WAVE INDUSTRIES PVT. LTD. versus STATE OF U.P. & ORS. on 15 December 2022

1130

[2022] 16 S.C.R. 1130

SUPREME COURT REPORTS

[2022] 16 S.C.R.

WAVE INDUSTRIES PVT. LTD.

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v.

STATE OF U.P. & ORS.

(Civil Appeal No. 9272 of 2022)

BDECEMBER 15, 2022

[K.M. JOSEPH AND HRISHIKESH ROY, JJ.]

Liability – Slump Sale Agreement dated 17.07.2010, followedby a sale deed, was entered into between U.P State SugarCorporation Limited-Seller (UPSSCL) and Appellant-Purchaser forCUPSSCL’s loss making Amroha sugar mill – Dispute arose w.r.toutstanding liability of unpaid duty, penalty, and interest, if to bedischarged by the seller or the purchaser – Subsisting dues arisingout of transactions occurring on dates prior to the sale, if contingentor conditional liability or an accrued liability which may beDcomputed or discharged at a subsequent date – Held: There is nodispute that the liability towards the duty in question for the Amrohaunit are in respect of business transactions for the period anteriorto the signing date of the Slump Sale Agreement – The businessliability for the Amroha unit had arisen out of the operation of theunit during the period before the same was sold to the appellant,Ealthough the liability is to be quantified and discharged at a futuredate – When the liability is capable of being estimated withreasonable certainty, the liability is not to be treated as a contingentone and should be considered as a liability which may be dischargedat a future date – Thus, the liability in question not being a contingentFone, the same cannot be fastened on the purchaser who were notoperating the unit, prior to the Slump Sale Agreement dated17.7.2010 – Further, in clause 12.1 and 12.2 of the Agreement readwith Clause 9 of the Sale Deed, the liability of the purchaser, forthe operation and activities of the unit, arose only after the signingdate – Thus, dues relating to the activities and operation of the unitGupto 17.7.2010 (signing date), were the liabilities of the UPSSCL –Also, prior to 17.7.2010, the appellant was neither a dealer nor amanufacturer and therefore, had no tax or duty obligations to satisfyfor the operation of the Amroha unit – Impugned order erroneously H

held that the liabilities for the transactions made prior to the saleagreement are to be borne by the purchaser, set aside.

Disposing of the appeals, the Court

Conclusion

Held : 1.1 There is no dispute that the liability towards theduty in question for the Amroha unit are in respect of businesstransactions for the period anterior to the signing date of theSlump Sale Agreement. Moreover assessment orders andrecovery citations have been issued by the taxing authorities inthe name of the UPSSCL. The business liability for the Amrohaunit had definitely arisen out of the operation of the unit duringthe period before the same was sold to the appellant, althoughthe liability is to be quantified and discharged at a future date.When the liability is capable of being estimated with reasonablecertainty, the liability is not to be treated as a contingent one andshould be considered as a liability which may be discharged at afuture date. Such being the position in law and the liability inquestion not being a contingent one, the same cannot be fastenedon the purchaser who were not operating the unit, prior to theSlump Sale Agreement dated 17.7.2010. In clause 12.1 and 12.2of the Slump Sale Agreement read with Clause 9 of the Sale Deed,the liability of the purchaser, for the operation and activities ofthe unit, arose only after the signing date. This would suggestthat dues relating to the activities and operation of the unit in theperiod upto 17.7.2010 (signing date), were the liabilities of theUPSSCL while the dues relating to activities and operation of theunit for the period subsequent to 17.7.2010, were to be theresponsibility of the purchaser. The liability of the purchaser forthe dues relating to activities and operations of the unit for theperiod anterior to 17.7.2010, could not therefore have beenfastened on the appellant in view of the clear provisions made inclause 9 of the Sale Deed read with Clause 12.1 and 12.2 of theSlump Sale Agreement as both are specific in nature. In the samecontext, the clause 2.6 which speaks of contingent liabilities andlegal cases pending in respect of the unit, to be fastened on thepurchaser and the seller being absolved of such liability, aregeneric conditions provided under clause 2.6 of the Slump SaleAgreement and this Court is not impressed by those. The reasonbeing the contradictions in the specific conditions mentioned in A

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Athe Slump Sale Agreement. In such circumstances, clause 9 ofthe sale deed being specific will govern the parties and willoverride anything contrary, contained in the Slump SaleAgreement. [Paras 15, 17 and 18][1138-E; 1139-B-G]

1.2 In view of the specific and detailed provisions withBregard to the distribution of liabilities in respect of the dueswhereby duties in respect of the transactions upto the date ofagreement are to be borne by the Seller i.e. UPSSCL and thebuyer is made responsible only for dues in respect of post-saletransactions it is observed that the impugned order dated1.11.2017 has erroneously held that the liabilities for theCtransactions made prior to the sale agreement, are to be borneby the purchaser. That apart, prior to 17.7.2010, the appellantwas neither a dealer nor a manufacturer and therefore, had notax or duty obligations to satisfy for the operation of the Amrohaunit. It is the UP State Sugar Corporation Limited which hadDcollected all the dues from their customer on behalf of the StateGovernment and they are under an obligation to deposit thecollected sum in the government treasury. In view of theforegoing, the liability in question, not being a contingent liability,cannot be fastened on the shoulders of the appellant. Theimpugned judgment is set aside. [Paras 19, 20][1139-G-H;E1140-A-B, D]

Bharat Earth Movers v. Commissioner of Income Tax,Karnataka (2000) 6 SCC 645 : [2000] 2 Suppl. SCR295 – relied on.

Case Law ReferenceF

[2000] 2 Suppl. SCR 295 relied on Para 16

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9272of 2022.

From the Judgment and Order dated 01.11.2017 of the High CourtGof Judicature at Allahabad at Lucknow Bench in W. P. (M/B) No.20032of 2016.

With

Civil Appeal Nos. 9273, 9274 and 9275 of 2022.

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T. Srinivasa Murthy, Senthil Jagadeesan, Anandh K., Ms. NishitaJagetia, Advs. for the Appellant.

Balbir Singh, ASG, Ardhendhumauli Kumar Prasad, AAG, Ms.Rukhmini Bobde, Syed Abdul Haseeb, Adit Khorana, Ms. Priyanka Das,Mukesh Kumar Maroria, Rohit K. Singh, Pritam Bishwas, Kislay Jha,Ms. Ruchi Gupta, Samarth Srivastava, Ms. Shreya Srivastava, AmanSingh Bhadoria, Ms. Ananya Sahu, Bhakti Vardhan Singh, Pradeep Misra,Deleep Dhyani, Manoj Kumar Sharma, Suraj Singh, B. Krishna Prasad,Advs. for the Respondents.

The Judgment of the Court was delivered by HRISHIKESH ROY, J.

Leave granted.

2. Heard Mr. T. Srinivasa Murthy, the learned counsel appearingfor the appellants. Also heard Mr. Balbir Singh, the learned AdditionalSolicitor General of India appearing for respondent-State. The U.P StateSugar Corporation (respondent no.2) for short “the UPSSCL”, isrepresented by Mr. Pradeep Misra, the learned counsel.

3. For the sake of convenience, we will take the facts of SLP(C)No. 3525 of 2018, for the purpose of this judgment: - The appellants were the writ petitioners before the High Courtwho were unsuccessful in their challenge to the order dated 7.6.2016whereby the liability for payment of Rs.2,14,169/- duty, Rs. 2,41,169/-penalty, and Rs.1,40,459/- interest, amounting to Rs. 5,68,797/- is declaredto be borne by M/s Wave Industries Pvt. Ltd. (Purchaser) and not bythe Seller i.e. “UPSSCL”.

4. This appeal relates to the Amroha sugar mill which was one ofthe four loss making sugar mills owned and operated by the UPSSCL.For the unit at Amroha, a Slump Sale Agreement dated 17.7.2010 wasentered into, followed by the sale deed dated 4.10.2010, between theUPSSCL and the appellant.

5. The above arrangements were preceded by the advertisementdated 29.6.2009 in the newspaper proposing slump sale of the loss makingsugar mills of UPSSCL. A pre-bid meeting was next held on 10.7.2009with the prospective buyers where, inter alia, concern was raised onoutstanding liabilities against the units on sale. The appellant submitted A

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Abid for Rs.13.94 crores for the Amroha Unit and as per Clause 12 of theSlump Sale Agreement dated 17.7.2010, all liabilities referred to in thesaid clause, accruing before the date of signing agreement were to beborne by the Seller and those of subsequent period, were to be borne bythe Purchaser. The sale agreement was registered accordingly on9.8.2010 and possession of the Amroha unit was taken over by theBappellant on 17.8.2010 and since then the appellant has been managingthe unit. Subsequent to the Slump Sale Agreement, formal sale deedwas executed on 4.10.2010 and in Clause 9 thereof it was made clearthat the seller shall be liable to bear all assessments, rents, rates, taxes,outgoing and impositions of whatsoever nature relating to the Unit uptoCthe signing date and thereafter these will be the liability of the purchaser.The dispute here relates to liability of unpaid duty, penalty, and interest.When recovery proceeding relating to the period prior to 17.7.2010 wasinitiated by the respective departments, the appellant filed a writ petitionbefore the Lucknow Bench of the High Court of Allahabad and the saidWrit Petition No.2587(M/B) of 2013 was disposed of by the High CourtDon 22.3.2013, with a direction to the State Government to afford hearingto the purchasers and decide their representation, with a speaking order.

6. The appellants representation was disposed of on 7.6.2016 bydeclaring that the purchaser is liable for the outstanding liabilities in respectof the sugar unit at Amroha upto 30.11.2011. The payable duty withEpenalty and interest was quantified at Rs.5,68,797/- and the issue to bedecided in this appeal is whether those outstanding liabilities are to bedischarged by the seller or the purchaser.

7. Before we proceed further it would be proper to take note ofcertain defined terms in the Slump Sale Agreement dated 17.7.2010:F

“Certain Liabilities:

Certain Liabilities shall mean such liabilities, debts and otherobligations in respect of the Unit including contingent liabilitiesof Unit except Excluded Liabilities.

GCurrent Liabilities:

B. Statutory Dues

(vi) Income Tax

(vii) Sale Tax/VAT

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(viii) Entry Tax

(ix) Others due including Purchase tax.

Excluded Liabilities:

“Excluded Liabilities shall mean Liabilities claimed till SigningDate which are being retained/settled by the Seller.

Explanation: For the purposes of this definition liabilitiesaccrued but unclaimed shall not be settled or retained by theseller but the same shall stand transferred to the purchaser.

Liabilities : Liabilities shall mean all the liabilities on accountof borrowings by the Company, and all other liabilities whetherascertained or uncertained, contingent and disputed, in relationto the Unit, any claims by or due to third parties, and labour,excise, sales tax claims etc.

Signing Date:

Signing Date shall mean the date of signing of this Agreement.

Purchase Price:

Purchase Price shall mean bid amount plus Net Working CapitalAdjustment plus all other amount mentioned in clause3 of thisAgreement.

Taxes:

Taxes shall mean all and any statutory or other governmentallevies, taxes charges, cess, penalties, rates, stamp duties andother dues pertaining or relating to the Sale of the Unit ascontemplated herein, including but not limiting to sales tax,income tax, registration charges etc.

Bid Amount Bid amount shall mean that sum of Rs. 17.01Crores (Rupees Seventeen crores one lakh only) as mentionedby the purchaser in the Financial Proposal (RFP Application)”

8. Clause 2.1 provided that the unit is being sold as a going concernon as is where is basis and all rights, title and interest of the seller in theunit together with all assets and liabilities except excluded liabilities areto be transferred by the seller and delivered to the purchaser. Clause2.1 reads as under:- A

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A“2.1 In consideration of the Purchase Price to be paid bythe Purchaser to the Seller in the manner set out herein andsubject to the provisions of this Agreement, on the ClosingDate, the Seller shall Transfer and deliver to the Purchaserand the Purchaser shall purchase, acquire and accept fromthe Seller, all right, title and interest of the Seller in and toBthe Unit, together with all Assets and Liabilities exceptExcluded Liabilities, as a going concern on an as is where isbasis” collectively (“The Unit”)”

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9. Clause 2.6 speaks of transfer of contingent liabilities and itprovided that all contingent liabilities and legal cases shall be transferredCby the seller to the purchaser and purchaser is solely liable in respect ofsuch contingent liabilities from the signing date and the seller shall haveno liabilities whatsoever in such respect. Clause 2.6 reads as under:- “2.6 It is hereby further agreed between the parties that allcontingent liabilities and legal cases pending in respect of theDUnit, shall be transferred by the Seller to the Purchaser andthe Purchaser is solely liable in respect of such contingentliabilities from the Signing Date and the Seller shall have noliabilities whatsoever in such respect.

10. Clause 12 speaks of payment of taxes and stamp duty and it isEstated that after signing date the purchaser shall be liable and responsiblefor all obligations or liabilities in respect of the operations and activitiesof the unit after the signing date. The following sub-clauses of Clause12 being relevant are extracted :-“12.1The purchaser shall save as herein expressly provided,Fbear, pay and discharge all assessments, rents, taxes, outgoingand impositions of whatsoever nature relating or pertaining tothe operations and activities of the Unit pertaining to the periodafter the Signing Date. The Purchaser shall be liable andresponsible for all obligations or liabilities arising from or in respectGof the operations and activities of the Unit of the Seller after theSigning Date.

12.2 The purchaser shall bear, pay and discharge all liabilities,obligations, assessments, rents, rates, taxes, outgoings andimpositions of whatsoever nature relating or pertaining to theoperations and activities of the after the signing date.H

12.3 Save and except as herein otherwise provided, thePurchaser shall bear and pay the stamp duty, registration chargesand sales tax or any other applicable tax, if any payable, on or inrespect of the Transfer of the Unit.

12.4Capital Gains Tax, if any payable in connection with theTransfer contemplated under this Agreement, shall be borne bythe Seller.”

11. The sale deed was executed on 4.10.2010 for a totalconsideration of Rs. 13.94 crores and the agreement dated 17.7.2010was made part of the sale deed. Clause 8(d) of the sale deed reads asunder:- “8(d) All taxes, levies, cesses or any charges in respect to theUnit/Land, whether levied by a government authority, such asmunicipal or property tax that are due up to the date of Agreement(“Signing Date”) have been paid in full by seller.

Further Clause 9 of the sale deed reads as under:- “9. The Seller shall be liable to bear all assessments, rents,rates, taxes outgoing and imposition of whatsoever naturerelating or pertaining to the Unit up to the Signing Date andthereafter, the same shall be the liability of the Purchaser.

12. In the speaking order dated 7.6.2016, the appellant’srepresentation was rejected and the liability of duty, interest, and penalty,for the period prior to the date of purchase of the Amroha unit has beenfastened on the appellant. The same is premised on clause 2.6 of theSlump Sale Agreement which stated that all contingent liabilities andlegal cases pending in respect of the unit shall be transferred by theUPSSCL to the purchaser and the appellant as the purchaser shall besolely responsible in respect of the contingent liabilities on or after thesigning date.

13. While rejecting the challenge of the appellant to the speakingorder dated 7.6.2016, the High Court relied on clause 2.1 of the agreementand adverted to the expression “except excluded liabilities in the saidclause” and held that it means liabilities claimed till signing date whichare retained or settled by the Seller and since tax liabilities are not shownto be part of the “excluded liabilities” and since clause 2.4 provides fortransfer of all contingent liabilities and legal cases in respect of the unit, A

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Ato the purchaser, the recovery of such contingent liabilities after thesigning date would only be from the purchaser and not from the seller.The appellant’s challenge to the speaking order was thus negated andthe writ petition came to be dismissed upholding the speaking order holdingthat the disputed liabilities are to be borne by the purchaser.B14. The questions to be answered here are (1) whether the duesarising out of the operations and activities of the sugar unit prior to thedate of acquisition is to be borne by the seller and whether subsistingdues arising out of transactions occurring on dates prior to the sale, canbe characterized as contingent or conditional liability or is it an accruedliability which may be computed or discharged at a subsequent date; (2)CWhether a purchaser of a sugar mill could be treated as a dealer orservice provider as an entity liable for discharging dues even if they hadnot been acting as a dealer or service provider or otherwise as an entityon whom, liability could be fastened; (3) Whether the speaking order isvitiated, due to conflict of interest, a point which the impugned orderDdoes not indicate was argued before the high court.

15. There is no dispute that the liability towards the duty in questionfor the Amroha unit are in respect of business transactions for the periodanterior to the signing date of the Slump Sale Agreement. Moreoverassessment orders and recovery citations have been issued by the taxingEauthorities in the name of the UPSSCL. Therefore, can such liability fortransactions prior to the Slump Sale Agreement dated 17.7.2010 befastened on to the purchaser.

16. In Bharat Earth Movers vs. Commissioner of Income Tax,Karnataka[1], on the issue of contingent liability, Justice R C Lahoti in hisFopinion, which has stood the test of time, on behalf of the three JudgeBench stated the following:- “4. The law is settled: if a business liability has definitelyarisen in the accounting year, the deduction should be allowedalthough the liability may have to be quantified andGdischarged at a future date. What should be certain is theincurring of the liability. It should also be capable of beingestimated with reasonable certainty though the actualquantification may not be possible. If these requirementsare satisfied the liability is not a contingent one. The liabilityis in praesenti though it will be discharged at a future date.H1 (2000) 6 SCC 645

It does not make any difference if the future date on whichthe liability shall have to be discharged is not certain.”

17. In the case in hand, the business liability for the Amroha unithad definitely arisen out of the operation of the unit during the periodbefore the same was sold to the appellant, although the liability is to bequantified and discharged at a future date. When the liability is capableof being estimated with reasonable certainty, the liability is not to betreated as a contingent one and should be considered as a liability whichmay be discharged at a future date. Such being the position in law andthe liability in question not being a contingent one, the same cannot in ourview be fastened on the purchaser who were not operating the unit,prior to the Slump Sale Agreement dated 17.7.2010.

18. Pertinently, in clause 12.1 and 12.2 of the Slump Sale Agreementread with Clause 9 of the Sale Deed, the liability of the purchaser, forthe operation and activities of the unit, arose only after the signing date.This would suggest that dues relating to the activities and operation ofthe unit in the period upto 17.7.2010 (signing date), were the liabilities ofthe UPSSCL while the dues relating to activities and operation of theunit for the period subsequent to 17.7.2010, were to be the responsibilityof the purchaser. The liability of the purchaser for the dues relating toactivities and operations of the unit for the period anterior to 17.7.2010,could not therefore have been fastened on the appellant in view of theclear provisions made in clause 9 of the Sale Deed read with Clause12.1 and 12.2 of the Slump Sale Agreement as both are specific in nature.In the same context, the clause 2.6 which speaks of contingent liabilitiesand legal cases pending in respect of the unit, to be fastened on thepurchaser and the seller being absolved of such liability, are genericconditions provided under clause 2.6 of the Slump Sale Agreement andwe are not impressed by those. The reason being the contradictions inthe specific conditions mentioned in the Slump Sale Agreement. In suchcircumstances, clause 9 of the sale deed being specific in our opinion,will govern the parties and will override anything contrary, contained inthe Slump Sale Agreement.

19. Furthermore, in view of the specific and detailed provisionswith regard to the distribution of liabilities in respect of the dues wherebyduties in respect of the transactions upto the date of agreement are to beborne by the Seller i.e. UPSSCL and the buyer is made responsible onlyfor dues in respect of post-sale transactions, we are unable to agree AB

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Awith the impugned order dated 1.11.2017 which erroneously in our view,held that the liabilities for the transactions made prior to the saleagreement, are to be borne by the purchaser.

20. That apart, prior to 17.7.2010, the appellant was neither adealer nor a manufacturer and therefore, had no tax or duty obligationsBto satisfy for the operation of the Amroha unit. It is the UP State SugarCorporation Limited which had collected all the dues from their customeron behalf of the State Government and they are under an obligation todeposit the collected sum in the government treasury. But for thosetransactions, for the period prior to 17.7.2010, the UPSSCL are trying tousurp the collected sum and are trying to pass on the burden to theCappellant who was neither the dealer nor they had anything to do withthe operation of the unit prior to 17.7.2010. In such circumstances, therejection of the representation of the appellant appears to be arbitraryand the speaking order could not therefore have been sustained by theHigh Court in the impugned judgment. In view of the foregoing, theDliability in question, not being a contingent liability, cannot be fastened onthe shoulders of the appellant. The contrary view taken in the speakingorder and in the impugned judgment are therefore found to beunsustainable. The appeal is accordingly allowed by setting aside theimpugned judgment leaving the parties to bear their own cost.

E21. The appeals arising out of SLP (C) No. 4053 of 2018, SLP(C)No. 3537 of 2018 and SLP(C) No. 12724 of 2018 are also disposed of,in the above terms.

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Divya Pandey and Anurag Bhaskar(Assisted by : Priyanshu Agarwal, LCRA)

Appeals disposed of.

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