2016 (12) TMI 462 - HC - Indian Laws

Liability to pay the property tax - petitioners have purchased the shops in question in the Bank auction conducted by the Bank in exercise of powers of the Securitization Act and in public auction / auction notice - whether the petitioners can be held liable to pay the property tax on the aforesaid properties /shops for the period prior to they purchased the properties in Bank auction or not? - Held that - The petitioners have purchased the shops in Bank auction conducted by the Bank under the provisions of the Securitization Act and Rules and prior to their purchase it was not brought to the notice of the petitioners purchasers that there is any property tax due for the properties /shops and after their purchase, the same is recovered from the petitioners, the impugned action of respondent no.1 in recovering the property tax for the properties /shops for the period prior to the petitioners purchased the shops i.e. prior to 05/03/2014 cannot be sustained. Present petition succeeds. The action of respondent no.1 in recovering the property tax for the aforesaid shops /properties, which the petitioners have purchased in bank auction for the period prior to 05/03/2014 is hereby quashed and set aside. Consequently, any amount recovered towards the property tax dues for the period prior to the petitioners purchased the properties /shops, the same may be refunded to the petitioners within a period of four weeks from today. However, it is observed that it will be open for respondent no.1-Corporation to recover the property tax dues for the period prior to 05/03/2014 from the erstwhile owner.

Summary

Issues Involved:
1. Liability for property tax dues prior to the purchase of property in a bank auction.
2. Legality of recovering property tax from the subsequent purchaser.
3. Refund of property tax already paid under protest by the petitioners.

Issue-wise Detailed Analysis:

1. Liability for Property Tax Dues Prior to Purchase:
The petitioners argued that they should not be liable for property tax dues incurred before they purchased the shops in a bank auction. They contended that neither the auction notice nor any other communication informed them of these dues. The court noted that the petitioners purchased the properties through a bank auction under the Securitization Act and were not informed of any outstanding property tax dues prior to their purchase. The court referenced the Supreme Court's decision in AI Champdany Industries Ltd. v. Official Liquidator, which held that a purchaser who acquires property for value without notice of dues is not liable for pre-sale tax dues. Similarly, the Bombay High Court in M/s. Sonoma Management Partners v. Bank of Maharashtra held that sales tax dues of the previous owner cannot be recovered from a subsequent purchaser who bought the property in a bank auction without notice of such dues.

2. Legality of Recovering Property Tax from the Subsequent Purchaser:
The court examined whether the petitioners, as subsequent purchasers, could be held liable for property tax dues that were not disclosed at the time of purchase. The court found that the petitioners had no notice of any outstanding property tax dues before their purchase. The court emphasized that under the Securitization Act, a secured creditor can sell secured assets without court intervention, and the purchaser acquires the property free from undisclosed liabilities. The court reiterated the principle that a charge on property, such as property tax dues, cannot be enforced against a transferee for value without notice of the charge, as established in the Supreme Court's decision in Ahmedabad Municipal Corporation v. Haji Abdulgafur Haji Hussenbhai.

3. Refund of Property Tax Already Paid Under Protest:
The court concluded that the action of respondent no.1 in recovering property tax for the period before the petitioners purchased the shops was unsustainable. Consequently, the court ordered that any amount recovered towards property tax dues for the period prior to the petitioners' purchase should be refunded within four weeks. The court also noted that respondent no.1 could recover the property tax dues for the period before 05/03/2014 from the erstwhile owner.

Conclusion:
The court ruled in favor of the petitioners, quashing the recovery of property tax for the period before their purchase and ordering a refund of the amounts paid under protest. The court upheld the principle that a purchaser in a bank auction, who acquires property without notice of outstanding dues, cannot be held liable for such dues. The judgment aligns with established legal precedents ensuring that subsequent purchasers are protected from undisclosed liabilities of the previous owners.