IN THE PUNJAB & HARYANA HIGH COURT AT CHANDIGARH Date of Decision: 21.09.2011 CWP No.11058 of 2011 M/s Ashajyot Mercantile (P) Ltd. …Petitioner Versus Union of India & others …Respondents Present: Mr. Jagmohan Bansal, Advocate, for the petitioner. Mr. H.P.S.Ghuman, Advocate, for the respondents. CWP No.13065 of 2011 M/s Ashajyot Mercantile (P) Ltd. …Petitioner Versus State of Punjab & another …Respondents Present: Mr. Jagmohan Bansal, Advocate, for the petitioner. Mr. A.P.S.Mann, Addl. AG, Punjab, for the respondents. CORAM: HON’BLE MR. JUSTICE HEMANT GUPTA HON’BLE MR. JUSTICE JASWANT SINGH HEMANT GUPTA, J. This order shall dispose of CWP Nos.11058 of 2011 and 13065 of 2011, both raising identical question of payment of dues of the State in terms of the auction conditions. The assets of M/s Punjab Fibres Ltd. (for short ‘the Company’) were put to auction by IFCI Ltd. in terms of provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the SARFAESI Act’). The tender conditions, which are subject matter of interpretation, read as under: “2.6 All the assets offered for sale are on “AS IS WHERE IS AND WHATEVER THERE IS BASIS” as a composite unit or separately lot- CWP No.11058 of 2011 & CWP No.13065 of 2011 wise for Land & Building and/or Plant & Machinery and other assets. The quantity indicated, if any, are purely indicative & without any guarantee and IFCI Ltd. Shall not entertain any claim/complaint from the buyer for any deficiency in quantity/size/number etc. for recovery of whole or any part of the bid, purchase money, loss of profit/interest, damages etc. 2.7 The unit may have certain outstanding liabilities which are to be met by the purchaser and which will be over and above the purchase consideration. The prospective purchaser may carry out due diligence in respect of likely liabilities pertaining to the unit before submitting the tender. It may be noted that the purchaser will be responsible for meeting these liabilities, if arise, and IFCI Ltd. will not be liable to meet any such liabilities whatsoever.” The petitioner was found highest bidder, but the sale of assets became subject matter of challenge before the Debt Recovery Tribunal, Delhi on behalf of the Company, in which the petitioner was impleaded as respondent No.2. The Debt Recovery Tribunal considered the various issues raised by the Company including the issue; Whether the IFCI has failed to give the details of statutory dues in the sale notice, which is mandatory as per Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 and if so, then its effect? While consider the said issue, the Tribunal noticed that the Company offered a settlement proposal to IFCI disclosing statutory liabilities totaling Rs.2075.36 lacs, which includes Employees Provident Fund, Employees State Insurance, Salaries & Wages, Gratuity, Bonus, Central Excise Duty, State Electricity Dues etc. The Tribunal considered Clause 2.7 of the Tender Notice, as reproduced above, and observed as under: “I have considered this issue at length. The respondent FI in its tender document clearly states that the units may have certain outstanding liabilities, which are to be met by the purchasers and which will be over and above the purchase consideration. The prospective purchaser may carry out due diligence in respect of likely liabilities pertaining to the unit before submitting the tender. It may be noted that the purchaser will be responsible for meeting these liabilities, if arise, and IFCI Ltd. will not be 2 CWP No.11058 of 2011 & CWP No.13065 of 2011 liable to meet any such liabilities whatsoever. The above terms and conditions of the tender documents were duly agreed to and accepted by the auction purchasers. Even otherwise, the statutory dues have the priority over the dues of the respondent FI. Therefore, it is the responsibility of the respondent FI to ensure the recovery of all the statutory dues/claims from the auction purchasers before the issuance of sale certificates in their favour. IA No.441/2010 has been filed on behalf of the Employees Provident Fund Organization – submitting that certain amount is due against the applicant company and they have the first charge over the assets of applicant company. The said application was already allowed vide order dated 08.06.2010 and the said order has already attained its finality. Besides this, the other state authorities/employees of the applicant company have also filed certain applications before this Tribunal claiming various amounts from the applicant company. Copies of said applications have already been supplied to the respondent FI as well as to the auction purchasers. Now the IFCI/respondent FI is directed to ensure that all the outstanding liabilities of the various state authorities/employees of the applicant company be paid to them in compliance of the terms and conditions of the tender document before issuing the final sale certificates in favour of the auction purchasers. Order accordingly. This issue is also decided in favour of the respondent FI and against the applicant Company.” The petitioner filed an appeal before the Debts Recovery Appellate Tribunal, Delhi, which was dismissed as not pressed. The order passed by the Appellate Tribunal on 23.11.2010 reads as under: “Counsel for the appellant and counsel for the respondent – IFCI Ltd. present. Counsel for respondent No.3 also present. Arguments heard. At this stage, counsel for the appellant wants to make a statement who is present alongwith Mr. G.S.Shekhawat. He submits that the appellant is willing to pay the dues on the unit if and when arise and crystallized by the authorized government agency in point 2.7 of tendered document. Counsel for the respondent – IFCI has no objection. He gives his consent to this factual situation. In view of this, the bank will issue the sale certificate and handover the peaceful possession to the appellant within seven or thirty days as per the agreement after the deposit of the said amount. 3 CWP No.11058 of 2011 & CWP No.13065 of 2011 Subject to these terms and conditions, the appellant does not press his appeal. The appeal is, therefore, disposed of as stated above.” The said order of the Appellate Tribunal was modified on 13.12.2010, when words “after the deposit of the said amount” were replaced by the words “after the deposit of the balance amount”. Thereafter, the Sale Certificate stands issued in favour of the petitioner on 15.12.2010 by IFCI. Challenge in CWP No.11058 of 2011 is to the communications dated 31.05.2011 and 03.06.2011 (Annexures P-9 and P-10 respectively), whereby the petitioner has been called upon to deposit Central Excise dues of Rs.1,33,76,916/- as on 28.02.2011, whereas in CWP No.13065 of 2011, challenge is to the communication dated 29.06.2011 (Annexure P-11), to recover the tax amounting to Rs.15,11,928/- under the Punjab General Sales Tax Act; Rs.1308793/- under the Central Sales Tax; and Rs.18,09,378/- as interest for non-payment. Learned counsel for the petitioner has vehemently argued that the crown-debt such as Central Excise dues or the State Sale Tax dues are not the first charge on the property, therefore, they cannot be claimed from the transferee i.e. the petitioner from the assets of the company. It is pointed out that charge over the assets in respect of the Central Excise dues has been created only by Finance Act, 2011 when Section 11 E has been introduced in the Central Excise Act, 1944 or as arrears of land Revenue under the State Sales Tax laws. But there was no statutory provision on the date of sale on the basis of which the Central Excise or the State Sales Tax Authorities can claim their dues from the purchaser of the assets of the Company. Learned counsel for the petitioner has relied upon number of judgments of Hon’ble Supreme Court reported as Union of India Vs. 4 CWP No.11058 of 2011 & CWP No.13065 of 2011 SICOM Ltd. (2009) 2SCC 121 and State of Karnataka and another Vs. Shreyas Papers (P) Ltd. and others (2006) 1 SCC 615 as well as the Division Bench judgments of this Court in PSIDC Vs. Union of India and others (CWP No.3875 of 2005 decided on 30.01.2007); Standard Agro Vet (P) Ltd. Vs. State of Haryana (CWP No.11129 of 2010 decided on 07.09.2010) and The Punjab National Bank Vs. State of Haryana and others (CWP No.4181 of 2009 decided on 15.10.2009). Learned counsel for the petitioner also relies upon the judgments of Bombay High Court in Krishna Lifestyle Technologies Limited Vs. Union of India 2008 (229) ELT 173 and Gharkul Industries Private Limited Vs. Superintendent of Central Excise, Amravati 2009 (247) ELT 3 to contend that proviso to Section 11 of the Central Excise Act is applicable to bind the successor with the liability of the predecessor, when there is transfer of the business and not when the assets of the Company are sold to realize the dues of a creditor. Learned counsel for the petitioner also relies upon State of Mysore Vs. D. Cawasji and Company AIR 1971 SC 152 and Orissa State Financial Corporation Vs. Transport Commissioner-cum-Chairman, Sta & others 2005 (11) SCC 440 to contend that the agreement binding the purchaser with the dues cannot be invoked in the absence of any statutory creation of first charge on the date of sale. On the other hand, Mr. Ghuman, learned counsel for the respondent-Union of India, pointed out that the principle laid down in the judgments relied upon by the petitioner that crown debt has a priority only amongst unsecured creditors after satisfying the claim of secured creditors is not an issue. The question is that in terms of conditions of Tender inviting bids, the purchaser i.e. the petitioner, is bound to satisfy the outstanding 5 CWP No.11058 of 2011 & CWP No.13065 of 2011 liabilities over and above the purchase consideration. The prospective purchasers were to carry due diligence in respect of liabilities pertaining to the unit before submitting tender. It is also pointed out that, in fact, the Petitioner communicated on 20.03.2010 (Annexure R-5) that the sale in its favour is subject to confirmation of Debt Recovery Tribunal and that the Customs & Excise Department should submit their claim before the Tribunal. Thus, the petitioner was aware of the liability of the Central Excise Department, which is evident from the order of the Debt Recovery Tribunal. The petitioner has withdrawn its appeal. Therefore, the order of the Tribunal having attained finality, the petitioner is liable to satisfy the claim of Central Excise dues and/or State Sales Tax in terms of the conditions of sale. May be IFCI has issued Sale Certificate without verification of payment of outstanding, as mentioned in the order of Debt Recovery Tribunal, but that will not absolve the petitioner to satisfy the outstanding liabilities of the Central Excise and the Sales Tax in terms of Clause 2.7 of the Tender conditions. In view of the respective arguments of the parties, we find that the following question of law arises for our consideration: “Whether the petitioner is bound to satisfy the liabilities of Central Excise or the State Sales Tax in terms of Clause 2.7 of the Tender Notice?” There is no dispute with the proposition canvassed by the petitioner that the crown debt i.e. claim of Central Excise and the Sales Tax is preferable only to the other unsecured creditors after satisfying the claim of secured creditors. Therefore, the judgments in SICOM Ltd.; Shreyas Papers (P) Ltd.; PSIDC; Standard Agro Vet (P) Ltd. and The Punjab 6 CWP No.11058 of 2011 & CWP No.13065 of 2011 National Bank cases (supra) in respect of said proposition are not helpful to the question arisen in the present case. Similarly, the judgments of Bombay High Court in Krishna Lifestyle Technologies Limited and Gharkul Industries Private Limited cases (supra) interpret the proviso to Section 11 of the Central Excise Act, 1944. It has been held that the successor is bound in the case of transfer of a business, which is not the same thing, as sale of some of the assets of the defaulter. In TC Spinners Private Limited’s case (supra), on which the petitioner has vehemently relied upon, the claim of the Excise was that it has first charge, but the said argument was negated. It may be pointed out that the claim of the respondents is not based upon the fact that the liability of the Company in respect of non-payment of Central Excise or Sales Tax is the first charge on the assets of the Company. But it is argued that in terms of the conditions of Tender, the petitioner is liable to satisfy such liabilities. Therefore, it is a part of contract, the conditions of which was accepted by the petitioner while offering its bid for purchase of the assets of the Company. Though Clause 2.6 is a general condition that sale is on “AS IS WHERE IS AND WHATEVER THERE IS BASIS”. But in respect of the outstanding liabilities, Clause 2.7 is relevant. The said Clause points out that the unit has certain outstanding liabilities, which are to be met by the purchaser and which will be over and above the purchase consideration. The prospective purchaser was to carry out due diligence in respect of likely liabilities pertaining to the unit before submitting the tender. Therefore, when the petitioner submitted its offer, it is presumed to have examined the documents such as balance-sheets and profit & loss account of the Unit to find out the liabilities and then submitted its offer in terms of the said 7 CWP No.11058 of 2011 & CWP No.13065 of 2011 condition. The liabilities of the unit, which includes the liability of Central Excise and of the Sales Tax are to be borne by the petitioner alone. The said Clause 2.7 was also so understood by the petitioner, which is evident from the reading of the order of the Debt Recovery Tribunal, wherein the petitioner has intimated IFCI about the statutory liabilities totaling Rs.2075.36 lacs. The Tribunal has directed the IFCI to ensure that all the outstanding liabilities of the various state authorities/employees of the applicant company be paid in compliance of the terms and conditions of the tender document before issuing the final sale certificates in favour of the auction purchasers. The petitioner has relied upon M/s D. Cawasji and Company case (supra) to contend that such condition is ineffective on the purchaser. In the aforesaid case, education cess was claimed from the Excise Contractors, but such Education cess was found to be beyond the legislative competence of the State Legislature. Therefore, the Court held that since the liability to pay cess is statutory and if the statute does not effectuate the levy, no liability may arise for payment of the cess merely from the conditions of the auction. The issue, whether the Education cess was beyond the legislative competence was found in the aforesaid judgment itself. In the present case, Clause 2.7 was inserted even though neither any statute nor the precedents, renders the dues of Central Excise or the Sale Tax authorities, as the first charge. Since a condition was imposed in the sale notice and the petitioner participated in the Tender process, knowingly well such condition, therefore, the petitioner is bound by the consequences of such Clause 2.7. Another judgment, which has been referred to by the learned counsel for the petitioner is Orissa State Financial Corporation case 8 CWP No.11058 of 2011 & CWP No.13065 of 2011 (supra). Even the said judgment is of no help to the petitioner, wherein as per Section 12 of Orissa Motor Vehicles Taxation Act, 1975, the purchaser was liable to pay tax if the vehicle has been transferred without payment of such tax. In the aforesaid case, the agreement between the Financial Corporation and the purchaser did not stipulate that the purchaser has to satisfy such tax. The Court found that merely because in the agreement, it has been intimated by the Financial Corporation that the purchaser will not be liable for prior due does not discharge the statutory liability of the respondent. The said judgment does not deal with the issue arisen in the present case, as in the present case even though there is no statutory liability, the parties can still agree for payment of dues. There is no statute which bars for such a tender condition as is contained in clause 2.7 reproduced above. Still further, in our opinion, Clause 2.7 cannot be restricted in respect of the liabilities of the Unit having first charge. Such condition does not expressly or impliedly leads to such conclusion. Therefore, it is immaterial if the Central Excise dues or the sale Tax dues are not the first charge, as the petitioner is liable to pay outstanding liabilities in terms of Clause 2.7 of the Tender conditions. Some what similar question in respect of the dues of the municipal corporation, a unsecured creditor, when public notice stated that the sale is as on where is basis, came up for consideration before the Hon’ble Supreme Court in AI Champdany Industries Limited v. Official Liquidator, (2009) 4 SCC 486. It was noticed that dues of the Municipal Corporation do not create any encumbrance or charge on the property. The Court referred to Section 55 of the Transfer of Property Act, 1882 and held that purchaser is bound to discharge encumbrances which have been 9 CWP No.11058 of 2011 & CWP No.13065 of 2011 notified not to be discharged by the seller and that the citation that sale is on as is where is basis is not sufficient notice of the encumbrances. It observed: 21. Clause (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: “55. Rights and liabilities of buyer and seller.—In the absence of a contract to the contrary, the buyer and the seller of immovable 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 to 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 then existing.” In terms of the aforementioned provisions, therefore, the seller is bound to pay all the public charges due in respect of the property up to the date of sale, when a property is sold in auction. 22. 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 the contrary must be express and not implied, as a result whereof the meaning of the term encumbrance would be expanded. 23. The advertisement did not specify that all the public charges have to be paid.” In the present case, there is contract to the contrary as stipulated in Section 55 of the Transfer of Property Act, the principles of which are applicable in this jurisdiction. Once the parties have contracted, then the petitioner cannot be permitted to wriggle out of its contractual obligation. The seller in Clause 2.7 has clearly represented that the liabilities are that of purchaser. 10 CWP No.11058 of 2011 & CWP No.13065 of 2011 In view of the above, we do not find any merit in the present petitions. The same are accordingly dismissed. However, before parting, we may record that the petitioner has raised an argument that the penalty consequent to non-deposit of either the Central or Sales Tax will not fall upon the petitioner, who is a transferee and not liable for any action of the original management which attracts penalty. Such argument is raised without any pleadings. Therefore, we leave that question open with liberty to the petitioner to make representation to dispute such claim before the departmental authorities and, if need be, to approach this Court against the action of the statutory departmental authorities. (HEMANT GUPTA) JUDGE 21.09.2011 (JASWANT SINGH) Vimal JUDGE 11