of
the reasonable possibility of those taxes being in affears.
The question of constructive knowledge or notice has to be
determined on the facts and circumstances of each case.
According to the Full Bench decision in Nawal Kishore’s case
(supra) also the question of constructive notice is a
question of fact and we do not find that the material on the
present record justifies that the plaintiff should be fixed,
with any constructive notice of the arrears of municipal
taxes.
We may add before concluding that as the question of
constructive notice has to be approached from equitable
considerations we feel that the municipal corporation in the
present case was far more negligent and blameworthy than the
plaintiff. We have, therefore, no hesitation in holding
that the High Court took the correct view of the legal
position with the result that this appeal must fail and is
dismissed. As there is no representation on behalf of the
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respondent there will be no order as to costs.
V.P.S. Appeal dismissed.
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