IN THE HIGH COURT OF GUJARAT AT AHMEDABAD LETTERS PATENT APPEAL No 308 of 1979 in SPECIAL CIVIL APPLICATIONNo 1283 of 1976 For Approval and Signature: Hon'ble MR.JUSTICE R.K.ABICHANDANI and Hon'ble MR.JUSTICE JAYANT PATEL ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- AHMEDABAD MUNICIPAL CORPN Versus SAURASHTRA PAINTS PRIVATE LTD -------------------------------------------------------------- Appearance: MR PRASHANT G DESAI, Advocate for Appellant MR SB VAKIL, Sr. Advocate for Respondent -------------------------------------------------------------- CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE JAYANT PATEL Date of decision: 20/12/2001 ORAL JUDGEMENT (Per : MR.JUSTICE R.K.ABICHANDANI for the Court) 1. The appellant - Municipal Corporation has challenged the judgement and order of the learned Single Judge quashing the proceedings initiated by the respondent corporation for the sale of the property scheduled in the petition and restraining the corporation from selling or attempting to sell by public auction or otherwise the property in question and from taking any steps against the property for recovery of its property tax dues for the period prior to the auction sale. 2. The respondent - petitioner had prayed for a direction against the municipal corporation for not proceeding with the sale of the property for realisation of its dues in respect of that property for any period between 24th February 1955 and 17th July 1973. According to the petitioner, since it had purchased the property bearing survey No. 70 admeasuring 6050 sq. yards (1 Acre & 7 Gunthas approximately), which was specified in the schedule to the petition, in a public auction which was held on 17th July 1973 by the Commissioner for taking Accounts pursuant to the orders made in Darkhast No. 304 of 1971 by the Ahmedabad City Civil Court for execution of the mortgage decree obtained by the Gujarat State Finance Corporation against the original owner mortgagor M/s Shivlal Virchand Contractor and a sale certificate was issued in respect of the said property, the respondent petitioner became its absolute owner from 17-1-1974 and had acquired a title free from all charges and mortgages created subsequent to the date of the first mortgage which was created on 24-2-1955 in favour of the Bombay State Finance Corporation by the original owner. The case of the respondent - petitioner was that, after the petitioner became the owner, the scheduled property could not be sold by the appellant corporation for recovery of its taxes which were due from the mortgagor -defaulter for the period between 24-2-1955 and 17-7-1973 in respect thereof. The case of the respondent is that, before it purchased the property at the said public auction, it had also acquired the decretal rights of the second mortgagee, which was the firm of M/s Rajendrakumar & Co. under a registered deed of assignment dated 20-9-1970. The second mortgage was created by the original owner in favour of that firm on 13-10-1964. 3. The municipal corporation, on the other hand, contended that the property tax was due in respect of the scheduled property for the years 1965-66, 1966-67, 1967-68 and 1968-69, and that, though the property was first mortgaged with the BSFC on 24th February 1955 by the original owner M/s Shivlal Virchand Contractor and again on 13th October 1964 with the firm of M/s Rajendrakumar & Co., these were only simple mortgages and the possession as well as the title were retained by the original owner who was primarily liable to pay the property tax for the aforesaid years. The property in question was admittedly attached by the municipal corporation for recovery of these dues on 22nd March 1973 i.e. before the sale was effected in favour of the present respondent at the public auction, pursuant to which he was issued a sale certificate. The case of the municipal corporation was that when the property was being sold at the public auction through the Court, the municipal corporation had filed an affidavit of its official of the Tax department on 15-5-1973 before the City Civil Court requesting specifically to draw the attention of any party who intended to purchase that property to the fact that the tax arrears of Rs.1,07,900=51 were due and payable to the municipal corporation in respect of the said property. It was also stated in that affidavit that the fact that the dues of the municipal tax constituted the `first charge' over the property should be incorporated in the conditions of auction sale and the same was also required to be brought to the notice of the intending bidder at the auction which was to commence, as per the advertisement published in the newspapers dated 18-3-1973, on 13-6-1973. It is only thereafter that the respondent purchased the property at the court auction. Its bid was accepted and the sale was confirmed on 28-11-1973 and the sale certificate was issued on 17-1-1974. It was contended that the respondent was thus fully aware that a large amount of tax was due and payable to the corporation before it purchased the property at the public auction. According to the corporation, the name of Shivlal Virchand Contractor continued in its record and no transfer was notified as required by the provisions of Chapter VIII of the Bombay Provincial Municipal Corporation Act, and that the Corporation was, therefore, entitled to recover the taxes for the period from 1-4-1965 to 31-3-1976 alongwith the charges of the demand notice and warrant fees, which total amount came to Rs.1,27,370=14. The demand notices were served by affixing them on the suit premises as the primarily liable person was not found at the suit premises. 4. The learned Single Judge, taking note of the fact that the respondent had got itself assigned the decretal rights of M/s Rajendrakumar & Co. in respect of the second mortgage, under the assignment deed dated 20-9-1970 and then purchased the suit property at the public auction held by the Court for the satisfaction of the mortgage decree obtained by the BSFC (its successor being GSFC) on the strength of the earlier mortgage dated 24-2-1955, held that the entire property in question was in view of the earlier mortgages of 24-2-1955 and 13-10-1964 consumed by the two earlier mortgage debts of the GSFC and M/s Rajendrakumar & Co. The claim of the municipal corporation for taxes was for the subsequent years i.e. 1965-66 to 1968-69 and therefore, "Whatever rights and liabilities that arose subsequent to the mortgage would be required to stand in a queue and wait till those earlier claims were satisfied". It was held that the subsequent sale which was effected in favour of the respondent to satisfy the mortgage debts could not fetch sufficient amount even to discharge those mortgage debts having priority, and, "when those two mortgage debts together consumed the whole of the property, nothing remained out of the property against which the subsequent charge-holder namely, the municipal corporation could proceed against. The attention of the learned Single Judge was pointedly drawn to a decision of the Division Bench of this Court in Haji Abdul Gafur Haji Husseinbhai v. The Ahmedabad Municipal Corporation, reported in VIII GLR 65, which was confirmed by the Supreme court in The Ahmedabad Municipal Corporation v. Haji Abdul Gafur Haji Husseinbhai, reported in AIR 1971 SC 1201 having a direct bearing on the interpretation of section 141 of the said Act, but the learned Single Judge held that, "The ratio of these judgements is only this much that a charge including the statutory charge under section 141 of the Bombay Provincial Municipal Corporation Act, 1949 becomes operative in respect of only those persons who deal with the property subsequently with the knowledge of the charge but not otherwise. The judgement proceeds on the well known principle of Section 100 of the Transfer of Property Act on the interpretation of which the case rested. To me, this citation appears to be absolutely irrelevant". It was held that the knowledge of the auction purchaser that there was a claim advanced by the municipal corporation against the property in question did not create any right in favour of the municipal corporation but only fastens the auction purchaser with the knowledge of the existence of such right. The right of the Corporation remains only a money claim. It was held that, "The property has exhausted itself to answer the earlier liabilities. If it be so, the knowledge of the petitioner about the advancement of the alleged claim by the Corporation doesn't improve the position of the respondent corporation in any manner". This is how the learned Single Judge allowed the petition and set aside the recovery proceedings instituted by the Corporation and restrained it from recovering the property taxes which were due for the years 1964-65 to 1968-69 i.e. the period prior to the purchase of the property by the respondent. 5. The learned counsel appearing for the appellant municipal corporation contended that as the property tax was not paid, the municipal corporation was entitled to put the property to auction and recover the amount since it had a `first charge' over the property under Section 141 of the Act. It was further contended that the respondent was a transferee with the notice of the dues of property tax and therefore, the charge could be enforced against the property even after the transfer. The learned counsel further argued that the learned Single Judge had not properly appreciated the ratio of the decision of the Division Bench of this Court in Haji Abdul Gafur Haji Husseinbhai v. The Ahmedabad Municipal Corporation, reported in VIII GLR 65, which decision was confirmed by the Supreme Court. The learned counsel contended that the property tax was imposed on lands and buildings and not on the person and therefore, even if the land and building is transferred, the liability to pay the tax continues until the provisions of Chapter VIII are satisfied. 5.1 The learned counsel, in support of his contentions, placed reliance on the following decisions: [a] The decision of the Division Bench in Haji Abdul Gafur Haji Husseinbhai v. The Ahmedabad Municipal Corporation, reported in VIII GLR 65, was cited for the proposition that, if there were arrears of tax due to the municipal corporation, the municipal corporation was entitled to a `first charge' on the property which was required to be shown in the proclamation of sale under Order 21 Rule 66 of the Code of Civil Procedure. In paragraph 5 of its judgement, the Division Bench in terms held that section 141 creating a `first charge' gives it a priority over other charges or mortgages irrespective of the point of time at which it comes into existence. [a-i] The learned counsel also relied upon the decision of the Supreme Court in The Ahmedabad Municipal Corporation v. Haji Abdul Gafur Haji Husseinbhai, reported in AIR 1971 SC 1201, for the purpose of pointing out that the above decision of the Division Bench was confirmed and it was held that section 141(1) created a charge which was subject to prior payment of land revenue due to the State Government on such building or land. It however does not further provide that this charge is enforceable against the property charged in the hands of a transferee for consideration without notice of the charge. It was held, on facts, that there was no sufficient material on record to justify that the plaintiff should be fixed with any constructive notice of the arrears of municipal tax. In paragraph 9 of the judgement, the Supreme Court held that the High Court had taken the correct view of the legal position. [b] Reliance was placed on the decision of the Supreme Court in Municipal Corporation of Delhi v. M/s Trigon Investment and Trading Pvt. Ltd., reported in AIR 1996 SC 1579, in which construing the pari materia provisions of the Delhi Municipal Corporation Act {sections 128 (4), 119 and 123 (Property Tax being levied upon the lands and their constituting the `first charge' on such lands / buildings) }, held that the transferee of the land / building is liable to pay the property tax due thereon not only for the period subsequent to the transfer in his favour but even for the period anterior to the transfer. [c] Reliance was also placed on the decision in State Bank of Bikaner v. National Iron & Steel Rolling Corporation, reported in (1995) 2 SCC 19, in which the Supreme Court, dealing with section 11-AAAA of the Rajasthan Sales Tax Act, 1954 which provided that the liability under that Act for any amount of tax, penalty, interest and any other sum which was payable by a dealer or any other person shall be the first charge on the property of the dealer, or such person, held that the statute has created a first charge on the property of the dealer, and as held by the Supreme Court in Dattatreya Shanker Mote v. Anand Chintaman Datar, reported in (1974) 2 SCC 799, a charge is a wider term than a mortgage and would cover within its ambit a mortgage also and therefore, when a first charge is created by operation of law over any property, that charge will have precedence over an existing mortgage. [d] The decision of the Supreme Court in Board of Trustees, Port of Mumbai v. Indian Oil Corporation, reported in JT 1998 (3) 178 was cited for the proposition that the statutory right under section 64 of the Major Port Trust Act, 1963 to recover its taxes and charges stands above the rights of other creditors, secured or unsecured. [e] The decision of the Supreme Court in R.M.Arunachalam v. Commissioner of Income Tax, reported in AIR 1997 SC 2905 was cited for the proposition that the claim in respect of estate duty will have precedence over the mortgages dues. [f] The decision of the Court of Appeal in Westminster City Council v. Haymarket Publishing Ltd., reported in [1981] 2 All ER 555 was cited for the proposition that, "a charge on the land" imposed for an unpaid surcharge was not confined to a charge on the owner's interest in the premises when the charge arose but extended to a charge on all the estates and interests in the premises existing when the charge arose. 6. The learned senior counsel appearing for the respondent argued that the primary liability to pay property tax was only of the owner / occupier of the property during the year to which the property tax is related, more particularly when they become due under Rule 30 of Chapter VIII of the said Act. It was contended that subsequent transferee was not personally liable to pay those property taxes and Rule 3 of Chapter VIII did not lay down any such proposition. It was further argued that the auction purchaser was not a defaulter and it was the previous owner who was the defaulter and who alone could be held liable to pay the property taxes. The remedy of realising the tax by resort to section 141 of the Act could be had only against the defaulter's property and the respondent transferee, therefore, not being primarily liable to pay the property tax, could not be proceeded against by attaching his property. The learned senior counsel supported the decision of the learned Single Judge on the aspect that, by virtue of the mortgage decree in earlier mortgages, there remained nothing which could be attached by the municipal corporation, because, the property had exhausted itself for payment of the earlier mortgage debts of the original owner. It was then argued that the first charge under section 141 would only mean that the charge was to be treated as first in point of time qua other charges and the expression did not elevate the priority right to a position where it could take precedence over the dues of the earlier mortgages. The first charge, according to the learned senior counsel, meant first among `charges' and not first among `mortgages and charges'. It was contended that the use of the word `first' did not create any priority and even if it has created such priority, that charge cannot be enforced against the property in the hands of a transferee for consideration without notice of the charge. It was also contended that the respondent did not have the notice of the charge that the municipal corporation had over the property. Referring to the decision of the Division Bench of this Court in Haji Abdul Gafur Haji Hussenbhai (supra), the learned senior counsel contended that the Division Bench had made only a passing observation in paragraph 5 of the judgement while stating that the first charge gave priority over other charges or mortgages and it did not consider the provisions of the Transfer of Property Act. It was submitted that there was no application of mind to the meaning of the words `first charge' used in section 141 of the Act. As regards the decision of the Supreme Court in State Bank of Bikaner (supra), it was argued that, in view of the non-obstante clause of section 11-AAAA of the Rajasthan Act, the only argument open to the learned counsel in that case was that the first charge was only on the equity of redemption. It was conceded by the learned counsel that the first charge would not be only on equity of redemption, but the charge was over the entire property. It was however argued that the first charge under section 141 was not subject to any non-obstante clause as the one found in section 11-AAAA of the Rajasthan Act. 7. As noticed from the averments made in the petition and the affidavit in reply, the facts fall in a narrow compass. Admittedly, the respondent became the owner of the property in question when the sale was confirmed and sale certificate was issued to it on 17th January 1974. Prior to that, the respondent had acquired the decretal rights of the second mortgagee under a deed of assignment dated 20th September 1972. 7.1 Section 141(1) which falls for our consideration reads as under : "Section - 141(1) : Property taxes due under this Act in respect of any building or land property shall, subject to the prior payment of the land revenue, if any, due to the State Government thereupon, be a first charge, in the case of any building or land held immediately from the Government, upon the interest in such building or land of the person liable for such taxes and upon the movable property, if any, found within or upon such building or land and belonging to such person; and in the case of any other building or land, upon the said building or land and upon the movable property, if any, found within or upon such building or land and belonging to the person liable for such taxes. Explanation - The term `property taxes' in this section shall be deemed to include charges payable under section 134 for water supplied to any premises and the costs of recovery of property taxes as specified in the rules." 7.2 A plain reading of the above provision shows that the property taxes due under the Act in respect of any building or land belonging to any person shall be a `first charge' upon such building or land. Section 139 lays down as to on whom the primary responsibility for property taxes shall rest, while section 128 of the Act indicates the manner of recovery of municipal taxes which under clause (4) thereof includes attachment and sale of defaulter's immovable property. 7.3 Chapter VIII of the said Act contains taxation rules which lay down the requirement of notice of transfer etc. of premises assessable to property tax. Under Rule 1(1), it is provided that whenever a title of any person, primarily liable for the payment of property taxes on any premises, to or over such premises is transferred, the person whose title, is so transferred and the person to whom the same shall be transferred shall, within three months after execution of the instrument of transfer, or after its registration, if it be registered or after the transfer is effected if no instrument be executed, give notice of such transfer, in writing, to the Commissioner. Under Rule 3, it is provided that liability for payment of property taxes would continue in absence of any notice of transfer until such notice is given or until the transfer is recorded in the commissioner's books. It is in terms laid down in Rule 3(2) that, nothing in Rule 3 shall be held to diminish the liability of the transferee for the property taxes or to affect the prior claim of the Commissioner on the premises conferred by section 141 for the recovery of the property taxes due thereupon. As provided by section 453 of the said Act, the Rules contained in Schedule `A' including the aforesaid Rules as amended from time to time "shall be deemed to be part of this Act". Thus, sub-rule 2 of rule 3 will have the effect of a provision contained in the Act itself. Admittedly, no notice of transfer was ever given to the Municipal Commissioner, nor any attempt made to get the transfer effected in the Commissioner's books. Rule 45 of the Rules provides for issuance of warrant for attachment and sale of immovable property for recovery of the property taxes and sub-rule (3) thereof provides that any transfer or a charge on the property attached or of any interest therein made without the written permission of the Commissioner shall be void as against all claims of the Corporation enforceable under the attachment. 7.4 Transfer of Property Act, 1882 makes provisions for charges in Chapter IV, and, section 100 thereof provides as under :- "Section 100 :: Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have 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." 8. It will be noticed from the above provision that a charge cannot 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, save as otherwise expressly provided by any law for the time being in force. The provision in section 141 that there shall be first charge of the municipal corporation in respect of its dues gives priority to the charge of the municipality. Even such charge, however, could not be enforced against any property in the hands of a person to whom it has been transferred for consideration without notice of the charge. 8.1 The contention of the learned senior counsel appearing for the respondent was that, under section 141 of the said Act, the first charge was only in respect of the earlier charges that may have been created on the property and it had no reference to the earlier mortgages. It was submitted that, in view of section 48 of the Transfer of Property Act, the priority of