2009 (2) TMI 921 - SC - Indian Laws

Summary

Issues Involved:
1. Liability for payment of arrear property tax.
2. Interpretation of "as is where is" sale basis.
3. Applicability of Sections 529 and 529A of the Companies Act, 1956.
4. Definition and scope of "encumbrance."
5. Priority of municipal tax dues in liquidation proceedings.

Summary:

1. Liability for Payment of Arrear Property Tax:
The appellant purchased assets of a company in liquidation for Rs.7,03,00,000/-. The Bhatpara Municipality issued a notice claiming arrears of property tax amounting to Rs.47,59,597.19/- for the period from 1991-1992 to 2006-2007. The appellant contended that it had no liability to pay the said dues, which should be adjusted from the sale proceeds. The appellant sought clarification that it was liable for property tax only from the date of sale confirmation (15th September 2006) and not for any period prior.

2. Interpretation of "As Is Where Is" Sale Basis:
The learned Company Judge dismissed the appellant's application, stating that the terms "as is where is basis and whatever there is basis" pertain to the condition, quality, and quantity of the assets sold, not the liabilities attached. The appellant was expected to make inquiries regarding any encumbrances, including tax liabilities, before making an offer.

3. Applicability of Sections 529 and 529A of the Companies Act, 1956:
The appellant argued that the respondent municipality should have its claim satisfied from the sale proceeds in terms of Sections 529 and 529A of the Companies Act, 1956. The court noted that the municipality did not file its claim before the official liquidator and did not stand in queue to get the same recovered from the sale proceeds.

4. Definition and Scope of "Encumbrance":
The court examined the definition of "encumbrance" and concluded that municipal tax dues do not create any encumbrance or charge on the property. It is considered a personal liability. The court emphasized that encumbrance must be a charge on the property and must run with the property. Since the property tax did not create such a burden, it did not constitute an encumbrance.

5. Priority of Municipal Tax Dues in Liquidation Proceedings:
The court held that the respondent municipality, being an unsecured creditor, could not stand on a higher footing than other unsecured creditors. The Companies Act does not impose any additional obligation on the purchaser to inquire about liabilities other than those impeding the property's value. The court referenced previous judgments, including Ahmedabad Municipality Vs. Haji Abdul and Isha Marbles Vs. Bihar State Electricity Board, to support its decision.

Conclusion:
The Supreme Court set aside the impugned judgment, ruling that the appellant was not liable for the arrear property tax prior to the date of sale confirmation. The appeal was allowed with costs, and counsel's fee was assessed at Rs.10,000/-.