2008 (9) TMI 888 - HC - VAT and Sales Tax

Court sets aside auction under TNRR Act due to procedural issues, emphasizes compliance with requirements

Varuni Biomass Energy Products Private Ltd. Versus District Collector, Dindigul and others (and other cases)

Varuni Biomass Energy Products Private Ltd. Versus District Collector, Dindigul and others (and other cases) - [2009] 19 VST 484 (Mad) Issues Involved:1. Procedural irregularities in the auction held under the Tamil Nadu Revenue Recovery Act (TNRR Act).2. Lack of notice to joint property owners.3. Personal liability of directors for company arrears.4. Compliance with statutory requirements for auction notice and sale confirmation.5. Applicability of previous court orders and res judicata.Issue-wise Detailed Analysis:1. Procedural Irregularities in the Auction Held Under the TNRR ActThe petitioner-company challenged the auction notice and the subsequent sale confirmation on the grounds of procedural irregularities. They argued that the auction notice dated March 12, 2008, and the auction held on March 19, 2008, did not comply with the statutory requirements under sections 36 and 38 of the TNRR Act. Specifically, the notice was not affixed one month prior to the sale, and the sale was confirmed within 14 days, violating the 30-day waiting period mandated by section 38(3). The court found these procedural lapses to be significant and ruled that the auction was vitiated by these irregularities.2. Lack of Notice to Joint Property OwnersThe petitioner in W.P. No. 5324 of 2008, a joint owner of the property, contended that no notice was given to him or the other joint owners before the auction. The court observed that the auction notice was only marked to the company and one of the directors, K.K. Surendranath, but not to the other joint owners. Citing legal precedents, the court held that the failure to notify all interested parties constituted an illegality, thereby vitiating the sale.3. Personal Liability of Directors for Company ArrearsThe petitioners argued that the directors of the company should not be held personally liable for the company's arrears. The court agreed, citing the principle that a company is a separate legal entity. Therefore, the properties of the directors cannot be brought to sale for the company's tax dues. The court emphasized that only the company's properties could be auctioned, not the personal properties of its directors.4. Compliance with Statutory Requirements for Auction Notice and Sale ConfirmationThe court scrutinized the compliance with statutory requirements under the TNRR Act. It was found that the auction notice was not given adequate publicity, and the timelines for affixing the notice and confirming the sale were not adhered to. The court reiterated that strict compliance with statutory procedures is essential, and any deviation would render the auction invalid.5. Applicability of Previous Court Orders and Res JudicataThe respondents argued that the petitioners' claims were barred by res judicata due to a previous court order dismissing a similar writ petition (W.P. No. 1964 of 2004). However, the court clarified that the earlier order did not address the current procedural irregularities and lack of notice issues. Therefore, the principle of res judicata did not apply in this case.ConclusionThe court concluded that the auction was vitiated by procedural irregularities and lack of notice to joint property owners. The sale in favor of the successful bidder was set aside. The petitioner-company was directed to deposit Rs. 45,67,264 with five percent interest within four weeks. The Commercial Tax Department was instructed to refund the auction amount to the successful bidder. The court also allowed the petitioner-company to seek waiver of interest from the government due to its status as a sick unit. If the waiver is not granted within eight weeks, the department may initiate fresh revenue recovery proceedings in accordance with the law. All writ petitions were disposed of without costs, and all miscellaneous petitions were closed.