OFFICIAL LIQUIDATOR versus UJJAIN NAGAR PALIKA NIGAM & ORS on 4 May 2023

[2023] 7 S.C.R.

OFFICIAL LIQUIDATOR

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UJJAIN NAGAR PALIKA NIGAM & ORS.

(Civil Appeal No. 8015 of 2010)

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MAY 04, 2023

[DINESH MAHESHWARI AND ANIRUDDHA BOSE, JJ.]

Companies (Court) Rules, 1959 – r.338 – Madhya PradeshMunicipal Corporation Act, 1956 – s.185 – Post-liquidation liability,if Official Liquidator (OL) was obliged to discharge – Whether theCclaims made by the respondent No.1-Nigam towards arrears ofproperty tax and water tax of the company in liquidation, pertainingto the post-liquidation period (from the date of order of winding upand until the date of confirmation of sale of assets to the auctionpurchaser), if admissible against the appellant-OL – Held: Yes – InDthe present case, as per the terms and conditions of the sale notice,the sale was on “as is where is whatever there is” basis – A furtherdisclaimer was also stated that the appellant-OL was not providingany guarantee as to the quality, quantity or specification of theassets sold – Such stipulations and disclaimers had definitely putthe purchasers to notice to get themselves acquainted with what theEproperty is (the nature and extent); where it is (the locationalattributes); and whatever there is (its quantity and condition) –Bidders/purchasers were further warned to satisfy themselves inregard to the aspects of nature, extent, location etc. after physicalinspection of the assets and were also informed that they would beFdeemed to offer with full knowledge as to defects, if any – However,the significant omission in those terms and conditions was to makeit obligatory on the bidder/purchaser to make himself aware aboutencumbrances, liens and claims attached to the assets in question –This omission strikes at the very root of the case of the appellant –Further, in the face of undeniable operation of s.185, M.P. Act,G1956 over the property in question, the bidder/purchaser was entitledto proceed on the assumption that even if there were any arrears ofsuch taxes under the M.P. Act, 1956, the same would not berecoverable from him – Company Court and the High Court rightlyheld that the liability on account of the property tax and water taxHclaimed by the respondent No. 1 to the extent rejected by the appellant-OL was a post-liquidation liability, which the OL wasobliged to discharge, in view of the omission in the sale notice andthen, in view of the operation of r.338, 1959 Rules – In absence ofany statutory provision, the auction purchaser without notice ofany charge could not be made liable for the arrears of tax in questionduring the post-liquidation period – Arrears of property tax andwater tax until the date of confirmation of sale would qualify as theexpenses for “preserving, realising or getting in” the assets of thecompany and thus, shall have to be paid in priority by the appellant-OL – View taken by the High Court calls for no interference –Companies Act, 1956 – ss. 529A, 530.

United Bank of India v. Official Liquidator and Ors.(1994) 1 SCC 575 : [1993] 3 Suppl. SCR 1; HaryanaFinancial Corporation v. Rajesh Gupta (2010) 1 SCC655 : [2009] 16 SCR 456 – distinguished.

UT Chandigarh Administration and Anr. v. AmerjeetSingh and Ors. (2009) 4 SCC 660 : [2009] 4 SCR 541;Punjab Urban Planning and Development Authority v.Raghu Nath Gupta (2012) 8 SCC 197 : [2012] 8 SCR118 – held inapplicable.

Ahmedabad Municipal Corporation v. Haji Abdul GafurHaji Hussenbhai (1971) 1 SCC 757; AI ChampdanyLtd. v. Official Liquidator and Anr. (2009) 4 SCC 486 :[2009] 2 SCR 705 – relied on.

Municipal Board, Cawnpore v. Roop Chand Jain andAnr. AIR 1940 All 456 – referred to.

Delhi Development Authority v. Kenneth Builders andDevelopers Pvt. Ltd. and Ors. (2016) 13 SCC 561:[2016] 3 SCR 1126 – referred to.

In re Toshoku Finance UK plc : [2002] 1 WLR 671; Inre Toshoku Finance UK plc – referred to.

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1084SUPREME COURT REPORTS

[2023] 7 S.C.R.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8015of 2010.

From the Judgment and Order dated 05.02.2009 of the High Courtof Calcutta in ACO No. 49 of 2008 and APOT No. 248 of 2008.

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Civil Appeal No. 8016 of 2010.

Mrs. Rupali Samanta Ghosh, Sanjay Kumar Ghosh, Advs. for theAppellant.

Ms. Christi Jain, Puneet Jain, Harshit Khanduja, Yogit Kamat,DM. Arora, Ms. Pratibha Jain, Sunil Roy, T. Srinivasa Murthy, P. N. Gupta,Mrs. Bharti Gupta, Advs. for the Respondents.

The Judgment of the Court was delivered by DINESH MAHESHWARI, J.

E1. By way of these appeals, the appellant, being Official Liquidator[1]of the company named IISCO Ujjain Pipe and Foundry CompanyLimited[2], has questioned the common judgment and order dated05.02.2009 in APOT No. 248 of 2008 and APOT No. 235 of 2008,whereby the Division Bench of the High Court at Calcutta has dismissedFthe appeals against the common judgment and order dated 25.04.2007 inC.A. No. 159 of 2006 and C.A. No. 160 of 2006, as passed by thelearned Company Judge of the High Court[3] in allowing the companyapplications preferred by respondent No.1 Ujjain Nagar Palika Nigam[4],claiming property tax and water tax from the appellant in relation to thecompany in liquidation, from the date of order of winding up and until theGdate of confirmation of sale of assets to the auction purchaser, who isnow represented by respondent No. 3.

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1 ‘OL’, for short.

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

3 Hereinafter also referred to as ‘the Company Court’.

4 Hereinafter also referred to as ‘the Nigam’.

2. Briefly put, the relevant facts are that the said company, IISCOUjjain Pipe and Foundry Company Limited, became sick and was referredto the Board for Industrial and Financial Reconstruction[5] under theprovisions of Sick Industrial Companies (Special Provisions) Act, 1956.The BIFR recommended its winding up and, accordingly, it was orderedto be wound up by the Company Court in its order dated 10.07.1997.The appellant herein was appointed as the Official Liquidator and wasdirected 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 iswhere is whatever there is” basis by means of sale notice dated09.05.2003. The said notice provided for inspection of the assets of thecompany by intending purchasers and mentioned the availability of termsand conditions of sale alongwith particulars about the assets of thecompany at the office of the appellant. This sale notice reads as under:- “SALE NOTICE

Pursuant to the order of the Hon’ble High Court, Calcuttadated 4[th] April, 2003 offers are invited in sealed cover enclosing aBank Draft or Pay Order in favour of Official Liquidator, HighCourt, Calcutta for an amount equivalent to 20% of the offeredamount as earnest money for sale of the assets of the Company[In Liqn.] like land structure, building, machineries etc., lying atDewas Road, Ujjain M.P., and lease hold land building quarter atNana-Kheda, Indore road, Ujjain, M.P. The assets of the companywill be sold ‘as is where is whatever there is basis’. Balanceamount is to be paid within 30 days from the date of sale and thepossession is not be made only after full payment of the purchaseprice.

Sealed offers will be received by the Official Liquidatorupon 5 p.m. dated 26[th] June 2003 and the same will be opened on27[th] June 2003 at 2.00 p.m. before the Hon’ble Judge takingCompany matters in the High Court at Calcutta for considerationof such sealed offers. No one will be allowed to purchase in favourof nominee or nominees.

Inspection of the assets of the Company [In liqn.] will beallowed to the intending purchasers on 26[th] May 2003 and5 For Short, ‘BIFR’.

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A27[th] May 2003 between 12 noon to 4 p.m. Terms and conditionsof sale alongwith the particulars of the assets of the Company [InLiquidation] will be available at the office of the undersigned onand from 22[nd] May 2003 during office hours at a cost of Rs.50/-per catalogue and also at site during inspection period.

BDated this 9[th] day of May, 2003.”

3.1. The abovementioned sale notice carried certain terms andconditions appended to it, reinforcing that the sale would be on “as iswhere is whatever there is” basis and stating that the appellant OLwould not be providing any guarantee about the quality, quantity orCspecification of the assets sold; the tenderers were to satisfy themselvesin this regard after physical inspection of the assets of the company; andthe purchasers would be deemed to offer with full knowledge as todefects, if any, in the description, quality or quantity of the assets sold.The conditions relevant for the present purpose could be reproduced asfollows: -D

“TERMS & CONDITIONS OF THE SALE

1. The SALE will be as per inventory made by the valuer on ‘Asis where is whatever there is’ basis subject to the confirmationby the Hon’ble Court, The Official Liquidator shall not provideEany guarantee and/or warranty as to quality, quantity orspecification of the assets sold. The Tenderers/ bidders are tosatisfy themselves in this regard after physical inspection ofthe assets of the company and the purchasers will be deemedto offer with full knowledge as to defects, if any, in thedescription, quality or quantity of the assets sold. The OfficialFLiquidator, shall not entertain any complaint in this regard afterthe sale is over. Any mistake in the notice inviting tender shallnot vitiate the sale.

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3.2. Pursuant to the aforementioned sale notice, the assets wereGsold to one Nagendra Jain for a sum of Rs. 20.50 crore; and the salewas confirmed by the order of Company Court dated 04.07.2003.Subsequently, the respondent No. 3 was nominated in the place andstead of the said Nagendra Jain as purchaser of the assets and propertiesof the company in liquidation.H

4. After the sale of assets, the appellant OL invited claims fromthe creditors of the company in liquidation by way of advertisements.

4.1. In response to such invitation of claims, the respondent No. 1Nigam filed affidavit of proof of debt with the appellant, claiming towardsarrears of property tax a sum of Rs. 2,79,955/- for the year 1996-1997and another sum of Rs. 4,63,69,137/- for the years 1997-1998 till2003-2004, for the factory and staff quarters of the company in liquidationat Ujjain. The respondent No. 1 Nigam also filed another affidavit ofproof of debts with the appellant to the tune of Rs. 11,14,612/- as arrearsof 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. 1Nigam, the appellant OL issued four notices dated 24.01.2006. By wayof two such notices, the appellant admitted the claims to the tune ofRs. 2,79,955/- on account of property tax and Rs. 2,162.20 on accountof water tax against the company in liquidation only to the extent of pre-liquidation period i.e., prior to the date of order of winding up by theCompany Court (10.07.1997). However, by way of other two noticesissued 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 aroseafter the date of order of winding up i.e., 10.07.1997.

5. In challenge to the part rejection of its claim, the respondentNo. 1 Nigam preferred two company applications before the CompanyCourt at Calcutta by Judge’s Summons under Rule 164 of the Companies(Court) Rules, 1959[6], particularly as regards admissibility of post-liquidation claims.

6. For deciding the applications so preferred by the respondentNo.1, the Company Court framed the following question for adjudication:- “The question before this Court is whether claims, that might ariseagainst the Official Liquidator representing the company inliquidation, for any period of time, subsequent to the order ofwinding 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 bothpre-liquidation and post-liquidation rates and taxes; that as per Section 6 Hereinafter also referred to as ‘the Rules of 1959’.

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A185 of the Madhya Pradesh Municipal Corporation Act, 1956[7 ]the positionof 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 hadnot 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.3Bauction purchaser, while placing reliance on the said Section 185 of theM.P. Act of 1956, that he was not liable towards such taxes prior to thedate on which he occupied the property; and that the OL was liable topay all taxes till the execution of deed of conveyance in favour of thepurchaser.C6.3. On the other hand, it was contended on of behalf the appellantOL that he was liable to pay only those taxes which accrued till the dateof winding up and became payable within one year thereof; that in viewof Section 529A of the Companies Act, 1956[8], workmen’s dues and thedues of secured creditors to the extent they were secured, were to bepaid pari passu, and prioritised over all other debts; and that Rule 154Dof the Rules of 1959 provided for filing of affidavit of proof of debts ason relevant date and the appellant had allowed taxes due on the relevantdate that had been proved.

7. In the common judgment and order dated 25.04.2007, theCompany Court, while allowing the applications so filed by the respondentENo. 1 Nigam, held that liability of the appellant OL was not restricted tothe claims and debts only until the date of order of winding up.

7.1. The Company Court further held that reliance placed by theappellant OL on Section 530 of the Companies Act and Rule 154 of theRules of 1959 was patently misconceived, while observing that thereFwas no provision in either of them which restricted the claim only untilthe date of order of winding up. It was also held that Section 530 of theCompanies Act would not absolve a company in liquidation of its liabilitytowards revenue and taxes; and that such liabilities in the post-liquidationperiod were to be treated as a part of the cost of winding up and wouldGbe prioritised over all other liabilities. As regards the auction purchaser,the Company Court relied upon a decision of the Bombay High Courtholding that the purchaser was liable to pay property tax only from dateof purchase. The Company Court observed and held, inter alia, as under:- H

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

8 Hereinafter referred to as ‘the Companies Act’.

“The company may be wound up and its business closed down.Yet, the Official Liquidator would be obliged to protect the assetsof the company in liquidation, until such time as the assets aresold. For the protection of assets, the Official Liquidatorrepresenting the company might have to retain rented premises,obtain supply of electricity, engage security guards and take suchother steps involving expenses as the Official Liquidator mightdeem necessary. Can claims on account of inter alia rent, electricitycharges that accrued after the date of winding up, be outrightrejected only on the ground that the claims were post liquidationclaims even though the company in liquidation might have sufficientfunds to satisfy the claims?

An electricity supplier, may, as argued by Mr. Ghosh, have theoption of disconnecting supply for non-payment of its dues andappropriating the security deposit of the consumer. The right ofdisconnection would not, however, make any difference to themaintainability of the claim of the supplier.

It is not in dispute that the Official Liquidator has been makingpayment of post liquidation electricity charges. The compulsion tomake payment cannot, however, make any difference to the legalstatus of the claim.

If charges on account of supply of electricity after the date ofliquidation are payable, so is rent. The liability of a company topay rent and/or occupation charges and/or rates and taxes doesnot automatically come to an end with the order of winding up ofthe company.

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The dispute between the Official Liquidator and the applicant iswith regard to the rates and taxes for the period between 10thJuly, 1997 being the date on which the company was directed tobe wound-up and 4th July, 2003 being the date on which the salein favour of the purchaser was confirmed. In other words, thedispute is with regard to the taxes claimed for a period ofapproximately six years.

The Official Liquidator has rejected the proof of debt on hisinterpretation of the various provisions of the Companies Act and A

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the Company (Court) Rules framed thereunder and in particularSection 528, 529A and 530 and Rule 154 of the Rules.

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The contention on behalf of the Official Liquidator, that debts andclaims and particularly claims on account of municipal tax arepayable only till the date of winding up of the company, in view ofSection 530 of the Companies Act, 1956, read with Rule 154 ofthe Companies (Court) Rules 1959, is patently misconceived. Thereis no provision either in the Companies Act or in the Companies(Court) Rules which restricts claims and debts only till the date ofthe winding up order.

Pre-liquidation claims, which had arisen before the OfficialLiquidator took possession of the assets and properties of thecompany, would necessarily have to be estimated by the OfficialLiquidator on the basis of available records and the proof adducedby the claimant and/or creditor. Post liquidation debts and claimsdo not require to be proved.

Section 530 does not absolve a company in liquidation, representedby 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 monthsfrom the relevant date, being the date of the winding up order inpriority to other pre-liquidation debts. Post liquidation liabilities areto be treated as part of the costs of winding up of the company inliquidation and such liabilities get priority over all other liabilities ofthe company.

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In winding up, liquidators who carry on the company’s businesscontinue with rateable occupation of the premises and they are inrateable occupation even if they occupy merely for the purposeof fulfilling the outstanding contracts or preventing damage to thecompany’s property (Halsbury Laws of England, 4[th] Edn., Vol.39).

It is true that the Official Liquidator did not carry on any businesson 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 curiaeby this Court, and by Mr. Banerjee, appearing on behalf of theapplicant, the expenses incurred in winding up are payable, notprovable. The principle of priority of certain creditors is applicableto liability of the company at the time when the order for windingup of the company was made. Costs and expenses incurred onbehalf of the company, in winding up ought to have paid in full.”

7.2. The Company Court also took note of the fact that theappellant OL had rejected the claims only on the ground that he was notliable to pay post-liquidation expenses but had neither objected to thedetermination of annual value nor filed any appeal under Section 184 ofthe M.P. Act of 1956. The Court observed that unless an objection orappeal was filed and the demand was reduced, the OL would be boundto discharge the tax liability, as per the claim of the Nigam, even forpost-liquidation period. Therefore, the Court set aside the rejection noticeby the appellant but extended him liberty to file an appeal against thedemands, if so chosen, within thirty days and also provided that theappellant would, within eight weeks from the date of receipt of the orderin appeal under Section 184 of the M.P. Act of 1956, consider and disposeof the claims of the applicant (respondent No. 1), as determined in appealand in accordance with law.

8. The appellant challenged the aforesaid judgment and order dated25.04.2007 of the Company Court by way of appeals before the DivisionBench of the High Court but, the appeals came to be dismissed by theimpugned judgment and order dated 05.02.2009.

8.1. The appellant OL contended before the Division Bench thathe 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 inliquidation; that the provisions of the Companies Act did not envisagepayment of post-liquidation taxes on property and water and the assetswere only custodia legis after the winding up order until the sale; andthat the sale was on “as is where is whatever there is” basis, whichwould mean that the assets were not free from encumbrances whensold and thereby, the liability of taxes was shifted to the purchaser.

8.2. The respondent No. 1 Nigam contended that the appellantwould be liable to pay taxes to the Nigam out of sale proceeds, and apartfrom this, reiterated the submissions made before the Company Court.

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ASimilarly, the auction purchaser, respondent No. 3, submitted that hewas neither the owner nor the occupier until 04.07.2003 when the salewas confirmed and, therefore, there would be a shift of the charge tothe sale proceeds and not to the purchaser. However, a creditor of thecompany, respondent No. 2, contended that the claim towards arrearsof property and water tax would be directed against the auction purchaserBand not the OL.

8.3. The Division Bench did not accept the submissions of appellantand respondent No. 2 and held that respondent No. 3 - the auctionpurchaser – was not liable to pay the said charges accrued post-liquidationbecause, from the terms and conditions of sale, it could not be discernedCthat the purchaser was put to notice about any liability towards arrearsdue to the Nigam. The Division Bench held that in absence of clearprovision in the sale notice that intending purchaser had to satisfy himselfas regards assets of company in liquidation in all respects includingencumbrances, the appellant was obliged to discharge the post-liquidationDliability towards property and water taxes; and that it would not bereasonable to fasten liability on a purchaser without informing him aboutthe encumbrances prior to the sale. The Division Bench also distinguishedthe decision of this Court in the case of United Bank of India v. OfficialLiquidator and Ors.: 79 Company Cases 262 [= (1994) 1 SCC575] while taking note of the peculiar factual matrix and specific termsEand conditions of sale in that case. After making a comparison betweenthe terms and conditions of sale in the present case and those of sale inthe aforesaid case, it was observed that sale notice in the present casewas not couched in similar and comprehensive language and there wasno occasion for respondent No. 3 to make himself aware about theFencumbrances, 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 CompaniesAct, the Division Bench observed that the said provision had nothing todo with payment of taxes which might have mounted between the dateGof 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 ofvalue of debts and claims on the date of the order of winding up of thecompany was held to be of no application.

8.5. The Division Bench of the High Court observed and held asunder:-H

“There is no express provision in the sale notice that the liability tobear charges on account of water and property taxes must beborne by the purchaser. We are unable to comprehend that theexpression “as is where is whatever there is basis” compriseswithin its ambit the liability to clear statutory charges as mighthave accrued and are in arrears. The terms and conditions of thesale do specify that the Official Liquidator shall not provide anyguarantee and/or warranty as to quality, quantity or specificationof the assets sold and the intending purchaser is required to satisfyhimself in this regard after physical inspection of the assets of thecompany in liquidation and no complaint as to defects, if any, inthe description, quality or quantity of the assets sold would beentertained after the sale is over and that any mistake in the noticeinviting tender shall not vitiate the sale. These, per se, in our opinion,would not tantamount to a representation being made to anintending purchaser that while bidding for the assets put up forsale he is also to bear the expenses towards arrear dues of theNigam. Guarantee and/or warranty as to quality, quantity orspecification of the assets sold cannot be equated with the liabilityattached to the same. The terms and conditions of the tender onlyprotect the Official Liquidator to the extent of quality, quantityand specification and would not extend to claiming of immunity toclear taxes claimed by the Nigam.

The Official Liquidator has laid much stress on Section 530 of theCompanies Act and Rule 154 of the Companies (Court) Rules.We have failed to find the materiality of the said provisions for adecision on the present dispute. Section 530 provides forpreferential payments. According to clause (a) of sub-section (1)of Section 530 read with clause (c) of sub-section (8) thereof, allrevenues, taxes etc. due from the company in liquidation to alocal authority on the date of the winding up order and havingbecome due and payable during the preceding 12 months thereofwould be entitled to priority over all other dues. Section 530 hasnothing to do with payment of taxes which might have mountedbetween the date of winding up and sale of its assets by thepurchaser. Rule 154 also cannot have any manner of applicationsince it provides the manner of estimation of value of debts andclaims on the date of the order of winding up of the company.

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It would be, in our opinion, thoroughly unreasonable to foist theliability on a purchaser without first letting him know prior to thesale about such liability. Enquiries at site must have been made bythe ultimate purchaser before he offered his bid. The purchasercould have been informed there of the encumbrances. He couldhave also been told about it prior to his depositing the balance saleconsideration. The proceedings before the Company Court weredecided without giving any opportunity to the Official Liquidatorto file counter affidavits to the applications filed by the Nigam, asit appears from the stay petitions. We, however, find no avermentin the stay petitions to the effect that after the respondent no.3had expressed interest to purchase the assets of the company inliquidation, the Official Liquidator had made him aware thatpurchase of such assets would carry with it the liability to payarrear taxes recoverable by the Nigam. In the absence of suchan averment, we find it difficult to hold that the respondent no.3ought to bear the liability instead of the Official Liquidator.

At this stage, it would be worthwhile to consider the decision ofthe Apex Court in United Bank of India (supra) cited by Mr. Ghosh.The Official Liquidator, in that case, had sold the assets of thecompany in liquidation on the basis of Terms and Conditions ofSale to Triputi Jute Industries. Clause (2) of such terms andconditions was as follows:

“2. The sale will be as per inventory list on ‘as is where isbasis’ and subject to the confirmation of the Hon’bleSupreme Court of India. The Official Liquidator shall notprovide any guarantee and/or warranty in respect of theimmovable properties and as to the quality, quantity orspecification of the movable assets. The intendingpurchaser must satisfy themselves in all respect as regardsthe movable and immovable assets, as to their title,encumbrances, area, boundary, description, quality,quantity, and volume etc. and the purchaser will be deemedto offer with full knowledge as to the description, areaetc. of the properties and defects thereof, if any. Thepurchaser shall not be entitled to claim any compensationor deduction in price on any account whatsoever and shallbe deemed to have purchased the property subject to all encumbrances, liens and claims including those under theexisting legislation affecting labour, staff etc. The OfficialLiquidator shall not entertain any complaint in this regardafter the sale is over. Any mistake in the notice invitingtender shall not vitiate the sale.”

It was on consideration of the express provisions of clause (2) ofthe Terms and Conditions of Sale that the Apex Court proceededto hold as under:

“When the Official Liquidator sells the property and assetsof a company in liquidation under the orders of the Courthe cannot and does not hold out any guarantee or warrantyin respect thereof. This is because he must proceed uponthe basis of what the records of the company in liquidationshow. It is for the intending purchaser to satisfy himself inall respects as to the title, encumbrances and so forth ofthe immovable property that he proposes to purchase. Hecannot after having purchased the property on such termsthen claim diminution in the price on the ground of defectin title or description of the property. The case of theOfficial Liquidator selling the property of a company inliquidation under the orders of the Court is altogetherdifferent from the case of an individual selling immovableproperty belonging to himself. There is, therefore, no meritin the application made on behalf of Triputi that thereshould be a diminution in price or that it should not bemade liable to pay interest on the sum of Rs 1 crore 98lakhs”.

It is understandable that once an intending purchaser is warned tosatisfy himself in all respects as regards the immovable assets asin the said case, it is for his own benefit that he satisfies himself inall respects including encumbrances of the immovable propertythat he proposes to purchase. It is also quite understandable thatafter having purchased the property on such terms any objectionthat he was not aware of the encumbrances may not beentertained.

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Acomprehensive language as the one which fell for considerationbefore the Apex Court. There being no occasion for the respondentno.3 to make himself aware regarding the encumbrances, if any,in respect of assets of the company in liquidation which he proposedto purchase, it is too late in the day for the Official Liquidator tocontend that he ought to have participated in the bid upon beingBfully satisfied and not having raised any objection at the relevanttime it is he only who is liable to bear the property and othertaxes.

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We are of the view that the liability on account of property andwater taxes claimed by the Nigam, to the extent rejected by theCOfficial Liquidator is a post-liquidation liability which the OfficialLiquidator is obliged to discharge in the absence of a clear provisionin the sale notice that the intending purchaser must satisfy himselfas regards the assets of the company in liquidation in all respectsincluding encumbrances.

DIn the fitness of things, we deem it necessary to direct the OfficialLiquidator to issue future notices of sale of assets of companiesin liquidation in similar and comprehensive language as the onequoted supra from the Apex Court decision to avoidcomplications.”E9. Aggrieved by the common judgment and order dated 05.02.2009so passed by the Division Bench of the High Court, the appellant OL haspreferred these appeals.

9.1. Learned Counsel for the appellant has submitted that in trueoperation of the applicable provisions of law, the appellant cannot beFmade liable for the post-liquidation claims filed by respondent No. 1while disregarding the interest and entitlement of pre-liquidation creditors.It has been argued that the appellant has admitted the pre-liquidationclaims and has rightly rejected the post-liquidation claims as per Section530 of the Companies Act, since the workers/employees were dischargedGfrom service. Learned Counsel for the appellant would submit that theassets and properties of the company in liquidation are deemed to be inthe custody of the Court and the appellant has not carried on any businessnor utilised water after liquidation of company for gaining profit.

9.2. It has been strenuously argued by the learned counsel thatthe High Court was not justified in treating post-liquidation liabilities as aH

part of the cost of winding up and thereby, giving such liabilities a priorityover all other liabilities of the company in liquidation, which is notpermissible under Sections 529A, 530 and other provisions of theCompanies 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 nevertaken the necessary legal steps for realisation of its dues as claimed inits affidavit of proof of debt and the High Court did not even considersuch affidavit before fastening the liability of post-liquidation claim onthe appellant.

9.4. Learned Counsel has also submitted that the benefit given torespondent No. 3 by the High Court should not have been given in viewof the terms and conditions of sale of the assets of the company inliquidation. Learned Counsel has vehemently submitted that the tenderers/bidders had to satisfy themselves about all the relevant aspects concerningthe assets, when being sold on “as is where is whatever there is” basis;and therefore, the purchaser would be deemed to have full knowledgeof the defects, encumbrances, and statutory dues before purchasing theassets and properties of the company in liquidation. Learned counselwould emphasise that when the terms and conditions of the sale clearlymentioned that sale of assets would be on “as is where is whateverthere is” basis, after having purchased the property on such terms, thepurchaser is not entitled to make any claim as regards diminution in theprice on the ground of defect in title or description of the property. It hasfurther been submitted that the case of OL selling the property of acompany in liquidation under the orders of the Court is altogether differentfrom the case of an individual selling immovable property belonging tohimself. Reliance has been placed on decisions of this Court in UnitedBank of India (supra), Haryana Financial Corporation v. RajeshGupta: (2010) 1 SCC 655; UT Chandigarh Administration and Anr.v. Amerjeet Singh and Ors.: (2009) 4 SCC 660; and Punjab UrbanPlanning and Development Authority v. Raghu Nath Gupta: (2012)8 SCC 197.

10. The submissions made on behalf of the appellant have beenessentially supported on behalf of respondent No. 2, Steel Authority ofIndia Limited, one of the creditors of the company in liquidation, whohas lodged the claim alongwith its subsidiary IISCO Ltd. It has beencontended on behalf of respondent No. 2 that the findings of the High A

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ACourt are not in accord with the law on the point pertaining to ousterclauses in the sale notice clearly stating that the sale of assets of thecompany in liquidation was on “as is where is whatever there is” basis.It has been argued that the auction purchaser takes the property subjectto all defects of title and the doctrine of caveat emptor directly appliesto such purchaser. A decision of this Court in the case of AhmedabadBMunicipal Corporation v. Haji Abdul Gafur Haji Hussenbhai: (1971)1 SCC 757 has been relied upon.

11. Per Contra, learned counsel for respondent No. 1 hassubmitted that the appellant OL, as a custodian of the property, is liableto pay the post-liquidation claim too as raised by Nigam.C

11.1. Learned Counsel has submitted that the claims raised byrespondent No.1 constitute “liquidation expenses”, being the expensesthat had to be paid by the appellant OL to maintain the property whilebeing in his custody; and, therefore, the obligation is to be met out of thevalue realised from the sale of assets of the company. In this regard,Dlearned counsel for the respondent No. 1 has submitted that in terms ofRule 338 of the Rules of 1959, the expenses incurred by the OL for“preserving, realising or getting in” the assets of the company are requiredto be paid in priority and the said Rule provides for the order of preferencethereafter in relation to other costs and expenses payable out of theEassets of the company.

11.2. Learned Counsel has also submitted that preferentialpayments prescribed in Section 530 of the Companies Act are for paymentof specified claims thereunder and that too after payment of costs andexpenses of winding up that are properly incurred by the appellant andFwhich are paid in priority. Moreover, the said Section 530 relates toclaims for pre-liquidation period for which, there is a need for prescribingpriority but, the said provision has no application for the expenses incurredby OL during post-liquidation period, which are required to be paid inpriority. In regard to the liability and priority concerning post-liquidationexpenses, reliance has been placed on a few English decisions, includingGthat In re Toshoku Finance UK plc: [2002] 1 WLR 671.

11.3. Learned Counsel for respondent No. 1 has placed strongreliance on Section 185 of the M.P. Act of 1956 to submit that theprovision creates an obligation to pay municipal taxes as a first chargeon the land and building as also the movable properties and the provisoH

expressly provides that arrears of tax are not recoverable from anyoccupier who is not the owner, if the arrears are of the period whensuch occupier was not in occupation. Therefore, in view of the proviso,arrears of tax for the period prior to confirmation of auction sale, cannotbe 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 ofthe Companies Act, the municipal taxes as sought to be claimed byrespondent No.1 would be costs of winding up; and the appellant beingin possession of the assets, is obliged to pay the municipal taxes, whichought 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 thetax dues in the present case were “post-liquidation dues” amounting to“costs of liquidation” and were to be borne by the OL alone; and couldnot have been foisted on the auction purchaser.

12.1. It has been submitted on behalf of respondent No. 3 thatauction purchaser is liable towards property tax and water tax with effectfrom the date of confirmation of sale in his favour i.e., from 04.07.2003and he has discharged all such claims but then, there is no liability on himtowards taxes prior to the date of confirmation of sale when property ofthe company was custodia legis and was in the hands of OL.

12.2. Furthermore, learned counsel has submitted that theCompanies Act and the Rules of 1959 do not impose any obligation onpurchaser to pay dues that relate to period between the date of order ofwinding up and date of sale confirmation. The claims in the present caseare post-liquidation charges or costs and are, therefore, expenses ofwinding up, liable to be borne out of proceeds of liquidation, if any; andto the extent that they remain unpaid after exhausting the proceeds ofliquidation, are to abate. In this regard, reliance has been placed on thesaid decision, In re Toshoku Finance UK plc.

12.3. Learned Counsel has referred to Section 100 of Transfer ofProperty Act, 1882[9] as also to the decisions of this Court in AhmedabadMunicipal Corporation (supra) and AI Champdany Ltd. v. OfficialLiquidator and Anr.: (2009) 4 SCC 486 to submit that auction purchaserwithout notice and in absence of any provision in terms of sale or anystatutoryprovision could not be made liable for such arrears of tax; and 9 Hereinafter also referred to as ‘the Act of 1882’.

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Athat no charge could be enforced against any property in hands oftransferee for consideration and without notice of the charge; and thatfor its enforceability, a provision of law must expressly provide forenforcement of a charge against the property in the hands of thetransferee for value without notice to the charge and not merely createa charge. Learned counsel would submit that the dues in relation toBmunicipal taxes in terms of the said M.P. Act of 1956 do not create anyencumbrance or charge on the property such as to run with property forall times and under all circumstances as held in AI Champdany Ltd.(supra). Moreover, it cannot be said to constitute any encumbrance whichdiminishes the value of the property.C

12.4. It has been submitted that there is no obligation that hasbeen created or could be assumed on account of the terms and conditionsof the sale carried out by the appellant, particularly when there was noexpress provision in the sale notice that the liability of charges on accountof property tax and water tax were to be borne by the purchaser. In Dregard to the submissions of the appellant that the auction purchaser hadpurchased the property with “as is where is and whatever there is”stipulation, learned counsel has strenuously argued that such a stipulationpertains to the physical properties of an asset and could not be construedas indicative of constructive notice of charge or encumbrance. Relianceis placed on Ahmedabad Municipal Corporation (supra), which has,Ein turn, approved the reasoning of the Full Bench of High Court ofAllahabad in the case of Municipal Board, Cawnpore v. Roop ChandJain and Anr.: AIR 1940 All 456.

12.5. It has been contented that by virtue of Section 185 of theM.P. Act of 1956, arrears could only be claimed from a person who wasFan occupier at relevant time and from no one else and, therefore, thequestion of auction purchaser making any inquiries or foisting upon himany constructive knowledge does not arise; rather, proviso to Section185 frees an auction purchaser from even making inquiries about suchtax arrears. In this regard, further reliance has been placed on the decisionGin Delhi Development Authority v. Kenneth Builders and DevelopersPvt. Ltd. and Ors.: (2016) 13 SCC 561.

12.6. Lastly, learned counsel has placed reliance oncorrespondence between respondent No. 3 and the appellant to suggestthe sufficiency of funds available with the appellant to discharge the H

claims of respondent No.1 before disbursing any left-over amount to theshareholders.

13. We have heard learned counsel for the parties at length andhave perused the material placed on record.

14. For what has been noticed hereinabove, the dispute betweenappellant OL and respondent No. 1 Nigam, put in a nutshell, is withregard to the rates and taxes for the period between 10.07.1997 (beingthe date on which the company was ordered to be wound up) and04.07.2003 (being the date on which the sale in favour of the purchaserwas confirmed). As noticed, part rejection of the claim of respondentNo. 1 Nigam by the appellant OL, in relation to the period aforesaidbetween 10.07.1997 to 04.07.2003 was not approved by the CompanyCourt while observing that post-liquidation liabilities were to be treatedas part of the costs of winding up of the company in liquidation and suchliability would get priority over all other liabilities of the company. TheCompany Court observed and reiterated that the principle of priority ofcertain creditors would be applicable to the liability of the company atthe time of passing of the order of winding up but, costs and expensesincurred 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 notautomatically come to an end with the order of winding up. The CompanyCourt yet left it open for the appellant OL to file an appeal under theprovisions of the M.P. Act of 1956 while observing that unless suchappeal was filed and demand was reduced, the appellant OL was boundto discharge the tax liability as per the claim of the Nigam even for thepost-liquidation period. The contention of appellant before the DivisionBench in challenge to the order so passed by the Company Court hadessentially been with reference to the terms and conditions of sale andreliance upon the decision in United Bank of India (supra). The DivisionBench compared the terms and conditions of sale in the cited decisionand the terms and conditions of sale in the present case and observedthat the sale notice in the present case was not couched in similar andcomprehensive language so as to oblige the respondent No. 3 to makehimself aware about encumbrances, if any, in respect of the assets ofthe company in liquidation. The Division Bench further observed thatSection 530 of the Companies Act had no application in relation to thetaxes which might have mounted between the date of the order of windingup and the date of sale of assets. Similarly, the Division Bench indicated A

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Ainapplicability of Rule 154 of the Rules of 1959, providing for the mannerof estimation of claims on the date of the order of winding up. TheDivision Bench summarised its conclusion that the claim in question wasthat of a post-liquidation liability which the OL was obliged to dischargein absence of a clear provision in the sale notice obliging the intendedpurchaser to satisfy himself as regards the assets of the company inBliquidation in all respects, including encumbrances. More or less the samesubmissions have been made by the respective parties in this appeal but,with a little elaboration on their respective stands. While leaving theirrelevant aspects aside, the neat question is as to whether the claims somade by the respondent No. 1 Nigam towards property tax and waterCtax pertaining to the post-liquidation period, from the date of order ofwinding up and until the date of confirmation of sale of assets to theauction purchaser, are admissible against the appellant OL.

15. For dealing with the question at hand, we may usefully takenote of the statutory provisions relevant to the present case.

D15.1. Section 529A and the relevant parts of Section 530 of theCompanies Act, 1956 read as under: - “529A. Overriding preferential payment. - Notwithstandinganything contained in any other provisions of this Act or any otherlaw for the time being in force, in the winding up of a company-E

(a) workmen’s dues; and

(b) debts due to secured creditors to the extent such debtsrank under clause (c) of the proviso to sub-section (1) of section529 pari passu with such dues, Fshall 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 tomeet them, in which case they shall abate in equal proportions.

530. Preferential payments. - (1) In a winding up subject to theGprovisions of section 529A, there shall be paid in priority to allother debts- (a) all revenues taxes, cesses and rates due from the companyto the Central or a State Government or to a local authority atthe relevant date as defined in clause (c) of sub-section (8), H

and having become due and payable within the twelve monthsnext before that date; ***

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(8) For the purpose of this section -

(a) .....

(b) ....

(bb) ....

(c) the expression “the relevant date” means-

(i) in the case of a company ordered to be wound upcompulsorily, 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 thecompany had commenced to be wound up voluntarily beforethat date; and

(ii) in any case where sub-clause (i) does not apply, the date ofthe passing of the resolution for the voluntary winding up ofthe company.

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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 againstthe company shall, as far as is possible, be estimated according tothe value thereof at the date of the order of the winding-up of thecompany or where before the presentation of the petition forwinding up, a resolution has been passed by the company forvoluntary winding-up, at the date of the passing of such resolution.

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R.163. Acceptance or rejection of proof to be communicated– After such investigation as he may think necessary, the liquidatorshall in writing admit or reject the proof in whole or in part. Everydecision of the Liquidator accepting or rejecting a proof, eitherwholly or in part, shall be communicated to the creditor concernedby post under certificate of posting where the proof is admittedand by registered post for acknowledgement where the proof is

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Arejected wholly or in part, provided that it shall not be necessaryto give notice of the admission of a claim to a creditor who hasappeared before the Liquidator and the acceptance of whose claimhad been communicated to him or his agent in writing at the timeof acceptance. Where the Liquidator rejects a proof, wholly or inpart, he shall state the grounds of the rejection to the creditor inBForm No.69, Notice of admission of proof shall be in Form No.70.

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R.338. Cost and expenses payable out of the assets in a-winding-up by the Court.

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(1) The assets of a company in a winding-up by the Courtremaining after payment of the fees and expenses properly incurredin preserving, realising or getting in the assets including, wherethe company has previously commenced to be wound-upvoluntarily, such remuneration, cost and expenses as the CourtDmay allow to the liquidator in such voluntary winding-up, shall,subject to any order of the Court and to the rights of securedcreditors if any, be liable to the following payments which shall bemade in the following order of priority, namely :- First.-the taxed costs of the petition including the taxed costs ofEany person appearing on the petition, whose costs are allowed bythe Court.

Next.-the costs and expenses of any person who makes, or concursin making, the Company’s statement of affairs ; Next.-the necessary disbursements of the Official Liquidator otherFthan expenses properly incurred in preserving, realising or gettingin the properties of the company ; Next.-the cost of any person properly employed by the OfficialLiquidators ; Next.-the fees to be credited to Government under section 451G(2) ; Next.-the actual out of pocket expenses necessarily incurred bythe members of the Committee of Inspection, and sanctioned bythe Court.

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(2) Save as otherwise ordered by the Court no payments in respectof bills of advocates, shall be allowed out of the assets of thecompany without proof that the same have been considered andallowed by the taxing officer of the Court. The taxing officer shallbefore passing the Bills or charges of an advocate, satisfy himselfthat the appointment of an advocate to assist the liquidator in theperformance of his duties has been duly sanctioned.

(3) Nothing contained in this Rule shall apply to or affect costswhich, in the course of legal proceedings by or against the companywhich is being wound-up by the Court, are ordered by the Courtin which such proceedings are pending, to be paid by the companyor the liquidator, or the rights of the person to whom such costsare payable.”

15.3. Section 185 of the Madhya Pradesh Municipal CorporationAct, 1956, which is relied upon by the contesting respondents, reads asunder: - “185. Liability of buildings, lands, etc., for taxes. - All sums due from any person in respect of taxes on any land orbuilding shall, subject to prior payment of any land revenue inrespect of it due to the government, be a first charge upon thesaid land or building and upon any movable property found withinor upon such land or building and belonging to the said person.

Provided that no arrears of any such tax shall be recoverablefrom any occupier who is not the owner, if such arrears are for aperiod during which the occupier was not in occupation.”

16. One of the principal points arising for determination in thismatter is the impact and effect of sale of assets of the company inliquidation to the respondent No. 3, particularly when the property wassold on “as is where is whatever there is” basis. Learned counsel forthe appellant has referred to and relied upon a few decisions of thisCourt in support of his contention that looking to the terms and conditionsof sale, the purchaser would be deemed to have full knowledge of defects,encumbrances and statutory dues and would remain liable towards suchdues, particularly when the sale in the present case had been by theappellant OL under the orders of the Court. Per contra, learned counselfor the contesting respondents have referred to a couple of decisions toassert that no charge would be enforceable against the property at the AB

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Ahands of transferee for consideration without notice of charges and, forthe municipal taxes not creating an encumbrance or charge as such onthe property in question. We may closely examine the cited decisions totake note of the ratio decidendi and principles available therein.

17. The sheet anchor of the submissions on behalf of the appellantBOL 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 propertyand assets of company in liquidation, the Official Liquidator does nothold any guarantee or warranty in respect thereof; and the intendingpurchaser has to satisfy himself in all respects, particularly as regardsencumbrances. Therein this Court, inter alia, observed as under: -C“14. When the Official Liquidator sells the property and assetsof a company in liquidation under the orders of the Court he cannotand does not hold out any guarantee or warranty in respect thereof.This is because he must proceed upon the basis of what the recordsof the company in liquidation show. It is for the intending purchaserDto satisfy himself in all respects as to the title, encumbrances andso forth of the immovable property that he proposes to purchase.He cannot after having purchased the property on such termsthen claim diminution in the price on the ground of defect in titleor description of the property. The case of the Official LiquidatorEselling the property of a company in liquidation under the ordersof the Court is altogether different from the case of an individualselling immovable property belonging to himself. There is, therefore,no merit in the application made on behalf of Triputi that thereshould be a diminution in price or that it should not be made liableto pay interest on the sum of Rs 1 crore 98 lakhs.”F

17.1. At the first blush, the said decision might appear to bestanding somewhere near to the facts of the present case, for that hadalso been a case of sale of the assets by an OL with a somewhat similarstipulation that the sale was on “as is where is” basis. However, asrightly pointed out by the Division Bench of the High Court, there hadGbeen a marked difference in the terms and conditions of sale in the caseof United Bank of India (supra) and those of the present case.

17.2. As noticed and extracted in the impugned judgment of theDivision Bench of the High Court, in the case of United Bank of India(supra), the sale notice, inter alia, carried a significant stipulation wherebyHthe 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, andvolume etc.” Therein, it was also stated that “the purchaser shall notbe entitled to any compensation or deduction in price on any accountwhatsoever and shall be deemed to have purchased property subjectto all encumbrances, liens and claims including those under theexisting legislation affecting labour, staff etc.” Such stipulations leftnothing to chance and nothing of any ambiguity where the purchaserwas required to satisfy himself not only about the physical attributes ofthe assets but also about all encumbrances, liens and claims. Unfortunately,the terms and conditions of the sale in the present case fell too short ofsuch material stipulations.

17.3. We have reproduced hereinbefore the contents of the salenotice dated 09.05.2003 in the present case and the relevant terms andconditions of sale of the assets of the company in liquidation. It is evidentthat expansive technical expressions were used in the present case bythe appellant OL in the terms and conditions of the sale that the samewould be on “as is where is whatever there is” basis and then, furtherdisclaimer was stated that the appellant OL was not providing anyguarantee as to the quality, quantity or specification of the assets sold.Such stipulations and disclaimers were definitely putting the purchasersto notice to get themselves acquainted with what the property is (thenature and extent); where the property is (the locational attributes); andwhatever there is (quantity and condition of the property). The bidders/purchasers were further warned to satisfy themselves in regard to theaspects of nature, extent, location, quantity, and quality after physicalinspection of the assets and were also informed that they would be deemedto offer with full knowledge as to defects, if any, in the description,quality or quantity of the assets sold. All such stipulations were essentiallypertaining to the physical properties/attributes of the assets in questionbut, the significant omission in those terms and conditions had been tomake it obligatory on the bidder/purchaser to make himself aware aboutencumbrances, liens and claims attached to the assets in question. Thisomission strikes at the very root of the case of the appellant.

17.4. The Division Bench of the High Court has rightly said thatif the intending purchaser was required to satisfy himself in all respectsincluding encumbrances, he might not be heard in any objection aboutwant of knowledge of encumbrances but, if he was not so warned, such AB

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Aan obligation on him to make himself aware about encumbrances cannotbe 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 guaranteeor warranty in respect of property sold. In the said case, the appellantBFinancial Corporation had issued an advertisement for sale of variousunits 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. Notbeing satisfied with response of appellant, respondent did not submitfurther money. Appellant invited fresh tenders and forfeited the moneyCdeposited by respondent. In the writ petition preferred by respondent,the Division Bench of High Court quashed forfeiture and ordered forrefund along with 12% interest and Rs. 5,000 costs. In appeal beforethis Court, one of the submissions on behalf of the appellant FinancialCorporation had been with reference to the aforesaid decision in UnitedDBank of India (supra). While distinguishing the said decision, this Courtobserved that Official Liquidator would proceed on the basis of the recordsof the company in liquidation and, therefore, it was for the intendingpurchaser to satisfy himself in all respects as to the title, encumbrancesetc. of the immovable property that he intended to purchase; and thatpurchaser cannot after having purchased the property on such terms,Eclaim diminution in the price on the ground of defect in the title ordescription of the property. The Court further observed that the appellantFinancial Corporation was exercising the rights of an owner in sellingthe property and was not selling the property as an Official Liquidator;and the principles applicable to an Official Liquidator selling propertyFunder the orders of Court would not be applicable to an individual sellingimmovable property belonging to himself. Moreover, the Court observedthat respondent therein made all necessary inquiries and it was theCorporation who failed to give fair description of property offered forsale. The Court, inter alia, observed as under: - G“23. In our opinion, the appellants cannot be given the benefit ofClause 5 of the advertisement. The appellant Corporation cannotbe permitted to take advantage of its own wrong. Clause 5undoubtedly permits the forfeiture of the earnest money deposited.But this can only be if the auction-purchaser fails to comply withthe conditions of sale. In our opinion, the respondent has not failed H

to comply with the conditions of sale. Rather, it is the appellantCorporation which has acted unfairly, and is trying to takeadvantage of its own wrong.”

“24. In view of the aforesaid, we are of the considered opinionthat the appellant Corporation cannot be permitted to rely uponSection 55 of the Transfer of Property Act, 1882. The appellantCorporation failed to disclose to the respondent the material defectabout the non-existence of the independent 3 “karams” passageto the property. Therefore, the appellant Corporation clearly actedin breach of Sections 55(1)(a) and (b) of the Transfer of PropertyAct, 1882.

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“27. We are also of the considered opinion that the reliance placedon the judgment of this Court by the counsel for the appellantsin United Bank of India v. Official Liquidator [(1994) 1 SCC575] is wholly misconceived. The aforesaid judgment relates tosale of the property and assets of a company in liquidation by theOfficial Liquidator under the orders of the court. Therefore it isobserved that the Official Liquidator cannot and does not holdany guarantee or warranty in respect of the property sold. That isbecause the Official Liquidator proceeds on the basis of what therecords of the company in liquidation show. Therefore it is for theintending purchaser to satisfy himself in all respects as to the titleand encumbrances and so forth of the immovable property thathe proposes to purchase. In those circumstances it is held that thepurchaser cannot after having purchased the property on suchterms then claim diminution in the price on the ground of defect inthe 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, para14)

“14. … The case of the Official Liquidator selling theproperty of a company in liquidation under the orders of the courtis altogether different from the case of an individual sellingimmovable property belonging to himself.”

The aforesaid observation would be clearly applicable to theCorporation as it is exercising the rights of an owner in selling the AB

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Aproperty. The appellant Corporation is not selling the property asan Official Liquidator.”

18.1. Evidently, Haryana Financial Corporation (supra) hadbeen a case of sale by the Corporation, which was distinguished fromsale by an OL. Therein, while pointing out inapplicability of the decisionBin United Bank of India (supra), this Court observed that OL wouldnot be holding out any guarantee or warranty in respect of the propertysold because he would be proceeding on the basis of records of thecompany in liquidation and, therefore, it was for the intending purchaserto satisfy himself in all respects as to the title, encumbrances etc. of theimmovable property sought to be purchased; and such a purchaser couldCnot, after having purchased the property on such terms, claim diminution in the price on the ground of defect in the title or description of theproperty. The said decision cannot be read as an authority for anygeneralised proposition as if the Official Liquidator, while conductingsale of the assets of the company in liquidation, is absolved of the duty toDstate basic stipulations in the sale notice.

19. In UT Chandigarh Administration (supra), this Court dealtwith the consumer complaints of respondents filed to contend that theappellant was not legally entitled to claim balance of premium or annualrent, for having failed to provide basic amenities at the residential andEcommercial sites auctioned by way of advertisement. This Court allowedthe appeals as the purchaser was not a consumer with reference topublic auction of existing sites. Notwithstanding this, it was observed, inregard to auction as per “as is where is basis” thus: -

“19….. In a public auction of sites, the position is completelyFdifferent. A person interested can inspect the sites offered andchoose the site which he wants to acquire and participate in theauction only in regard to such site. Before bidding in the auction,he knows or is in a position to ascertain, the condition and situationof the site. He knows about the existence or lack of amenities.The auction is on “as-is-where-is basis”. With such knowledge,Ghe participates in the auction and offers a particular bid. There isno compulsion that he should offer a particular price. When thesites auctioned are existing sites, without any assurance/representation relating to amenities, there is no question ofdeficiency of service or denial of service. Where the bidder has aHchoice and option in regard to the site and price and when there is no assurance of any facility or amenity, the question of the ownerof the site becoming a service provider, does not arise even byapplying the tests laid down in LDA [(1994) 1 SCC 243] or BalbirSingh [(2004) 5 SCC 65].

20. Where there is a public auction without assuring any specificor particular amenities, and the prospective purchaser/lesseeparticipates in the auction after having an opportunity of examiningthe site, the bid in the auction is made keeping in view the existingsituation, position and condition of the site. If all amenities areavailable, he would offer a higher amount. If there are no amenities,or if the site suffers from any disadvantages, he would offer alesser amount, or may not participate in the auction. Once withopen eyes, a person participates in an auction, he cannot thereafterbe heard to say that he would not pay the balance of the price/premium or the stipulated interest on the delayed payment, or theground rent, on the ground that the site suffers from certaindisadvantages 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 soldin auction on “as is where is” basis has no relevance whatsoever to thefacts of the present case.

20. In the case of Punjab Urban Planning and DevelopmentAuthority (supra), the bone of contention was the levy of interest, penalinterest, and penalty on account of delayed payment of instalments afteraccepting allotment of commercial plots by way of auction. The Courtheld that purchasers would be liable to pay such interest having acceptedthe commercial plots subject to the conditions of the auction notice andallotment letter while observing, inter alia, as under: - “17…..We may reiterate that after having accepted the offer ofthe commercial plots in a public auction with a superimposedcondition i.e. on “as-is-where-is” basis and after having acceptedthe terms and conditions of the allotment letter, including instalmentfacility for payment, the respondents cannot say that they are notbound by the terms and conditions of the auction notice, as wellas that of the allotment letter. On facts also, we have found thatthere was no inordinate delay on the part of PUDA in providingthose facilities.”

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A20.1. Again, the aforesaid case of Punjab Urban Planning andDevelopment Authority wherein, the bone of contention was levy ofpenal 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 MunicipalBCorporation (supra) has been relied upon by the contesting respondentsas also by the supporting respondent. Therein, after insolvencyproceedings commenced in 1949, the property in question was auctionedand purchased by the respondent-purchaser in 1954. It was attached bythe Municipal Corporation owing to the fact that the municipal taxes inarrear for 1949-50 to 1953-1955 had not been paid, leading the respondent-Cpurchaser to file a suit for declaration. The Division Bench of GujaratHigh Court held that the respondent was the owner of the property andthat the charge for arrears was not enforceable, which was challengedby the Corporation before this Court. With reference to Section 100 ofthe Act of 1882, it was held that no charge would be enforceable againstDany property in the hands of transferee for consideration without noticeof 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 chargeis enforceable against any property in the hands of a transfereeEfor consideration without notice of the charge except where it isotherwise expressly provided by any law for the time being inforce. The saving provision of law must expressly provide forenforcement of a charge against the property in the hands of atransferee for value without notice of the charge and not merelycreate a charge. …..F

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11. Now the circumstances which by a deeming fiction imputenotice to a party are based, on his wilful abstention to enquire orsearch which a person ought to make or, on his gross negligence.GThis presumption of notice is commonly known as constructivenotice. Though originating in equity this presumption of notice isnow a part of our statute and we have to interpret it as such.Wilful abstention suggests conscious or deliberate abstention andgross negligence is indicative of a higher degree of neglect.Negligence is ordinarily understood as an omission to take suchHreasonable care as under the circumstances is the duty of a person

of ordinary prudence to take. In other words it is an omission todo something which a reasonable man guided by considerationswhich normally regulate the conduct of human affairs would door doing something which normally a prudent and reasonable manwould not do. The question of wilful abstention or gross negligenceand, therefore, of constructive notice considered from this pointof view is generally a question of fact or at best mixed question offact and law depending primarily on the facts and circumstancesof each case and except for cases directly falling within the threeexplanations, no inflexible rule can be laid down to serve as astraight-jacket covering all possible contingencies. The questionone has to answer in circumstances like the present is not whetherthe purchaser had the means of obtaining and might with prudentcaution have obtained knowledge of the charge but whether innot doing so he acted with wilful abstention or gross negligence.Being a question depending on the behaviour of a reasonablyprudent man, the Courts have to consider it in the background ofIndian conditions. Courts in India should, therefore, be carefuland cautious in seeking assistance from English precedents which”should not be blindly or too readily followed.

21.1. In the aforesaid case of Ahmedabad MunicipalCorporation, while commencing the discussion, this Court also observed,as underscored on behalf of respondent No. 2, that ‘the purchaser atauction sale takes the property subject to all the defects of title andthe doctrine of caveat emptor (let the purchaser be aware) appliesto such purchaser’ but thereafter, the Court observed that the case ofthe judgment-debtor having no saleable interest at all in the property soldsuch as contemplated by the Order XXI Rule 91 of the Code of CivilProcedure was, however, different and not covered by this doctrine.Such observations do not lend support to the case of the appellant so asto shift the entire burden on the auction purchaser despite significantomission in the terms and conditions of sale.

22. In AI Champdany Ltd. (supra), the appellant had purchasedthe assets of the company under liquidation and was subsequently servedwith notice by municipality for payment of arrears of property tax. Upontaking out a chamber summons with the prayer that appellant wouldonly be liable for property tax after date of confirmation of sale, theapplication was dismissed on the ground that it was incumbent on the AB

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Apurchaser to make enquiries regarding the liabilities attached to the assetsbefore making an offer. The intra-court appeal was dismissed by theDivision Bench. In the appeal before this Court, it was held that dues inrelation to municipal tax in terms of the relevant provisions of theCompanies Act did not create an encumbrance or charge on the propertyand was considered to be a personal liability. This Court, inter alia,Bobserved and held as under: - “10. Dues in relation to the municipal tax in terms of the provisionsof the said Act do not create any encumbrance on the property. Itdoes not create any charge. It is considered to be a personalliability. On the aforementioned premise, we have to construe theCterms and conditions of the sale…

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12. The terms and conditions of the sale must be read as a whole.It must be given a purposive meaning. The word “encumbrance”Din relation to the word “immovable property” carries a distinctmeaning. It ordinarily cannot be assigned a general and/ordictionary meaning.

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15. The respondent municipality was an unsecured creditor. InEthat capacity it cannot stand on a higher footing than an ordinaryunsecured creditor who is required to stand in queue with all otherssimilarly situated for the purpose of realisation of their dues fromthe sale proceeds.

16. The Companies Act or any other law does not impose anyFadditional obligation upon the purchaser to make an enquiry withregard to the liabilities of the companies other than those whichwould impede their value.

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18. We may notice that Section 141 of the Bombay ProvincialMunicipal Corporations Act provides the property taxes to be afirst charge on the premise for which they are assessed. It is inthat view of the matter, Section 100 of the Transfer of PropertyAct was found to be capable of being invoked therein, whichreads as under:

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“100. Charges.—Where immovable property of one personis by act of parties or operation of law made security for thepayment of money to another, and the transaction does not amountto a mortgage, the latter person is said to have a charge on theproperty, and all the provisions hereinbefore contained which applyto a simple mortgage shall, so far as may be, apply to such charge.

Nothing in this section applies to the charge of a trustee onthe trust property for expenses properly incurred in the executionof his trust, and, save as otherwise expressly provided by any lawfor the time being in force, no charge shall be enforced againstany property in the hands of a person to whom such property hasbeen transferred for consideration and without notice of thecharge.”

There cannot, thus, be any doubt or dispute that a provision of lawmust expressly provide for an enforcement of a charge againstthe property in the hands of the transferee for value without noticeto the charge and not merely create a charge.”

23. The aforesaid decisions in the cases of AhmedabadMunicipal Corporation and AI Champdany Ltd. had been concerningthe issue relating to liability of auction purchaser of property in Courtsale towards arrears of municipal taxes due on the date of sale, whichare of statutory charge on the property sold and of which, the purchaserhad no notice. On interpretation and application of second part of Section100 of the Act of 1882, this Court held that the auction purchaser withoutnotice, in the absence of stipulation in the terms of sale or any statutoryprovision, could not be made liable for such dues. In the fact situation ofthe present case, the principles aforesaid operate heavily against thecase of the appellant.

24. It has rightly been argued on behalf of the contestingrespondents, with reference to Section 100 of the Act of 1882 and thedecision of this Court in AI Champdany Ltd. (supra), that in absence ofany statutory provision, the auction purchaser without notice of any chargecould not be made liable for the arrears of tax in question during thepost-liquidation period. The provisions of the M.P. Act of 1956 were notcreating any such encumbrance or charge on the property which wouldattach to the property for all times and under all circumstances nor theycould be said to constitute any encumbrances which diminish the value AB

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Aof the property. In contrast, they would only qualify as expenses for“preserving, realising or getting in” the assets of the company andthus, shall have to be paid in priority and before any other payment in thecourse of distribution of the assets of the company or value thereof.

25. There remains another significant factor in the present caseBthat the property in question was indisputably governed by Section 185of the M.P. Act of 1956, which clearly provides that all sums due fromany person in respect of taxes on any land or building shall be of firstcharge upon the said land or building and upon any movable propertyfound within or upon such land or building. The proviso thereto furthermakes it clear that no arrears of any such tax would be recoverableCfrom any occupier who is not the owner, if such arrears were for aperiod during which the occupier was not in occupation. In the face ofundeniable operation of the said Section 185 of the M.P. Act of 1956over the property in question, we are clearly of the view that the bidder/purchaser was entitled to proceed on the assumption that even if thereDwere any arrears of such taxes under the M.P. Act of 1956, the samewould not be recoverable from him. Though, as aforesaid, the crypticterms and conditions of sale in the present case, wanting in materialstipulations, never obliged a purchaser to carry out a search as regardsencumbrances but, even if such a requirement is taken into considerationon general principles of caveat emptor, the other assumptions availableEwith reference to the said Section 185 of the M.P. Act of 1956 cannot beignored.

26. The submissions made on behalf of the appellant about thelikely prejudice to the other pre-liquidation creditors if such post-liquidationliabilities are given preference over other liabilities; and reference toFSection 529A and 530 of the Companies Act do not carry any relevanceand do not make out any case for interference. The provisions containedin Sections 529A and 530 essentially relate to overriding preferentialpayments as also preferential payments in relation to the classes of dues/debts specified therein. However, the question of payment of the sameGwould arise after payment of costs and expenses of winding up that areproperly incurred by the appellant OL and are to be paid in priority. Asaforesaid, the taxes payable to the respondent No. 1 Nigam during theperiod in question would directly amount to the costs and expenses ofliquidation.

27. This being the position, in our view, the Company Court andthen the Division Bench of the High Court have rightly underscored thefaults on the part of the appellant OL and have rightly held that theliability on account of the property tax and water tax claimed by therespondent No. 1 to the extent rejected by the appellant OL has been apost-liquidation liability, which the OL was obliged to discharge, in viewof omission in the sale notice and then, in view of the operation of Rule338 of the Rules of 1959.

28. Put in different words, as regards the operation of the saidRule 338 of the Rules of 1959, we are inclined to accept the reasoningof the High Court that on the facts and in the circumstances of thepresent case, arrears of property tax and water tax until the date ofconfirmation of sale, i.e., 04.07.2003, would qualify as the expenses for“preserving, realising or getting in” the assets of the company andthus, shall have to be paid in priority by the appellant OL.

29. For what has been discussed hereinabove, we do not find itnecessary to dilate upon the other decisions cited by learned counsel forthe parties. As aforesaid, the ambiguity as also omissions in the termsand conditions of the sale notice in the present case obviously lead to theposition that the view taken by the High Court calls for no interference.

30. Accordingly, and in view of the above, these appeals fail andare, therefore, dismissed. No Costs.

Divya Pandey(Assisted by : Roopanshi Virang, LCRA)

Appeals dismissed.

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