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TMI Blog2023 (5) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... s); and whatever there is (quantity and condition of the property) - All such stipulations were essentially pertaining to the physical properties/attributes of the assets in question but, the significant omission in those terms and conditions had been to make it obligatory on the bidder/purchaser to make himself aware about encumbrances, liens and claims attached to the assets in question. This omission strikes at the very root of the case of the appellant. In UT Chandigarh Administration [ 2009 (3) TMI 862 - SUPREME COURT ], this Court dealt with the consumer complaints of respondents filed to contend that the appellant was not legally entitled to claim balance of premium or annual rent, for having failed to provide basic amenities at the residential and commercial sites auctioned by way of advertisement. This Court allowed the appeals as the purchaser was not a consumer with reference to public auction of existing sites. It has rightly been argued on behalf of the contesting respondents, with reference to Section 100 of the Act of 1882 and the decision of this Court in AI Champdany Ltd. [ 2009 (2) TMI 470 - SUPREME COURT] , that in absence of any statutory provision, the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inafter also referred to as the Nigam , claiming property tax and water tax from the appellant in relation to the company in liquidation, from the date of order of winding up and until the date of confirmation of sale of assets to the auction purchaser, who is now represented by respondent No. 3. 2. Briefly put, the relevant facts are that the said company, IISCO Ujjain Pipe and Foundry Company Limited, became sick and was referred to the Board for Industrial and Financial Reconstruction For Short, BIFR under the provisions of Sick Industrial Companies (Special Provisions) Act, 1956. The BIFR recommended its winding up and, accordingly, it was ordered to be wound up by the Company Court in its order dated 10.07.1997. The appellant herein was appointed as the Official Liquidator and was directed to take over possession of the assets of the company in liquidation. 3. Following an order passed by the Company Court on 04.04.2003, the assets of the company in liquidation were put up for sale on as is where is whatever there is basis by means of sale notice dated 09.05.2003. The said notice provided for inspection of the assets of the company by intending purchasers and men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - TERMS CONDITIONS OF THE SALE 1. The SALE will be as per inventory made by the valuer on 'As is where is whatever there is' basis subject to the confirmation by the Hon'ble Court, The Official Liquidator shall not provide any guarantee and/or warranty as to quality, quantity or specification of the assets sold. The Tenderers/ bidders are to satisfy themselves in this regard after physical inspection of the assets of the company and the purchasers will be deemed to offer with full knowledge as to defects, if any, in the description, quality or quantity of the assets sold. The Official Liquidator, shall not entertain any complaint in this regard after the sale is over. Any mistake in the notice inviting tender shall not vitiate the sale. .. 3.2. Pursuant to the aforementioned sale notice, the assets were sold to one Nagendra Jain for a sum of Rs. 20.50 crore; and the sale was confirmed by the order of Company Court dated 04.07.2003. Subsequently, the respondent No. 3 was nominated in the place and stead of the said Nagendra Jain as purchaser of the assets and properties of the company in liquidation. 4. After the sale of assets, the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinafter also referred to as the M.P. Act of 1956 the position of respondent No. 1 was that of a secured creditor; and that in any case, the OL was required to give reasons for rejection of claim which he had not done. A reference was also made to Rule 163 of the Rules of 1959. 6.2. Similarly, it was contended on behalf of respondent No.3 auction purchaser, while placing reliance on the said Section 185 of the M.P. Act of 1956, that he was not liable towards such taxes prior to the date on which he occupied the property; and that the OL was liable to pay all taxes till the execution of deed of conveyance in favour of the purchaser. 6.3. On the other hand, it was contended on of behalf the appellant OL that he was liable to pay only those taxes which accrued till the date of winding up and became payable within one year thereof; that in view of Section 529A of the Companies Act, 1956 Hereinafter referred to as the Companies Act , workmen s dues and the dues of secured creditors to the extent they were secured, were to be paid pari passu, and prioritised over all other debts; and that Rule 154 of the Rules of 1959 provided for filing of affidavit of proof of debts as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges. The compulsion to make payment cannot, however, make any difference to the legal status of the claim. If charges on account of supply of electricity after the date of liquidation are payable, so is rent. The liability of a company to pay rent and/or occupation charges and/or rates and taxes does not automatically come to an end with the order of winding up of the company. **** **** **** The dispute between the Official Liquidator and the applicant is with regard to the rates and taxes for the period between 10th July, 1997 being the date on which the company was directed to be wound-up and 4th July, 2003 being the date on which the sale in favour of the purchaser was confirmed. In other words, the dispute is with regard to the taxes claimed for a period of approximately six years. The Official Liquidator has rejected the proof of debt on his interpretation of the various provisions of the Companies Act and the Company (Court) Rules framed thereunder and in particular Section 528, 529A and 530 and Rule 154 of the Rules. **** **** **** The contention on behalf of the Official Liquidator, that debts and claims and particularly claims on account of mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ims only on the ground that he was not liable to pay post-liquidation expenses but had neither objected to the determination of annual value nor filed any appeal under Section 184 of the M.P. Act of 1956. The Court observed that unless an objection or appeal was filed and the demand was reduced, the OL would be bound to discharge the tax liability, as per the claim of the Nigam, even for post-liquidation period. Therefore, the Court set aside the rejection notice by the appellant but extended him liberty to file an appeal against the demands, if so chosen, within thirty days and also provided that the appellant would, within eight weeks from the date of receipt of the order in appeal under Section 184 of the M.P. Act of 1956, consider and dispose of the claims of the applicant (respondent No. 1), as determined in appeal and in accordance with law. 8. The appellant challenged the aforesaid judgment and order dated 25.04.2007 of the Company Court by way of appeals before the Division Bench of the High Court but, the appeals came to be dismissed by the impugned judgment and order dated 05.02.2009. 8.1. The appellant OL contended before the Division Bench that he had not carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid case, it was observed that sale notice in the present case was not couched in similar and comprehensive language and there was no occasion for respondent No. 3 to make himself aware about the encumbrances, if any, in respect of assets of the company in liquidation, which he intended to purchase. 8.4. As regards the applicability of Section 530 of the Companies Act, the Division Bench observed that the said provision had nothing to do with payment of taxes which might have mounted between the date of the order of winding up and the date of the sale of its assets. Similarly, Rule 154 of the Rules of 1959, providing for the manner of estimation of value of debts and claims on the date of the order of winding up of the company was held to be of no application. 8.5. The Division Bench of the High Court observed and held as under:- There is no express provision in the sale notice that the liability to bear charges on account of water and property taxes must be borne by the purchaser. We are unable to comprehend that the expression as is where is whatever there is basis comprises within its ambit the liability to clear statutory charges as might have accrued an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med there of the encumbrances. He could have also been told about it prior to his depositing the balance sale consideration. The proceedings before the Company Court were decided without giving any opportunity to the Official Liquidator to file counter affidavits to the applications filed by the Nigam, as it appears from the stay petitions. We, however, find no averment in the stay petitions to the effect that after the respondent no.3 had expressed interest to purchase the assets of the company in liquidation, the Official Liquidator had made him aware that purchase of such assets would carry with it the liability to pay arrear taxes recoverable by the Nigam. In the absence of such an averment, we find it difficult to hold that the respondent no.3 ought to bear the liability instead of the Official Liquidator. At this stage, it would be worthwhile to consider the decision of the Apex Court in United Bank of India (supra) cited by Mr. Ghosh. The Official Liquidator, in that case, had sold the assets of the company in liquidation on the basis of Terms and Conditions of Sale to Triputi Jute Industries. Clause (2) of such terms and conditions was as follows: 2. The sale wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf in all respects as regards the immovable assets as in the said case, it is for his own benefit that he satisfies himself in all respects including encumbrances of the immovable property that he proposes to purchase. It is also quite understandable that after having purchased the property on such terms any objection that he was not aware of the encumbrances may not be entertained. However, it passes the comprehension of this Court as to why the sale notice in the present case was not couched in similar and comprehensive language as the one which fell for consideration before the Apex Court. There being no occasion for the respondent no.3 to make himself aware regarding the encumbrances, if any, in respect of assets of the company in liquidation which he proposed to purchase, it is too late in the day for the Official Liquidator to contend that he ought to have participated in the bid upon being fully satisfied and not having raised any objection at the relevant time it is he only who is liable to bear the property and other taxes. We are of the view that the liability on account of property and water taxes claimed by the Nigam, to the extent rejected by the Official Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent No. 3 by the High Court should not have been given in view of the terms and conditions of sale of the assets of the company in liquidation. Learned Counsel has vehemently submitted that the tenderers/bidders had to satisfy themselves about all the relevant aspects concerning the assets, when being sold on as is where is whatever there is basis; and therefore, the purchaser would be deemed to have full knowledge of the defects, encumbrances, and statutory dues before purchasing the assets and properties of the company in liquidation. Learned counsel would emphasise that when the terms and conditions of the sale clearly mentioned that sale of assets would be on as is where is whatever there is basis, after having purchased the property on such terms, the purchaser is not entitled to make any claim as regards diminution in the price on the ground of defect in title or description of the property. It has further been submitted that the case of OL selling the property of a company in liquidation under the orders of the Court is altogether different from the case of an individual selling immovable property belonging to himself. Reliance has been placed on decisions of this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the said Section 530 relates to claims for pre-liquidation period for which, there is a need for prescribing priority but, the said provision has no application for the expenses incurred by OL during post-liquidation period, which are required to be paid in priority. In regard to the liability and priority concerning post-liquidation expenses, reliance has been placed on a few English decisions, including that In re Toshoku Finance UK plc: [2002] 1 WLR 671. 11.3. Learned Counsel for respondent No. 1 has placed strong reliance on Section 185 of the M.P. Act of 1956 to submit that the provision creates an obligation to pay municipal taxes as a first charge on the land and building as also the movable properties and the proviso expressly provides that arrears of tax are not recoverable from any occupier who is not the owner, if the arrears are of the period when such occupier was not in occupation. Therefore, in view of the proviso, arrears of tax for the period prior to confirmation of auction sale, cannot be recovered from the auction purchaser and have to be paid by the OL. 11.4. It has also been submitted that in terms of Section 520 of the Companies Act, the municipal t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not merely create a charge. Learned counsel would submit that the dues in relation to municipal taxes in terms of the said M.P. Act of 1956 do not create any encumbrance or charge on the property such as to run with property for all times and under all circumstances as held in AI Champdany Ltd. (supra). Moreover, it cannot be said to constitute any encumbrance which diminishes the value of the property. 12.4. It has been submitted that there is no obligation that has been created or could be assumed on account of the terms and conditions of the sale carried out by the appellant, particularly when there was no express provision in the sale notice that the liability of charges on account of property tax and water tax were to be borne by the purchaser. In regard to the submissions of the appellant that the auction purchaser had purchased the property with as is where is and whatever there is stipulation, learned counsel has strenuously argued that such a stipulation pertains to the physical properties of an asset and could not be construed as indicative of constructive notice of charge or encumbrance. Reliance is placed on Ahmedabad Municipal Corporation (supra), which has, in tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an appeal under the provisions of the M.P. Act of 1956 while observing that unless such appeal was filed and demand was reduced, the appellant OL was bound to discharge the tax liability as per the claim of the Nigam even for the post-liquidation period. The contention of appellant before the Division Bench in challenge to the order so passed by the Company Court had essentially been with reference to the terms and conditions of sale and reliance upon the decision in United Bank of India (supra). The Division Bench compared the terms and conditions of sale in the cited decision and the terms and conditions of sale in the present case and observed that the sale notice in the present case was not couched in similar and comprehensive language so as to oblige the respondent No. 3 to make himself aware about encumbrances, if any, in respect of the assets of the company in liquidation. The Division Bench further observed that Section 530 of the Companies Act had no application in relation to the taxes which might have mounted between the date of the order of winding up and the date of sale of assets. Similarly, the Division Bench indicated inapplicability of Rule 154 of the Rules of 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e means- (i) in the case of a company ordered to be wound up compulsorily, the date of the appointment (or first appointment) of a provisional liquidator, or if no such appointment was made, the date of the winding up order, unless in either case the company had commenced to be wound up voluntarily before that date; and (ii) in any case where sub-clause (i) does not apply, the date of the passing of the resolution for the voluntary winding up of the company. *** *** *** 15.2. Rules 154,163 and 338 of the Companies (Court) Rules, 1959 are as under: - R.154. Value of debts - The value of all debts and claims against the company shall, as far as is possible, be estimated according to the value thereof at the date of the order of the winding-up of the company or where before the presentation of the petition for winding up, a resolution has been passed by the company for voluntary winding-up, at the date of the passing of such resolution. *** *** *** R.163. Acceptance or rejection of proof to be communicated After such investigation as he may think necessary, the liquidator shall in writing admit or reject the proof in whole or in part. Every decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing the Bills or charges of an advocate, satisfy himself that the appointment of an advocate to assist the liquidator in the performance of his duties has been duly sanctioned. (3) Nothing contained in this Rule shall apply to or affect costs which, in the course of legal proceedings by or against the company which is being wound-up by the Court, are ordered by the Court in which such proceedings are pending, to be paid by the company or the liquidator, or the rights of the person to whom such costs are payable. 15.3. Section 185 of the Madhya Pradesh Municipal Corporation Act, 1956, which is relied upon by the contesting respondents, reads as under: - 185. Liability of buildings, lands, etc., for taxes. - All sums due from any person in respect of taxes on any land or building shall, subject to prior payment of any land revenue in respect of it due to the government, be a first charge upon the said land or building and upon any movable property found within or upon such land or building and belonging to the said person. Provided that no arrears of any such tax shall be recoverable from any occupier who is not the owner, if such arrears are for a period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the orders of the Court is altogether different from the case of an individual selling immovable property belonging to himself. There is, therefore, no merit in the application made on behalf of Triputi that there should be a diminution in price or that it should not be made liable to pay interest on the sum of Rs 1 crore 98 lakhs. 17.1. At the first blush, the said decision might appear to be standing somewhere near to the facts of the present case, for that had also been a case of sale of the assets by an OL with a somewhat similar stipulation that the sale was on as is where is basis. However, as rightly pointed out by the Division Bench of the High Court, there had been a marked difference in the terms and conditions of sale in the case of United Bank of India (supra) and those of the present case. 17.2. As noticed and extracted in the impugned judgment of the Division Bench of the High Court, in the case of United Bank of India (supra), the sale notice, inter alia, carried a significant stipulation whereby the purchaser was put to notice to satisfy himself in all respects as regards movable and immovable assets as to their title, encumbrances, area, boundar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfy himself in all respects including encumbrances, he might not be heard in any objection about want of knowledge of encumbrances but, if he was not so warned, such an obligation on him to make himself aware about encumbrances cannot be foisted by any deeming fiction. 18. The decision of this Court in Haryana Financial Corporation (supra) has also been cited to submit that OL does not hold any guarantee or warranty in respect of property sold. In the said case, the appellant Financial Corporation had issued an advertisement for sale of various units and the respondent had been one of the bidders who offered a sum of Rs. 50 lakh, and deposited Rs. 2.5 lakh by way of earnest money. There was some dispute related to presence of rasta at the land. Not being satisfied with response of appellant, respondent did not submit further money. Appellant invited fresh tenders and forfeited the money deposited by respondent. In the writ petition preferred by respondent, the Division Bench of High Court quashed forfeiture and ordered for refund along with 12% interest and Rs. 5,000 costs. In appeal before this Court, one of the submissions on behalf of the appellant Financial Corporation had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial Liquidator [(1994) 1 SCC 575] is wholly misconceived. The aforesaid judgment relates to sale of the property and assets of a company in liquidation by the Official Liquidator under the orders of the court. Therefore it is observed that the Official Liquidator cannot and does not hold any guarantee or warranty in respect of the property sold. That is because the Official Liquidator proceeds on the basis of what the records of the company in liquidation show. Therefore it is for the intending purchaser to satisfy himself in all respects as to the title and encumbrances and so forth of the immovable property that he proposes to purchase. In those circumstances it is held that the purchaser cannot after having purchased the property on such terms then claim diminution in the price on the ground of defect in the title or description of the property. 28. The judgment clearly goes on to further hold as follows: (Official Liquidator case [(1994) 1 SCC 575] , SCC p. 584, para 14) 14. The case of the Official Liquidator selling the property of a company in liquidation under the orders of the court is altogether different from the case of an individual selling immovable p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he should offer a particular price. When the sites auctioned are existing sites, without any assurance/representation relating to amenities, there is no question of deficiency of service or denial of service. Where the bidder has a choice and option in regard to the site and price and when there is no assurance of any facility or amenity, the question of the owner of the site becoming a service provider, does not arise even by applying the tests laid down in LDA [(1994) 1 SCC 243] or Balbir Singh [(2004) 5 SCC 65]. 20. Where there is a public auction without assuring any specific or particular amenities, and the prospective purchaser/lessee participates in the auction after having an opportunity of examining the site, the bid in the auction is made keeping in view the existing situation, position and condition of the site. If all amenities are available, he would offer a higher amount. If there are no amenities, or if the site suffers from any disadvantages, he would offer a lesser amount, or may not participate in the auction. Once with open eyes, a person participates in an auction, he cannot thereafter be heard to say that he would not pay the balance of the price/prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenged by the Corporation before this Court. With reference to Section 100 of the Act of 1882, it was held that no charge would be enforceable against any property in the hands of transferee for consideration without notice of charge, apart from where otherwise provided for by law. The Court, inter alia, made the following observations: - 4. This section in unambiguous language lays down that no charge is enforceable against any property in the hands of a transferee for consideration without notice of the charge except where it is otherwise expressly provided by any law for the time being in force. The saving provision of law must expressly provide for enforcement of a charge against the property in the hands of a transferee for value without notice of the charge and not merely create a charge. .. *** *** *** 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra), the appellant had purchased the assets of the company under liquidation and was subsequently served with notice by municipality for payment of arrears of property tax. Upon taking out a chamber summons with the prayer that appellant would only be liable for property tax after date of confirmation of sale, the application was dismissed on the ground that it was incumbent on the purchaser to make enquiries regarding the liabilities attached to the assets before making an offer. The intra-court appeal was dismissed by the Division Bench. In the appeal before this Court, it was held that dues in relation to municipal tax in terms of the relevant provisions of the Companies Act did not create an encumbrance or charge on the property and was considered to be a personal liability. This Court, inter alia, observed and held as under: - 10. Dues in relation to the municipal tax in terms of the provisions of the said Act do not create any encumbrance on the property. It does not create any charge. It is considered to be a personal liability. On the aforementioned premise, we have to construe the terms and conditions of the sale *** *** *** 12. The terms and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axes due on the date of sale, which are of statutory charge on the property sold and of which, the purchaser had no notice. On interpretation and application of second part of Section 100 of the Act of 1882, this Court held that the auction purchaser without notice, in the absence of stipulation in the terms of sale or any statutory provision, could not be made liable for such dues. In the fact situation of the present case, the principles aforesaid operate heavily against the case of the appellant. 24. It has rightly been argued on behalf of the contesting respondents, with reference to Section 100 of the Act of 1882 and the decision of this Court in AI Champdany Ltd. (supra), that in absence of any statutory provision, the auction purchaser without notice of any charge could not be made liable for the arrears of tax in question during the post-liquidation period. The provisions of the M.P. Act of 1956 were not creating any such encumbrance or charge on the property which would attach to the property for all times and under all circumstances nor they could be said to constitute any encumbrances which diminish the value of the property. In contrast, they would only qualify as ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount to the costs and expenses of liquidation. 27. This being the position, in our view, the Company Court and then the Division Bench of the High Court have rightly underscored the faults on the part of the appellant OL and have rightly held that the liability on account of the property tax and water tax claimed by the respondent No. 1 to the extent rejected by the appellant OL has been a post-liquidation liability, which the OL was obliged to discharge, in view of omission in the sale notice and then, in view of the operation of Rule 338 of the Rules of 1959. 28. Put in different words, as regards the operation of the said Rule 338 of the Rules of 1959, we are inclined to accept the reasoning of the High Court that on the facts and in the circumstances of the present case, arrears of property tax and water tax until the date of confirmation of sale, i.e., 04.07.2003, would qualify as the expenses for preserving, realising or getting in the assets of the company and thus, shall have to be paid in priority by the appellant OL. 29. For what has been discussed hereinabove, we do not find it necessary to dilate upon the other decisions cited by learned counsel for the part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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