Secured sale protects auction purchaser from prior excise, customs and ESI dues absent a statutory first charge.

An auction purchaser of property sold under the SARFAESI process was not liable for the erstwhile owner's central excise, customs or ESI arrears where no statutory first charge or prior attachment existed. Crown debt priority did not override the rights of a secured creditor, and exemptions linked to an EOU remained personal to the original licensee. The Court also held that liability for ESI dues does not pass to a third-party purchaser who acquires only land, building and assets, not the business as a continuing concern. The recovery notices were quashed as without jurisdiction.

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Issues: (i) Whether an auction purchaser of property sold under the SARFAESI process can be fastened with central excise and customs arrears of the erstwhile owner in the absence of any prior charge over the property; (ii) Whether an auction purchaser, who purchases only the properties and not the business as an ongoing concern, can be made liable for ESI arrears of the previous establishment.

Issue (i): Whether an auction purchaser of property sold under the SARFAESI process can be fastened with central excise and customs arrears of the erstwhile owner in the absence of any prior charge over the property.

Analysis: The liability for Government dues, including excise and customs dues, was distinguished from secured debt. It was held that Crown debt priority applies only to ordinary unsecured debts and does not override the rights of a secured creditor in the absence of a statutory first charge. The Court further held that exemptions and concessions granted to an EOU are personal to the licensee and do not automatically travel to a third-party auction purchaser when only the property is sold and not the business as an ongoing concern. Since the department had not created or enforced any prior charge or attachment over the property, the demand raised against the auction purchaser was without jurisdiction.

Conclusion: The auction purchaser cannot be made liable for the earlier central excise or customs arrears of the defaulting owner, and the impugned demands were unsustainable.

Issue (ii): Whether an auction purchaser, who purchases only the properties and not the business as an ongoing concern, can be made liable for ESI arrears of the previous establishment.

Analysis: The Court treated the claim for ESI dues on the same footing as the other statutory dues and held that liability of the previous establishment cannot be transferred to a third-party purchaser unless the business itself is taken over as a continuing concern. Where the purchaser acquires only the land, building, plant and machinery and starts a fresh business with different employees, the purchaser does not become the successor of the defaulter for recovery purposes. In such circumstances, recovery proceedings under the ESI Act against the auction purchaser were held to be without jurisdiction.

Conclusion: The auction purchaser was not liable for the ESI arrears of the previous establishment, and the impugned notices were liable to be set aside.

Final Conclusion: The writ petitions succeeded, and the statutory recovery notices issued against the auction purchaser were quashed because the secured creditor's rights and the purchaser's independent title could not be displaced by the earlier dues of the defaulting establishment.

Ratio Decidendi: In the absence of a statutory first charge or a transfer of the business as an ongoing concern, statutory dues of the erstwhile owner cannot be recovered from a third-party auction purchaser who acquires only the property under a secured sale.

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