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TMI Blog2006 (9) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... n and the plaintiffs with prudent caution might have obtained knowledge of the charge and therefore the failure on their part to make necessary enquiries with their vendors will amount to willful abstention or gross negligence and therefore it could be held that the plaintiffs have constructive notice. We have to point out that the fact that the plaintiffs marked exhibit A-46 through D.W. 7 will itself show that they had knowledge about the sales tax arrears of their vendors. It is not the case of the plaintiffs anywhere that exhibit A-46 was obtained by them from their vendors or from some other source after filing of the suit. Therefore, we have to hold that the plaintiffs are not bona fide purchasers without notice. The learned single Judge after considering at length the contents of exhibits A-46, B-15, B-24, B-25, B-26, B-27 and B-36 has rightly observed that the conclusion of the Trial Court that S.V. Traders was proprietory concern cannot be sustained and the Trial Court failed to consider the material portions and the documents placed by the defendants in the form of documents. The learned single Judge has also rightly observed that a perusal of the pleadings of both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commercial Tax Officer reported in [1993] 3 MTCR 8 and in the case of Dy. Commercial Tax Officer v. Azha Kumari reported in [1985] WLR 240. Having regard to the submissions made by the learned counsel on either side, the division Bench reasoned as hereunder and requested the honourable Chief Justice to constitute a larger Bench. The reasons given by the division Bench in making the reference are extracted as hereunder: All these cases dealt with the question as to whether the charge created under the Sales Tax Act is binding on the bona fide purchaser for value. While in the first case it was held it does not, in the other two cases it was held that it does. The division Bench which decided Azha Kumari's case [1985] WLR 240 (sic)(1) and the one that dealt with the case of R.K. Steels [1998] 108 STC 161 (Mad); [1998] 1 CTC 124 (Mad) referred to the decision of the Supreme Court in the case of Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai AIR 1971 SC 1201, but read the judgment of the Supreme Court differently. The division Bench which decided the case of R.K. Steels [1998] 108 STC 161 (Mad); [1998] 1 CTC 124 (Mad) found fault w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application before the second defendant denying their liability. The second defendant issued an order to the plaintiffs on September 11, 1978 stating that the sale by the defaulters is not binding on the department and negativing the claim of the plaintiffs. The plaintiffs are bona fide purchasers for value without notice on any manner of claim by anyone against the same. The plaintiffs have discharged the earlier debts of the transferors which were prior in point of time over the claim of the Department. The claim of the department can only be against the defaulters and their property. T.N. Subash has no right or interest in the property sold to the plaintiffs. The plaintiffs after issuing notice under section 80 of the Code of Civil Procedure (hereinafter referred to as the C.P.C. ) have filed the suit in O.S. No. 254 of 1978 before the sub-court, Thirupathur, to set aside the order of the second defendant dated September 11, 1978 and to raise the attachment on the schedule-mentioned property and for injunction. 4. The defendants filed a written statement contending that one T.P. Narayanasamy and his son T. N. Subash were the partners of the firm M/s. Kasthuri and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed to sales tax of Rs. 5,793 for 1976-77. The order of assessment was served on April 7, 1978. The said T.N. Subash on behalf of S.V. Traders in his letter dated September 22, 1977 addressed to the Secretary, Revenue Department, Government of Tamil Nadu had admitted the arrears of sales tax and requested to pay the amount in instalments. The plaintiffs filed the claim petition on September 11, 1978 before the second defendant, who had in his reply intimated about the charge over the suit property and the arrears of sales tax by the transferors. The plaintiffs are not bona fide purchasers for value without notice of the defect in title. The plaintiffs were aware of the arrears of sales tax. The plaintiffs and the defaulters are close friends. The sale deed has been created collusively to defeat and delay the realisation of the sales tax arrears. The defendant does not admit that any consideration was paid towards the sale deed. The order of attachment was issued by way of abundant caution. The plaintiffs have not discharged any alleged earlier debts of transferors. 6. The Trial Court framed the following issues: (i) Whether the sale deed in favour of the plaintiffs is true, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned single Judge based on the representation of T.N. Subash to the Board of Revenue that S.V. Traders is a partnership firm is erroneous. The learned counsel further submitted that the assessment of the concern in the books of the sales tax authorities is the determinative factor and not the character of the representation made by T.N. Subash to the Board of Revenue. The learned counsel further submitted that T.P. Narayanasamy has nothing to do with S.V. Traders which is a proprietory concern of his son T.N. Subash and the tax arrears of S.V. Traders have nothing to do with T.P. Narayanasamy. The learned counsel submitted that simply because T. N. Subash has joined with his father T.P. Narayanasamy in the execution of exhibit A-1 sale deed, it would not mean that they are the joint owners of the property. The learned counsel further submitted that the learned single Judge has failed to apply the law laid down in Deputy Commercial Tax Officer v. R.K. Steels [1998] 108 STC 161 (Mad); [1998] 1 CTC 124 (Mad) and submitted that the learned single Judge ought to have held that the plaintiffs were bona fide purchasers of the suit property without notice. 11. The learned counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commercial Tax Officer v. R.K. Steels [1998] 108 STC 161; [1998] 1 CTC 124. 13. Per contra Mr. R. Subbiah, learned counsel for the second respondent submitted that the Trial Court has placed too much importance on trivialities and has not properly considered exhibits A-46, B-15, B-24, B-25, B-26, B-27 and B-36, whereas the learned single Judge has considered the said documents elaborately and has come to the right conclusion that S.V. Traders, Kancheepuram, was not a proprietory concern as claimed by the plaintiffs, but it was only a partnership firm of which T.P. Narayanasamy and his son T.N. Subash were partners. The learned counsel drew our attention to the following observation made by the Tamil Nadu Sales Tax Appellate Tribunal (Main Bench, Madras-1) in exhibit B-36, which reads as follows: These details and documentary evidence give support for the existence of the stated partnership. 14. The learned counsel further drew our attention to exhibit B-25 dated July 1, 1974 wherein in column 4 both the names of T.N. Subash and T.P. Narayanasamy have been specifically mentioned as sharers. The learned counsel further invited our attention to exhibit B-26 dated Decembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced by the plaintiffs before the Trial Court, it is evident that they had knowledge about the sales tax arrears of M/s. S.V. Traders, Kancheepuram and therefore submitted that the plaintiffs cannot be construed to be bona fide purchasers without notice. 15. By placing reliance on the following decisions, the learned counsel for the second respondent submitted that the defence of purchase without notice is one which ought to be specifically pleaded and proved by one who pleads so: (i) Murat Singh v. Pheku Singh AIR 1928 Patna 587. (ii) Mt. Renukabai, W/o. Sitaramji Wankhade v. Bheosan Hapsaji Junghare AIR 1939 Nagpur 132. (iii) Seth Ghasiram Seth Dalchand Palliwal v. Mt. Kundanbai, W/o. Rameshwar Shukul AIR 1940 Nagpur 163. 16. The learned counsel for the second respondent further drew our attention to exhibits A-3 and A-7-the reply notice and notice sent by the plaintiffs respectively and submitted that the plaintiffs had not claimed either in exhibit A-3 or exhibit A-7 that they have no notice about the sales tax arrears of their vendors. He further invited our attention to the cross-examination of P.W. 1 wherein he had categorically stated that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sales tax within the time stipulated by section 24(1) . . . (ii) In Coramandel Indag Products India Ltd. v. Commercial Tax Officer [1993] 3 MTCR 8, the division Bench after referring to the decision reported in Dy. Commercial Tax Officer v. Azha Kumari [1985] WLR 240 has observed as follows: . . . The division Bench held that as a result of section 24(1) of the Act, a charge was created over the properties for the sales tax amount due by the transferor even before the transfer was actually effected and the said charge can be enforced against the properties transferred which are in the hands of the transferee. The decision in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Jussenbhai AIR 1971 SC 1201 relied on by the learned counsel for the appellant is not quite relevant, for, that decision was rendered with reference to section 141 of the Bombay Provincial Municipal Corporation Act 1949. Section 141(1) of the Bombay Provincial Municipal Corporation Act, 1949 merely creates a charge for the property tax. There is no provision in the Bombay Provincial Municipal Corporation Act, similar to section 24(2) of the Tamil Nadu General Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice of the charge under section 24(2) of the Sales Tax Act and therefore, his property cannot be proceeded against for the recovery of sales tax arrears. (iv) In State of Karnataka v. Shreyas Papers P. Ltd. [2006] 144 STC 331 (SC); [2006] 1 SCC 615, the apex court while considering the enforceability of the charge created under section 13(2)(i) of the Karnataka Sales Tax Act, 1957 observed as follows: (1)19. While the expression 'charge' is not defined by the KST Act, this concept is well known in property law and has been defined by section 100 of the Transfer of Property Act, 1882 (hereinafter 'the TP Act'). Here 'charge' is defined as: 100. 'Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the executio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the charge against the property. In fact, the principle laid down in Ahmedabad Municipal Corpn. AIR 1971 SC 1201 has been correctly applied in a sales tax case similar to the present case(1). After laying down the law as aforesaid the apex court in the light of the facts of that case held as follows: 23. In these circumstances, we are of the view that the first respondent was a purchaser for value without notice of the sales tax arrears of the defaulting company or the consequent charge on the property. This would, therefore, attract the principle laid down by this court in Ahmedabad Municipal Corpn. case AIR 1971 SC 1201, which is also embodied in the proviso to section 100 of the Transfer of Property Act. Thus, the property in the hands of the first respondent was free of the charge and it is not open to the appellants to enforce the liabilities of the defaulting company in this manner against the first respondent. Thus it is clear that the law laid down by the division Bench in Deputy Commercial Tax Officer v. R.K. Steels [1998] 108 STC 161 (Mad) has been approved by the apex court. 20. Therefore we hold that in view of the honourable Supreme Court's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Any tax assessed on or has become payable by, or any other amount due under this Act from a dealer or person and any fee due from him under this Act, shall, subject to the claim of the Government in respect of land revenue and the claim of the Land Development Bank in regard to the property mortgaged to it under section 28(2) of the Tamil Nadu Co-operative Land Development Banks Act, 1934 (Tamil Nadu Act X of 1934), have priority over all other claims against the property of the said dealer or person and the same may without prejudice to any other mode of collection be recovered, (a) as land revenue, or (b) on application to any Magistrate, by such Magistrate as if it were a fine imposed by him: Provided that no proceedings for such recovery shall be taken or continued as long as he has, in regard to the payment of such tax, other amount or fee, as the case may be, complied with an order by any of the authorities to whom the dealer or person has appealed or applied for revision, under sections 31, 31-A, 33, 35, 36, 37 or 38. (ii) With regard to the aspect of notice, the interpretation clause section 3 of the Transfer of Property Act, 1882 reads as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Property Act, in which it has been equated to a simple mortgage , and it has also been laid down therein that, in the absence of a specific provision in any law, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of a charge. Thus, while section 24(1) of the Act gives the tax dues only the status of a simple mortgage over the properties of the defaulter, section 24(2) gives these dues a priority over all other claims against that property except claims for land revenue and of Land Development Bank. 25. A reading of section 3 of the Transfer of Property Act, 1882 leads to the conclusion that, not only a wilful abstention from an enquiry which a person ought to have made, but the gross negligence to make enquiry also would amount to notice of a fact to him. When the prudence of a person requires him to make an enquiry, but due to his own negligence he failed to make enquiry, he falls in the category of a person, with notice. A purchaser of the property who claims the transaction to be bona fide without notice, the yardstick to be applied for the notice is given in sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 511; AIR 1976 SC 744, the Supreme Court has defined the expression material facts in the following words: All the primary facts which must be proved at the trial by a party to establish the existence of a cause of action or his defence, are 'material facts'. 30. The distinction between material facts and particulars cannot be overlooked. Material facts are primary and basic facts which must be pleaded by the party in support of the case set up by him, either to establish his cause of action or defence. Since the object and purpose is to enable the opposite party to know the case he has to meet, in the absence of pleading, a party cannot be allowed to lead evidence. Failure to state even a single material fact, hence, will entail dismissal of the suit. Particulars, on the other hand, are the details of the case. They amplify, refine and embellish material facts. They give the finishing touch to the basic contours of a picture already drawn so as to make it full, more clear and more informative. 31. If in the light of the provisions contained in Order 6, rule 2(1) of C.P.C. the averments in the plaint are considered, it can easily be seen that all the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiffs have stated that S.V. Traders, Kancheepuram is a proprietory concern and not a partnership firm or the plaintiffs made necessary enquiries to ascertain about the sales tax dues of their vendors and in spite of their enquiries they were unable to ascertain the sales tax liability of their vendors. 34. Lord Denman, C.J. in the case of William v. Wilcox [1838] 3 AD EI 314 (331) stated as follows: It is an elementary rule in pleading that, when a state of facts is relied it is enough to allege it simply, without setting out the subordinate facts which are the means of proving it, or the evidence sustaining the allegation. If exhibits A-3, A-7 and the pleadings in the plaint are considered in the light of the abovesaid observation of Lord Denman, C.J., we have to point out that when it is sought to be proved by the plaintiffs that S.V. Traders, Kancheepuram was not a partnership firm but it was only a proprietory concern and the plaintiffs claim to be bona fide purchasers and without notice the factual foundation for the same or otherwise, the primary facts which must be proved at the trial should have been set out in exhibits A-3 and A-7 and pleaded in the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of bona fides of a subsequent purchaser in a suit for specific performance, it is observed as follows: On the question whether the fifth defendant is a bona fide purchaser for value without notice, the courts below have differed the lower appellate court holding that he was not. It lies upon the party seeking to defeat a prior contract for the sale of land to prove that he is a purchaser for value before judgment bona fide and without notice of the previous contract. The initial burden is upon the purchaser. It may be that very little evidence on the part of the purchaser is sufficient to discharge the onus in a particular case. (ii) In the decision reported in Bhup Narain Singh v. Gokul Chand Mahton AIR 1934 PC 68, the Privy Council with reference to section 27 of the Specific Relief Act (1 of 1877) has observed as follows: . . . the section lays down a general rule that the original contract may be specifically enforced against a subsequent transferee, but allows an exception to that general rule, not to the transferor, but to the transferee, and, in their Lordships opinion it is clearly for the transferee to establish the circumstances which, will allow hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in Ram Lakhan v. Ram Govind AIR 1977 All 328, deals with the scope of section 19(b), of the Specific Relief Act and section 41 of the Transfer of Property Act, which in our considered view has no relevance to the facts of this case. 37. In our considered view the above decisions support the contention of the respondents rather than the appellant. Even as per the above decisions, the initial burden is upon the purchaser and though very little evidence on the part of the purchaser is sufficient to discharge the onus in a particular case. Whether, in this case, the plaintiffs have let in any evidence to discharge the onus will be considered a little later. 38. The learned counsel for the plaintiffs relied upon the decision of the apex court in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai reported in AIR 1971 SC 1201 wherein the plea raised by the purchaser that there was bona fide purchase for value was accepted. But on a thorough reading of the judgment, it could be seen that it is not helpful to the plaintiffs. The case went up to the Supreme court on a suit initiated by the court auction purchaser and the court auction pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f human affairs would do or doing something which normally a prudent and reasonable man would not do. The question of wilful abstention or gross negligence and, therefore, of constructive notice considered from this point of view is generally a question of fact or at best mixed question of fact and law depending primarily on the facts and circumstances of each case and except for cases directly falling within the three explanations, no inflexible rule can be laid down to serve as a straight-jacket covering all possible contingencies. The question one has to answer in circumstances like the present is not whether the purchaser had the means of obtaining and might with prudent caution have obtained knowledge of the charge but whether in not doing so, he acted with wilful abstention or gross negligence. Being a question depending on the behaviour of a reasonably prudent man the courts have to consider it in the background of Indian conditions. Courts in India should, therefore, be careful and cautious in seeking assistance from English precedents which should not be blindly or too readily followed. In that case a regular suit was filed by the purchaser himself and the apex court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at exhibit A-46 was obtained by them from their vendors or from some other source after filing of the suit. Therefore, we have to hold that the plaintiffs are not bona fide purchasers without notice. 41. Now the issue whether S.V. Traders, Kancheepuram, is a partnership firm or a proprietory concern has to be considered. It is pertinent to point out that D. W. 1 through whom exhibits B-1 and B-2 were marked was a last grade Government servant in the office of the Deputy Commercial Tax Officer. Similarly D.W. 2 through whom exhibits B-3 and B-4 were marked was a peon in the office of the Deputy Commercial Tax Officer, Kancheepuram. In their cross-examination, D. Ws. 1 and 2 have stated that T.N. Subash is the owner of S.V. Traders, Kancheepuram and much reliance has been placed on this by the Trial Court to come to the conclusion that S.V. Traders, Kancheepuram is a proprietory concern. The Trial Court ought not to have attached too much importance on such testimony of D. Ws. 1 and 2 since both of them are last grade Government servants, whose services have been utilised by the Deputy Commercial Tax Officer only for the purpose of service of exhibits B-1 to B-4 and they could not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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