TaxTMI 
TaxTMI 
2022 (5) TMI 84
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....mus and/or a writ in the nature of mandamus and/or any other appropriate writ, order or direction directing the Surat Municipal Corporation to lodge a claim with respondent No.2 for the property tax dues with respect to the subject property for the period prior to 26.02.2021 in accordance with law, if at all the said tax dues are to be recovered; (c) That the Hon'ble Court may be pleased to issue a writ of mandamus and/or a writ in the nature of mandamus and/or any other appropriate writ, order or direction directing the Surat Municipal Corporation to issue bills for recovery of property tax with respect to the subject property for the period after 26.02.2021, if at all the said tax is to be levied; (d) Pending the hearing and final disposal of this petition, the Hon'ble Court may be pleased to restrain the Surat Municipal Corporation from taking any coercive measures against the petitioner and/or the subject property with respect to the property tax dues aggregating to Rs.19,87,171/- for the period prior to 26.02.2021; (e) Ad-interim relief in terms of prayer clause (c) hereinabove; (f) Such other and further reliefs that the Hon'ble Court deems....
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.... thought fit not to issue any property tax bills to the writ applicant for the period after the auction proceedings. Prima facie, it appears that the writ applicant has an apprehension that since the Surat Municipal Corporation has thought fit not to issue the property tax bills in the name of the writ applicant, it has declined to recognize the writ applicant as the lawful owner of the subject property. The writ applicant clarified with the Surat Municipal Corporation that it is liable to pay property tax for the period after the auction proceedings and not for the liability which Kohinoor Diamonds incurred in the past i.e. before the liquidation proceedings. 9. We have heard Mr. Aadit R. Sanjanwala, the learned counsel appearing for the writ applicant, Mr. Chandresh Vin, the learned counsel appearing for the Surat Municipal Corporation and Mr. Vishal Dave, the learned counsel appearing for the respondent N o.2 (Official Liquidator). 10. The short point that falls for our consideration is whether the Surat Municipal Corporation can claim any first charge or precedence over the subject property for the purpose of recovering the arrears towards the liability of property tax in....
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....: "any right to, or interest in, land which may subsist in another to diminution of its value, but consistent with the passing of the fee." Encumbrance, therefore, must be capable of being found out either on inspection of the land or the office of Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or depreciates in its value may be a mortgage or a deed of trust or a lien or an easement. Encumbrance thus must be a charge on the property. It must run with the property. If by a reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance. 14. If the property tax was merely a statutory dues without creating any encumbrance on the property which had cast a duty upon all the auction purchasers to make an investigation, it would mean that he must try to find out all the liabilities of the company in liquidation in their entirety. 15. 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....
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.... 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. 19. In Ahmedabad Municipality itself it was held : "4. .... 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 ....
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....public charges due in respect of the property upto the date of sale, when a property is sold in auction. 22. Section 55 refers to a contract only. Unless there is a contract to the contrary, the rights and obligations of the parties to a sale would be as indicated in Section 55. Such a contract to the contrary must be express and not implied, as a result whereof the meaning of term encumbrance would be expanded. 23. The advertisement did not specify that all public charges have to be paid. 24. The Municipal Corporation indisputably is not a preferential creditor. 25. The Companies Act in relation to winding up of proceeding is otherwise a special law. While distributing the assets between the creditors and unsecured creditors, the provisions of Sections 529 and 530 must be complied with. 26. All claims against the companies were required to be filed before the liquidator until the property was sold as provided for under Section 457 of the Companies Act. In terms of Section 456 thereof once an order for winding up is made the liquidator has to take into custody the properties, effects and actionable claims to which the company is or appea....
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....ged only after the secured creditors stand discharged. 30. In Union of India & Ors. Vs. Sicom Ltd. & Anr. [2009 (1) SCALE 10], it is stated : "9. Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the king; debts which a prerogative entitles the Crown to claim priority for before all other creditors. [See Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) p. 1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. 10. It ....
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....purchase for payment of dues. To the aforesaid, the Hon'ble Supreme Court has observed that law imposes no obligation upon the purchaser to enquire into liabilities other than those which would impede value of property. The Hon'ble Supreme Court has also observed and held that though Section 141 of the Bombay Provincial Municipal Corporation Act provides for property tax dues to be first charged on property but made no express provision regarding its enforceability against transferee for value without notice of charge, the purchaser is not liable to pay the pre-sale tax dues and /or property tax. [7.3] Identical question came to be considered by the Bombay High Court and the recent decision in the case of M/s. Sonoma Management Partners (Supra). In the case before the Bombay High Court petitioners purchased the property pursuant to the sale conducted by the Banks under the provisions of the Securitization Act and the Rules framed thereunder. The sales tax department sought to recover the sales tax dues of the defaulter Company from the subsequent purchaser who purchased the property pursuant to the sale conducted by the Banks under the provisions of the Securitization Act ....
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....esent case) to realise their dues, can sell the secured assets without intervention of the Court and subject to other stipulations set out in the SARFAESI Act. It is on the basis of exercising powers under the provisions of the SARFAESI Act that Respondent No.1 (as leader of the consortium with Respondent No.2) issued a possession notice as well as a sale notice in respect of the said property. It is pursuant to this sale notice that the Petitioners have purchased the said property from Respondent Nos.1 and 2. 11. What is important to note is that this entire purchase was done by the Petitioners before the alleged dues of the Sales Tax Authorities was brought to their notice. The chronology of events set out above clearly indicates that the Petitioners placed their bid for purchasing the said property on 1 September, 2010 along with their earnest money deposit. Thereafter, the sale was confirmed in favour of the Petitioners on 15 September, 2010, once the sale was confirmed the Petitioners on 22 September, 2010 paid the balance purchase price and thereafter a Sale Certificate was also issued in favour of the Petitioners on 23 September, 2010. Thereafter, a Deed of Conveyan....
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....Company did not pay its dues to Respondent Nos.1 and 2, they, exercising their rights under the provisions of the SARFAESI Act, sought to enforce their security interest and sell the secured asset (the said property) to the Petitioners. It is in these circumstances that the Petitioners have purchased the said property. They can by no stretch of the imagination be termed as a successor of the business of the Defaulter Company to enable the Sales Tax Authorities to recover their dues from the Petitioners by enforcing their alleged charge against the said property purchased by the Petitioners under the provisions of the SARFAESI Act. 13. In the view that we have taken, we are supported by a decision of the Supreme Court in the case of State of Karnataka & Anr Vs. Shreyas Papers Pvt. Ltd. On the issue of enforcement of charge, the Supreme Court at paragraphs 18 to 21 thereof (of the SCC report) opined thus: "18. The next limb of Mr Hegde's arguments was that since Section13(2)(i) of the KST Act creates a charge on the property of the defaulting company, the charge would continue on the properties, even if it changes hands by transfer. 19. While the expression "cha....
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....ased in the auction. In the appeal before this Court, the Municipal Corporation's main argument was that where the local law provided for the creation of a charge against a property for which municipal taxes were due, transferees of such properties were imputed with constructive knowledge of any charge created against the properties that they had purchased. This argument was, however, rejected. This Court held that while constructive notice was sufficient to satisfy the requirement of notice in the proviso to Section 100 of the TP Act, whether the transferee had constructive notice of the charge had to be determined on the facts and circumstances of the case. [Ibid., at SCC pp. 765-66 (para 12) : AIR pp. 120708(para 8)] In other words, this Court held that there could be no fixed presumption as to the transferee having constructive notice of the charge against the property. In fact, the principle laid down in Ahmedabad Municipal Corpn. [(1971) 1 SCC 757, 759-61 (paras 3 & 4) : AIR 1971 SC 1201, 1202-04(para 3)] has been correctly applied in a sales tax case similar to the present case. [CTO v. R.K. Steels, (1998) 108 STC 161 (Mad)] (emphasis supplied) 14. In the facts ....
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....due under the Bombay Provincial Municipal Corporation Act, and the property was brought to sale in execution of a mortgage decree. When the municipality purported to exercise their charge over the property, the purchaser, in the court auction, filed a suit for declaration that he was the owner of the property and, therefore, arrears of municipal taxes due by the transferor were not recoverable by attachment and sale of the property in the hands of the purchaser. A Division Bench of this High Court in the case of Haji Abdul Gafuf Haji Hussenbhai vs. The Ahmedabad Municipal Corporation reported in (1967) 8 GLR page 65 accepted the case of the purchaser, and decreed the suit, holding that the charge created in favour of the municipal corporation was not enforceable against the property. Before the Supreme Court it was contended that there was an express provision in Section 141(1) of the Bombay Provincial Municipal Corporation Act, 1949 for holding the present property to be liable for the recovery of municipal taxes, and, though the property was subject only to a charge not amounting to mortgage and did not involve transfer of interest in the property, the same could nevertheless be ....
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....r when, before wilful abstention from an enquiry or search which he ought to have made or gross negligence, he would have known it; there were 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; 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 now a part of the statute and has to be interpreted as such; wilful abstention suggests conscious or deliberate abstention and gross negligence, and 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 consideration which normally regulate the conduct of human affairs, would do or doing something which a normally prudent and reasonable m....
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....f Property Act, 1882 (hereinafter "the TP Act") ... As the section itself unambiguously indicates, a charge may not be enforced against a transferee if s/he has had no notice of the same, unless, by law, the requirement of such notice has been waived. This position has long been accepted by this Court in Dattatreya Shanker Mote v. Anand Chitaman Datar, and Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai (hereinafter "Ahmedabad Municipal Corporation"). In this connection, we may refer to the latter judgment, which is particularly relevant for the present case In these circumstances, we are of the view that the First Respondent was a purchaser for value without notice of the sales tax arrears of the Defaulting Company or the consequent charge on the property. This would, therefore, attract the principle laid down by this Court in Ahmedabad Municipal Corporation, which is also embodied in the proviso to Section 100 of the TP Act. Thus, the property in the hands of the First Respondent was free of the charge and it is not open to the appellants to enforce the liabilities of the Defaulting Company in this manner against the First Respondent. ....
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....hased has any encumbrance; unless the charge is duly registered in the Registration Department, it would not be possible for any prospective buyer to know whether there is any charge over the property for arrears of tax or statutory dues to be paid to the Government or statutory body; no material had been produced before the Court to prove that the notice, demanding arrears of tax, had been served on the defaulter; no material had been placed before the Court to prove that steps had been taken, under the provisions of the Revenue Recovery Act, against the defaulter or the subsequent first purchaser from whom the petitioner had purchased the property six years after the date of finalisation of the assessment; there was no material to indicate that the petitioner had any constructive notice of the charge; there was no pleading to that effect and, rightly, no arguments had been advanced; and, therefore, the Court was of the view that the case on hand would squarely fall within the ambit of the judgment of the Apex Court in Ahmedabad Municipal Corporation (supra). 22. At this stage, we may also refer to few provisions of the Insolvency and Bankruptcy Code, 2016 (for short, "the Code....
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.... during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.] [(3) The provisions of sub-section (1) shall not apply to - [(a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;] (b) a surety in a contract of guarantee to a corporate debtor.] (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be." 23. We are concerned with sub-clause (b) of sub-section (1) of Section 14 of the Code, 2016. Thus, on the insolvency commencement date, the Adju....