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2022 (5) TMI 84 - HC - Insolvency and BankruptcyRecovery of property tax dues from the Liquidator - period prior to 26.02.2021 - priority of charges over subject property - whether the Surat Municipal Corporation can claim any first charge or precedence over the subject property for the purpose of recovering the arrears towards the liability of property tax incurred by the Kohinoor Diamonds by virtue of Section 141 of the Gujarat Provincial Municipal Corporations Act, 1949? - HELD THAT - It is not in dispute that what is sought to be recovered by the Surat Municipal Corporation from the erstwhile Kohinoor Diamonds are the statutory dues towards the property tax. As observed by the Supreme Court in the case of AI CHAMPDANY INDUSTRIES LTD. VERSUS OFFICIAL LIQUIDATOR 2009 (2) TMI 470 - SUPREME COURT , if the property tax was merely a statutory dues without creating any encumbrance on the property, then it is not obligatory on the part of the auction purchasers to make an investigation as regards the title etc. It would mean that auction purchasers need not find out all the liabilities of the company in liquidation in their entirety. In the present case, there are no fault with the Official Liquidator in putting the subject property to E-auction. Also there are no fault with the writ applicant in participating in the auction proceedings. It is not in dispute that the writ applicant was the successful bidder. In RUKMANI VERSUS THE DEPUTY COMMERCIAL TAX OFFICER I, 2013 (3) TMI 205 - MADRAS HIGH COURT , the Madras High Court held that, as the proviso to Section 24-A of the T.N.G.S.T. Act itself indicated, a charge may not be enforced against a transferee if he/she has had no notice of the same unless, by law, the requirement of such notice had been waived. The Surat Municipal Corporation cannot claim any first charge or precedence over the subject property by virtue of Section 141 of the BPMC Act. The auction proceedings have attained finality. The writ applicant as on date is the lawful owner of the subject property. The Surat Municipal Corporation may recover the property tax from the writ applicant from the date of purchase of the subject property in the E-auction proceedings. If the entries as regards the sale in the revenue record of rights have not been mutated, the revenue authority shall proceed to do so in favour of the writ applicant. Application disposed off.
Issues Involved:
1. Whether the Surat Municipal Corporation can claim first charge or precedence over the subject property for recovering property tax arrears incurred by Kohinoor Diamonds. 2. The liability of the writ applicant to pay property tax for the period after purchasing the subject property in the E-auction. 3. The enforceability of property tax dues against a transferee for value without notice of the charge. 4. The procedural aspects regarding the execution of the sale deed by the Official Liquidator. Detailed Analysis: 1. Claim of First Charge or Precedence by Surat Municipal Corporation: The primary issue was whether Surat Municipal Corporation could claim a first charge or precedence over the subject property for recovering property tax arrears incurred by Kohinoor Diamonds. The court examined Section 141 of the Gujarat Provincial Municipal Corporations Act, 1949 (GPMC Act), which states that property taxes are a first charge on the premises for which they are assessed. However, the court referred to the Supreme Court's decision in AI Champday Industries Ltd vs. Official Liquidator, which clarified that statutory dues like property tax do not create an encumbrance that runs with the property unless expressly provided by law. The court concluded that the Surat Municipal Corporation, being an unsecured creditor, could not claim precedence over other creditors and must stand in queue with other unsecured creditors for the realization of dues from the sale proceeds. 2. Liability of Writ Applicant for Property Tax Post-Auction: The writ applicant, who purchased the property in an E-auction, contended that they were liable to pay property tax only for the period after the auction and not for the arrears incurred by Kohinoor Diamonds. The court upheld this view, stating that the writ applicant, as the lawful owner post-auction, is responsible for property tax from the date of purchase. The court emphasized that the Surat Municipal Corporation should issue property tax bills to the writ applicant for the period after the auction proceedings. 3. Enforceability of Property Tax Dues Against a Transferee Without Notice: The court addressed whether property tax dues could be enforced against a transferee for value without notice of the charge. Citing the Supreme Court's judgment in Ahmedabad Municipal Corporation vs. Haji Abdul Gafur Haji Hussenbhai, the court reiterated that a charge must be expressly enforceable against a transferee for value without notice of the charge. Section 141 of the BPMC Act did not provide such express enforceability. Therefore, the writ applicant, as a bona fide purchaser without notice of the property tax arrears, could not be held liable for the dues incurred by the previous owner. 4. Execution of Sale Deed by Official Liquidator: The court noted that the Official Liquidator had yet to execute the sale deed in favor of the writ applicant. The court directed the Official Liquidator to proceed with the execution of the sale deed in accordance with the law. Additionally, the court instructed the revenue authority to mutate the revenue record of rights in favor of the writ applicant, recognizing them as the lawful owner of the subject property. Conclusion: The court declared that the Surat Municipal Corporation could not claim any first charge or precedence over the subject property under Section 141 of the BPMC Act. The writ applicant is liable for property tax from the date of purchase in the E-auction, and the Surat Municipal Corporation must recover the arrears from Kohinoor Diamonds through the Official Liquidator. The court disposed of the writ application, directing the Official Liquidator to execute the sale deed and the revenue authority to update the records accordingly.
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