TaxTMI 
TaxTMI 
2023 (5) TMI 257
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....ereinafter also referred to as 'the Company Court' in allowing the company applications preferred by respondent No.1 Ujjain Nagar Palika Nigam Hereinafter also referred to as 'the 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 to the Board for Industrial and Financial Reconstruction For Short, 'BIFR' 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....
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....uality 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 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 pu....
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....es and taxes; that as per Section 185 of the Madhya Pradesh Municipal Corporation Act, 1956 Hereinafter also referred to as 'the M.P. Act of 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 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 Section 529A of the Companies Act, 1956 Hereinafter referred to as 'the Companies Act', 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 ....
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....ial 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 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 ....
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....he 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 Divisio....
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....nt 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....
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.... 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. Th....
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....self 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 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 Liquida....
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....e 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 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 ....
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....lates 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 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....
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....el 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 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 Benc....
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....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....
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.... 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 cred....
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....s 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." 16. One of the principal points arising for determination in this matter is the impact and effect of sale of....
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....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 ....
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....tion 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 reference to the aforesaid decision in United Bank of India (supra). While distinguishing the said decision, this Court observed that Official Liquidator would proceed ....
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....he 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 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 Cor....
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.... 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 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 af....
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....ithout 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 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 suc....
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....ayer 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 dict....
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....t 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 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 signifi....