TaxTMI 
TaxTMI 
2023 (5) TMI 257
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.... learned Company Judge of the High Court Hereinafter 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 ....
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....be deemed to offer with full knowledge as to defects, if any, in the description, quality 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 04.07.200....
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....t No. 1 Nigam - applicant before the Company Court - that the OL was liable for both pre-liquidation and post-liquidation rates 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 ....
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....of disconnection would not, however, make any difference to the maintainability of the claim of the supplier. It is not in dispute that the Official 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 Compan....
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....y of the company at the time when the order for winding up of the company was made. Costs and expenses incurred on behalf of the company, in winding up ought to have paid in full." 7.2. The Company Court also took note of the fact that the 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 ....
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.... Liquidator and Ors.: 79 Company Cases 262 [= (1994) 1 SCC 575] while taking note of the peculiar factual matrix and specific terms and conditions of sale in that case. After making a comparison between the terms and conditions of sale in the present 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 t....
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.... It would be, in our opinion, thoroughly unreasonable to foist the liability on a purchaser without first letting him know prior to the sale about such liability. Enquiries at site must have been made by the ultimate purchaser before he offered his bid. The purchaser could 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 Cour....
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....g to himself. There is, therefore, no merit 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". It is understandable that once an intending purchaser is warned to satisfy himself 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 partic....
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....1 had never taken the necessary legal steps for realisation of its dues as claimed in its affidavit of proof of debt and the High Court did not even consider such affidavit before fastening the liability of post-liquidation claim on the appellant. 9.4. Learned Counsel has also submitted that the benefit given to respondent No. 3 by the 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....
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.... company. 11.2. Learned Counsel has also submitted that preferential payments prescribed in Section 530 of the Companies Act are for payment of specified claims thereunder and that too after payment of costs and expenses of winding up that are properly incurred by the appellant and which are paid in priority. Moreover, the said Section 530 relates 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 s....
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....harge could be enforced against any property in hands of transferee for consideration and without notice of the charge; and that for its enforceability, a provision of law must expressly provide for 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. Learned counsel 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 i....
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....ssing of the order of winding up but, costs and expenses incurred on behalf of the company in winding up were to be paid in full; and the liability of the company to pay rates and taxes would not automatically come to an end with the order of winding up. The Company Court yet left it open for the appellant OL to file an appeal under the provisions of the M.P. Act of 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 l....
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....Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8), and having become due and payable within the twelve months next before that date; *** *** *** (8) For the purpose of this section - (a) ..... (b) .... (bb) .... (c) the expression "the relevant date" means- (i) in the case of a company ordered to be wound up compulsorily, the date of the 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 ....
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....51 (2) ; Next.-the actual out of pocket expenses necessarily incurred by the members of the Committee of Inspection, and sanctioned by the Court. (2) Save as otherwise ordered by the Court no payments in respect of bills of advocates, shall be allowed out of the assets of the company without proof that the same have been considered and allowed by the taxing officer of the Court. The taxing officer shall before passing the Bills or charges of an advocate, satisfy himself that the appointment of an advocate to assist the liquidator in the performance of his 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 fro....
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....cords of the company in liquidation show. It is for the intending purchaser to satisfy himself in all respects as to the title, encumbrances and so forth of the immovable property that he proposes to purchase. He cannot after having purchased the property on such terms then claim diminution in the price on the ground of defect in title or description of the property. 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. There is, therefore, no merit 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....
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....physical properties/attributes of the assets in question but, the significant omission in those terms and conditions had been to make it obligatory on the bidder/purchaser to make himself aware about encumbrances, liens and claims attached to the assets in question. This omission strikes at the very root of the case of the appellant. 17.4. The Division Bench of the High Court has rightly said that if the intending purchaser was required to satisfy himself in all respects including encumbrances, he might not be heard in any objection about want of knowledge of encumbrances but, if he was not so warned, such an obligation 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 t....
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....oration failed to disclose to the respondent the material defect about the non-existence of the independent 3 "karams" passage to the property. Therefore, the appellant Corporation clearly acted in breach of Sections 55(1)(a) and (b) of the Transfer of Property Act, 1882. *** *** *** "27. We are also of the considered opinion that the reliance placed on the judgment of this Court by the counsel for the appellants in United Bank of India v. Official Liquidator [(1994) 1 SCC 575] is wholly misconceived. The aforesaid judgment relates to sale of the property and assets of a company in liquidation by the Official Liquidator under the 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....
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.... different. A person interested can inspect the sites offered and choose the site which he wants to acquire and participate in the auction only in regard to such site. Before bidding in the auction, he knows or is in a position to ascertain, the condition and situation of the site. He knows about the existence or lack of amenities. The auction is on "as-is-where-is basis". With such knowledge, he participates in the auction and offers a particular bid. There is no compulsion that he should offer a particular price. When the sites auctioned are existing sites, without any assurance/representation relating to amenities, there is no question of deficiency of service or denial 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 o....
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....proceedings commenced in 1949, the property in question was auctioned and purchased by the respondent-purchaser in 1954. It was attached by the Municipal Corporation owing to the fact that the municipal taxes in arrear for 1949-50 to 1953-1955 had not been paid, leading the respondent-purchaser to file a suit for declaration. The Division Bench of Gujarat High Court held that the respondent was the owner of the property and that the charge for arrears was not enforceable, which was challenged by the Corporation before this Court. With reference to Section 100 of the Act of 1882, it was held that no charge would be enforceable against any property in the hands of transferee for consideration without 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 pr....
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....pplies to such purchaser' but thereafter, the Court observed that the case of the judgment-debtor having no saleable interest at all in the property sold such as contemplated by the Order XXI Rule 91 of the Code of Civil Procedure was, however, different and not covered by this doctrine. Such observations do not lend support to the case of the appellant so as to shift the entire burden on the auction purchaser despite significant omission in the terms and conditions of sale. 22. In AI Champdany Ltd. (supra), the appellant had purchased the assets of the company under liquidation and was subsequently served with notice by municipality for payment of arrears of property tax. Upon taking out a chamber summons with the prayer 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 d....
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....nsferred 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." 23. The aforesaid decisions in the cases of Ahmedabad Municipal Corporation and AI Champdany Ltd. had been concerning the issue relating to liability of auction purchaser of property in Court sale towards arrears of municipal taxes due on the date of sale, which are of statutory charge on the property sold and of which, the purchaser had no notice. On interpretation and application of second part of Section 100 of the Act of 1882, this Court held that the auction purchaser without 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....