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TMI Blog2020 (4) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... sition is applied to the issue involved in the present case, the objections raised by the respondents that the intending purchasers had constructive notice of the charge on the property would be contrary to this decided ratio. While that being so, when the prospective purchasers are not expected to have constructive knowledge of the charge and when the property is purchased for a valid consideration and without notice of the charge, they would be entitled to the saving clause provided under Section 100 of the TP Act. While holding that the purchasers cannot be imputed with constructive knowledge of the existence of municipal taxes or tax arrears and on the facts of the case, the Hon ble Apex Court held in AHMEDABAD MUNICIPAL CORPORATION OF THE CITY OF AHMEDABAD VERSUS HAJI ABDULGAFUR HAJI HUSSENBHAI [ 1971 (3) TMI 89 - SUPREME COURT] that an enquiry with the vendors was sufficient to hold that the purchasers had not indulged in willful abstention or gross negligence. Petition allowed. - W.P.Nos.39939 of 2005 & 25145 of 2007, 25830, 30117 & 30118 of 2008, 3211 & 4827 of 2009, 24690 of 2010, 28104 of 2013, 25602, 30458 & 36010 of 2015 and 35988 of 2016 and M.P.Nos.2 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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. Section 42 of the TNVAT Act: Section 42.-Payment and recovery of tax, penalty, etc.- (1) Save as otherwise provided for in Section 21, the tax assessed or has become payable under this Act from a dealer or person and any other amount deu from him under this Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isposal of the appeal or revision, as the case may be, and shall be calculated on the amount that becomes due in accordance with the final order passed on the appeal or revision as if such amount had been specified in the order of assessment or revision of assessment, as the case may be. (4) Where a dealer submits the prescribed return after the expiry of the prescribed period, he shall pay, in addition to the amount of tax due as per his return, interest at one and a quarter per cent of the tax payable for every month or part thereof. (5) Where the tax paid under this Act is found to be in excess on assessment or revision of assessment, or as a result of an order passed in appeal, revision or review, the excess amount shall be refunded to the dealer after adjustment of arrears of tax, if any, due from him. Where the excess amount is not refunded to the dealer within a period of ninety days from the date of the order of assessment or revision of assessment and in the case of order passed in appeal, revision or review within a period of ninety days from the date of order giving effect to such order passed in appeal, revision or review, the Government shall pay, by way of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ception of absence of a prior notice , referred to in the respective provisos of the aforesaid Sections, will include a constructive notice , as referred to in Section 3 of the TP Act. 5. The learned Special Government Pleader would also refer to the Ahmedabad Municipal Corporation s Case and submit that the notice of charge referred to in Section 100 of the TP Act, would include a constructive notice also, as interpreted under Section 3 of the TP Act and the issue as to whether the petitioner had constructive notice or not, is a question of fact, or at best, mixed questions of fact and law, which requires to be determined on the facts and circumstances of each case. 6. Section 24-A of the TNGST Act, Section 43 of the TNVAT Act and Section 3 of the Transfer of Property Act read thus:- Section 24-A of the TNGST Act: Section 24-A. Transfers to defraud revenue void.- Where, during the pendency of any proceedings under this Act or after the completion thereof, any dealer creates, a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of any of his assets in favour of any other person, with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch property shall be deemed to have notice of such instrument as from the date of registration or, where the property is not all situated in one sub-district, or where the registered instrument has been registered under subsection (2) of Section 30 of the Indian Registration Act, 1908 (16 of 1908), from the earliest date on which any memorandum of such registered instrument has been filed by any Sub-Registrar within whose sub-district any part of the property which is being acquired, or of the property wherein a share or interest is being acquired, is situated:] Provided that- (1) the instrument has been registered and its registration completed in the manner prescribed by the Indian Registration Act, 1908 (16 of 1908), and the rules made thereunder, (2) the instrument or memorandum has been duly entered or filed, as the case may be, in books kept under Section 51 of that Act, and (3) the particulars regarding the transaction to which the instrument relates have been correctly entered in the indexes kept under Section 55 of that Act. Explanation II.- Any person acquiring any immovable property or any share or interest in any such property shall be deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the Municipal Corporation, was not enforceable against the property. On appeal by the Municipal Corporation, the Hon ble Supreme Court placed reliance on Section 100 of the TP Act and held that the general prohibition that no charge shall be enforced against any property in the hands of the transferee for consideration, without notice of the charge and the exception to this general rule must be expressly provided by law. It had further held that the real core of the saving provision of law must be, not mere enforceability of the charge against the property charged, but, enforceability of the charge against the said property in the hands of the transferee , for consideration without notice of the charge. 11. With regard to the proposition that the plaintiff must be deemed to have constructive notice of the arrears of municipal taxes and as a purchaser, he must therefore be held liable to pay these taxes are concerned, the Apex Court held that constructive notice, considered from the point of wilful abstention or gross negligence to enquire on the encumbrances over the property, is a question of fact or at best a mixed question of fact and law, depending primarily on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following manner: 5. The third argument, and indeed this was the principal argument which was vehemently pressed with considerable force by Shri Desai, is that the plaintiff must be deemed to have constructive notice of the arrears of municipal taxes and as an auction purchaser he must be held liable to pay these taxes and the property purchased must also be held subject to this liability in his hands. In support of this submission he cited some decisions of our High Courts. The first decision relied upon by Shri Desai is reported as Arumilli Suravya v. Pinisetti Venkataramanamma A.I.R. 1940 Mad. 701 in which relying on Greet v. Ganga Ram Gool Rai I.L.R. [1937] 1 Cal. 203 it was observed by Horwill J., that Section 100 of the Transfer of Property Act does not apply to auction sales because the transfer within the meaning of the Transfer of Property Act does not include an auction sale. It was added that the position of a purchaser at an execution sale is the same as that of the judgment debtor and his position is somewhat different from that of a purchaser at a private sale. Execution purchasers, according to this decision, purchase the property subject to all the charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Calcutta I.L.R. 42 Cal. 625 . In this case, after distinguishing a mortgage from a charge, it was observed that the statutory charge in that case could not be enforced against the property in the hands of bona fide purchaser for value without notice. While dealing with the question whether the appellants in that case were purchasers for value without notice, it was observed that they had not pleaded in their written statement that they were purchasers for value without notice. Having not pleaded this defence they were held disentitled to avail of it. Having so observed the Court dealt with the case on the assumption that the defence though not expressly taken in the pleadings was available to the defendants. The Court said: But even if we assume that the defence, though not expressly taken in their written statement, is available to the defendants, they are in a position of difficulty from which there is no escape. The appellants are private purchasers of the property and if they had enquired at the time of their purchase, they would have discovered that the rates were in arrears; as a matter of fact, they would be personally liable under Section 223 for the arrears of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etary of State for India 111 B.L.R. 257 but being a case of taccavi loans it is of no assistance in the present case. 8. We may now turn to the Bench decision of the Allahabad High Court in Roop Chand Jain s case (supra). The reasoning for the view adopted there may be reproduced: A bona fide purchaser takes property he buys free of all charges of which he has no notice actual or constructive. He is said to have constructive notice when ordinary prudence and care would have impelled him to undertake an enquiry which would have disclosed the charge. If for instance the charge is created by a registered document then the purchaser would be held to have constructive notice of that charge inasmuch as a prudent purchaser would in ordinary course search the registers before effecting the purchase. There is no register, as far as we know, of arrears of taxes or of charges in respect thereof. It has not been shown that the municipality of Cawnpore intimate to the public in the Press or by other publication a list of the properties which are charged in respect of arrears of taxes. There is nothing upon the record to justify the conclusion that the defendants could have deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of the title, if any, of any person who is for the time being in actual possession thereof. Explanation III.- A person shall be deemed to have had notice of any fact if his agent acquires notice thereof whilst acting on his behalf in the course of business to which that fact is material. Provided that, if the agent fraudulently conceals the fact, the principal shall not be charged with notice thereof as against any person who was a party toor otherwise cognizant of the fraud. 11. Now the circumstances which by a deeming fiction impute notice to a party are based, on his wilful abstention to enquire or search, which a person ought to make or, on his gross negligence. This presumption of notice is commonly known as constructive notice. Though originating in equity, this presumption of notice is now a part of our statute and we have to interpret it as such. Wilful abstention suggests conscious or deliberate abstention and gross negligence is indicative of a higher degree of neglect. Negligence is ordinarily understood as an omission to take such reasonable care as under the circumstances is the duty of a person of ordinary prudence to take. In other words it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion with the result that this appeal must fail and is dismissed. 16. Thus, the ratio of the presumption that a person who purchases a property situated in a Municipality is acquainted with the Local laws, which creates charges on the property of the defaulter for non-payment of taxes, as held by the Hon ble Full Bench in Nawal Kishore s case, was disagreed. Accordingly, the reasoning adopted by the Division Bench of the Allahabad High Court in Roop Chand Jain s case was agreed upon in preference to the reasoning of the Full Bench of the Allahabad High Court in Nawal Kishore s case and the Division Bench of Oudh Chief Court in Ramji Lal s case. 17. In other words, the Hon ble Apex Court, on analysing the ratio laid down in Nawal Kishore s case, was of the view that there cannot be any principle or firm rule of law imputing to all intending purchasers of properties in Municipal areas, where municipal taxes are a charge on the property, with constructive knowledge of the existence of municipal taxes or possibility of such taxes being in arrears. While holding so, the Hon ble Apex Court held that the question of constructive notice requires to be approached from equitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The aforesaid findings of the Hon ble Apex Court that the question of constructive knowledge or notice has to be determined on the facts and circumstances of each case, is corollary to its earlier finding that there cannot be any principle or firm rule of law, imputing to all intending purchasers of properties in municipal area, where municipal taxes are a charge on the property, and that there cannot be a constructive knowledge on the part of the intending purchasers to the existence of such municipal taxes or the reasonable possibility of those taxes being in arrears. 21. Wilful abstention or gross negligence from conducting a search are the two ingredients to constitute constructive notice as interpreted under Section 3 of the TP Act. Interpreting the term wilful abstention , the Hon ble Apex Court, in Ahmedabad Municipal Corporation s case had observed that, while wilful abstention suggests conscious or deliberate abstention, gross negligence is indicative of a higher degree of neglect. It was held that negligence is an omission to do something which a reasonable man, guided by consideration which normally regulate the conduct of human affairs would do, or doing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. In other words, the ratio laid down therein is that it would be sufficient for the purchasers to make due enquiries with their vendors with regard to arrears of the municipal taxes and the enquiry with Municipal Corporation was not necessary. This ratio was explained in the following manner: On the facts and circumstances of this case, therefore, we cannot hold that the plaintiff as a prudent and reasonable man was bound to enquire from the municipal corporation about the existence of any arrears of taxes due from the receivers. It appears from the record, however, that he did in fact make enquiries from the receivers but they did not give any intimation. The plaintiff made a statement on oath that when he purchased the building in question it was occupied by the tenants and the rent used to be recovered by the receivers. There is no rebuttal to this evidence. Now, if the receivers were receiving rent from the tenants, the reasonable assumption would be that the municipal taxes which were a charge on the property and which were also given priority under Section 61 of the Provincial Insolvency Act, 1920, had been duly paid by the receivers out of the rental income. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation s case has been adopted by the Full Bench in B.Suresh Chand s case, wherein it was held that, failure on the part of the vendors to make necessary enquiries will amount to willful abstention and therefore, they are said to be persons with constructive notice of the charge and hence cannot claim the benefit under Section 100 of the TP Act. Before addressing such an objection, this Court deems it appropriate to reiterate the view of the law laid down in Ahmedabad Municipal Corporation s case to the effect that, such an enquiry mandated under Section 3 of the TP Act, would be with the vendors of the property and not the tax Departments. 28. As discussed above, while holding that the purchasers cannot be imputed with constructive knowledge of the existence of municipal taxes or tax arrears and on the facts of the case, the Hon ble Apex Court held in Ahmedabad Municipal Corporation that an enquiry with the vendors was sufficient to hold that the purchasers had not indulged in willful abstention or gross negligence. 29. The aforesaid ratio came to be adopted by the Full Bench of this Court in the case of B.Suresh chandh s case and by referring to the facts of that case wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be said that he had no notice of the charge. On the same proposition, the learned Special Government Pleader placed reliance on the decisions in the case of State of Karnataka and Another vs. Shreyas Papers (P) Ltd., and others reported in (2006) 1 SCC 615 as well as in the case of AI Champdany Industries Limited vs. Official Liquidator and another reported in (2009) 4 SCC 486. 32. Such a submission cannot be sustained in view of the pronouncement in the Ahmedabad Municipal Corporation s case, wherein it was held that a bonafide purchaser has no constructive knowledge of the local tax arrears and further, failure to enquire with the tax authorities will not amount to willful abstention. If that be the position, the very basis of the submissions that the transferee had constructive notice of the charge fails and therefore, the purchaser would be entitled to seek protection under Section 100 of the TP Act. 33. The Division Bench of this Court in the case of the Deputy Commercial Tax Officer, Thudiyalu Assessment Circle, Coimbatore and another vs. R.K.Steels reported in 1998 (1) CTC 124 was of the view that, unless a provision is made in any statute contrary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Circle, Pattukottai, Thanjavur District [W.P(MD)No.2736 of 2006, decided on 08.10.2012], while dealing with an identical issue, has held as under: 26. In the case on hand, the contention of the learned counsel for the petitioner is that prior to the purchase of the property in the year 2004, the petitioner had verified with the encumbrance details in the Registration Department and finding that there was no encumbrance over the property, she had purchased the same, which would show that she had made bonafide efforts to find out as to whether there was any encumbrance over the property. Though the assessment of tax had already been finalised in the year 1995 - 1996 by the orders, on the appeal preferred by the dealer, the Recovery Officers have not reported the charge over the property to the Registration Department. Even though a reference has also been made in Paragraph No.2 of the counter affidavit that the demand notice was duly served on the defaulter assessee, no specific date is mentioned. As rightly contended by the learned counsel for the petitioner, there is no specific averment, rebutting the contention of the petitioner that the purchase was made bona fid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, that is, a plaint or a written statement, the facts and not evidence are required to be pleaded, in a writ petition or in the counter-affidavit not only the facts but also the evidence in proof of such facts have to be pleaded and annexed to it. 27. Going through the judgments relied on by both parties, this Court is inclined to accept the submissions of the learned counsel for the petitioner that the decision rendered in R.K.Steels s case (cited supra) has been approved in D.Senthilkumar s case (cited supra) following Shreyas Papers P.Ltd., (cited supra) and this Court is inclined to follow the same. 28. Even in N.Padma Coffee Works s case (cited supra) the Special Tribunal has clearly observed that the legislative intent in engrafting proviso to section 24-A of the Act, is to protect a honest person, who had purchased the property from a seller and further observed that there should not be any collusion with the seller, but the necessary ingredients of Section 24-A of the Act should be there, i.e., the sale effected should be for adequate consideration and want of notice. Taking note of Section 3 of the Transfer of Property Act, the Special Tribunal in N.Padma Coff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en produced before this Court to prove that notice demanding arrears of tax, has been served on the defaulter. No materials have been placed before this Court to prove that steps have been taken under the provisions of the Revenue Recovery Act, against the defaulter or the subsequent first purchaser, from whom the petitioner has purchased the property in the year 2004, after six long years, since the date of finalisation of the assessment. In the absence of any specific plea of collusion, rebuttal of even doubting the bona fide of the purchase, the action taken in the year 2005, after seven years, from the date of finalisation of the assessment, against the second purchaser, who has taken diligent steps to verify from the Registration Department, before purchasing the property cannot be approved. That apart, there are no materials to indicate that the petitioner had any constructive notice of the charge. There is no pleading to the effect and rightly, no arguments have been advanced, and therefore, this Court is of the view that the case on hand would squarely also fall within the ambit of the Apex Court in Ahmedabad Municipal Corporation s case reported in 1971 (1) SCC 757 also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would be sufficient to construe that the purchaser was deligent enough while conducting due diligence on the property. One common fact noticed in all these writ petitions before this Court is that, the petitioners, who are purchasers, had not made enquiries with the Sales Tax authorities, prior to the purchase. The law also does not mandate them to do so. While that being so, what was required and expected of them is to have made enquiries with their respective vendors. While some of the petitioners herein have stated in their affidavits that such enquiries were made with the vendors, the others have not done so. 40. The usual mode, and in my view the appropriate mode, on the part of a purchaser to conduct due deligence on the title of the property, would be to verify the encumbrance certificates from the registering officers. Such a search in these certificates would reveal the legality on the title which the vendors possess over the said properties. If the encumbrance certificates do not reveal encumbrances, which could be detrimental to the title of the vendor, the said property is deemed to be free of all detrimental entries. This would lead to a situation where the statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o appreciate why after having secured the necessary order from the Court municipal taxes were not paid off by the receivers and why the municipal Corporation did not pursue the matter and secure payment of the taxes due. May be that the municipal Corporation thought that since these dues were a charge on the property they need not pursue the matter with the receivers and also need not approach the insolvency Court. If so, then this, in our opinion, was not a proper attitude to adopt. In any event the plaintiff could not reasonably have thought that the municipal corporation had not cared to secure payment of the taxes due since 1949. On the facts and circumstances of this case, therefore, we cannot old that the plaintiff as a prudent and reasonable man was bound to enquire from the municipal corporation about the existence of any arrears of taxes due from the receivers. .......... We may add before concluding that as the question of constructive notice has to be approached from equitable considerations we feel that the municipal corporation in the present case was far more negligent and blameworthy than the plaintiff. We have, therefore, no hesitation in holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le out the possible encumbrance under all these Acts, the prospective purchasers may have to conduct due diligence on the properties under all these authorities also, which may not be conducive. 47. In order to implement the observations of the Hon ble Apex Court that the behaviour of a reasonably prudent purchaser, in the background of Indian conditions , it would be conducive that such encumbrances be reflected in the register books maintained by the concerned properties registration authorities. This Court would only observe and recommend that the Government of Tamil Nadu should take necessary measures to amend the rules suitably to ensure that the creation of the statutory charges under the TNGST Act or TNVAT Act or of any other sales tax laws, be mandated for compulsory registration / filing before the registering officers. 48. The normal mode adopted by the intending purchasers under Indian conditions in general and in the State of Tamil Nadu in particular, while conducting due diligence on the title to the property which they intend to purchase, is through scrutiny of the encumbrance certificates obtained from the Registration Department of the concerned jurisdictiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements contained in the registers (maintained under the said Act) as a full and complete account of all transactions by which the title to the property may be affected and secure extracts/copies duly certified. 51. While Section 17 of the Registration Act, 1908, adumbrates various documents which are compulsory registerable, Section 18 refers to registration of certain documents as optional. The charge created by operation of Section 24 of the TNGST Act, 1959 and Section 42 of the TNVAT Act is not reflected in either Section 17 or 18 of the Registration Act. 52. The contention of the Tax Department seems to be that since the charge under the tax laws is by operation of law, it cannot be deemed to be a document and in the absence of any specific provision under the Registration Act, mandating registration of such a charge created by an operation of law, there is no duty cast on the tax authorities to have the charge registered before the concerned registering officers. 53. While it is true that there is no mandate under law to have a charge registered before the registering officers on a charge created by operation of law, there is also no impediment on the part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Act. 57. Section 51 (1) of the Registration Act reads as follows: Section 51 Register-books to be kept in the several offices.- (1) The following books and the information storage devices shall be kept in the several officers hereinafter named, namely: (A)- In all registration offices- Book No.1, Register of non-testamentary documents relating to immovable property 58. In view of such an inherent duty cast on them and had the Tax Authorities informed the registering officers about the charge created on the said properties, well in time, the same could have been dealt as a document under Register Book No.1 of Section 51 (1)(A) of the Registration Act, thereby enabling the registering officers to file and maintain the same. Eventually, the same would have also been reflected in the Encumbrance Certificate, which entry would have been detrimental to the title of the property and thereby served as a warning to the intending purchasers to evade dealing with the property. 59. There is yet another aspect as to why the Tax Authorities should have informed the registering officers with regard to the statutory charge created. Sections 20, 21(1-A) and (2-A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), dated 03.10.2008 in W.P.No.25830 of 2008, impugned auction notice published in the Dinakaran Newspaper dated 13.12.2008 and the Serial No.11 of the said notice passed by the 1st respondent in W.P.No.30117 of 2008, impugned auction notice published in the Dinakaran Newspaper dated 13.12.2008 and the Serial No.11 of the said notice passed by the 1st respondent in W.P.No.30118 of 2008, proceedings of the 2nd respondent in Na.Ka.No.A3/6185/07, dated 29.09.2008 in W.P.No.3211 of 2009, records of the 1st respondent in Roc.A3/2358/03, dated 23.12.2008 enclosing attachment notice in Form 4 under Section 25 of the Tamil Nadu Revenue Recovery Acts, 1864 along with notice in Roc.No.A3/2358/03, dated 28.01.2009 in W.P.No.4827 of 2009, records of the 1st respondent in Na.Ka.No.1820/2007/A3, dated 05.09.2013 in W.P.No.28104 of 2013, records of the auction notice in R.C.118/2014/A3 passed by the respondent, dated 16.07.2015 in W.P.No.25602 of 2015, records of the 1st respondent in RC.536/2015/A3, dated 22.09.2015 in W.P.No.30458 of 2015, records of the 1st respondent in Rc.No.TNGST No.1701192, dated 20.10.2015 in W.P.No.36010 of 2015, impugned notice dated 29.04.2016 on the file of the 2nd res ..... 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