Pre-sale municipal tax arrears do not bind an auction purchaser unless statute creates an express charge on the property.

Pre-sale municipal property tax arrears could not be enforced against an auction purchaser of a company in liquidation because no statute expressly created an encumbrance or first charge on the property. "Encumbrance" was construed as a subsisting burden or lien running with the asset, and general sale terms requiring inspection of title could not enlarge liability for statutory dues. The municipality, as an unsecured creditor, had to assert its claim in the winding-up proceedings and recover, if at all, from the sale proceeds under the statutory liquidation scheme. Section 55(1)(g) of the Transfer of Property Act did not convert such arrears into a charge against a bona fide purchaser.

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Issues: Whether an auction purchaser of a company in liquidation is liable to pay municipal property tax arrears for the period prior to the confirmation of sale, or whether such dues must be pursued against the sale proceeds in accordance with the winding-up provisions.

Analysis: Dues for municipal property tax do not, by themselves, create an encumbrance on the property unless the statute expressly so provides. The sale terms requiring the purchaser to inspect title and encumbrances could not be enlarged to impose liability for all pre-sale statutory dues, because the word "encumbrance" denotes a burden, charge, lien, or similar subsisting interest running with the property. In winding-up, the company's assets had to be dealt with under the Companies Act, 1956, and claims of creditors were to be lodged against the official liquidator and satisfied from the sale proceeds in the order prescribed by law. The municipality was only an unsecured creditor and could not claim priority over the statutory scheme governing liquidation. The obligation under Section 55(1)(g) of the Transfer of Property Act to pay public charges up to the date of sale did not extend to converting municipal tax arrears into an enforceable charge against a bona fide auction purchaser without an express statutory provision.

Conclusion: The auction purchaser was not liable for the pre-sale municipal tax arrears, and the municipality had to pursue its claim in the liquidation proceedings against the sale proceeds.

Ratio Decidendi: A pre-sale statutory tax liability cannot be enforced against an auction purchaser of a company in liquidation unless the statute expressly creates an enforceable charge or first charge on the property; otherwise, the creditor must rank only as an unsecured creditor in the liquidation.

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