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TMI Blog2022 (5) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ntirety. 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a partnership firm. The firm is engaged in the business of Diamonds. The subject matter of dispute is an immovable property in the form of 12 units admeasuring 12,996 sq. ft. situated at Ashoka Tower, Kesarba Market, Gotalwadi, Katargam, Surat. The subject property was earlier owned by the Kohinoor Diamonds Private Limited. 4. It appears that the Corporate Insolvency Resolution Process was initiated for the Kohinoor Diamonds by the National Law Tribunal, Ahmedabad Bench in the C. P. (IB) No.206/NCLT/AHM/2017. However, the resolution process was unsuccessful and vide order dated 13 th November 2018, the company went into liquidation and the respondent No.2 herein was appointed as the Official Liquidator. 5. It also appears that the Liquidator vide his letter dated 18th September 2020 informed the Surat Municipal Corporation about the initiation of the liquidation process of the Kohinoor Diamonds. 6. In the process of liquidation, a public advertisement dated 1st February 2021 was issued for E-auction of the subject property at a base price of Rs.2,33,31,000/-. The writ applicant participated in the E-auction proceedings and was declared as a successful bidder. The writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct ). 11. 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. 12. As observed by the Supreme Court in the case of AI Champday Industries Ltd vs. Official Liquidator and another reported in (2009) 4 SCC 486, 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. 13. We cannot find any fault with the Official Liquidator in putting the subject property to E-auction. We also cannot find any fault with the writ applicant in participating in the auction proceedings. It is not in dispute that the writ applicant was the successful bidder. We quote the relevant observations made by the Supreme Court in the case of AI Champday Industries Ltd (supra) as under: 12. The terms and conditions of the sale must be read as a whole. It must be given a purposive meaning. The wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchaser to make an enquiry with regard to the liabilities of the companies other than those which would impede its value. 17. Reliance has been placed by Mr. Sen on a decision reported in Ahmedabad Municipality Vs. Haji Abdul [AIR 1971 SC 1201] wherein it was held : 12 ...The plaintiff purchased the property in November, 1954 and in our opinion it could not have reasonably been expected by him that the receivers would not have paid to the municipal corporation, since 1949 the taxes and other dues which were charged on this property by statute. According to Section 61 of the Provincial Insolvency Act, 1920 the debts due to a local authority are given priority, being bracketed along with the debts due to the State. 14. In para 18 of the said judgement, the Supreme Court proceeded to consider Section 141 of the Bombay Provincial Municipal Corporation Act (for short, the BPMC Act ). Having regard to the language employed in Section 141 of the BPMC Act with which we are concerned the Supreme Court, ultimately, held that a provision of law must expressly provide for an enforcement of a charge against the property in the hands of the transferee for value without noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the charge. Section 141 of the Bombay Municipal Act is clearly not such a provision. The second contention accordingly fails and is repelled. 20. It was further more held : 5 .Reliance was next placed on a Full Bench decision of the Allahabad High Court in Nawal Kishore V. The Municipal Board, Agra, ILR (1943). All 453 = (AIR 1943 All 115 (FB)). According to this decision the question of constructive notice is a question of fact which falls to be determined on the evidence and circumstances of each case. But that Court felt that there was a principle on which question of constructive notice could rest, that principle being that all intending purchasers of the property in municipal areas where the property is subject to a municipal tax which has been made a charge on the property by statute have a constructive knowledge of the tax and of the possibility of some arrears being due with the result that it becomes their duty before acquiring the property to make enquiries as to the amount of tax which is due or which may be due and if they fail to make this enquiry such failure amounts to a wilful abstention or gross negligence within the meaning of Section 3 of the Tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of insolvency with respect to the estates of persons adjudged insolvent. Section 530 provides for certain priorities to secured creditors and other unsecured creditors. 27. Once the property is sold, the assets of the company are required to be distributed to the creditors in order of preference. As the respondent Municipality was not a secured creditor, the impugned Judgment cannot be sustained. 28. Almost a similar question in regard to the dues of the electrical charges came up for consideration before this Court in Isha Marbles Vs. Bihar State Electricity Board and Anr. [1995 (2) SCC 648]. In that case sale of the assets of industrial undertaking took place in terms of the provisions of the State Financial Corporation Act, 1951. Having regard to the provisions of the Indian Electricity Act, 1910 a three Judge Bench of this Court held that a liability on the purchaser cannot be imposed which was not incurred by them stating : 63. We are clearly of the opinion that there is great reason and justice in holding as above. Electricity is public property. Law, in its majesty, benignly protects public property and behoves everyone to respect public property. Hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose, the Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the tax-payer. This aspect of the matter has been considered by this Court in a series of judgments. 15. A Coordinate Bench of this High Court had an occasion to consider AI Champday Industries Ltd (supra) in the case of Gaurav Kanvarjuneja and others vs. Surat Municipal Corporation and others [ Special Civil Application No.17334 of 2016 decided on 1st December 2016] . Hon ble Justice M. R. Shah (as His Lordship then was), speaking for the Bench, observ ed as under: [7.1] It is an admitted position that the petitioners have purchased the concerned properties /shops in a Bank auction conducted by respondent no.2 Bank in exercise of powers under the provisions of the Securitization Act. It is also not in dispute that in the auction notice /public notice inviting offers there was no reference to any dues of respondent no.1 towards property tax concerned of the aforesaid properties / shops. The sale certificates are issued in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchased the property in the Bank auction. While holding so the Division Bench of the Bombay High Court has observed in paragraph nos.10 to 14 as under: 10. We have heard the learned counsel at length and have perused the papers and proceedings in the Writ Petition along with the annexures thereto. We have also given our anxious consideration to the relevant provisions. The SARFAESI Act is an Act which enables regulation of Securitization and reconstruction of financial assets and enforcement of security interest or matters incidental thereto. The term 'debt' is defined in section 2(ha) and the term security interest is defined under Section 2(zf) to mean right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes a mortgage, charge, hypothecation, assignment other than those specified in Section 31. The term secured asset is also defined in Section 2(zc) to mean the property on which the security interest is created. In turn, the words secured debt is defined in Section 2(ze) to mean a debt which is secured by any security interest. The term secured creditor is also defined in Section 2(zd) and it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 extract relating to the suit property and learnt that there was an encumbrance of the Sales Tax Department to the extent of Rs.18,38,709/-. As mentioned earlier, these dues of the Sales Tax, the Petitioners would have to pay / liquidate, if not already done so. As far as the dues of the Sales Tax to the extent of Rs.28 Crores are concerned, the same was brought to the notice of the Petitioners much thereafter. It is not even the case of the Sales Tax Department that the Petitioners had either informed or had constructive knowledge of their dues, save and except to the extent of Rs.18,38,709/-. This being the factual position, we find considerable force in the argument of Mr Dada that the Sales Tax dues (save and except to the extent of Rs.18,38,709/-) cannot be recovered by enforcing their alleged charge under Section 38C of the BST Act against the said property, legitimately purchased by the Petitioners and without having any notice of the alleged dues of the Sales Tax Authorities. 12. What is also important to note is that, it is not even the case of Sales Tax Authorities that the Petitioners are a dealer within the meaning of provisions of the BST Act or that the Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, 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 the charge. (emphasis supplied) 20. As the section itself unambiguously indicates, a charge may not be enforced against a transferee if she/he has had no notice of the same, unless by law, the requirement of such notice has been waived. This position has long been accepted by this Court in Dattatreya Shanker Mote v. Anand Chintaman Datar [(1974) 2 SCC 799, 811 (para 18)] and in Ahmedabad Municipal Corpn. of the City of Ahmedabad v. Haji Abdulgafur Haji Hussenbhai [(1971) 1 SCC 757, 759-61 (paras 3 4) : AIR 1971 SC 1201, 1202- 04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir dues from the Petitioners by enforcing their charge against the said property. [7.4] Applying the aforesaid decisions to the facts of the case on hand and considering the fact that the petitioners have purchased the shops in Bank auction conducted by the Bank under the provisions of the Securitization Act and Rules and prior to their purchase it was not brought to the notice of the petitioners purchasers that there is any property tax due for the properties /shops and after their purchase, the same is recovered from the petitioners, the impugned action of respondent no.1 in recovering the property tax for the properties /shops for the period prior to the petitioners purchased the shops i.e. prior to 05/03/2014 cannot be sustained. [8.0] In view of the above and for the reasons stated hereinabove, the present petition succeeds. The action of respondent no.1 in recovering the property tax for the aforesaid shops /properties, which the petitioners have purchased in bank auction for the period prior to 05/03/2014 is hereby quashed and set aside. Consequently, any amount recovered towards the property tax dues for the period prior to the petitioners purchased the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... express words, could, in effect, provide that the property was liable to sale in enforcement of the charge; if this liability was fixed by a provision expressly dealing with the subject, then the charge would be enforceable against the property even in the hands of a transferee for consideration without notice of the charge; it was not necessary for the saving provision to expressly provide for the enforceability of the charge against the property in the hands of a transferee for consideration without notice of the charge; the plaintiff must be deemed to have constructive notice of the arrears of municipal taxes; 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. 18. It is in the aforesaid context that the Supreme Court held that Section 141(1) of the Bombay Provincial Municipal Corporation Act merely created a charge in express language; this charge was subject to prior payment of land revenue due to the State Government on such building or land; the Section, apart from creating a statutory charge, did not further provide that this charge was enforceable against the property ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alling within the three explanations, no inflexible rule can be laid down to serve as a straight- jacket covering all possible contingencies; the question 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; and, being a question depending on the behaviour of a reasonably prudent man, the Courts have to consider it in the background of Indian conditions. 19. In Deputy Tax Commercial Tax Officer vs. R. K. Steels Ltd. (1998) 108 STC 161 (Mad), a Division Bench of the Madras High Court held that the judgment of the Supreme Court, in Ahmedabad Municipal Corporation (supra), was comprehensive in all respects, and should be taken note of while dealing with the cases of a transferee for value without constructive notice of sales tax arrears; the emphasis laid down by the Supreme Court, to avoid Section 100 of the Transfer of Property Act, was to have an express provision providing for the contrary; mere enforcement of a charge, resorting to the Revenue Recovery Act, was not an answer to Section 100 of the Transfer of Property Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been cited before us that exempts the requirement of notice of the charge for its enforcement against a transferee who had no notice of the same. It remains to be seen, therefore, if in the facts of the present case, the first respondent had notice actual or constructive of the charge. . ..Thus, it is evident that the first respondent had no actual notice of the charge prior to the transfer. As to whether the first respondent had constructive notice of the charge, no substantive argument on this issue was made, either before the High Court or at any rate before us. Hence, we cannot hold that the first respondent had constructive notice of the charge. 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. (supra) which is also embodied in the proviso to Section 100 of the TP 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. Explanation .-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in forc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .- (1) The liquidator shall receive or collect the claims of creditors within a period of thirty days from the date of the commencement of the liquidation process. (2) A financial creditor may submit a claim to the liquidator by providing a record of such claim with an information utility: Provided that where the information relating to the claim is not recorded in the information utility, the financial creditor may submit the claim in the same manner as provided for the submission of claims for the operational creditor under sub-section (3). (3) An operational creditor may submit a claim to the liquidator in such form and in such manner and along with such supporting documents required to prove the claim as may be specified by the Board. (4) A creditor who is partly a financial creditor and partly an operational creditor shall submit claims to the liquidator to the extent of his financial debt in the manner as provided in sub-section (2) and to the extent of his operational debt under sub-section (3). (5) A creditor may withdraw or vary his claim under this section within fourteen days of its submission. 25. In the last, we m ay look into Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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