2016 (2) TMI 857 - HC - Companies Law

Company in liquidation - interpretation of the words used in condition No.7 i.e. the taxes in relation to property and whether the said words include the sales tax liability of the company in liquidation or not - whether purchaser is required to pay all the taxes in relation to the property including all outstanding dues? - Held that - Merely because this Court has observed in condition No.7 of the terms and conditions that the purchaser is required to pay all the taxes in relation to the property levied/leviable by the State Government or any local authority in relation to the company in liquidation, it does not mean that preferential payment from the sale proceeds be made to any Government Authority or any local authority over the other secured creditors, workers, etc. of the company in liquidation in contravention to the provisions of Section 530 of the Companies Act, 1956. Moreover, as observed above, as per the condition No.7 of the aforesaid order, the purchaser is required to pay all the taxes in relation to property and sales-tax is not the taxes in relation to the property. The sales tax dues of the company in liquidation for the year 1988 cannot be termed as the taxes in relation to the property. Further, when the respondent No.2 has already lodged its claim before the respondent No.1 Official Liquidator in the year 1995, the same would be considered by the Official Liquidator as per the provision of Section 530 of the Companies Act and therefore the charge created by the respondent No.2 in respect of the land of the company in liquidation is required to be removed and the concerned revenue authority is required to make necessary entries in the revenue record entering the name of the applicant No.1 as purchaser of the land of the company in liquidation. Hence, the Mamlatdar, Anand is hereby directed to cancel the entry registering the so-called charge of Sales Tax Department as arrears of land revenue to ensure that the applicant No.1 gets free and clear marketable title qua the property of the company in liquidation purchased vide order dated 06.05.2004 passed in O.L.R. No. 22 of 2004

Issues Involved:
1. Whether the Sales Tax authorities have a charge on the properties of the company in liquidation.
2. Interpretation of the phrase "taxes in relation to property" in the context of the company's liquidation.
3. The obligations of the purchaser regarding the payment of sales tax dues.
4. The application of Section 530 of the Companies Act, 1956, concerning the priority of debts in liquidation.

Detailed Analysis:

1. Charge of Sales Tax Authorities on Properties:
The applicants sought a declaration that the Sales Tax authorities have no charge on specific properties of the company in liquidation and requested the removal of the charge noted in the land revenue records. The Court noted that the sales tax authorities had recorded their claim in the revenue records against the company in liquidation, which led to the rejection of the applicant's request to transfer the land in their name.

2. Interpretation of "Taxes in Relation to Property":
The central issue was the interpretation of condition No.7 of the sale order, which stated that the purchaser must pay "all the taxes in relation to property." The Court clarified that this phrase does not include the sales tax liability of the company in liquidation. Instead, it only pertains to taxes directly related to the property itself. The Court emphasized that sales tax is not considered a tax related to the property, but rather a liability of the company.

3. Purchaser's Obligation to Pay Sales Tax Dues:
The applicants argued that they were not liable to pay the past sales tax dues of the company in liquidation. The Court agreed, stating that the sale terms only required the purchaser to pay taxes related to the property, not the company's past sales tax liabilities. The Court referenced several judgments supporting the position that purchasers in a court auction are not responsible for past sales tax dues of the company in liquidation.

4. Application of Section 530 of the Companies Act, 1956:
The Court examined Section 530, which prioritizes the payment of certain debts in a company's winding-up process. It was highlighted that the sales tax dues must be dealt with according to this section, which prioritizes debts incurred within twelve months before the winding-up order. The Court noted that the Sales Tax Department had already lodged its claim with the Official Liquidator, who would address it per the Companies Act provisions.

Conclusion:
The Court concluded that the sales tax dues of the company in liquidation do not constitute taxes related to the property. It directed the Mamlatdar, Anand, to cancel the entry registering the Sales Tax Department's charge in the revenue records, ensuring that the applicant receives a clear marketable title to the property. The application was allowed, and the Sales Tax Department was instructed to remove their claim from the revenue records. The Court reiterated that the Official Liquidator would handle the sales tax claim as per the Companies Act, 1956.

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