1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8015 OF 2010

OFFICIAL LIQUIDATOR ….APPELLANT(S)

VERSUS

UJJAIN NAGAR PALIKA NIGAM & ORS. ….RESPONDENT(S)

WITH

CIVIL APPEAL NO. 8016 OF 2010

JUDGMENT

DINESH MAHESHWARI, J.

1. By way of these appeals, the appellant, being Official Liquidator

1

of

the company named IISCO Ujjain Pipe and Foundry Company Limited

2

,

has questioned the common judgment and order dated 05.02.2009 in

APOT No. 248 of 2008 and APOT No. 235 of 2008, whereby the Division

Bench of the High Court at Calcutta has dismissed the appeals against the

common judgment and order dated 25.04.2007 in C.A. No. 159 of 2006

and C.A. No. 160 of 2006, as passed by the learned Company Judge of

the High Court

3

in allowing the company applications preferred by

1

‘OL’, for short.

2

Hereinafter also referred to as ‘the company in liquidation’.

3

Hereinafter also referred to as ‘the Company Court’.

2

respondent No.1 Ujjain Nagar Palika Nigam

4

, 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

5

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 mentioned the availability of terms and

conditions of sale alongwith particulars about the assets of the company at

the office of the appellant. This sale notice reads as under: -

“SALE NOTICE

Pursuant to the order of the Hon'ble High Court, Calcutta dated

4

th

April, 2003 offers are invited in sealed cover enclosing a Bank

Draft or Pay Order in favour of Official Liquidator, High Court,

Calcutta for an amount equivalent to 20% of the offered amount as

4

Hereinafter also referred to as ‘the Nigam’.

5

For Short, ‘BIFR’.

3

earnest money for sale of the assets of the Company [In Liqn.] like

land structure, building, machineries etc., lying at Dewas Road,

Ujjain M.P., and lease hold land building quarter at Nana-Kheda,

Indore road, Ujjain, M.P. The assets of the company will be sold 'as

is where is whatever there is basis'. Balance amount is to be paid

within 30 days from the date of sale and the possession is not be

made only after full payment of the purchase price.

Sealed offers will be received by the Official Liquidator upon 5

p.m. dated 26

th

June 2003 and the same will be opened on 27

th

June 2003 at 2.00 p.m. before the Hon'ble Judge taking Company

matters in the High Court at Calcutta for consideration of such

sealed offers. No one will be allowed to purchase in favour of

nominee or nominees.

Inspection of the assets of the Company [In liqn.] will be allowed

to the intending purchasers on 26

th

May 2003 and 27

th

May 2003

between 12 noon to 4 p.m. Terms and conditions of sale alongwith

the particulars of the assets of the Company [In Liquidation] will be

available at the office of the undersigned on and from 22

nd

May

2003 during office hours at a cost of Rs.50/- per catalogue and also

at site during inspection period.

Dated this 9

th

day of May, 2003.”

3.1. The abovementioned sale notice carried certain terms and

conditions appended to it, reinforcing that the sale would be on “as is where

is whatever there is” basis and stating that the appellant OL would not be

providing any guarantee about the quality, quantity or specification of the

assets sold; the tenderers were to satisfy themselves in this regard after

physical inspection of the assets of the company; and the purchasers would

be deemed to offer with full knowledge as to defects, if any, in the

description, quality or quantity of the assets sold. The conditions relevant

for the present purpose could be reproduced as follows: -

“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

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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 appellant OL invited claims from the

creditors of the company in liquidation by way of advertisements.

4.1. In response to such invitation of claims, the respondent No. 1

Nigam filed affidavit of proof of debt with the appellant, claiming towards

arrears of property tax a sum of Rs. 2,79,955/- for the year 1996-1997 and

another sum of Rs. 4,63,69,137/- for the years 1997-1998 till 2003-2004,

for the factory and staff quarters of the company in liquidation at Ujjain. The

respondent No. 1 Nigam also filed another affidavit of proof of debts with

the appellant to the tune of Rs. 11,14,612/- as arrears of water tax for the

period from 01.06.1996 to 31.10.2005.

4.2. In response to the claims so filed by the respondent No. 1 Nigam,

the appellant OL issued four notices dated 24.01.2006. By way of two such

notices, the appellant admitted the claims to the tune of Rs. 2,79,955/- on

account of property tax and Rs. 2,162.20 on account of water tax against

the company in liquidation only to the extent of pre-liquidation period i.e.,

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prior to the date of order of winding up by the Company Court (10.07.1997).

However, by way of other two notices issued on even date, the appellant

rejected the claim of respondent No. 1 to the extent of Rs. 4,63,69,137/-

towards property tax and Rs. 11,12,449.80 towards water tax on the ground

that such claims arose after the date of order of winding up i.e., 10.07.1997.

5. In challenge to the part rejection of its claim, the respondent No. 1

Nigam preferred two company applications before the Company Court at

Calcutta by Judge’s Summons under Rule 164 of the Companies (Court)

Rules, 1959

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, particularly as regards admissibility of post-liquidation claims.

6. For deciding the applications so preferred by the respondent No.1,

the Company Court framed the following question for adjudication: -

“The question before this Court is whether claims, that might arise

against the Official Liquidator representing the company in

liquidation, for any period of time, subsequent to the order of

winding up, can outright be rejected.”

6.1. It was contended on behalf of respondent No. 1 Nigam - applicant

before the Company Court - that the OL was liable for both pre-liquidation

and post-liquidation rates and taxes; that as per Section 185 of the Madhya

Pradesh Municipal Corporation Act, 1956

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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

6

Hereinafter also referred to as ‘the Rules of 1959’.

7

Hereinafter also referred to as ‘the M.P. Act of 1956’.

6

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

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, 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 relevant date

and the appellant had allowed taxes due on the relevant date that had been

proved.

7. In the common judgment and order dated 25.04.2007, the

Company Court, while allowing the applications so filed by the respondent

No. 1 Nigam, held that liability of the appellant OL was not restricted to the

claims and debts only until the date of order of winding up.

7.1. The Company Court further held that reliance placed by the

appellant OL on Section 530 of the Companies Act and Rule 154 of the

Rules of 1959 was patently misconceived, while observing that there was

no provision in either of them which restricted the claim only until the date

of order of winding up. It was also held that Section 530 of the Companies

Act would not absolve a company in liquidation of its liability towards

revenue and taxes; and that such liabilities in the post-liquidation period

8

Hereinafter referred to as ‘the Companies Act’.

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were to be treated as a part of the cost of winding up and would be

prioritised over all other liabilities. As regards the auction purchaser, the

Company Court relied upon a decision of the Bombay High Court holding

that the purchaser was liable to pay property tax only from date of

purchase. The Company Court observed and held, inter alia, as under: -

“The company may be wound up and its business closed down. Yet,

the Official Liquidator would be obliged to protect the assets of the

company in liquidation, until such time as the assets are sold. For

the protection of assets, the Official Liquidator representing the

company might have to retain rented premises, obtain supply of

electricity, engage security guards and take such other steps

involving expenses as the Official Liquidator might deem necessary.

Can claims on account of inter alia rent, electricity charges that

accrued after the date of winding up, be outright rejected only on

the ground that the claims were post liquidation claims even though

the company in liquidation might have sufficient funds to satisfy the

claims?

An electricity supplier, may, as argued by Mr. Ghosh, have the

option of disconnecting supply for non-payment of its dues and

appropriating the security deposit of the consumer. The right of

disconnection would not, however, make any difference to the

maintainability of the claim of the supplier.

It is not in dispute that the Official Liquidator has been making

payment of post liquidation electricity charges. 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

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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 municipal tax are

payable only till the date of winding up of the company, in view of

Section 530 of the Companies Act, 1956, read with Rule 154 of the

Companies (Court) Rules 1959, is patently misconceived. There is

no provision either in the Companies Act or in the Companies

(Court) Rules which restricts claims and debts only till the date of

the winding up order.

Pre-liquidation claims, which had arisen before the Official

Liquidator took possession of the assets and properties of the

company, would necessarily have to be estimated by the Official

Liquidator on the basis of available records and the proof adduced

by the claimant and/or creditor. Post liquidation debts and claims do

not require to be proved.

Section 530 does not absolve a company in liquidation, represented

by the Official Liquidator, of its liability towards revenue and taxes.

The said Section merely provides for payment of revenues, taxes,

cesses and rates which became due and payable within 12 months

from the relevant date, being the date of the winding up order in

priority to other pre-liquidation debts. Post liquidation liabilities are

to be treated as part of the costs of winding up of the company in

liquidation and such liabilities get priority over all other liabilities of

the company.

**** **** ****

In winding up, liquidators who carry on the company's business

continue with rateable occupation of the premises and they are in

rateable occupation even if they occupy merely for the purpose of

fulfilling the outstanding contracts or preventing damage to the

company's property (Halsbury Laws of England, 4

th

Edn., Vol.39).

It is true that the Official Liquidator did not carry on any business on

behalf of the company. The Official Liquidator, however, retained

possession for beneficial winding up of the company.

As rightly argued by Mr. Mukherjee, appointed as amicus curiae by

this Court, and by Mr. Banerjee, appearing on behalf of the

applicant, the expenses incurred in winding up are payable, not

provable. The principle of priority of certain creditors is applicable to

liability of the company at the time when the order for winding up of

the company was made. Costs and expenses incurred on behalf of

the company, in winding up ought to have paid in full.”

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7.2. The Company Court also took note of the fact that the appellant OL

had rejected the claims 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 on any business of the company and consequently, did not in

any way earn profit from use of the assets of the company in liquidation;

that the provisions of the Companies Act did not envisage payment of post-

liquidation taxes on property and water and the assets were only custodia

legis after the winding up order until the sale; and that the sale was on “as

is where is whatever there is” basis, which would mean that the assets were

10

not free from encumbrances when sold and thereby, the liability of taxes

was shifted to the purchaser.

8.2. The respondent No. 1 Nigam contended that the appellant would

be liable to pay taxes to the Nigam out of sale proceeds, and apart from

this, reiterated the submissions made before the Company Court. Similarly,

the auction purchaser, respondent No. 3, submitted that he was neither the

owner nor the occupier until 04.07.2003 when the sale was confirmed and,

therefore, there would be a shift of the charge to the sale proceeds and not

to the purchaser. However, a creditor of the company, respondent No. 2,

contended that the claim towards arrears of property and water tax would

be directed against the auction purchaser and not the OL.

8.3. The Division Bench did not accept the submissions of appellant and

respondent No. 2 and held that respondent No. 3 - the auction purchaser

– was not liable to pay the said charges accrued post-liquidation because,

from the terms and conditions of sale, it could not be discerned that the

purchaser was put to notice about any liability towards arrears due to the

Nigam. The Division Bench held that in absence of clear provision in the

sale notice that intending purchaser had to satisfy himself as regards

assets of company in liquidation in all respects including encumbrances,

the appellant was obliged to discharge the post-liquidation liability towards

property and water taxes; and that it would not be reasonable to fasten

liability on a purchaser without informing him about the encumbrances prior

to the sale. The Division Bench also distinguished the decision of this Court

in the case of United Bank of India v. Official Liquidator and Ors.: 79

11

Company Cases 262 [= (1994) 1 SCC 575] while taking note of the

peculiar factual matrix and specific terms and conditions of sale in that

case. After making a comparison between the terms and conditions of sale

in the present case and those of sale in 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 and

are in arrears. The terms and conditions of the sale do specify that

the Official Liquidator shall not provide any guarantee and/or

warranty as to quality, quantity or specification of the assets sold

and the intending purchaser is required to satisfy himself in this

regard after physical inspection of the assets of the company in

liquidation and no complaint as to defects, if any, in the description,

quality or quantity of the assets sold would be entertained after the

sale is over and that any mistake in the notice inviting tender shall

not vitiate the sale. These, per se, in our opinion, would not

tantamount to a representation being made to an intending

purchaser that while bidding for the assets put up for sale he is also

to bear the expenses towards arrear dues of the Nigam. Guarantee

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and/or warranty as to quality, quantity or specification of the assets

sold cannot be equated with the liability attached to the same. The

terms and conditions of the tender only protect the Official

Liquidator to the extent of quality, quantity and specification and

would not extend to claiming of immunity to clear taxes claimed by

the Nigam.

The Official Liquidator has laid much stress on Section 530 of the

Companies Act and Rule 154 of the Companies (Court) Rules. We

have failed to find the materiality of the said provisions for a decision

on the present dispute. Section 530 provides for preferential

payments. According to clause (a) of sub-section (1) of Section 530

read with clause (c) of sub-section (8) thereof, all revenues, taxes

etc. due from the company in liquidation to a local authority on the

date of the winding up order and having become due and payable

during the preceding 12 months thereof would be entitled to priority

over all other dues. Section 530 has nothing to do with payment of

taxes which might have mounted between the date of winding up

and sale of its assets by the purchaser. Rule 154 also cannot have

any manner of application since it provides the manner of estimation

of value of debts and claims on the date of the order of winding up

of the company.

It would be, in our opinion, thoroughly unreasonable to foist the

liability on a purchaser without first letting him know prior to the sale

about such liability. Enquiries at site must have been made by the

ultimate purchaser before he offered his bid. The purchaser could

have been informed 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 will be as per inventory list on ‘as is where is

basis’ and subject to the confirmation of the Hon’ble

Supreme Court of India. The Official Liquidator shall not

provide any guarantee and/or warranty in respect of the

immovable properties and as to the quality, quantity or

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specification of the movable assets. The intending

purchaser must satisfy themselves in all respect as regards

the movable and immovable assets, as to their title,

encumbrances, area, boundary, description, quality,

quantity, and volume etc. and the purchaser will be deemed

to offer with full knowledge as to the description, area etc.

of the properties and defects thereof, if any. The purchaser

shall not be entitled to claim any compensation or deduction

in price on any account whatsoever and shall be deemed to

have purchased the property subject to all encumbrances,

liens and claims including those under the existing

legislation affecting labour, staff etc. 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.”

It was on consideration of the express provisions of clause (2) of

the Terms and Conditions of Sale that the Apex Court proceeded to

hold as under:

“When the Official Liquidator sells the property and assets

of a company in liquidation under the orders of the Court he

cannot and does not hold out any guarantee or warranty in

respect thereof. This is because he must proceed upon the

basis of what the records of the company in liquidation

show. It is for the intending purchaser to satisfy himself in

all respects as to the title, encumbrances and so forth of the

immovable property that he proposes to purchase. He

cannot after having purchased the property on such terms

then claim diminution in the price on the ground of defect in

title or description of the property. 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 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”.

It is understandable that once an intending purchaser is warned to

satisfy himself 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

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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

Liquidator is a post-liquidation liability which the Official Liquidator

is obliged to discharge in the absence of a clear provision in the sale

notice that the intending purchaser must satisfy himself as regards

the assets of the company in liquidation in all respects including

encumbrances.

In the fitness of things, we deem it necessary to direct the Official

Liquidator to issue future notices of sale of assets of companies in

liquidation in similar and comprehensive language as the one

quoted supra from the Apex Court decision to avoid complications.”

9. Aggrieved by the common judgment and order dated 05.02.2009

so passed by the Division Bench of the High Court, the appellant OL has

preferred these appeals.

9.1. Learned Counsel for the appellant has submitted that in true

operation of the applicable provisions of law, the appellant cannot be made

liable for the post-liquidation claims filed by respondent No. 1 while

disregarding the interest and entitlement of pre-liquidation creditors. It has

been argued that the appellant has admitted the pre-liquidation claims and

has rightly rejected the post-liquidation claims as per Section 530 of the

Companies Act, since the workers/employees were discharged from

service. Learned Counsel for the appellant would submit that the assets

and properties of the company in liquidation are deemed to be in the

custody of the Court and the appellant has not carried on any business nor

utilised water after liquidation of company for gaining profit.

15

9.2. It has been strenuously argued by the learned counsel that the High

Court was not justified in treating post-liquidation liabilities as a part of the

cost of winding up and thereby, giving such liabilities a priority over all other

liabilities of the company in liquidation, which is not permissible under

Sections 529A, 530 and other provisions of the Companies Act. This would

also be prejudicial to pre-liquidation creditors, being the workers, statutory

creditors and general body of creditors.

9.3. It has also been argued that the respondent No. 1 had never taken

the necessary legal steps for realisation of its dues as claimed in its affidavit

of proof of debt and the High Court did not even consider such affidavit

before fastening the liability of post-liquidation claim on the appellant.

9.4. Learned Counsel has also submitted that the benefit given to

respondent 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

16

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 Court in United Bank of

India (supra), Haryana Financial Corporation v. Rajesh Gupta: (2010)

1 SCC 655; UT Chandigarh Administration and Anr. v. Amerjeet Singh

and Ors.: (2009) 4 SCC 660; and Punjab Urban Planning and

Development Authority v. Raghu Nath Gupta: (2012) 8 SCC 197.

10. The submissions made on behalf of the appellant have been

essentially supported on behalf of respondent No. 2, Steel Authority of India

Limited, one of the creditors of the company in liquidation, who has lodged

the claim alongwith its subsidiary IISCO Ltd. It has been contended on

behalf of respondent No. 2 that the findings of the High Court are not in

accord with the law on the point pertaining to ouster clauses in the sale

notice clearly stating that the sale of assets of the company in liquidation

was on “as is where is whatever there is” basis. It has been argued that the

auction purchaser takes the property subject to all defects of title and the

doctrine of caveat emptor directly applies to such purchaser. A decision of

this Court in the case of Ahmedabad Municipal Corporation v. Haji

Abdul Gafur Haji Hussenbhai: (1971) 1 SCC 757 has been relied upon.

11. Per Contra, learned counsel for respondent No. 1 has submitted

that the appellant OL, as a custodian of the property, is liable to pay the

post-liquidation claim too as raised by Nigam.

17

11.1. Learned Counsel has submitted that the claims raised by

respondent No.1 constitute “liquidation expenses”, being the expenses that

had to be paid by the appellant OL to maintain the property while being in

his custody; and, therefore, the obligation is to be met out of the value

realised from the sale of assets of the company. In this regard, learned

counsel for the respondent No. 1 has submitted that in terms of Rule 338

of the Rules of 1959, the expenses incurred by the OL for “preserving,

realising or getting in” the assets of the company are required to be paid in

priority and the said Rule provides for the order of preference thereafter in

relation to other costs and expenses payable out of the assets of the

company.

11.2. Learned Counsel has also submitted that preferential payments

prescribed in Section 530 of the Companies Act are for payment of

specified claims thereunder and that too after payment of costs and

expenses of winding up that are properly incurred by the appellant and

which are paid in priority. Moreover, 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

18

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 taxes as sought to be claimed by respondent

No.1 would be costs of winding up; and the appellant being in possession

of the assets, is obliged to pay the municipal taxes, which ought to have

been paid to protect and preserve the property.

12. Learned counsel for respondent No. 3 – the auction purchaser - has

duly supported the orders impugned with the submissions that the tax dues

in the present case were “post-liquidation dues” amounting to “costs of

liquidation” and were to be borne by the OL alone; and could not have been

foisted on the auction purchaser.

12.1. It has been submitted on behalf of respondent No. 3 that auction

purchaser is liable towards property tax and water tax with effect from the

date of confirmation of sale in his favour i.e., from 04.07.2003 and he has

discharged all such claims but then, there is no liability on him towards

taxes prior to the date of confirmation of sale when property of the company

was custodia legis and was in the hands of OL.

19

12.2. Furthermore, learned counsel has submitted that the Companies

Act and the Rules of 1959 do not impose any obligation on purchaser to

pay dues that relate to period between the date of order of winding up and

date of sale confirmation. The claims in the present case are post-

liquidation charges or costs and are, therefore, expenses of winding up,

liable to be borne out of proceeds of liquidation, if any; and to the extent

that they remain unpaid after exhausting the proceeds of liquidation, are to

abate. In this regard, reliance has been placed on the said decision, In re

Toshoku Finance UK plc.

12.3. Learned Counsel has referred to Section 100 of Transfer of

Property Act, 1882

9

as also to the decisions of this Court in Ahmedabad

Municipal Corporation (supra) and AI Champdany Ltd. v. Official

Liquidator and Anr.: (2009) 4 SCC 486 to submit that auction purchaser

without notice and in absence of any provision in terms of sale or any

statutory provision could not be made liable for such arrears of tax; and

that no charge could be enforced against any property in hands of

transferee for consideration and without notice of the charge; and that for

its enforceability, a provision of law must expressly provide for enforcement

of a charge against the property in the hands of the transferee for value

without notice to the charge and 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

9

Hereinafter also referred to as ‘the Act of 1882’.

20

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 turn, approved

the reasoning of the Full Bench of High Court of Allahabad in the case of

Municipal Board, Cawnpore v. Roop Chand Jain and Anr.: AIR 1940

All 456.

12.5. It has been contented that by virtue of Section 185 of the M.P. Act

of 1956, arrears could only be claimed from a person who was an occupier

at relevant time and from no one else and, therefore, the question of

auction purchaser making any inquiries or foisting upon him any

constructive knowledge does not arise; rather, proviso to Section 185 frees

an auction purchaser from even making inquiries about such tax arrears.

In this regard, further reliance has been placed on the decision in Delhi

21

Development Authority v. Kenneth Builders and Developers Pvt. Ltd.

and Ors.: (2016) 13 SCC 561.

12.6. Lastly, learned counsel has placed reliance on correspondence

between respondent No. 3 and the appellant to suggest the sufficiency of

funds available with the appellant to discharge the claims of respondent

No.1 before disbursing any left-over amount to the shareholders.

13. We have heard learned counsel for the parties at length and have

perused the material placed on record.

14. For what has been noticed hereinabove, the dispute between

appellant OL and respondent No. 1 Nigam, put in a nutshell, is with regard

to the rates and taxes for the period between 10.07.1997 (being the date

on which the company was ordered to be wound up) and 04.07.2003 (being

the date on which the sale in favour of the purchaser was confirmed). As

noticed, part rejection of the claim of respondent No. 1 Nigam by the

appellant OL, in relation to the period aforesaid between 10.07.1997 to

04.07.2003 was not approved by the Company Court while observing that

post-liquidation liabilities were to be treated as part of the costs of winding

up of the company in liquidation and such liability would get priority over all

other liabilities of the company. The Company Court observed and

reiterated that the principle of priority of certain creditors would be

applicable to the liability of the company at the time of passing of the order

of winding up but, costs and expenses incurred on behalf of the company

in winding up were to be paid in full; and the liability of the company to pay

rates and taxes would not automatically come to an end with the order of

22

winding up. The Company Court yet left it open for the appellant OL to file

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 1959, providing for the manner of estimation of

claims on the date of the order of winding up. The Division Bench

summarised its conclusion that the claim in question was that of a post-

liquidation liability which the OL was obliged to discharge in absence of a

clear provision in the sale notice obliging the intended purchaser to satisfy

himself as regards the assets of the company in liquidation in all respects,

including encumbrances. More or less the same submissions have been

23

made by the respective parties in this appeal but, with a little elaboration

on their respective stands. While leaving the irrelevant aspects aside, the

neat question is as to whether the claims so made by the respondent No.

1 Nigam towards property tax and water tax pertaining to the post-

liquidation period, from the date of order of winding up and until the date of

confirmation of sale of assets to the auction purchaser, are admissible

against the appellant OL.

15. For dealing with the question at hand, we may usefully take note of

the statutory provisions relevant to the present case.

15.1. Section 529A and the relevant parts of Section 530 of the

Companies Act, 1956 read as under: -

"529A. Overriding preferential payment. - Notwithstanding

anything contained in any other provisions of this Act or any other

law for the time being in force, in the winding up of a company-

(a) workmen's dues; and

(b) debts due to secured creditors to the extent such debts rank

under clause (c) of the proviso to sub-section (1) of section

529 pari passu with such dues,

shall be paid in priority to all other debts.

(2) The debts payable under clause (a) and clause (b) of sub-

section (1) shall be paid in full, unless the assets are insufficient to

meet them, in which case they shall abate in equal proportions.

530. Preferential payments. - (1) In a winding up subject to the

provisions of section 529A, there shall be paid in priority to all other

debts-

(a) all revenues taxes, cesses and rates due from the

company to the Central or a State Government or to a local

authority at the relevant date as defined in clause (c) of sub-

section (8), and having become due and payable within the

twelve months next before that date;

*** *** ***

(8) For the purpose of this section -

(a) .....

(b) ....

(bb) ....

(c) the expression "the relevant date" means-

24

(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

decision of the Liquidator accepting or rejecting a proof, either

wholly or in part, shall be communicated to the creditor concerned

by post under certificate of posting where the proof is admitted and

by registered post for acknowledgement where the proof is rejected

wholly or in part, provided that it shall not be necessary to give

notice of the admission of a claim to a creditor who has appeared

before the Liquidator and the acceptance of whose claim had been

communicated to him or his agent in writing at the time of

acceptance. Where the Liquidator rejects a proof, wholly or in part,

he shall state the grounds of the rejection to the creditor in Form

No.69, Notice of admission of proof shall be in Form No.70.

*** *** ***

R.338. Cost and expenses payable out of the assets in a

winding-up by the Court.-

(1) The assets of a company in a winding-up by the Court remaining

after payment of the fees and expenses properly incurred in

preserving, realising or getting in the assets including, where the

company has previously commenced to be wound-up voluntarily,

such remuneration, cost and expenses as the Court may allow to

the liquidator in such voluntary winding-up, shall, subject to any

order of the Court and to the rights of secured creditors if any, be

liable to the following payments which shall be made in the following

order of priority, namely :-

25

First.-the taxed costs of the petition including the taxed costs of any

person appearing on the petition, whose costs are allowed by the

Court.

Next.-the costs and expenses of any person who makes, or concurs

in making, the Company's statement of affairs ;

Next.-the necessary disbursements of the Official Liquidator other

than expenses properly incurred in preserving, realising or getting

in the properties of the company ;

Next.-the cost of any person properly employed by the Official

Liquidators ;

Next.-the fees to be credited to Government under section 451 (2)

;

Next.-the actual out of pocket expenses necessarily incurred by the

members of the Committee of Inspection, and sanctioned by the

Court.

(2) Save as otherwise ordered by the Court no payments in respect

of bills of advocates, shall be allowed out of the assets of the

company without proof that the same have been considered and

allowed by the taxing officer of the Court. The taxing officer shall

before passing 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 during which the occupier was not in occupation."

26

16. One of the principal points arising for determination in this matter is

the impact and effect of sale of assets of the company in liquidation to the

respondent No. 3, particularly when the property was sold on “as is where

is whatever there is” basis. Learned counsel for the appellant has referred

to and relied upon a few decisions of this Court in support of his contention

that looking to the terms and conditions of sale, the purchaser would be

deemed to have full knowledge of defects, encumbrances and statutory

dues and would remain liable towards such dues, particularly when the sale

in the present case had been by the appellant OL under the orders of the

Court. Per contra, learned counsel for the contesting respondents have

referred to a couple of decisions to assert that no charge would be

enforceable against the property at the hands of transferee for

consideration without notice of charges and, for the municipal taxes not

creating an encumbrance or charge as such on the property in question.

We may closely examine the cited decisions to take note of the ratio

decidendi and principles available therein.

17. The sheet anchor of the submissions on behalf of the appellant OL

is the decision of this Court in the case of United Bank of India (supra)

that has been cited for the proposition that in the sale of property and

assets of company in liquidation, the Official Liquidator does not hold any

guarantee or warranty in respect thereof; and the intending purchaser has

to satisfy himself in all respects, particularly as regards encumbrances.

Therein this Court, inter alia, observed as under: -

27

“14. When the Official Liquidator sells the property and assets of a

company in liquidation under the orders of the Court he cannot and

does not hold out any guarantee or warranty in respect thereof. This

is because he must proceed upon the basis of what the records of

the company in liquidation show. It is for the intending purchaser to

satisfy himself in all respects as to the title, encumbrances and so

forth of the immovable property that he proposes to purchase. He

cannot after having purchased the property on such terms then

claim diminution in the price on the ground of defect in title or

description of the property. 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 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,

boundary, description, quality, quantity, and volume etc.” Therein, it was

also stated that “the purchaser shall not be entitled to any compensation or

deduction in price on any account whatsoever and shall be deemed to have

28

purchased property subject to all encumbrances, liens and claims including

those under the existing legislation affecting labour, staff etc.” Such

stipulations left nothing to chance and nothing of any ambiguity where the

purchaser was required to satisfy himself not only about the physical

attributes of the assets but also about all encumbrances, liens and claims.

Unfortunately, the terms and conditions of the sale in the present case fell

too short of such material stipulations.

17.3. We have reproduced hereinbefore the contents of the sale notice

dated 09.05.2003 in the present case and the relevant terms and conditions

of sale of the assets of the company in liquidation. It is evident that

expansive technical expressions were used in the present case by the

appellant OL in the terms and conditions of the sale that the same would

be on “as is where is whatever there is” basis and then, further disclaimer

was stated that the appellant OL was not providing any guarantee as to the

quality, quantity or specification of the assets sold. Such stipulations and

disclaimers were definitely putting the purchasers to notice to get

themselves acquainted with what the property is (the nature and extent);

where the property is (the locational attributes); and whatever there is

(quantity and condition of the property). The bidders/purchasers were

further warned to satisfy themselves in regard to the aspects of nature,

extent, location, quantity, and quality after physical inspection of the assets

and were also informed that they would be deemed to offer with full

knowledge as to defects, if any, in the description, quality or quantity of the

assets sold. All such stipulations were essentially pertaining to the physical

29

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.

17.4. The Division Bench of the High Court has rightly said that if the

intending purchaser was required to satisfy 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 been with

30

reference to the aforesaid decision in United Bank of India (supra). While

distinguishing the said decision, this Court observed that Official Liquidator

would proceed on the basis of the records of the company in liquidation

and, therefore, it was for the intending purchaser to satisfy himself in all

respects as to the title, encumbrances etc. of the immovable property that

he intended to purchase; and that purchaser cannot after having purchased

the property on such terms, claim diminution in the price on the ground of

defect in the title or description of the property. The Court further observed

that the appellant Financial Corporation was exercising the rights of an

owner in selling the property and was not selling the property as an Official

Liquidator; and the principles applicable to an Official Liquidator selling

property under the orders of Court would not be applicable to an individual

selling immovable property belonging to himself. Moreover, the Court

observed that respondent therein made all necessary inquiries and it was

the Corporation who failed to give fair description of property offered for

sale. The Court, inter alia, observed as under: -

“23. In our opinion, the appellants cannot be given the benefit of

Clause 5 of the advertisement. The appellant Corporation cannot

be permitted to take advantage of its own wrong. Clause 5

undoubtedly permits the forfeiture of the earnest money deposited.

But this can only be if the auction-purchaser fails to comply with the

conditions of sale. In our opinion, the respondent has not failed to

comply with the conditions of sale. Rather, it is the appellant

Corporation which has acted unfairly, and is trying to take

advantage of its own wrong.”

“24. In view of the aforesaid, we are of the considered opinion that

the appellant Corporation cannot be permitted to rely upon Section

55 of the Transfer of Property Act, 1882. The appellant Corporation

failed to disclose to the respondent the material defect about the

non-existence of the independent 3 “karams” passage to the

31

property. Therefore, the appellant Corporation clearly acted in

breach of Sections 55(1)(a) and (b) of the Transfer of Property Act,

1882.

*** *** ***

“27. We are also of the considered opinion that the reliance placed

on the judgment of this Court by the counsel for the appellants

in United Bank of India v. Official 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 property belonging to himself.”

The aforesaid observation would be clearly applicable to the

Corporation as it is exercising the rights of an owner in selling the

property. The appellant Corporation is not selling the property as an

Official Liquidator.”

18.1. Evidently, Haryana Financial Corporation (supra) had been a

case of sale by the Corporation, which was distinguished from sale by an

OL. Therein, while pointing out inapplicability of the decision in United

Bank of India (supra), this Court observed that OL would not be holding

out any guarantee or warranty in respect of the property sold because he

would be proceeding on the basis of records of the company in liquidation

and, therefore, it was for the intending purchaser to satisfy himself in all

respects as to the title, encumbrances etc. of the immovable property

sought to be purchased; and such a purchaser could not, after having

32

purchased the property on such terms, claim diminution in the price on the

ground of defect in the title or description of the property. The said decision

cannot be read as an authority for any generalised proposition as if the

Official Liquidator, while conducting sale of the assets of the company in

liquidation, is absolved of the duty to state basic stipulations in the sale

notice.

19. In UT Chandigarh Administration (supra), 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. Notwithstanding this, it was observed, in regard to auction as

per “as is where is basis” thus: -

“19….. In a public auction of sites, the position is completely different.

A person interested can inspect the sites offered and choose the site

which he wants to acquire and participate in the auction only in regard

to such site. Before bidding in the auction, he knows or is in a position

to ascertain, the condition and situation of the site. He knows about

the existence or lack of amenities. The auction is on “as-is-where-is

basis”. With such knowledge, he participates in the auction and offers

a particular bid. There is no compulsion that 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

33

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/premium or

the stipulated interest on the delayed payment, or the ground rent,

on the ground that the site suffers from certain disadvantages or on

the ground that amenities are not provided.”

19.1. The aforesaid case of UT Chandigarh Administration, relating to

the complaints of want of basic amenities in the property sold in auction on

“as is where is” basis has no relevance whatsoever to the facts of the

present case.

20. In the case of Punjab Urban Planning and Development

Authority (supra), the bone of contention was the levy of interest, penal

interest, and penalty on account of delayed payment of instalments after

accepting allotment of commercial plots by way of auction. The Court held

that purchasers would be liable to pay such interest having accepted the

commercial plots subject to the conditions of the auction notice and

allotment letter while observing, inter alia, as under: -

“17…..We may reiterate that after having accepted the offer of the

commercial plots in a public auction with a superimposed condition

i.e. on “as-is-where-is” basis and after having accepted the terms

and conditions of the allotment letter, including instalment facility for

payment, the respondents cannot say that they are not bound by

the terms and conditions of the auction notice, as well as that of the

allotment letter. On facts also, we have found that there was no

inordinate delay on the part of PUDA in providing those facilities.”

20.1. Again, the aforesaid case of Punjab Urban Planning and

Development Authority wherein, the bone of contention was levy of penal

34

interest and penalty on account of delayed payment of instalments, has no

relevance whatsoever to the facts of the present case.

21. The decision of this Court in Ahmedabad Municipal Corporation

(supra) has been relied upon by the contesting respondents as also by the

supporting respondent. Therein, after insolvency proceedings commenced

in 1949, the property in question was auctioned and purchased by the

respondent-purchaser in 1954. It was attached by the Municipal

Corporation owing to the fact that the municipal taxes in arrear for 1949-50

to 1953-1955 had not been paid, leading the respondent-purchaser to file

a suit for declaration. The Division Bench of Gujarat High Court held that

the respondent was the owner of the property and that the charge for

arrears was not enforceable, which was challenged 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

35

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 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 background of Indian conditions. Courts in India

should, therefore, be careful and cautious in seeking assistance

from English precedents which should not be blindly or too

readily followed.”

21.1. In the aforesaid case of Ahmedabad Municipal Corporation,

while commencing the discussion, this Court also observed, as

underscored on behalf of respondent No. 2, that ‘the purchaser at auction

sale takes the property subject to all the defects of title and the doctrine of

caveat emptor (let the purchaser be aware) applies to such purchaser’ but

thereafter, the Court observed that the case of the judgment-debtor having

no saleable interest at all in the property sold such as contemplated by the

Order XXI Rule 91 of the Code of Civil Procedure was, however, different

and not covered by this doctrine. Such observations do not lend support to

the case of the appellant so as to shift the entire burden on the auction

purchaser despite significant omission in the terms and conditions of sale.

36

22. In AI Champdany 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 conditions of the sale must be read as a whole.

It must be given a purposive meaning. The word “encumbrance” in

relation to the word “immovable property” carries a distinct meaning.

It ordinarily cannot be assigned a general and/or dictionary

meaning.

*** *** ***

15. The respondent municipality was an unsecured creditor. In that

capacity it cannot stand on a higher footing than an ordinary

unsecured creditor who is required to stand in queue with all others

similarly situated for the purpose of realisation of their dues from the

sale proceeds.

16. The Companies Act or any other law does not impose any

additional obligation upon the purchaser to make an enquiry with

regard to the liabilities of the companies other than those which

would impede their value.

*** *** ***

37

18. We may notice that Section 141 of the Bombay Provincial

Municipal Corporations Act provides the property taxes to be a first

charge on the premise for which they are assessed. It is in that view

of the matter, Section 100 of the Transfer of Property Act was found

to be capable of being invoked therein, which reads as under:

“100. Charges.—Where immovable property of one person is by

act of parties or operation of law made security for the payment of

money to another, and the transaction does not amount to a

mortgage, the latter person is said to have a charge on the property,

and all the provisions hereinbefore contained which apply to a

simple mortgage shall, so far as may be, apply to such charge.

Nothing in this section applies to the charge of a trustee on the

trust property for expenses properly incurred in the 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.”

There cannot, thus, be any doubt or dispute 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 notice to

the charge and not merely create a charge.”

23. The aforesaid decisions in the cases of Ahmedabad Municipal

Corporation and AI Champdany Ltd. had been concerning the issue

relating to liability of auction purchaser of property in Court sale towards

arrears of municipal taxes 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

38

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 expenses for “preserving, realising or getting in”

the assets of the company and thus, shall have to be paid in priority and

before any other payment in the course of distribution of the assets of the

company or value thereof.

25. There remains another significant factor in the present case that the

property in question was indisputably governed by Section 185 of the M.P.

Act of 1956, which clearly provides that all sums due from any person in

respect of taxes on any land or building shall be of first charge upon the

said land or building and upon any movable property found within or upon

such land or building. The proviso thereto further makes it clear that no

arrears of any such tax would be recoverable from any occupier who is not

the owner, if such arrears were for a period during which the occupier was

not in occupation. In the face of undeniable operation of the said Section

185 of the M.P. Act of 1956 over the property in question, we are clearly of

the view that the bidder/purchaser was entitled to proceed on the

assumption that even if there were any arrears of such taxes under the

M.P. Act of 1956, the same would not be recoverable from him. Though,

as aforesaid, the cryptic terms and conditions of sale in the present case,

wanting in material stipulations, never obliged a purchaser to carry out a

39

search as regards encumbrances but, even if such a requirement is taken

into consideration on general principles of caveat emptor, the other

assumptions available with reference to the said Section 185 of the M.P.

Act of 1956 cannot be ignored.

26. The submissions made on behalf of the appellant about the likely

prejudice to the other pre-liquidation creditors if such post-liquidation

liabilities are given preference over other liabilities; and reference to

Section 529A and 530 of the Companies Act do not carry any relevance

and do not make out any case for interference. The provisions contained

in Sections 529A and 530 essentially relate to overriding preferential

payments as also preferential payments in relation to the classes of

dues/debts specified therein. However, the question of payment of the

same would arise after payment of costs and expenses of winding up that

are properly incurred by the appellant OL and are to be paid in priority. As

aforesaid, the taxes payable to the respondent No. 1 Nigam during the

period in question would directly amount 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

40

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 parties. As aforesaid, the ambiguity as also omissions in the terms and

conditions of the sale notice in the present case obviously lead to the

position that the view taken by the High Court calls for no interference.

30. Accordingly, and in view of the above, these appeals fail

and are, therefore, dismissed. No Costs.

……....……………………. J.

(DINESH MAHESHWARI)

……....……………………. J.

(ANIRUDDHA BOSE)

NEW DELHI;

MAY 04, 2023.