REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8015 OF 2010
OFFICIAL LIQUIDATOR ….APPELLANT(S)
VERSUS
UJJAIN NAGAR PALIKA NIGAM & ORS. ….RESPONDENT(S)
WITH
CIVIL APPEAL NO. 8016 OF 2010
JUDGMENT
DINESH MAHESHWARI, J.
1
1. By way of these appeals, the appellant, being Official Liquidator of
2
the company named IISCO Ujjain Pipe and Foundry Company Limited ,
has questioned the common judgment and order dated 05.02.2009 in
APOT No. 248 of 2008 and APOT No. 235 of 2008, whereby the Division
Bench of the High Court at Calcutta has dismissed the appeals against the
common judgment and order dated 25.04.2007 in C.A. No. 159 of 2006
and C.A. No. 160 of 2006, as passed by the learned Company Judge of
3
the High Court in allowing the company applications preferred by
Signature Not Verified
Digitally signed by
ARJUN BISHT
Date: 2023.05.04
17:54:01 IST
Reason:
1
‘OL’, for short.
2
Hereinafter also referred to as ‘the company in liquidation’.
3
Hereinafter also referred to as ‘the Company Court’.
1
4
respondent No.1 Ujjain Nagar Palika Nigam , claiming property tax and
water tax from the appellant in relation to the company in liquidation, from
the date of order of winding up and until the date of confirmation of sale of
assets to the auction purchaser, who is now represented by respondent
No. 3.
2. Briefly put, the relevant facts are that the said company, IISCO
Ujjain Pipe and Foundry Company Limited, became sick and was referred
5
to the Board for Industrial and Financial Reconstruction under the
provisions of Sick Industrial Companies (Special Provisions) Act, 1956.
The BIFR recommended its winding up and, accordingly, it was ordered to
be wound up by the Company Court in its order dated 10.07.1997. The
appellant herein was appointed as the Official Liquidator and was directed
to take over possession of the assets of the company in liquidation.
3. Following an order passed by the Company Court on 04.04.2003,
the assets of the company in liquidation were put up for sale on “ as is where
is whatever there is ” basis by means of sale notice dated 09.05.2003. The
said notice provided for inspection of the assets of the company by
intending purchasers and mentioned the availability of terms and
conditions of sale alongwith particulars about the assets of the company at
the office of the appellant. This sale notice reads as under: -
“SALE NOTICE
Pursuant to the order of the Hon'ble High Court, Calcutta dated
th
4 April, 2003 offers are invited in sealed cover enclosing a Bank
Draft or Pay Order in favour of Official Liquidator, High Court,
Calcutta for an amount equivalent to 20% of the offered amount as
4
Hereinafter also referred to as ‘the Nigam’.
5
For Short, ‘BIFR’.
2
earnest money for sale of the assets of the Company [In Liqn.] like
land structure, building, machineries etc., lying at Dewas Road,
Ujjain M.P., and lease hold land building quarter at Nana-Kheda,
Indore road, Ujjain, M.P. The assets of the company will be sold 'as
is where is whatever there is basis'. Balance amount is to be paid
within 30 days from the date of sale and the possession is not be
made only after full payment of the purchase price.
Sealed offers will be received by the Official Liquidator upon 5
th th
p.m. dated 26 June 2003 and the same will be opened on 27
June 2003 at 2.00 p.m. before the Hon'ble Judge taking Company
matters in the High Court at Calcutta for consideration of such
sealed offers. No one will be allowed to purchase in favour of
nominee or nominees.
Inspection of the assets of the Company [In liqn.] will be allowed
th th
to the intending purchasers on 26 May 2003 and 27 May 2003
between 12 noon to 4 p.m. Terms and conditions of sale alongwith
the particulars of the assets of the Company [In Liquidation] will be
nd
available at the office of the undersigned on and from 22 May
2003 during office hours at a cost of Rs.50/- per catalogue and also
at site during inspection period.
th
Dated this 9 day of May, 2003.”
3.1. The abovementioned sale notice carried certain terms and
conditions appended to it, reinforcing that the sale would be on “as is where
is whatever there is” basis and stating that the appellant OL would not be
providing any guarantee about the quality, quantity or specification of the
assets sold; the tenderers were to satisfy themselves in this regard after
physical inspection of the assets of the company; and the purchasers would
be deemed to offer with full knowledge as to defects, if any, in the
description, quality or quantity of the assets sold. The conditions relevant
for the present purpose could be reproduced as follows: -
“TERMS & CONDITIONS OF THE SALE
1. The SALE will be as per inventory made by the valuer on 'As is
where is whatever there is' basis subject to the confirmation by
the Hon'ble Court, The Official Liquidator shall not provide any
guarantee and/or warranty as to quality, quantity or specification
of the assets sold. The Tenderers/ bidders are to satisfy
themselves in this regard after physical inspection of the assets
3
of the company and the purchasers will be deemed to offer with
full knowledge as to defects, if any, in the description, quality or
quantity of the assets sold. The Official Liquidator, shall not
entertain any complaint in this regard after the sale is over. Any
mistake in the notice inviting tender shall not vitiate the sale.
………..”
3.2. Pursuant to the aforementioned sale notice, the assets were sold
to one Nagendra Jain for a sum of Rs. 20.50 crore; and the sale was
confirmed by the order of Company Court dated 04.07.2003.
Subsequently, the respondent No. 3 was nominated in the place and stead
of the said Nagendra Jain as purchaser of the assets and properties of the
company in liquidation.
4. After the sale of assets, the appellant OL invited claims from the
creditors of the company in liquidation by way of advertisements.
4.1. In response to such invitation of claims, the respondent No. 1
Nigam filed affidavit of proof of debt with the appellant, claiming towards
arrears of property tax a sum of Rs. 2,79,955/- for the year 1996-1997 and
another sum of Rs. 4,63,69,137/- for the years 1997-1998 till 2003-2004,
for the factory and staff quarters of the company in liquidation at Ujjain. The
respondent No. 1 Nigam also filed another affidavit of proof of debts with
the appellant to the tune of Rs. 11,14,612/- as arrears of water tax for the
period from 01.06.1996 to 31.10.2005.
4.2. In response to the claims so filed by the respondent No. 1 Nigam,
the appellant OL issued four notices dated 24.01.2006. By way of two such
notices, the appellant admitted the claims to the tune of Rs. 2,79,955/- on
account of property tax and Rs. 2,162.20 on account of water tax against
the company in liquidation only to the extent of pre-liquidation period i.e.,
4
prior to the date of order of winding up by the Company Court (10.07.1997).
However, by way of other two notices issued on even date, the appellant
rejected the claim of respondent No. 1 to the extent of Rs. 4,63,69,137/-
towards property tax and Rs. 11,12,449.80 towards water tax on the ground
that such claims arose after the date of order of winding up i.e., 10.07.1997.
5. In challenge to the part rejection of its claim, the respondent No. 1
Nigam preferred two company applications before the Company Court at
Calcutta by Judge’s Summons under Rule 164 of the Companies (Court)
6
Rules, 1959 , particularly as regards admissibility of post-liquidation claims.
6. For deciding the applications so preferred by the respondent No.1,
the Company Court framed the following question for adjudication: -
“The question before this Court is whether claims, that might arise
against the Official Liquidator representing the company in
liquidation, for any period of time, subsequent to the order of
winding up, can outright be rejected.”
6.1. It was contended on behalf of respondent No. 1 Nigam - applicant
before the Company Court - that the OL was liable for both pre-liquidation
and post-liquidation rates and taxes; that as per Section 185 of the Madhya
7
Pradesh Municipal Corporation Act, 1956 the position of respondent No. 1
was that of a secured creditor; and that in any case, the OL was required
to give reasons for rejection of claim which he had not done. A reference
was also made to Rule 163 of the Rules of 1959.
6.2. Similarly, it was contended on behalf of respondent No.3 auction
purchaser, while placing reliance on the said Section 185 of the M.P. Act
6
Hereinafter also referred to as ‘the Rules of 1959’.
7
Hereinafter also referred to as ‘the M.P. Act of 1956’.
5
of 1956, that he was not liable towards such taxes prior to the date on which
he occupied the property; and that the OL was liable to pay all taxes till the
execution of deed of conveyance in favour of the purchaser.
6.3. On the other hand, it was contended on of behalf the appellant OL
that he was liable to pay only those taxes which accrued till the date of
winding up and became payable within one year thereof; that in view of
8
Section 529A of the Companies Act, 1956 , workmen’s dues and the dues
of secured creditors to the extent they were secured, were to be paid pari
passu , and prioritised over all other debts; and that Rule 154 of the Rules
of 1959 provided for filing of affidavit of proof of debts as on relevant date
and the appellant had allowed taxes due on the relevant date that had been
proved.
7. In the common judgment and order dated 25.04.2007, the
Company Court, while allowing the applications so filed by the respondent
No. 1 Nigam, held that liability of the appellant OL was not restricted to the
claims and debts only until the date of order of winding up.
7.1. The Company Court further held that reliance placed by the
appellant OL on Section 530 of the Companies Act and Rule 154 of the
Rules of 1959 was patently misconceived, while observing that there was
no provision in either of them which restricted the claim only until the date
of order of winding up. It was also held that Section 530 of the Companies
Act would not absolve a company in liquidation of its liability towards
revenue and taxes; and that such liabilities in the post-liquidation period
8
Hereinafter referred to as ‘the Companies Act’.
6
were to be treated as a part of the cost of winding up and would be
prioritised over all other liabilities. As regards the auction purchaser, the
Company Court relied upon a decision of the Bombay High Court holding
that the purchaser was liable to pay property tax only from date of
purchase. The Company Court observed and held, inter alia , as under: -
“The company may be wound up and its business closed down. Yet,
the Official Liquidator would be obliged to protect the assets of the
company in liquidation, until such time as the assets are sold. For
the protection of assets, the Official Liquidator representing the
company might have to retain rented premises, obtain supply of
electricity, engage security guards and take such other steps
involving expenses as the Official Liquidator might deem necessary.
Can claims on account of inter alia rent, electricity charges that
accrued after the date of winding up, be outright rejected only on
the ground that the claims were post liquidation claims even though
the company in liquidation might have sufficient funds to satisfy the
claims?
An electricity supplier, may, as argued by Mr. Ghosh, have the
option of disconnecting supply for non-payment of its dues and
appropriating the security deposit of the consumer. The right of
disconnection would not, however, make any difference to the
maintainability of the claim of the supplier.
It is not in dispute that the Official Liquidator has been making
payment of post liquidation electricity charges. The compulsion to
make payment cannot, however, make any difference to the legal
status of the claim.
If charges on account of supply of electricity after the date of
liquidation are payable, so is rent. The liability of a company to pay
rent and/or occupation charges and/or rates and taxes does not
automatically come to an end with the order of winding up of the
company.
The dispute between the Official Liquidator and the applicant is with
regard to the rates and taxes for the period between 10th July, 1997
being the date on which the company was directed to be wound-up
and 4th July, 2003 being the date on which the sale in favour of the
purchaser was confirmed. In other words, the dispute is with regard
to the taxes claimed for a period of approximately six years.
The Official Liquidator has rejected the proof of debt on his
interpretation of the various provisions of the Companies Act and
7
the Company (Court) Rules framed thereunder and in particular
Section 528, 529A and 530 and Rule 154 of the Rules.
The contention on behalf of the Official Liquidator, that debts and
claims and particularly claims on account of municipal tax are
payable only till the date of winding up of the company, in view of
Section 530 of the Companies Act, 1956, read with Rule 154 of the
Companies (Court) Rules 1959, is patently misconceived. There is
no provision either in the Companies Act or in the Companies
(Court) Rules which restricts claims and debts only till the date of
the winding up order.
Pre-liquidation claims, which had arisen before the Official
Liquidator took possession of the assets and properties of the
company, would necessarily have to be estimated by the Official
Liquidator on the basis of available records and the proof adduced
by the claimant and/or creditor. Post liquidation debts and claims do
not require to be proved.
Section 530 does not absolve a company in liquidation, represented
by the Official Liquidator, of its liability towards revenue and taxes.
The said Section merely provides for payment of revenues, taxes,
cesses and rates which became due and payable within 12 months
from the relevant date, being the date of the winding up order in
priority to other pre-liquidation debts. Post liquidation liabilities are
to be treated as part of the costs of winding up of the company in
liquidation and such liabilities get priority over all other liabilities of
the company.
In winding up, liquidators who carry on the company's business
continue with rateable occupation of the premises and they are in
rateable occupation even if they occupy merely for the purpose of
fulfilling the outstanding contracts or preventing damage to the
th
company's property (Halsbury Laws of England, 4 Edn., Vol.39).
It is true that the Official Liquidator did not carry on any business on
behalf of the company. The Official Liquidator, however, retained
possession for beneficial winding up of the company.
As rightly argued by Mr. Mukherjee, appointed as amicus curiae by
this Court, and by Mr. Banerjee, appearing on behalf of the
applicant, the expenses incurred in winding up are payable, not
provable. The principle of priority of certain creditors is applicable to
liability of the company at the time when the order for winding up of
the company was made. Costs and expenses incurred on behalf of
the company, in winding up ought to have paid in full.”
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7.2. The Company Court also took note of the fact that the appellant OL
had rejected the claims only on the ground that he was not liable to pay
post-liquidation expenses but had neither objected to the determination of
annual value nor filed any appeal under Section 184 of the M.P. Act of
1956. The Court observed that unless an objection or appeal was filed and
the demand was reduced, the OL would be bound to discharge the tax
liability, as per the claim of the Nigam, even for post-liquidation period.
Therefore, the Court set aside the rejection notice by the appellant but
extended him liberty to file an appeal against the demands, if so chosen,
within thirty days and also provided that the appellant would, within eight
weeks from the date of receipt of the order in appeal under Section 184 of
the M.P. Act of 1956, consider and dispose of the claims of the applicant
(respondent No. 1), as determined in appeal and in accordance with law.
8. The appellant challenged the aforesaid judgment and order dated
25.04.2007 of the Company Court by way of appeals before the Division
Bench of the High Court but, the appeals came to be dismissed by the
impugned judgment and order dated 05.02.2009.
8.1. The appellant OL contended before the Division Bench that he had
not carried on any business of the company and consequently, did not in
any way earn profit from use of the assets of the company in liquidation;
that the provisions of the Companies Act did not envisage payment of post-
liquidation taxes on property and water and the assets were only custodia
legis after the winding up order until the sale; and that the sale was on “as
is where is whatever there is” basis, which would mean that the assets were
9
not free from encumbrances when sold and thereby, the liability of taxes
was shifted to the purchaser.
8.2. The respondent No. 1 Nigam contended that the appellant would
be liable to pay taxes to the Nigam out of sale proceeds, and apart from
this, reiterated the submissions made before the Company Court. Similarly,
the auction purchaser, respondent No. 3, submitted that he was neither the
owner nor the occupier until 04.07.2003 when the sale was confirmed and,
therefore, there would be a shift of the charge to the sale proceeds and not
to the purchaser. However, a creditor of the company, respondent No. 2,
contended that the claim towards arrears of property and water tax would
be directed against the auction purchaser and not the OL.
8.3. The Division Bench did not accept the submissions of appellant and
respondent No. 2 and held that respondent No. 3 - the auction purchaser
– was not liable to pay the said charges accrued post-liquidation because,
from the terms and conditions of sale, it could not be discerned that the
purchaser was put to notice about any liability towards arrears due to the
Nigam. The Division Bench held that in absence of clear provision in the
sale notice that intending purchaser had to satisfy himself as regards
assets of company in liquidation in all respects including encumbrances,
the appellant was obliged to discharge the post-liquidation liability towards
property and water taxes; and that it would not be reasonable to fasten
liability on a purchaser without informing him about the encumbrances prior
to the sale. The Division Bench also distinguished the decision of this Court
in the case of United Bank of India v. Official Liquidator and Ors. : 79
10
Company Cases 262 [= (1994) 1 SCC 575] while taking note of the
peculiar factual matrix and specific terms and conditions of sale in that
case. After making a comparison between the terms and conditions of sale
in the present case and those of sale in the aforesaid case, it was observed
that sale notice in the present case was not couched in similar and
comprehensive language and there was no occasion for respondent No. 3
to make himself aware about the encumbrances, if any, in respect of assets
of the company in liquidation, which he intended to purchase.
8.4. As regards the applicability of Section 530 of the Companies Act,
the Division Bench observed that the said provision had nothing to do with
payment of taxes which might have mounted between the date of the order
of winding up and the date of the sale of its assets. Similarly, Rule 154 of
the Rules of 1959, providing for the manner of estimation of value of debts
and claims on the date of the order of winding up of the company was held
to be of no application.
8.5. The Division Bench of the High Court observed and held as under:-
“There is no express provision in the sale notice that the liability to
bear charges on account of water and property taxes must be borne
by the purchaser. We are unable to comprehend that the expression
“as is where is whatever there is basis” comprises within its ambit
the liability to clear statutory charges as might have accrued and
are in arrears. The terms and conditions of the sale do specify that
the Official Liquidator shall not provide any guarantee and/or
warranty as to quality, quantity or specification of the assets sold
and the intending purchaser is required to satisfy himself in this
regard after physical inspection of the assets of the company in
liquidation and no complaint as to defects, if any, in the description,
quality or quantity of the assets sold would be entertained after the
sale is over and that any mistake in the notice inviting tender shall
not vitiate the sale. These, per se, in our opinion, would not
tantamount to a representation being made to an intending
purchaser that while bidding for the assets put up for sale he is also
to bear the expenses towards arrear dues of the Nigam. Guarantee
11
and/or warranty as to quality, quantity or specification of the assets
sold cannot be equated with the liability attached to the same. The
terms and conditions of the tender only protect the Official
Liquidator to the extent of quality, quantity and specification and
would not extend to claiming of immunity to clear taxes claimed by
the Nigam.
The Official Liquidator has laid much stress on Section 530 of the
Companies Act and Rule 154 of the Companies (Court) Rules. We
have failed to find the materiality of the said provisions for a decision
on the present dispute. Section 530 provides for preferential
payments. According to clause (a) of sub-section (1) of Section 530
read with clause (c) of sub-section (8) thereof, all revenues, taxes
etc. due from the company in liquidation to a local authority on the
date of the winding up order and having become due and payable
during the preceding 12 months thereof would be entitled to priority
over all other dues. Section 530 has nothing to do with payment of
taxes which might have mounted between the date of winding up
and sale of its assets by the purchaser. Rule 154 also cannot have
any manner of application since it provides the manner of estimation
of value of debts and claims on the date of the order of winding up
of the company.
It would be, in our opinion, thoroughly unreasonable to foist the
liability on a purchaser without first letting him know prior to the sale
about such liability. Enquiries at site must have been made by the
ultimate purchaser before he offered his bid. The purchaser could
have been informed there of the encumbrances. He could have also
been told about it prior to his depositing the balance sale
consideration. The proceedings before the Company Court were
decided without giving any opportunity to the Official Liquidator to
file counter affidavits to the applications filed by the Nigam, as it
appears from the stay petitions. We, however, find no averment in
the stay petitions to the effect that after the respondent no.3 had
expressed interest to purchase the assets of the company in
liquidation, the Official Liquidator had made him aware that
purchase of such assets would carry with it the liability to pay arrear
taxes recoverable by the Nigam. In the absence of such an
averment, we find it difficult to hold that the respondent no.3 ought
to bear the liability instead of the Official Liquidator.
At this stage, it would be worthwhile to consider the decision of the
Apex Court in United Bank of India (supra) cited by Mr. Ghosh. The
Official Liquidator, in that case, had sold the assets of the company
in liquidation on the basis of Terms and Conditions of Sale to Triputi
Jute Industries. Clause (2) of such terms and conditions was as
follows:
“2. The sale will be as per inventory list on ‘as is where is
basis’ and subject to the confirmation of the Hon’ble
Supreme Court of India. The Official Liquidator shall not
provide any guarantee and/or warranty in respect of the
immovable properties and as to the quality, quantity or
12
specification of the movable assets. The intending
purchaser must satisfy themselves in all respect as regards
the movable and immovable assets, as to their title,
encumbrances, area, boundary, description, quality,
quantity, and volume etc. and the purchaser will be deemed
to offer with full knowledge as to the description, area etc.
of the properties and defects thereof, if any. The purchaser
shall not be entitled to claim any compensation or deduction
in price on any account whatsoever and shall be deemed to
have purchased the property subject to all encumbrances,
liens and claims including those under the existing
legislation affecting labour, staff etc. The Official Liquidator
shall not entertain any complaint in this regard after the sale
is over. Any mistake in the notice inviting tender shall not
vitiate the sale.”
It was on consideration of the express provisions of clause (2) of
the Terms and Conditions of Sale that the Apex Court proceeded to
hold as under:
“When the Official Liquidator sells the property and assets
of a company in liquidation under the orders of the Court he
cannot and does not hold out any guarantee or warranty in
respect thereof. This is because he must proceed upon the
basis of what the records of the company in liquidation
show. It is for the intending purchaser to satisfy himself in
all respects as to the title, encumbrances and so forth of the
immovable property that he proposes to purchase. He
cannot after having purchased the property on such terms
then claim diminution in the price on the ground of defect in
title or description of the property. The case of the Official
Liquidator selling the property of a company in liquidation
under the orders of the Court is altogether different from the
case of an individual selling immovable property belonging
to himself. There is, therefore, no merit in the application
made on behalf of Triputi that there should be a diminution
in price or that it should not be made liable to pay interest
on the sum of Rs 1 crore 98 lakhs”.
It is understandable that once an intending purchaser is warned to
satisfy himself in all respects as regards the immovable assets as
in the said case, it is for his own benefit that he satisfies himself in
all respects including encumbrances of the immovable property that
he proposes to purchase. It is also quite understandable that after
having purchased the property on such terms any objection that he
was not aware of the encumbrances may not be entertained.
However, it passes the comprehension of this Court as to why the
sale notice in the present case was not couched in similar and
comprehensive language as the one which fell for consideration
before the Apex Court. There being no occasion for the respondent
13
no.3 to make himself aware regarding the encumbrances, if any, in
respect of assets of the company in liquidation which he proposed
to purchase, it is too late in the day for the Official Liquidator to
contend that he ought to have participated in the bid upon being
fully satisfied and not having raised any objection at the relevant
time it is he only who is liable to bear the property and other taxes.
We are of the view that the liability on account of property and water
taxes claimed by the Nigam, to the extent rejected by the Official
Liquidator is a post-liquidation liability which the Official Liquidator
is obliged to discharge in the absence of a clear provision in the sale
notice that the intending purchaser must satisfy himself as regards
the assets of the company in liquidation in all respects including
encumbrances.
In the fitness of things, we deem it necessary to direct the Official
Liquidator to issue future notices of sale of assets of companies in
liquidation in similar and comprehensive language as the one
quoted supra from the Apex Court decision to avoid complications.”
9. Aggrieved by the common judgment and order dated 05.02.2009
so passed by the Division Bench of the High Court, the appellant OL has
preferred these appeals.
9.1. Learned Counsel for the appellant has submitted that in true
operation of the applicable provisions of law, the appellant cannot be made
liable for the post-liquidation claims filed by respondent No. 1 while
disregarding the interest and entitlement of pre-liquidation creditors. It has
been argued that the appellant has admitted the pre-liquidation claims and
has rightly rejected the post-liquidation claims as per Section 530 of the
Companies Act, since the workers/employees were discharged from
service. Learned Counsel for the appellant would submit that the assets
and properties of the company in liquidation are deemed to be in the
custody of the Court and the appellant has not carried on any business nor
utilised water after liquidation of company for gaining profit.
14
9.2. It has been strenuously argued by the learned counsel that the High
Court was not justified in treating post-liquidation liabilities as a part of the
cost of winding up and thereby, giving such liabilities a priority over all other
liabilities of the company in liquidation, which is not permissible under
Sections 529A, 530 and other provisions of the Companies Act. This would
also be prejudicial to pre-liquidation creditors, being the workers, statutory
creditors and general body of creditors.
9.3. It has also been argued that the respondent No. 1 had never taken
the necessary legal steps for realisation of its dues as claimed in its affidavit
of proof of debt and the High Court did not even consider such affidavit
before fastening the liability of post-liquidation claim on the appellant.
9.4. Learned Counsel has also submitted that the benefit given to
respondent No. 3 by the High Court should not have been given in view of
the terms and conditions of sale of the assets of the company in liquidation.
Learned Counsel has vehemently submitted that the tenderers/bidders had
to satisfy themselves about all the relevant aspects concerning the assets,
when being sold on “ as is where is whatever there is” basis; and therefore,
the purchaser would be deemed to have full knowledge of the defects,
encumbrances, and statutory dues before purchasing the assets and
properties of the company in liquidation. Learned counsel would
emphasise that when the terms and conditions of the sale clearly
mentioned that sale of assets would be on “as is where is whatever there
is" basis, after having purchased the property on such terms, the purchaser
is not entitled to make any claim as regards diminution in the price on the
15
ground of defect in title or description of the property. It has further been
submitted that the case of OL selling the property of a company in
liquidation under the orders of the Court is altogether different from the
case of an individual selling immovable property belonging to himself.
Reliance has been placed on decisions of this Court in United Bank of
India (supra), Haryana Financial Corporation v. Rajesh Gupta: (2010)
1 SCC 655; UT Chandigarh Administration and Anr. v. Amerjeet Singh
and Ors.: (2009) 4 SCC 660 ; and Punjab Urban Planning and
Development Authority v. Raghu Nath Gupta: (2012) 8 SCC 197.
10. The submissions made on behalf of the appellant have been
essentially supported on behalf of respondent No. 2, Steel Authority of India
Limited, one of the creditors of the company in liquidation, who has lodged
the claim alongwith its subsidiary IISCO Ltd. It has been contended on
behalf of respondent No. 2 that the findings of the High Court are not in
accord with the law on the point pertaining to ouster clauses in the sale
notice clearly stating that the sale of assets of the company in liquidation
was on “as is where is whatever there is” basis . It has been argued that the
auction purchaser takes the property subject to all defects of title and the
doctrine of caveat emptor directly applies to such purchaser. A decision of
this Court in the case of Ahmedabad Municipal Corporation v. Haji
Abdul Gafur Haji Hussenbhai: (1971) 1 SCC 757 has been relied upon.
11. Per Contra, learned counsel for respondent No. 1 has submitted
that the appellant OL, as a custodian of the property, is liable to pay the
post-liquidation claim too as raised by Nigam.
16
11.1. Learned Counsel has submitted that the claims raised by
respondent No.1 constitute “liquidation expenses”, being the expenses that
had to be paid by the appellant OL to maintain the property while being in
his custody; and, therefore, the obligation is to be met out of the value
realised from the sale of assets of the company. In this regard, learned
counsel for the respondent No. 1 has submitted that in terms of Rule 338
of the Rules of 1959, the expenses incurred by the OL for “preserving,
realising or getting in” the assets of the company are required to be paid in
priority and the said Rule provides for the order of preference thereafter in
relation to other costs and expenses payable out of the assets of the
company.
11.2. Learned Counsel has also submitted that preferential payments
prescribed in Section 530 of the Companies Act are for payment of
specified claims thereunder and that too after payment of costs and
expenses of winding up that are properly incurred by the appellant and
which are paid in priority. Moreover, the said Section 530 relates to claims
for pre-liquidation period for which, there is a need for prescribing priority
but, the said provision has no application for the expenses incurred by OL
during post-liquidation period, which are required to be paid in priority. In
regard to the liability and priority concerning post-liquidation expenses,
reliance has been placed on a few English decisions, including that In re
Toshoku Finance UK plc: [2002] 1 WLR 671.
11.3. Learned Counsel for respondent No. 1 has placed strong reliance
on Section 185 of the M.P. Act of 1956 to submit that the provision creates
17
an obligation to pay municipal taxes as a first charge on the land and
building as also the movable properties and the proviso expressly provides
that arrears of tax are not recoverable from any occupier who is not the
owner, if the arrears are of the period when such occupier was not in
occupation. Therefore, in view of the proviso, arrears of tax for the period
prior to confirmation of auction sale, cannot be recovered from the auction
purchaser and have to be paid by the OL.
11.4. It has also been submitted that in terms of Section 520 of the
Companies Act, the municipal taxes as sought to be claimed by respondent
No.1 would be costs of winding up; and the appellant being in possession
of the assets, is obliged to pay the municipal taxes, which ought to have
been paid to protect and preserve the property.
12. Learned counsel for respondent No. 3 – the auction purchaser - has
duly supported the orders impugned with the submissions that the tax dues
in the present case were “post-liquidation dues” amounting to “costs of
liquidation” and were to be borne by the OL alone; and could not have been
foisted on the auction purchaser.
12.1. It has been submitted on behalf of respondent No. 3 that auction
purchaser is liable towards property tax and water tax with effect from the
date of confirmation of sale in his favour i.e., from 04.07.2003 and he has
discharged all such claims but then, there is no liability on him towards
taxes prior to the date of confirmation of sale when property of the company
was custodia legis and was in the hands of OL.
18
12.2. Furthermore, learned counsel has submitted that the Companies
Act and the Rules of 1959 do not impose any obligation on purchaser to
pay dues that relate to period between the date of order of winding up and
date of sale confirmation. The claims in the present case are post-
liquidation charges or costs and are, therefore, expenses of winding up,
liable to be borne out of proceeds of liquidation, if any; and to the extent
that they remain unpaid after exhausting the proceeds of liquidation, are to
abate. In this regard, reliance has been placed on the said decision, In re
Toshoku Finance UK plc .
12.3. Learned Counsel has referred to Section 100 of Transfer of
9
Property Act, 1882 as also to the decisions of this Court in Ahmedabad
Municipal Corporation (supra) and AI Champdany Ltd. v. Official
Liquidator and Anr. : (2009) 4 SCC 486 to submit that auction purchaser
without notice and in absence of any provision in terms of sale or any
statutory provision could not be made liable for such arrears of tax; and
that no charge could be enforced against any property in hands of
transferee for consideration and without notice of the charge; and that for
its enforceability, a provision of law must expressly provide for enforcement
of a charge against the property in the hands of the transferee for value
without notice to the charge and not merely create a charge. Learned
counsel would submit that the dues in relation to municipal taxes in terms
of the said M.P. Act of 1956 do not create any encumbrance or charge on
the property such as to run with property for all times and under all
9
Hereinafter also referred to as ‘the Act of 1882’.
19
circumstances as held in AI Champdany Ltd. (supra). Moreover, it cannot
be said to constitute any encumbrance which diminishes the value of the
property.
12.4. It has been submitted that there is no obligation that has been
created or could be assumed on account of the terms and conditions of the
sale carried out by the appellant, particularly when there was no express
provision in the sale notice that the liability of charges on account of
property tax and water tax were to be borne by the purchaser. In regard to
the submissions of the appellant that the auction purchaser had purchased
the property with “ as is where is and whatever there is” stipulation, learned
counsel has strenuously argued that such a stipulation pertains to the
physical properties of an asset and could not be construed as indicative of
constructive notice of charge or encumbrance. Reliance is placed on
Ahmedabad Municipal Corporation (supra), which has, in turn, approved
the reasoning of the Full Bench of High Court of Allahabad in the case of
Municipal Board, Cawnpore v. Roop Chand Jain and Anr.: AIR 1940
All 456 .
12.5. It has been contented that by virtue of Section 185 of the M.P. Act
of 1956, arrears could only be claimed from a person who was an occupier
at relevant time and from no one else and, therefore, the question of
auction purchaser making any inquiries or foisting upon him any
constructive knowledge does not arise; rather, proviso to Section 185 frees
an auction purchaser from even making inquiries about such tax arrears.
In this regard, further reliance has been placed on the decision in Delhi
20
Development Authority v. Kenneth Builders and Developers Pvt. Ltd.
and Ors.: (2016) 13 SCC 561.
12.6. Lastly, learned counsel has placed reliance on correspondence
between respondent No. 3 and the appellant to suggest the sufficiency of
funds available with the appellant to discharge the claims of respondent
No.1 before disbursing any left-over amount to the shareholders.
13. We have heard learned counsel for the parties at length and have
perused the material placed on record.
14. For what has been noticed hereinabove, the dispute between
appellant OL and respondent No. 1 Nigam, put in a nutshell, is with regard
to the rates and taxes for the period between 10.07.1997 (being the date
on which the company was ordered to be wound up) and 04.07.2003 (being
the date on which the sale in favour of the purchaser was confirmed). As
noticed, part rejection of the claim of respondent No. 1 Nigam by the
appellant OL, in relation to the period aforesaid between 10.07.1997 to
04.07.2003 was not approved by the Company Court while observing that
post-liquidation liabilities were to be treated as part of the costs of winding
up of the company in liquidation and such liability would get priority over all
other liabilities of the company. The Company Court observed and
reiterated that the principle of priority of certain creditors would be
applicable to the liability of the company at the time of passing of the order
of winding up but, costs and expenses incurred on behalf of the company
in winding up were to be paid in full; and the liability of the company to pay
rates and taxes would not automatically come to an end with the order of
21
winding up. The Company Court yet left it open for the appellant OL to file
an appeal under the provisions of the M.P. Act of 1956 while observing that
unless such appeal was filed and demand was reduced, the appellant OL
was bound to discharge the tax liability as per the claim of the Nigam even
for the post-liquidation period. The contention of appellant before the
Division Bench in challenge to the order so passed by the Company Court
had essentially been with reference to the terms and conditions of sale and
reliance upon the decision in United Bank of India (supra). The Division
Bench compared the terms and conditions of sale in the cited decision and
the terms and conditions of sale in the present case and observed that the
sale notice in the present case was not couched in similar and
comprehensive language so as to oblige the respondent No. 3 to make
himself aware about encumbrances, if any, in respect of the assets of the
company in liquidation. The Division Bench further observed that Section
530 of the Companies Act had no application in relation to the taxes which
might have mounted between the date of the order of winding up and the
date of sale of assets. Similarly, the Division Bench indicated inapplicability
of Rule 154 of the Rules of 1959, providing for the manner of estimation of
claims on the date of the order of winding up. The Division Bench
summarised its conclusion that the claim in question was that of a post-
liquidation liability which the OL was obliged to discharge in absence of a
clear provision in the sale notice obliging the intended purchaser to satisfy
himself as regards the assets of the company in liquidation in all respects,
including encumbrances. More or less the same submissions have been
22
made by the respective parties in this appeal but, with a little elaboration
on their respective stands. While leaving the irrelevant aspects aside, the
neat question is as to whether the claims so made by the respondent No.
1 Nigam towards property tax and water tax pertaining to the post-
liquidation period, from the date of order of winding up and until the date of
confirmation of sale of assets to the auction purchaser, are admissible
against the appellant OL.
15. For dealing with the question at hand, we may usefully take note of
the statutory provisions relevant to the present case.
15.1. Section 529A and the relevant parts of Section 530 of the
Companies Act, 1956 read as under: -
" 529A. Overriding preferential payment. - Notwithstanding
anything contained in any other provisions of this Act or any other
law for the time being in force, in the winding up of a company-
(a) workmen's dues; and
(b) debts due to secured creditors to the extent such debts rank
under clause (c) of the proviso to sub-section (1) of section
529 pari passu with such dues,
shall be paid in priority to all other debts.
(2) The debts payable under clause (a) and clause (b) of sub-
section (1) shall be paid in full, unless the assets are insufficient to
meet them, in which case they shall abate in equal proportions.
530. Preferential payments. - (1) In a winding up subject to the
provisions of section 529A, there shall be paid in priority to all other
debts-
(a) all revenues taxes, cesses and rates due from the
company to the Central or a State Government or to a local
authority at the relevant date as defined in clause (c) of sub-
section (8), and having become due and payable within the
twelve months next before that date;
*
(8) For the purpose of this section -
(a) .....
(b) ....
(bb) ....
(c) the expression "the relevant date" means-
23
(i) in the case of a company ordered to be wound up
compulsorily, the date of the appointment (or first
appointment) of a provisional liquidator, or if no such
appointment was made, the date of the winding up order,
unless in either case the company had commenced to be
wound up voluntarily before that date; and
(ii) in any case where sub-clause (i) does not apply, the date
of the passing of the resolution for the voluntary winding up
of the company.
* "
15.2. Rules 154,163 and 338 of the Companies (Court) Rules, 1959 are
as under: -
" R.154. Value of debts - The value of all debts and claims against
the company shall, as far as is possible, be estimated according to
the value thereof at the date of the order of the winding-up of the
company or where before the presentation of the petition for winding
up, a resolution has been passed by the company for voluntary
winding-up, at the date of the passing of such resolution.
*
R.163. Acceptance or rejection of proof to be communicated –
After such investigation as he may think necessary, the liquidator
shall in writing admit or reject the proof in whole or in part. Every
decision of the Liquidator accepting or rejecting a proof, either
wholly or in part, shall be communicated to the creditor concerned
by post under certificate of posting where the proof is admitted and
by registered post for acknowledgement where the proof is rejected
wholly or in part, provided that it shall not be necessary to give
notice of the admission of a claim to a creditor who has appeared
before the Liquidator and the acceptance of whose claim had been
communicated to him or his agent in writing at the time of
acceptance. Where the Liquidator rejects a proof, wholly or in part,
he shall state the grounds of the rejection to the creditor in Form
No.69, Notice of admission of proof shall be in Form No.70.
*
R.338. Cost and expenses payable out of the assets in a
winding-up by the Court. -
(1) The assets of a company in a winding-up by the Court remaining
after payment of the fees and expenses properly incurred in
preserving, realising or getting in the assets including, where the
company has previously commenced to be wound-up voluntarily,
such remuneration, cost and expenses as the Court may allow to
the liquidator in such voluntary winding-up, shall, subject to any
order of the Court and to the rights of secured creditors if any, be
liable to the following payments which shall be made in the following
order of priority, namely :-
24
First.-the taxed costs of the petition including the taxed costs of any
person appearing on the petition, whose costs are allowed by the
Court.
Next.-the costs and expenses of any person who makes, or concurs
in making, the Company's statement of affairs ;
Next.-the necessary disbursements of the Official Liquidator other
than expenses properly incurred in preserving, realising or getting
in the properties of the company ;
Next.-the cost of any person properly employed by the Official
Liquidators ;
Next.-the fees to be credited to Government under section 451 (2)
;
Next.-the actual out of pocket expenses necessarily incurred by the
members of the Committee of Inspection, and sanctioned by the
Court.
(2) Save as otherwise ordered by the Court no payments in respect
of bills of advocates, shall be allowed out of the assets of the
company without proof that the same have been considered and
allowed by the taxing officer of the Court. The taxing officer shall
before passing the Bills or charges of an advocate, satisfy himself
that the appointment of an advocate to assist the liquidator in the
performance of his duties has been duly sanctioned.
(3) Nothing contained in this Rule shall apply to or affect costs
which, in the course of legal proceedings by or against the company
which is being wound-up by the Court, are ordered by the Court in
which such proceedings are pending, to be paid by the company or
the liquidator, or the rights of the person to whom such costs are
payable."
15.3. Section 185 of the Madhya Pradesh Municipal Corporation
Act, 1956, which is relied upon by the contesting respondents, reads as
under: -
" 185. Liability of buildings, lands, etc., for taxes. -
All sums due from any person in respect of taxes on any land or
building shall, subject to prior payment of any land revenue in
respect of it due to the government, be a first charge upon the said
land or building and upon any movable property found within or
upon such land or building and belonging to the said person.
Provided that no arrears of any such tax shall be recoverable
from any occupier who is not the owner, if such arrears are for a
period during which the occupier was not in occupation."
25
16. One of the principal points arising for determination in this matter is
the impact and effect of sale of assets of the company in liquidation to the
respondent No. 3, particularly when the property was sold on “ as is where
is whatever there is ” basis. Learned counsel for the appellant has referred
to and relied upon a few decisions of this Court in support of his contention
that looking to the terms and conditions of sale, the purchaser would be
deemed to have full knowledge of defects, encumbrances and statutory
dues and would remain liable towards such dues, particularly when the sale
in the present case had been by the appellant OL under the orders of the
Court. Per contra , learned counsel for the contesting respondents have
referred to a couple of decisions to assert that no charge would be
enforceable against the property at the hands of transferee for
consideration without notice of charges and, for the municipal taxes not
creating an encumbrance or charge as such on the property in question.
We may closely examine the cited decisions to take note of the ratio
decidendi and principles available therein.
17. The sheet anchor of the submissions on behalf of the appellant OL
is the decision of this Court in the case of United Bank of India (supra)
that has been cited for the proposition that in the sale of property and
assets of company in liquidation, the Official Liquidator does not hold any
guarantee or warranty in respect thereof; and the intending purchaser has
to satisfy himself in all respects, particularly as regards encumbrances.
Therein this Court, inter alia, observed as under: -
26
| “14. When the Official Liquidator sells the property and assets of a | |
|---|
| company in liquidation under the orders of the Court he cannot and | |
| does not hold out any guarantee or warranty in respect thereof. This | |
| is because he must proceed upon the basis of what the records of | |
| the company in liquidation show. It is for the intending purchaser to | |
| satisfy himself in all respects as to the title, encumbrances and so | |
| forth of the immovable property that he proposes to purchase. He | |
| cannot after having purchased the property on such terms then | |
| claim diminution in the price on the ground of defect in title or | |
| description of the property. The case of the Official Liquidator selling | |
| the property of a company in liquidation under the orders of the | |
| Court is altogether different from the case of an individual selling | |
| immovable property belonging to himself. There is, therefore, no | |
| merit in the application made on behalf of Triputi that there should | |
| be a diminution in price or that it should not be made liable to pay | |
| interest on the sum of Rs 1 crore 98 lakhs.” | |
17.1. At the first blush, the said decision might appear to be standing
somewhere near to the facts of the present case, for that had also been a
case of sale of the assets by an OL with a somewhat similar stipulation that
the sale was on “ as is where is” basis. However, as rightly pointed out by
the Division Bench of the High Court, there had been a marked difference
in the terms and conditions of sale in the case of United Bank of India
(supra) and those of the present case.
17.2. As noticed and extracted in the impugned judgment of the Division
Bench of the High Court, in the case of United Bank of India (supra), the
sale notice, inter alia , carried a significant stipulation whereby the
purchaser was put to notice to satisfy himself “ in all respects as regards
movable and immovable assets as to their title, encumbrances, area,
boundary, description, quality, quantity, and volume etc. ” Therein, it was
also stated that “ the purchaser shall not be entitled to any compensation or
deduction in price on any account whatsoever and shall be deemed to have
27
purchased property subject to all encumbrances, liens and claims including
those under the existing legislation affecting labour, staff etc. ” Such
stipulations left nothing to chance and nothing of any ambiguity where the
purchaser was required to satisfy himself not only about the physical
attributes of the assets but also about all encumbrances, liens and claims.
Unfortunately, the terms and conditions of the sale in the present case fell
too short of such material stipulations.
17.3. We have reproduced hereinbefore the contents of the sale notice
dated 09.05.2003 in the present case and the relevant terms and conditions
of sale of the assets of the company in liquidation. It is evident that
expansive technical expressions were used in the present case by the
appellant OL in the terms and conditions of the sale that the same would
be on “ as is where is whatever there is” basis and then, further disclaimer
was stated that the appellant OL was not providing any guarantee as to the
quality, quantity or specification of the assets sold. Such stipulations and
disclaimers were definitely putting the purchasers to notice to get
themselves acquainted with what the property is (the nature and extent);
where the property is (the locational attributes); and whatever there is
(quantity and condition of the property). The bidders/purchasers were
further warned to satisfy themselves in regard to the aspects of nature,
extent, location, quantity, and quality after physical inspection of the assets
and were also informed that they would be deemed to offer with full
knowledge as to defects, if any, in the description, quality or quantity of the
assets sold. All such stipulations were essentially pertaining to the physical
28
properties/attributes of the assets in question but, the significant omission
in those terms and conditions had been to make it obligatory on the
bidder/purchaser to make himself aware about encumbrances, liens and
claims attached to the assets in question. This omission strikes at the very
root of the case of the appellant.
17.4. The Division Bench of the High Court has rightly said that if the
intending purchaser was required to satisfy himself in all respects including
encumbrances, he might not be heard in any objection about want of
knowledge of encumbrances but, if he was not so warned, such an
obligation on him to make himself aware about encumbrances cannot be
foisted by any deeming fiction.
18. The decision of this Court in Haryana Financial Corporation
(supra) has also been cited to submit that OL does not hold any guarantee
or warranty in respect of property sold. In the said case, the appellant
Financial Corporation had issued an advertisement for sale of various units
and the respondent had been one of the bidders who offered a sum of Rs.
50 lakh, and deposited Rs. 2.5 lakh by way of earnest money. There was
some dispute related to presence of rasta at the land. Not being satisfied
with response of appellant, respondent did not submit further money.
Appellant invited fresh tenders and forfeited the money deposited by
respondent. In the writ petition preferred by respondent, the Division Bench
of High Court quashed forfeiture and ordered for refund along with 12%
interest and Rs. 5,000 costs. In appeal before this Court, one of the
submissions on behalf of the appellant Financial Corporation had been with
29
reference to the aforesaid decision in United Bank of India (supra). While
distinguishing the said decision, this Court observed that Official Liquidator
would proceed on the basis of the records of the company in liquidation
and, therefore, it was for the intending purchaser to satisfy himself in all
respects as to the title, encumbrances etc. of the immovable property that
he intended to purchase; and that purchaser cannot after having purchased
the property on such terms, claim diminution in the price on the ground of
defect in the title or description of the property. The Court further observed
that the appellant Financial Corporation was exercising the rights of an
owner in selling the property and was not selling the property as an Official
Liquidator; and the principles applicable to an Official Liquidator selling
property under the orders of Court would not be applicable to an individual
selling immovable property belonging to himself. Moreover, the Court
observed that respondent therein made all necessary inquiries and it was
the Corporation who failed to give fair description of property offered for
sale. The Court, inter alia, observed as under: -
“23. In our opinion, the appellants cannot be given the benefit of
Clause 5 of the advertisement. The appellant Corporation cannot
be permitted to take advantage of its own wrong. Clause 5
undoubtedly permits the forfeiture of the earnest money deposited.
But this can only be if the auction-purchaser fails to comply with the
conditions of sale. In our opinion, the respondent has not failed to
comply with the conditions of sale. Rather, it is the appellant
Corporation which has acted unfairly, and is trying to take
advantage of its own wrong.”
“24. In view of the aforesaid, we are of the considered opinion that
the appellant Corporation cannot be permitted to rely upon Section
55 of the Transfer of Property Act, 1882. The appellant Corporation
failed to disclose to the respondent the material defect about the
non-existence of the independent 3 “karams” passage to the
30
| property. Therefore, the appellant Corporation clearly acted in | | | |
|---|
| breach of Sections 55(1)(a) and (b) of the Transfer of Property Act, | | | |
| 1882. | | | |
| *** *** *** | | | |
| “ | 27. We are also of the considered opinion that the reliance placed | | |
| on the judgment of this Court by the counsel for the appellants | | | |
| in United Bank of India v. Official Liquidator [(1994) 1 SCC 575] is | | | |
| wholly misconceived. The aforesaid judgment relates to sale of the | | | |
| property and assets of a company in liquidation by the Official | | | |
| Liquidator under the orders of the court. Therefore it is observed | | | |
| that the Official Liquidator cannot and does not hold any guarantee | | | |
| or warranty in respect of the property sold. That is because the | | | |
| Official Liquidator proceeds on the basis of what the records of the | | | |
| company in liquidation show. Therefore it is for the intending | | | |
| purchaser to satisfy himself in all respects as to the title and | | | |
| encumbrances and so forth of the immovable property that he | | | |
| proposes to purchase. In those circumstances it is held that the | | | |
| purchaser cannot after having purchased the property on such | | | |
| terms then claim diminution in the price on the ground of defect in | | | |
| the title or description of the property. | | | |
| 28. The judgment clearly goes on to further hold as follows: (Official<br>Liquidator case [(1994) 1 SCC 575] , SCC p. 584, para 14)<br>“14. … The case of the Official Liquidator selling the<br>property of a company in liquidation under the orders of the<br>court is altogether different from the case of an individual<br>selling immovable property belonging to himself.”<br>The aforesaid observation would be clearly applicable to the<br>Corporation as it is exercising the rights of an owner in selling the<br>property. The appellant Corporation is not selling the property as an<br>Official Liquidator.” | | 28. The judgment clearly goes on to further hold as follows: (Official | |
|---|
| | Liquidator case [(1994) 1 SCC 575] , SCC p. 584, para 14) | |
| | | “14. … The case of the Official Liquidator selling the |
| | | property of a company in liquidation under the orders of the |
| | | court is altogether different from the case of an individual |
| | | selling immovable property belonging to himself.” |
| | The aforesaid observation would be clearly applicable to the | |
| | Corporation as it is exercising the rights of an owner in selling the | |
| | property. The appellant Corporation is not selling the property as an | |
| | Official Liquidator.” | |
| | | |
| 18.1. Evidently, Haryana Financial Corporation (supra) had been a | | |
| case of sale by the Corporation, which was distinguished from sale by an | | |
| OL. Therein, while pointing out inapplicability of the decision in United | | |
| Bank of India (supra), this Court observed that OL would not be holding | | |
| out any guarantee or warranty in respect of the property sold because he | | |
| would be proceeding on the basis of records of the company in liquidation | | |
| and, therefore, it was for the intending purchaser to satisfy himself in all | | |
| respects as to the title, encumbrances etc. of the immovable property | | |
| sought to be purchased; and such a purchaser could not, after having | | |
31
| purchased the property on such terms, claim diminution in the price on the | | | |
|---|
| ground of defect in the title or description of the property. The said decision | | | |
| cannot be read as an authority for any generalised proposition as if the | | | |
| Official Liquidator, while conducting sale of the assets of the company in | | | |
| liquidation, is absolved of the duty to state basic stipulations in the sale | | | |
| notice. | | | |
| 19. In UT Chandigarh Administration (supra), this Court dealt with | | | |
| the consumer complaints of respondents filed to contend that the appellant | | | |
| was not legally entitled to claim balance of premium or annual rent, for | | | |
| having failed to provide basic amenities at the residential and commercial | | | |
| sites auctioned by way of advertisement. This Court allowed the appeals | | | |
| as the purchaser was not a consumer with reference to public auction of | | | |
| existing sites. Notwithstanding this, it was observed, in regard to auction as | | | |
| per “as is where is basis” thus: - | | | |
| “19….. | In a public auction of sites, the position is completely different. | |
| A person interested can inspect the sites offered and choose the site | | |
| which he wants to acquire and participate in the auction only in regard | | |
| to such site. Before bidding in the auction, he knows or is in a position | | |
| to ascertain, the condition and situation of the site. He knows about | | |
| the existence or lack of amenities. The auction is on “as-is-where-is | | |
| basis”. With such knowledge, he participates in the auction and offers | | |
| a particular bid. There is no compulsion that he should offer a | | |
| particular price. When the sites auctioned are existing sites, without | | |
| any assurance/representation relating to amenities, there is no | | |
| question of deficiency of service or denial of service. Where the bidder | | |
| has a choice and option in regard to the site and price and when there | | |
| is no assurance of any facility or amenity, the question of the owner | | |
| of the site becoming a service provider, does not arise even by | | |
| applying the tests laid down in LDA [(1994) 1 SCC 243] or Balbir | | |
| Singh [(2004) 5 SCC 65]. | | |
| | | |
| 20. Where there is a public auction without assuring any specific or | | |
| particular amenities, and the prospective purchaser/lessee | | |
| participates in the auction after having an opportunity of examining | | |
| the site, the bid in the auction is made keeping in view the existing | | |
32
| | situation, position and condition of the site. If all amenities are | |
|---|
| | available, he would offer a higher amount. If there are no amenities, | |
| | or if the site suffers from any disadvantages, he would offer a lesser | |
| | amount, or may not participate in the auction. Once with open eyes, | |
| | a person participates in an auction, he cannot thereafter be heard | |
| | to say that he would not pay the balance of the price/premium or | |
| | the stipulated interest on the delayed payment, or the ground rent, | |
| | on the ground that the site suffers from certain disadvantages or on | |
| | the ground that amenities are not provided. | ” |
| | | |
| 19.1. The aforesaid case of UT Chandigarh Administration, relating to<br>the complaints of want of basic amenities in the property sold in auction on<br>“as is where is” basis has no relevance whatsoever to the facts of the<br>present case.<br>20. In the case of Punjab Urban Planning and Development<br>Authority (supra), the bone of contention was the levy of interest, penal<br>interest, and penalty on account of delayed payment of instalments after<br>accepting allotment of commercial plots by way of auction. The Court held<br>that purchasers would be liable to pay such interest having accepted the<br>commercial plots subject to the conditions of the auction notice and<br>allotment letter while observing, inter alia, as under: -<br>“17…..We may reiterate that after having accepted the offer of the<br>commercial plots in a public auction with a superimposed condition<br>i.e. on “as-is-where-is” basis and after having accepted the terms<br>and conditions of the allotment letter, including instalment facility for<br>payment, the respondents cannot say that they are not bound by<br>the terms and conditions of the auction notice, as well as that of the<br>allotment letter. On facts also, we have found that there was no<br>inordinate delay on the part of PUDA in providing those facilities.” | 19.1. The aforesaid case of UT Chandigarh Administration, relating to | | |
| the complaints of want of basic amenities in the property sold in auction on | | |
| “as is where is” basis has no relevance whatsoever to the facts of the | | |
| present case. | | |
| 20. In the case of Punjab Urban Planning and Development | | |
| Authority (supra), the bone of contention was the levy of interest, penal | | |
| interest, and penalty on account of delayed payment of instalments after | | |
| accepting allotment of commercial plots by way of auction. The Court held | | |
| that purchasers would be liable to pay such interest having accepted the | | |
| commercial plots subject to the conditions of the auction notice and | | |
| allotment letter while observing, inter alia, as under: - | | |
20.1. Again, the aforesaid case of Punjab Urban Planning and
Development Authority wherein, the bone of contention was levy of penal
33
interest and penalty on account of delayed payment of instalments, has no
relevance whatsoever to the facts of the present case.
21. The decision of this Court in Ahmedabad Municipal Corporation
(supra) has been relied upon by the contesting respondents as also by the
supporting respondent. Therein, after insolvency proceedings commenced
in 1949, the property in question was auctioned and purchased by the
respondent-purchaser in 1954. It was attached by the Municipal
Corporation owing to the fact that the municipal taxes in arrear for 1949-50
to 1953-1955 had not been paid, leading the respondent-purchaser to file
a suit for declaration. The Division Bench of Gujarat High Court held that
the respondent was the owner of the property and that the charge for
arrears was not enforceable, which was challenged by the Corporation
before this Court. With reference to Section 100 of the Act of 1882, it was
held that no charge would be enforceable against any property in the hands
of transferee for consideration without notice of charge, apart from where
otherwise provided for by law. The Court, inter alia, made the following
observations: -
| “4. 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 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. | |
| ….. | |
| *** *** *** | |
| 11. 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. Though originating in equity this presumption of notice is | |
34
| 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 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 considerations which normally | |
| regulate the conduct of human affairs would do or doing something | |
| which normally a 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. | ” |
21.1. In the aforesaid case of Ahmedabad Municipal Corporation,
while commencing the discussion, this Court also observed, as
underscored on behalf of respondent No. 2, that ‘ the purchaser at auction
sale takes the property subject to all the defects of title and the doctrine of
caveat emptor (let the purchaser be aware) applies to such purchaser’ but
thereafter, the Court observed that the case of the judgment-debtor having
no saleable interest at all in the property sold such as contemplated by the
Order XXI Rule 91 of the Code of Civil Procedure was, however, different
and not covered by this doctrine. Such observations do not lend support to
the case of the appellant so as to shift the entire burden on the auction
purchaser despite significant omission in the terms and conditions of sale.
35
22. In AI Champdany Ltd. (supra), the appellant had purchased the
assets of the company under liquidation and was subsequently served with
notice by municipality for payment of arrears of property tax. Upon taking
out a chamber summons with the prayer that appellant would only be liable
for property tax after date of confirmation of sale, the application was
dismissed on the ground that it was incumbent on the purchaser to make
enquiries regarding the liabilities attached to the assets before making an
offer. The intra-court appeal was dismissed by the Division Bench. In the
appeal before this Court, it was held that dues in relation to municipal tax
in terms of the relevant provisions of the Companies Act did not create an
encumbrance or charge on the property and was considered to be a
personal liability. This Court, inter alia, observed and held as under: -
| “10. Dues in relation to the municipal tax in terms of the provisions | |
|---|
| of the said Act do not create any encumbrance on the property. It | |
| does not create any charge. It is considered to be a personal | |
| liability. On the aforementioned premise, we have to construe the | |
| terms and conditions of the sale… | |
| *** *** *** | | |
| 12. The terms and conditions of the sale must be read as a whole. | | |
| It must be given a purposive meaning. The word “encumbrance” in | | |
| relation to the word “immovable property” carries a distinct meaning. | | |
| It ordinarily cannot be assigned a general and/or dictionary | | |
| meaning. | | |
| *** *** *** | | |
| 15. The respondent municipality was an unsecured creditor. In that | | |
| capacity it cannot stand on a higher footing than an ordinary | | |
| unsecured creditor who is required to stand in queue with all others | | |
| similarly situated for the purpose of realisation of their dues from the | | |
| sale proceeds. | | |
36
18. We may notice that Section 141 of the Bombay Provincial
Municipal Corporations Act provides the property taxes to be a first
charge on the premise for which they are assessed. It is in that view
of the matter, Section 100 of the Transfer of Property Act was found
to be capable of being invoked therein, which reads as under:
“100. Charges .—Where immovable 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 latter 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, 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.”
There cannot, thus, be any doubt or dispute that a provision of law
must expressly provide for an enforcement of a charge against the
property in the hands of the transferee for value without notice to
the charge and not merely create a charge.”
23. The aforesaid decisions in the cases of Ahmedabad Municipal
Corporation and AI Champdany Ltd. had been concerning the issue
relating to liability of auction purchaser of property in Court sale towards
arrears of municipal taxes due on the date of sale, which are of statutory
charge on the property sold and of which, the purchaser had no notice. On
interpretation and application of second part of Section 100 of the Act of
1882, this Court held that the auction purchaser without notice, in the
absence of stipulation in the terms of sale or any statutory provision, could
not be made liable for such dues. In the fact situation of the present case,
the principles aforesaid operate heavily against the case of the appellant.
24. It has rightly been argued on behalf of the contesting respondents,
with reference to Section 100 of the Act of 1882 and the decision of this
Court in AI Champdany Ltd. (supra), that in absence of any statutory
provision, the auction purchaser without notice of any charge could not be
37
made liable for the arrears of tax in question during the post-liquidation
period. The provisions of the M.P. Act of 1956 were not creating any such
encumbrance or charge on the property which would attach to the property
for all times and under all circumstances nor they could be said to constitute
any encumbrances which diminish the value of the property. In contrast,
they would only qualify as expenses for “ preserving, realising or getting in ”
the assets of the company and thus, shall have to be paid in priority and
before any other payment in the course of distribution of the assets of the
company or value thereof.
25. There remains another significant factor in the present case that the
property in question was indisputably governed by Section 185 of the M.P.
Act of 1956, which clearly provides that all sums due from any person in
respect of taxes on any land or building shall be of first charge upon the
said land or building and upon any movable property found within or upon
such land or building. The proviso thereto further makes it clear that no
arrears of any such tax would be recoverable from any occupier who is not
the owner, if such arrears were for a period during which the occupier was
not in occupation. In the face of undeniable operation of the said Section
185 of the M.P. Act of 1956 over the property in question, we are clearly of
the view that the bidder/purchaser was entitled to proceed on the
assumption that even if there were any arrears of such taxes under the
M.P. Act of 1956, the same would not be recoverable from him. Though,
as aforesaid, the cryptic terms and conditions of sale in the present case,
wanting in material stipulations, never obliged a purchaser to carry out a
38
search as regards encumbrances but, even if such a requirement is taken
into consideration on general principles of caveat emptor , the other
assumptions available with reference to the said Section 185 of the M.P.
Act of 1956 cannot be ignored.
26. The submissions made on behalf of the appellant about the likely
prejudice to the other pre-liquidation creditors if such post-liquidation
liabilities are given preference over other liabilities; and reference to
Section 529A and 530 of the Companies Act do not carry any relevance
and do not make out any case for interference. The provisions contained
in Sections 529A and 530 essentially relate to overriding preferential
payments as also preferential payments in relation to the classes of
dues/debts specified therein. However, the question of payment of the
same would arise after payment of costs and expenses of winding up that
are properly incurred by the appellant OL and are to be paid in priority. As
aforesaid, the taxes payable to the respondent No. 1 Nigam during the
period in question would directly amount to the costs and expenses of
liquidation.
27. This being the position, in our view, the Company Court and then
the Division Bench of the High Court have rightly underscored the faults on
the part of the appellant OL and have rightly held that the liability on
account of the property tax and water tax claimed by the respondent No.
1 to the extent rejected by the appellant OL has been a post-liquidation
liability, which the OL was obliged to discharge, in view of omission in the
39
sale notice and then, in view of the operation of Rule 338 of the Rules of
1959.
28. Put in different words, as regards the operation of the said Rule 338
of the Rules of 1959, we are inclined to accept the reasoning of the High
Court that on the facts and in the circumstances of the present case,
arrears of property tax and water tax until the date of confirmation of sale,
i.e., 04.07.2003, would qualify as the expenses for “ preserving, realising or
getting in ” the assets of the company and thus, shall have to be paid in
priority by the appellant OL.
29. For what has been discussed hereinabove, we do not find it
necessary to dilate upon the other decisions cited by learned counsel for
the parties. As aforesaid, the ambiguity as also omissions in the terms and
conditions of the sale notice in the present case obviously lead to the
position that the view taken by the High Court calls for no interference.
30. Accordingly, and in view of the above, these appeals fail
and are, therefore, dismissed. No Costs.
……....……………………. J.
(DINESH MAHESHWARI)
……....……………………. J.
(ANIRUDDHA BOSE)
NEW DELHI;
MAY 04, 2023.
40
