2023 (5) TMI 257 - SC - Companies Law

Claim against Official Liquidator representing company subsequent to the order of winding up - Demand of 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 - HELD THAT - On perusal of the contents of the sale notice dated 09.05.2003 in the present case and the relevant terms and conditions of sale of the assets of the company in liquidation. It is evident that expansive technical expressions were used in the present case by the appellant OL in the terms and conditions of the sale that the same would be on as is where is whatever there is basis and then, further disclaimer was stated that the appellant OL was not providing any guarantee as to the quality, quantity or specification of the assets sold. Such stipulations and disclaimers were definitely putting the purchasers to notice to get themselves acquainted with what the property is (the nature and extent); where the property is (the locational attributes); and whatever there is (quantity and condition of the property) - All such stipulations were essentially pertaining to the 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. In UT Chandigarh Administration 2009 (3) TMI 862 - SUPREME COURT , this Court dealt with the consumer complaints of respondents filed to contend that the appellant was not legally entitled to claim balance of premium or annual rent, for having failed to provide basic amenities at the residential and commercial sites auctioned by way of advertisement. This Court allowed the appeals as the purchaser was not a consumer with reference to public auction of existing sites. 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 AI Champdany Ltd. 2009 (2) TMI 470 - SUPREME COURT , that in absence of any statutory provision, the auction purchaser without notice of any charge could not be made liable for the arrears of tax in question during the post-liquidation period. The provisions of the M.P. Act of 1956 were not creating any such encumbrance or charge on the property which would attach to the property for all times and under all circumstances nor they could be said to constitute any encumbrances which diminish the value of the property. In contrast, they would only qualify as expenses for preserving, realising or getting in the assets of the company and thus, shall have to be paid in priority and before any other payment in the course of distribution of the assets of the company or value thereof. The Company Court and then the Division Bench of the High Court have rightly underscored the faults on the part of the appellant OL and have rightly held that the liability on account of the property tax and water tax claimed by the respondent No. 1 to the extent rejected by the appellant OL has been a post-liquidation liability, which the OL was obliged to discharge, in view of omission in the sale notice and then, in view of the operation of Rule 338 of the Rules of 1959 - Appeal dismissed.

Issues Involved:

1. Liability of Official Liquidator (OL) for post-liquidation property and water taxes.
2. Applicability of Sections 529A and 530 of the Companies Act, 1956.
3. Interpretation of sale terms "as is where is whatever there is" basis.
4. Impact of Section 185 of the Madhya Pradesh Municipal Corporation Act, 1956.

Summary:

Issue 1: Liability of Official Liquidator (OL) for post-liquidation property and water taxes

The appellant OL questioned the judgment of the Division Bench of the High Court at Calcutta, which dismissed appeals against the Company Court's decision allowing claims by Ujjain Nagar Palika Nigam for property and water taxes from the appellant in relation to the company in liquidation. The Company Court held that the OL's liability was not restricted to claims and debts only until the date of the winding-up order. It was observed that post-liquidation liabilities were to be treated as part of the cost of winding up and prioritized over all other liabilities. The Division Bench upheld this view, stating that the sale notice did not obligate the purchaser to satisfy himself regarding encumbrances, thus the OL was obliged to discharge the post-liquidation liability towards property and water taxes.

Issue 2: Applicability of Sections 529A and 530 of the Companies Act, 1956

The appellant contended that as per Sections 529A and 530 of the Companies Act, the OL was liable to pay only those taxes which accrued till the date of winding up and became payable within one year thereof. The Company Court and the Division Bench rejected this contention, stating that these provisions did not absolve the company in liquidation of its liability towards revenue and taxes accrued post-liquidation. The Division Bench observed that Section 530 had nothing to do with the payment of taxes which mounted between the date of the winding-up order and the date of the sale of its assets.

Issue 3: Interpretation of sale terms "as is where is whatever there is" basis

The appellant argued that the sale was on "as is where is whatever there is" basis, meaning the assets were not free from encumbrances when sold, and thus, the liability of taxes shifted to the purchaser. The Division Bench held that the terms and conditions of the sale did not clearly notify the purchaser about any liability towards arrears due to the Nigam. The Court distinguished the case from United Bank of India v. Official Liquidator, noting that the sale notice in the present case lacked comprehensive language that would obligate the purchaser to be aware of encumbrances.

Issue 4: Impact of Section 185 of the Madhya Pradesh Municipal Corporation Act, 1956

Section 185 of the M.P. Act of 1956 was invoked, which states that all sums due in respect of taxes on any land or building shall be a first charge upon the said land or building. The proviso clarifies that no arrears of any such tax shall be recoverable from any occupier who is not the owner if such arrears are for a period during which the occupier was not in occupation. The Division Bench observed that the purchaser could assume that arrears of such taxes would not be recoverable from him, reinforcing that the OL was liable for the post-liquidation tax liabilities.

Conclusion:

The Supreme Court upheld the decisions of the Company Court and the Division Bench of the High Court, concluding that the OL was liable to discharge the post-liquidation liabilities towards property and water taxes. The appeals were dismissed, and the view that the OL was obliged to pay these taxes as part of the costs of winding up was affirmed.

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