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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 ..... contend that the appellant is a bona fide purchaser without notice of charge under section 24(1) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act") and therefore the property purchased by him under a registered sale deed dated September 25, 1977 from the vendors who were tax defaulters under the Act cannot be proceeded against for the recovery of sales tax arrears. 2. However, the Revenue relied upon the decision of this court rendered by two division Benches in the case of Coramandel Indag Products India Ltd. v. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are referred to as per their ranking in the suit. The case of the plaintiffs is as follows: (i) The plaintiffs purchased the suit property on September 25, 1977 and are in possession of the same as absolute owners. The second defendant, the Deputy Commercial Tax Officer, Thirupathur, alleging that one T. P. Narayanasamy and his son T.N. Subash are defaulters in the payment of sales tax, issued a notice on October 28, 1977 to the plaintiffs calling upon them to pay tax arrears of a sum of Rs. 1,01,879.67. The plaintiffs filed a claim 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed July 30, 1977 has been served on the defaulter T.N. Subash on August 4, 1977. After the receipt of the demand notice the defaulters have executed a sale deed in respect of the said properties in favour of the plaintiffs in order to defraud the defendants. The sale is not binding on the defendants. A copy of the notice dated July 22, 1978 was sent to the plaintiffs. The plaintiffs are not personally liable but the property purchased by them is subject to charge and is liable for the said arrears. S.V. Traders has been assessed 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 awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for the second respondent. 10. Mr. V. Raghavachary, learned counsel for the appellant, submitted that the learned single Judge without properly considering the oral and documentary evidence adduced in the case and without considering the reasoning of the Trial Court has erroneously held that S.V. Traders is a partnership firm. The learned counsel submitted that in exhibit A-46 the department itself has referred to S.V. Traders as only a proprietory concern and therefore the finding of the learned 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. Nar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the plaintiffs being bona fide purchasers without notice are not liable to pay the sales tax arrears of their vendors and the property cannot be attached and sold for the sales tax arrears of either S.V. Traders, Kancheepuram or Kasthuri and Company. According to the learned counsel, the learned single Judge has not considered the issue whether the plaintiffs are bona fide purchasers without notice in the light of the law laid down by the division Bench of this court reported in Deputy 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had knowledge about the sales tax arrears of their vendors. The learned counsel further submitted that in exhibit A-46 which is an order dated November 17, 1975, passed by the Commissioner for Land Revenue and Commercial Taxes in a batch of revision petitions filed by the vendors of the plaintiffs, the Commissioner rejected the revision petitions filed by the plaintiffs' vendors challenging the assessment orders passed for the assessment year 1974-75 and when exhibit A-46 had been 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. Kund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overy Act, under section 24(2) of the Tamil Nadu General Sales Tax Act. Since the learned Judge has not considered the scope of section 24(1) but proceeded only on the basis of section 24(2), we are not inclined to agree with the view expressed by the learned Judge that arrears of sales tax cannot be recovered from the properties sold by the assessee after a charge has fastened itself on the properties of the defaulter, on his default in paying the arrears 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enbhai AIR 1971 SC 1201. We therefore with respect differ from the views expressed by the two division Bench judgments referred to above and propose to follow the judgment of the Supreme Court." and ultimately held as follows: ". . . following the Supreme Court judgment in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai AIR 1971 SC 1201 that the respondent is a bona fide purchaser without notice 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 ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was sufficient to satisfy the requirement of notice (1)Para 16 in [2006] 144 STC 331 (SC) (2)Para 17 in [2006] 144 STC 331 (SC). in the proviso to section 100 of the TP Act, whether the transferee had constructive notice of the charge had to be determined on the facts and circumstances of the case. In other words, this court held that there could be no fixed presumption as to the transferee having constructive notice of 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 respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, not being less than twenty-one days from the date of service of the notice. The tax under sub-section (2) of section 13 shall be paid without any notice of demand. In default of such payment the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or interest under this Act. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge" on the properties of a defaulter to the extent of his dues, sub-section (2) states that the dues will have priority over all other claims against those properties, except land revenue and claims of Land Development Bank in regard to property mortgaged to it. 24. The meaning of the term "charge on the property" is to be found in section 100 of the Transfer 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the party must plead all material facts on which he means to rely at the trial. If any one of the material facts is omitted, the statement of claim is bad and it would mean no pleading and no cause of auction for the suit. If the material facts are not pleaded, a court cannot permit evidence to be led. In Udhav Singh v. Madhav Rao Scindia [1977] 1 SCC 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales tax arrears. But the plaintiffs have not chosen to deny the said pleadings in the written statement by filing a reply statement. 33. At this juncture we should point out that neither in exhibit A-3 reply notice sent by the plaintiffs through their counsel nor in exhibit A-7-legal notice issued under section 80 of the C.P.C., the 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are precluded from letting in any oral evidence on this aspect. 36. Now we have to consider the submissions made by the learned counsel for the appellant on the basis of the following decisions: (i) In the decision reported in Adinarayana v. Jagannadha Rao 62 Law Weekly 377, while considering the question 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eging it. This is the settled law but it is also well-settled that very little evidence, and in certain circumstances a mere denial, regarding want of knowledge of the plaintiff's contract would discharge this onus and shift the onus upon the plaintiff." (v) The decision reported 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 purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood as an omission to take such reasonable care as under the circumstances it is the duty of a person of ordinary prudence to take. In other words, it is an omission to do something which a reasonable man guided by considerations which normally regulate the conduct of 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 backgroun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiffs have constructive notice. 40. 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. 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 atta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nasamy and his son T.N. Subash. 42. 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 the parties as well as the evidence clearly shows that the plaintiffs were very well aware of the sales tax arrears from 1973-74 and knowing fully well they have purchased the property from T.P. Narayanasamy. The learned Judge on a perusal of the entire oral and documentary evidence has further held that T.P. Narayanasamy and his son T.N. Subash in order to escape from the tax liability after knowing that there was a default committed by them and a charge has been created as per section 24 of the Act, with the fraudulent intention sold the only property in favour of the plaintiffs. Therefore, we see no reason to interfere with the findings recorded by the learned single Judge and we concur ..... 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