Industries Ltd. Vs. Official Liquidator & ANR.  INSC 368 (19 February
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1118 OF 2009 (Arising
out of SLP (C) No.15285 of 2008) AI Champdany Industries Limited ... Appellant
Versus The Official Liquidator & Anr. ... Respondents
S.B. Sinha, J.
of India Limited (the company) went in liquidation.
assets of the company in liquidation in a court sale for a consolidated sum of
Rs.7,03,00,000/-. Sale was confirmed by the learned Company Judge by an Order
dated 15th September, 2006.
was served with a notice dated 15-02-2007 by Bhatpara Municipality claiming
payment of arrears of property tax amounting to Rs.47,59,597.19/- for the
period from 1991-1992 and 2006-2007, stating :
adopting the said stringent measure for realizing the arrear property tax once
again give you and opportunity to pay all arrear property tax in respect of the
said holdings being 1/, West Ghoshpara Road, Ward No. 12, amounting to
Rs.47,59,597.19/- plus statutory interest within seven days from the receipt
contends that it has no liability to pay the said dues and the same has to be
adjusted from the sale proceeds. It is furthermore stated that on and from the
date of purchase it had paid all municipal rates and taxes subsequent to the
date of sale.
Appellant on receipt
of the said notice took out a Chamber Summons praying, inter alia, for the
following reliefs :
clarification be made that Sale confirmed in favour of applicant by order dated
15th September, 2006 would make the applicant liable for payment of property
tax only on and from the date of confirmation of sale i.e. 15th September, 2006
and not for any period prior thereto;
(b) Order dated 15th
September, 2006 be suitably modified and/or clarified in terms of prayers
restraining the respondent no. 2 from claiming any alleged arrear property tax
for period prior to 15th September, 2006;
(d) Direction be
given to the respondent no. 2 lodge its claim before the Official Liquidator
for any alleged claim on account of property tax for period prior to 15th
restraining the respondent no. 2 from giving any effect and/or further effect
to the notice dated 15th February, 2007 and 6th March, 2007 being Annexures
"E" and "G" respectively to the affidavit in support of
(f) Ad-interim orders
in terms of prayers above;
(g) Costs of and/or
incidental to this application be paid by the respondent no. 2;
(h) Such further
and/or other order or orders as this Hon'ble Court may deem fit and
reason of an order dated 7th February, 2008, the said application has been
dismissed, stating :
considered the submissions of the parties the terms "as is where is basis
and whatever there is basis" signifies, the condition, quality and the
quantity in which the assets sold, exists. It does not take into account the
liabilities attached to the assets sold. The terms and conditions of sale,
however, called upon the bidders to satisfy themselves regarding title and
encumbrance attached to the said asset. Encumbrance would include the liability
attached to the asset including the tax payable. Therefore, it was incumbent
upon 4 the purchaser to make enquiry regarding liabilities (to be read as
encumbrance) attached to the asset before making the offer, The tax payable to
the municipality is one such encumbrance and for not making enquiry the
petitioner cannot avoid payment."
intra court appeal preferred thereagainst has been dismissed by a Division
Bench of the said court.
Sunil Kumar, learned senior counsel, in support of this appeal, would contend
that a purchaser is not liable to pay the property tax prior to the date of
purchase and remedy of the respondent municipality, if any, was to have its
claim satisfied from the sale proceeds in terms of Sections 529 and 529A of the
Companies Act, 1956.
Sibaji Sen, learned senior counsel appearing on behalf of the
respondent-Municipal Corporation, on the other hand, would draw our attention
to the advertisement for sale to contend that the appellant had a duty to make
an enquiry in regard to the Company's encumbrance as also in terms of the
provisions of Sections 55(1) and 55(2)(g) of the Transfer of Property Act.
The learned counsel
appearing on behalf of the official liquidator would support the said
company went in liquidation. It was directed to be wound up.
liquidator indisputably took charge of both movable and immovable assets of the
company. The fact that the company went in liquidation was given due publicity.
Respondent-Municipality did not file its claim before the official liquidator.
It did not stand in queue to get the same recovered and/or adjusted from the
manner in which the claim of a creditor in respect of the dues of the company
in liquidation is to be realized has been laid down in Sections 529 and 529A of
the Companies Act, 1956.
in relation to the Municipal Tax in terms of the provisions of the said Act do not
create any encumbrance on the property. It does not create any charge. It is
considered to be a personal liability. On the aforementioned premise, we have
to construe the terms and conditions of sale. It reads as under :
"1. The sale
will be held as per inventory made by the Valuer on "As is Where is And
Whatever There is" basis and subject to confirmation by the Hon'ble High
Court at Calcutta. The Official Liquidator shall not provide any guarantee
and/or warranty as to the quality, quantity or specification of the assets
sold. The Offerers/Bidders are to satisfy themselves in this regard after
physical inspection of the assets/properties as to the title, encumbrance,
area, boundary, measurement, description etc. of the Company (in Liquidation)
and the purchasers will be deemed to offer with full knowledge as to the
defects, if any in the descriptions, quality or quantity of 6 the assets sold.
The Official Liquidator shall not entertain any complaint in this regard after
the sale is over. Any mistake in the notice inviting tender shall not vitiate
the learned Single Judge as also the Division Bench of the High Court held that
having regard to the fact that an inventory was made on "as is where is
and whatever there is" basis and furthermore in view of the fact that a
duty was cast upon the offerer to satisfy themselves in regard to the physical
inspection of the assets/properties as to the title, encumbrance, area,
boundary, measurement, description etc. of the assets of the company in
liquidation and the purchaser would be deemed to be offering his prices
therefor with full knowledge as to the defects containing the descriptions,
quality or quantity of the assets sold, the appellant was bound to make an
investigation in regard to the liabilities of the company in liquidation.
terms and conditions of the sale must be read as a whole. It must be given a
`encumbrance' in relation to the word `immovable property' carries a distinct
meaning. It ordinarily cannot be assigned a general and/or dictionary meaning.
We may however notice some dictionary meanings of the said word as reliance
thereupon has been placed by Mr. Sibaji Sen.
7 In Stroud's
Judicial Dictionary of Words and Phrases 5th Edition Encumbrance is defined as
"being, `a claim, lien, or liability, attached to property'; and this
definition is wide enough to cover the plaintiff's claim,"
which was, as
assignee for value of a reversionary interest, against a person coming in under
a subsequent title."
In Supreme Court on
Words and Phrases it is stated that "the word `encumbrance' means a burden
or charge upon property or a claim or lien upon an estate or on the land."
In Advanced Law
Lexicon Encumbrance is defined as "an infringement of another's right or
intrusion on another's property."
In Black's Law
Dictionary Encumbrance is defined as "any right to, or interest in, land
which may subsist in another to diminution of its value, but consistent with
the passing of the fee."
therefore, must be capable of being found out either on inspection of the land
or the office of Registrar or a statutory authority. A charge, burden or any
other thing which impairs the use of the land or depreciates in its value may
be a mortgage or a deed of trust or a lien or an easement. Encumbrance thus
must be a charge on the property. It must run with the property. If by a reason
of the statute no such burden on the title which diminishes the value of the
land is created, it shall not constitute any encumbrance.
the property tax was merely a statutory dues without creating any encumbrance
on the property which had cast a duty upon all the auction purchasers to make
an investigation, it would mean that he must try to find out all the liabilities
of the company in liquidation in their entirety.
was an unsecured creditor. In that capacity it cannot stand on a higher footing
than an ordinary unsecured creditor who is required to stand in queue with all
others similarly situated for the purpose of realization of their dues from the
Act or any other law does not impose any additional obligation upon the
purchaser to make an enquiry with regard to the liabilities of the companies
other than those which would impede its value.
Reliance has been
placed by Mr. Sen on a decision reported in was held :
purchased the property in November, 1954 and in our opinion it could not have
reasonably been expected by him that the receivers would not have paid to the
municipal corporation, since 1949 the taxes and other dues which were charged
on this property by statute. According to Section 61 of the Provincial
Insolvency Act, 1920 the debts due to a local authority are given priority,
being bracketed along with the debts due to the State."
9 We may notice that
Section 141 of the Bombay Provincial Municipal Corporation Act provides that
the property taxes to be a first charge on the premise for which they are
assessed. It is in that view of the matter Section 100 of the Transfer of
Property Act was found to be capable of being invoked therein, which reads as
Where immoveable property of one person is by act of parties or operation of
law made security for the payment of money to another, and the transaction does
not amount to a mortgage, the latter person is said to have a charge on the
property; and all the provisions hereinbefore contained which apply to a simple
mortgage shall, so far as may be, apply to such charge.
Nothing in this
section applies to the charge of a trustee on the trust-property for expenses
properly incurred in the execution of his trust, and, save as otherwise
expressly provided by any law for the time being in force, no charge shall be
enforced against any property in the hands of a person to whom such property
has been transferred for consideration and without notice of the charge."
cannot, thus, be any doubt or dispute that a provision of law must expressly
provide for an enforcement of a charge against the property in the hands of the
transferee for value without notice to the charge and not merely create a
Ahemdabad Municipality itself it was held :
the submission it is not necessary for the saving provision to expressly
provide for the enforceability of the charge against the property in the hands
of a transferee for consideration without notice of the charge. This submission
is unacceptable because, as already observed, what is enacted in the second
half of Section 100 of Transfer of Property Act is the general prohibition that
no charge shall be enforced against any property in the hands of a transferee
for consideration without notice of the charge and the exception to this
general rule must be expressly provided by law. The real core of the saving
provision of law must be not mere enforceability of the charge against the
property charged but enforceability of the charge against the said property in
the hands of a transferee for consideration without notice of the charge.
Section 141 of the Bombay Municipal Act is clearly not such a provision. The
second contention accordingly fails and is repelled."
It was further more held:
next placed on a Full Bench decision of the Allahabad High Court in Nawal
Kishore V. The Municipal Board, Agra, ILR (1943). All 453 = (AIR 1943 All 115
(FB)). According to this decision the question of constructive notice is a
question of fact which falls to be determined on the evidence and circumstances
of each case. But that Court felt that there was a principle on which question
of constructive notice could rest, that principle being that all intending
purchasers of the property in municipal areas where the property is subject to
a municipal tax which has been made a charge on the property by statute have a
constructive knowledge of the tax and of the possibility of some arrears being
due with the result that it becomes their duty before acquiring the property to
make enquiries as to the amount of tax which is due or which may be due and if
they fail to make this enquiry such failure amounts to a wilful abstention or
gross negligence within the meaning of Section 3 of the 11 Transfer of Property
Act and notice must be imputed to them."
(g) of Sub-section (1) of Section 55 of the Transfer of Property Act whereupon
reliance has been placed by Mr. Sen reads as under :
"In the absence
of a contract to the contrary, the buyer and the seller of immoveable property
respectively are subject to the liabilities, and have the rights, mentioned in
the rules next following, or such of them as are applicable to the property
sold:- (1) The seller is bound - (g) to pay all public charges and rent accrued
due in respect of the property up to the date of the sale, the interest on all
encumbrances on such property due on such date, and, except where the property
is sold subject to encumbrances, to discharge all encumbrances on the property
terms of the aforementioned provisions, therefore, the seller is bound to pay
all public charges due in respect of the property upto the date of sale, when a
property is sold in auction. Section 55 refers to a contract only. Unless there
is a contract to the contrary, the rights and obligations of the parties to a
sale would be as indicated in Section 55. Such a contract to 12 the contrary
must be express and not implied, as a result whereof the meaning of term
encumbrance would be expanded.
The advertisement did
not specify that all public charges have to be paid.
indisputably is not a preferential creditor.
Companies Act in
relation to winding up of proceeding is otherwise a special law. While
distributing the assets between the creditors and unsecured creditors, the
provisions of Sections 529 and 530 must be complied with.
claims against the companies were required to be filed before the liquidator
until the property was sold as provided for under Section 457 of the Companies
Act. In terms of Section 456 thereof once an order for winding up is made the
liquidator has to take into custody the properties, effects and actionable
claims to which the company is or appears to be entitled. Section 528 provides
that all debts payable on a contingency and all claims against the company,
present or future are admissible to proof against the company. Section 529
provides for the same rule as in force for the time being under the law of
insolvency with respect to the estates of persons adjudged insolvent. Section
530 provides for certain priorities to secured creditors and other unsecured
Once the property is
sold, the assets of the company are required to be distributed to the creditors
in order of preference. As the respondent- Municipality was not a secured
creditor, the impugned Judgment cannot be sustained.
a similar question in regard to the dues of the electrical Bihar State
Electricity Board and Anr. [1995 (2) SCC 648]. In that case sale of the assets
of industrial undertaking took place in terms of the provisions of the State
Financial Corporation Act, 1951. Having regard to the provisions of the Indian
Electricity Act, 1910 a three Judge Bench of this Court held that a liability
on the purchaser cannot be imposed which was not incurred by them stating :
"63. We are
clearly of the opinion that there is great reason and justice in holding as
above. Electricity is public property. Law, in its majesty, benignly protects
public property and behoves everyone to respect public property. Hence, the
courts must be zealous in this regard. But, the law, as it stands, is
inadequate to enforce the liability of the previous contracting party against
the auction-purchaser who is a third party and is in no way connected with the
previous owner/occupier. It may not be correct to state, if we hold as we have
done above, it would permit dishonest consumers transferring their units from
one hand to another, from time to time, infinitum without 14 the payment of
the dues to the extent of lakhs and lakhs of rupees and each one of them can
easily say that he is not liable for the liability of the predecessor in
interest. No doubt, dishonest consumers cannot be allowed to play truant with
the public property but inadequacy of the law can hardly be a substitute for overzealousness."
of the Municipality would also not even otherwise come within the purview of
the crown debt. Even a crown debt could be discharged only after the secured
creditors stand discharged.
10], it is stated :
the rights of the crown to recover the debt would prevail over the right of a
subject. Crown debt means the debts due to the State or the king; debts which a
prerogative entitles the Crown to claim priority for before all other
creditors. [See Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) p.
however, must be held to mean unsecured creditors. Principle of Crown debt as
such pertains to the common law principle. A common law which is a law within
the meaning of Article 13 of the Constitution is saved in terms of Article 372
Those principles of
common law, thus, which were existing at the time of coming into force of the
Constitution of India are saved by reason of the aforementioned provision. A
debt which is secured or which by reason of the provisions of a statute becomes
the first charge over the property having regard to the plain meaning of
Article 372 of the Constitution of India must be held to prevail over the Crown
debt which is an unsecured one. It is trite that when a Parliament or State
Legislature makes an enactment, the same would prevail over the common law.
12. Thus, the common
law principle which was existing on the date of coming into force of the
Constitution of India must yield to a statutory provision.
13. To achieve the
same purpose, the Parliament as also the State Legislatures inserted provisions
in various statutes, some of which have been referred to hereinbefore providing
that the statutory dues shall be the first charge over the properties of the
This aspect of the
matter has been considered by this Court in a series of judgments."
the reasons aforementioned, the impugned judgment cannot be sustained. It is
set aside accordingly. The appeal is allowed with costs.
assessed at Rs.10,000/-
[Asok Kumar Ganguly]