IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 15.09.2006 Coram The Honourable Mr. JUSTICE R.BALASUBRAMANIAN The Honourable Mr. JUSTICE K.MOHAN RAM AND The Honourable Mr. JUSTICE V.DHANAPALAN L.P.A. No.100 of 1999 and C.M.P.No.8470 of 1999 B.Suresh Chand .... Appellant/2nd respondent/2nd Plaintiff -Vs.- 1. State of Tamil Nadu Rep. by the Secretary Revenue Department Fort St. George, Madras – 9. 2. The Deputy Commercial Tax Officer Thirupattur, North Arcot District. .... Respondents/Appellants Defendants APPEAL under clause 15 of the Letters Patent. against the order of the Honourable Mr. Justice P. Sathasivam dated 28.11.1997 and made in the exercise of the Appellate jurisdiction of the High Court in AS NO. 613/84 (OS NO. 259/1978 Sub Court, Thiruppathur) For Appellant : Mr. V.Raghavachary For Respondents : Mr. Srikanth, Spl. G.P., for R-1. Mr. R.Subbiah, for R-2. - - - J U D G E M E N T (Judgement of the Court was delivered by Justice K.Mohan Ram) The above Letters Patent Appeal No.100 of 1999 is before us on a reference order dated 19.12.2002 made by a Division Bench consisting of two Learned Judges of this Court. The question referred to the Full Bench for answer is as here-under:- “What is the extent a bonafide purchaser for value is bound by the charge for payment of arrears of sales Tax created under Section 24 of the Tamil Nadu General Sales Tax Act, 1959. Before the Division Bench, the learned counsel for the appellant relied upon a decision of the Division Bench of this Court rendered in the case of Deputy Commercial Tax Officer, Thudiyalur Assessment Circle, Coimbatore and another Vs. R.K.Steels reported https://hcservices.ecourts.gov.in/hcservices/ in 1998 (1) C.T.C. 124 = 108 S.T.C. 161, to contend that the appellant is a bonafide purchaser without notice of charge under Section 24(1) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act") and therefore the property purchased by him under a registered sale deed dated 25.09.1977 from the vendors' who were tax defaulters under the Act cannot be proceeded against for the recovery of sales tax arrears. 2. However, the Revenue relied upon the decision of this Court rendered by two Division Benches in the case of Coramandel Indag Products India Limited Vs. Commercial Tax Officer and others reported in 1993 (3) M.T.C.R. 81 and in the case of Deputy Commercial Tax Officer Vs. Azha Kumari reported in 1985 W.L.R. 240. Having regard to the submissions made by the learned counsel on either side, the Division Bench reasoned as here-under and requested the Honourable Chief Justice to constitute a larger Bench. The reasons given by the Division Bench in making the reference is extracted as here-under:- “All these cases dealt with the question as to whether the charge created under the Sales Tax is binding on the bonafide purchaser for value. While in the first case it was held it does not, in the other two cases it was held that it does. The division Bench which decided the Asha Kumari's case and the one that dealt with the case of R.K.Steels referred to the decision of the Supreme Court in the case of Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdul Gaful Haji Hussenbhai, (A.I.R. 1971 S.C. 1201), but, read the judgement of the Supreme Court differently. The Division Bench which decided the case of R.K.Steels found fault with the division Bench which decided the case of Asha Kumari and held that it had erroneously distinguished the ratio laid down by the Supreme Court in the case of Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdul Gaful Haji Hussenbhai, (A.I.R. 1971 S.C. 1201). Judicial proprietory requires that if there is a disagreement among the two Division Benches it should be resolved, by a larger Bench. It would have been proper if the Division Bench which decided the case of R.K.Steels had itself referred the matter to a larger Bench instead of following the course that it did. It has been held by the Supreme Court in more than one case that the Co- ordinate Benches are bound by the decision of other Co-ordinate Benches and in case of disagreement the proper course is to refer the matter to a larger Bench. 3. We, therefore, refer this case for decision by a larger Bench having regard to the conflicting views expressed by two different Division Benches of this Court with regard to the extent a bonafide purchaser for value is bound by the charge for https://hcservices.ecourts.gov.in/hcservices/ payment of arrears of sales tax created under Section 24 of the Tamil Nadu General Sales Tax.” 3. The scope of the reference, in our considered view, is not only that we have to decide the question of law, but also the question as to whether the appellant is a bonafide purchaser without notice of the charge under Section 24(1) of the Act and as such whether his property cannot be proceeded against for the recovery of sales tax arrears. To decide that the entire factual matrix of the case has to be set out and the facts are as follows:- 'For the sake of convenience, the parties are referred to as per their ranking in the suit'. The case of the plaintiffs is as follows:- (i) The plaintiffs purchased the suit property on 25.09.1977 and are in possession of the same as absolute owners. The second defendant, Deputy Commercial Tax Officer, Thirupathur, alleging that one T.P.Narayanasamy and his son T.N.Subash are defaulters in the payment of sales tax, issued a notice on 28.10.1977 to the plaintiffs calling upon them to pay tax arrears of a sum of Rs.1,01,879.67. The plaintiffs filed a claim application before the second defendant denying their liability. The second defendant issued an order to the plaintiffs on 11.09.1978 stating that the sale by the defaulters is not binding on the department and negativing the claim of the plaintiffs. The plaintiffs are bonafide purchasers for value without notice on any manner of claim by anyone against the same. The plaintiffs have discharged the earlier debts of the transferors which were prior in point of time over the claim of the department. The claim of the department can only be against the defaulters and their property. T.N.Subash has no right or interest in the property sold to the plaintiffs. The plaintiffs after issuing notice under Section 80 of the Code of Civil Procedure (hereinafter referred to as "the C.P.C.") have filed the suit in O.S.No.254 of 1978 before the Sub- Court, Thirupathur, to set-aside the order of the second defendant dated 11.09.1978 and to raise the attachment on the schedule mentioned property and for injunction. 4. The defendants filed a written statement contending that one T.P.Narayanasamy and his son T.N.Subash were the partners of the firm M/s. Kasthuri and Company, Jinnah Road, Thirupathur, carrying on business in sewing machines, motor cycles and spare parts. For the year 1974-75, the said firm was assessed to sales tax of Rs.1,389.15. The order was served on 17.02.1976. The tax was payable on or before 18.03.1976. Hence the said firm became defaulters on 18.03.1976. For the year 1975-76 the said firm was assessed to sales tax of Rs.3,862.67. The order of assessment was passed on 31.01.1977. The firm and its partners became defaulters on 02.03.1977. The said T.P.Narayanasamy and T.N.Subash were partners of another firm by name S.V.Traders, Kancheepuram. For the year 1973-74, the firm S.V.Traders was assessed to sales tax of Rs.11,867/-. It was assessed to another sales tax of Rs.8,983/-. The order was served on 07.08.1974. For the year 1974-75, the firm was assessed to sales tax of Rs.69,846/-. The https://hcservices.ecourts.gov.in/hcservices/ order was served on 26.11.1976. For the year 1975-76, the firm was assessed to sales tax of Rs.5,482/-. The order was served on 05.12.1976. The said firm and its partners became defaulters for the said three years. The commercial Tax Officer, Chengalpet sent a requisition to the second defendant on 21.03.1977 to institute proceedings for the recovery of the sales tax arrears of Rs.96,187/- due by S.V.Traders, Kancheepuram. 5. It is further contended that under Section 24 of the Act if default is made the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the persons liable to pay the tax. The defaulters are also liable to pay penalty. The second defendant initiated proceedings under the Tamilnadu Revenue Recovery Act. The suit house was attached and brought to sale after service of demand notice on the defaulters as required under the Act. The demand notice in Form-I dated 30.07.1977 has been served on the defaulter T.N.Subash on 04.08.1977. After the receipt of the demand notice the defaulters have executed a sale deed in respect of the said properties in favour of the plaintiffs in order to defraud the defendants. The sale is not binding on the defendants. A copy of the notice dated 22.07.1978 was sent to the plaintiffs. The plaintiffs are not personally liable but the property purchased by them is subject to charge and is liable for the said arrears. The S.V.Traders has been assessed to Sales tax of Rs.5,793/- for 1976-77. The order of assessment was served on 07.04.1978. The said T.N.Subash on behalf of S.V.Traders in his letter dated 22.09.1977 addressed to the Secretary, Revenue Department, Government of Tamilnadu had admitted the arrears of sales tax and requested to pay the amount in instalments. The plaintiffs filed the claim petition on 11.09.1978 before the second defendant, who had in his reply intimated about the charge over the suit property and the arrears of sales tax by the transferors. The plaintiffs are not bonafide purchasers for value without notice of the defect in title. The plaintiffs were aware of the arrears of sales tax. The plaintiffs and the defaulters are close friends. The sale deed has been created collusively to defeat and delay the realisation of the sales tax arrears. The defendant does not admit that any consideration was paid towards the sale deed. The order of attachment was issued by way of abundant caution. The plaintiffs have not discharged any alleged earlier debts of transferors. 6. The trial court framed the following issues:- (i) Whether the sale deed in favour of the plaintiffs is true, valid and binding on the defendant? (ii) Whether charge had been created by operation of law over the suit properties prior to said sale? (iii) Whether the defendants are not entitled to proceed against the suit properties for recovery of sales tax arrears due by M/s. T.P.Narayanasamy and his son T.N.Subash? (iv) Whether there was no valid notice under Section 80 C.P.C? https://hcservices.ecourts.gov.in/hcservices/ (v) Whether the valuation of suit and court fee paid are not correct? (vi) Are the defendants estopped from claiming charge? (vii) Whether the suit properties are liable for the claim of defendants against M/s. S.V.Traders, Kancheepuram? (viii) To what relief, if any, are the parties entitled to? 7. During trial on the side of the plaintiffs, the second plaintiff was examined as P.W.1 and 14 other witnesses were examined as P.Ws.2 to 15 and Exs.A-1 to A-46 were marked in support of their claim. On the side of the defendants, D.Ws.1 to 8 were examined and Exs.B-1 to B-36 were marked in support of their defence. 8. The Learned Subordinate Judge on a consideration of the oral and documentary evidence adduced, decreed the suit with costs as prayed for. Being aggrieved by the judgement and decree passed by the learned Subordinate Judge, the unsuccessful defendants filed A.S.No.613 of 1984 before this Court. A Learned Single Judge on a careful consideration of the evidence on record, the reasonings of the learned Sub-ordinate Judge by a detailed judgement, set-aside the judgement and decree and allowed the appeal by judgement and decree dated 28.11.1997. Aggrieved by that the second plaintiff has filed the above Letters Patent Appeal. 9. We heard Mr. V.Raghavachary learned counsel appearing for the appellant and Mr.Srikanth, Special Government Pleader appearing for the first respondent and Mr. R.Subbiah learned counsel appearing for the second respondent. 10. Mr.V.Raghavachary learned counsel for the appellant submitted that the learned Single Judge without properly considering the oral and documentary evidence adduced in the case and without considering the reasonings of the trial court has erroneously held that S.V.Traders is a partnership firm. The learned counsel submitted that in Ex.A-46 the department itself has referred S.V.Traders as only a proprietory concern and therefore the finding of the Learned Single Judge based on the representation of T.N.Subash to the Board of Revenue that S.V.Traders is a partnership firm is erroneous. The learned counsel further submitted that the assessment of the concern in the books of sales tax authorities is the determinative factor and not the character of the representation made by T.N.Subash to the Board of Revenue. The learned counsel further submitted that T.P.Narayanasamy has nothing to do with S.V.Traders which is a proprietory concern or his son T.N.Subash and the tax arrears of S.V.Traders has nothing to do with T.P.Narayanasamy. The learned counsel submitted that simply because T.N.Subash has joined with his father T.P.Narayanasamy in the execution of Ex.A-1 sale deed, it would not mean that they are the joint owners of the property. The learned counsel further submitted that the Learned Single Judge has failed to apply the law laid down in 1998 (1) C.T.C. 124 https://hcservices.ecourts.gov.in/hcservices/ (referred to supra) and submitted that the Learned Single Judge ought to have held that the plaintiffs were bonafide purchasers of the suit property without notice. 11. The learned counsel for the appellant submitted that Exs.B-1 and B-2- assessment orders and Exs.B-3 and B-4-demand notices coupled with the evidence of D.Ws.1 and 2 show that S.V.Traders was only a proprietory concern and the same was described as 'Thiru.S.V.Traders' and if really it was a partnership firm, it would have been described as 'Thiruvalargal.S.V.Traders' in Exs.B-1 to B-4. He further submitted that the trial court on consideration of the said documents and the deposition of D.Ws.1 to 8 has clearly recorded a finding that S.V.Traders was only a proprietory concern, whereas the said oral and documentary evidence has not been properly considered by the Learned Single Judge. He further submitted that the trial court on a consideration of Ex.B-21 has observed that for the first time S.V.Traders was referred to as Thiruvalargal.S.V.Traders, 502 Gandhi Road, Kancheepuram, in the letter dated 06.06.1978, whereas the plaintiffs had purchased the property on 25.09.1977 itself and in all the other documents, demand notices and assessment orders S.V.Traders, Kancheepuram was referred to as Thiru S.V.Traders. He further submitted that the trial court, on a consideration of Ex.B-26-Form-IX alleged to have been signed by T.N.Subash and T.P.Narayanasamy submitted by them to the sales tax authorities describing them as partners of M/s. S.V.Traders Kancheepuram, has held that there is no evidence to show that the signature in Ex.B-26 is that of T.P.Narayanasamy. The learned counsel further submitted that the trial court has observed that there is no proof that T.P.Narayanasamy himself signed in Ex.B-26 and the trial court on a comparision of the signatures in Exs.B-14 and B-26 has observed that the signatures differ, but the same have not been considered by the Learned Single Judge. 12. The learned counsel further submitted that the plaintiffs being bonafide purchasers without notice are not liable to pay the sales tax arrears of their vendors and the property cannot be attached and sold for the sales tax arrears of either S.V.Traders, Kancheepuram or Kasthuri and Company. According to the learned counsel, the learned Single Judge has not considered the issue whether the plaintiffs are bonafide purchasers without notice in the light of the law laid down by the Division Bench of this Court reported in 1998 (1) C.T.C. 124 (referred to supra). 13. Per contra Mr. R.Subbiah learned counsel for the second respondent submitted that the trial court has placed too much importance on trivialities and has not properly considered Exs.A- 46, B-15, B-24, B-25, B-26, B-27 and B-36, whereas the Learned Single Judge has considered the said documents elaborately and has come to the right conclusion that S.V.Traders, Kancheepuram was not a proprietory concern as claimed by the plaintiffs, but it was only a partnership firm of which T.P.Narayanasamy and his son T.N.Subash were partners. The learned counsel drew our attention to the following observation made by the Tamilnadu Sales Tax Appellate Tribunal (Main Bench, Madras-1) in Ex.B-36, which reads https://hcservices.ecourts.gov.in/hcservices/ as follows:- "These details and documentary evidence give support for the existence of the stated partnership". 14. The learned counsel further drew our attention to Ex.B-25 dated 01.07.1974 wherein in column-4 both the names of T.N.Subash and T.P.Narayanasamy have been specifically mentioned as sharers. The learned counsel further invited out attention to Ex.B-26 dated 01.12.1975 which is Form-IX, prescribed under Rule 40 of the Tamilnadu General Sales Tax Rules, 1959, wherein T.N.Subash and T.P.Narayanasamy have declared that they have entered into partnership in regard to the business known as M/s. S.V.Traders, Kancheepuram and the form has been signed both by T.N.Subash and T.P.Narayanasamy. The learned counsel submitted that the learned Single Judge has extracted relevant portions from Exs.A-46, B-25, B-26 and B-36 and discussed threadbare the contents thereof and has rightly come to the conclusion that S.V.Traders, Kancheepuram was a partnership concern consisting of T.N.Subash and T.P.Narayanasamy as partners. The said finding of the learned Single Judge being based on documentary evidence is unassailable. The learned counsel further submitted that the learned Single Judge has clearly observed that a perusal of the pleadings of both the parties as well as the evidence clearly shows that the plaintiffs were very well aware of the sales tax arrears from 1973-74 and knowing it fully well they have purchased the property from T.P.Narayanasamy. The learned counsel further submitted that the plaint does not contain proper pleadings containing the material facts in respect of their claim that they are bonafide purchasers without notice of the sales tax arrears of their vendors and in the absence of necessary pleadings they are precluded from letting in any evidence in that respect and further submitted that any amount of oral evidence in the absence of necessary pleadings cannot be looked into. He further submitted that since the plaintiffs pleaded that they were bonafide purchasers without notice the initial burden was on them to prove the said plea. According to the learned counsel, the plaintiffs have not discharged their burden and whereas the department by overwhelming documentary evidence has proved that the plaintiffs had knowledge about the sales tax arrears of their vendors. The learned counsel further submitted that Ex.A-46 which is an order dated 17.11.1975 passed by the Commissioner for Land Revenue and Commercial Taxes in a batch of revision petitions filed by the vendors of the plaintiffs, the Commissioner rejected the revision petitions filed by the plaintiffs' vendors challenging the assessment orders passed for the assessment year 1974-75 and when Ex.A-46 had been produced by the plaintiffs before the trial court, it is evident that they had knowledge about the sales tax arrears of M/s. S.V.Traders, Kancheepuram and therefore submitted that the plaintiffs cannot be construed to be bonafide purchasers without notice. https://hcservices.ecourts.gov.in/hcservices/ 15. By placing reliance on the following decisions, the learned counsel for the second respondent submitted that the defence of purchase without notice is one which ought to be specifically pleaded and proved by one who pleads so. (i) A.I.R. 1928 Patna 587 (Murat Singh Vs. Pheku Singh) (ii) A.I.R. 1939 Nagpur 132 (Mt. Renukabai W/o. Sitaramji Wankhade Vs. Bheosan Hapsaji Junghare and others). (ii) A.I.R. 1940 Nagpur 163 (Seth Ghasiram Seth Dalchand Palliwal Vs. Mt. Kundanbai, W/o. Rameshwar Shukul and others). 16. The learned counsel for the second respondent further drew our attention to Exs.A-3 and A-7-the reply notice and notice sent by the plaintiffs respectively and submitted that the plaintiffs had not claimed either in Ex.A-3 or Ex.A-7 that they have no notice about the sales tax arrears of their vendors. He further invited our attention to the cross examination of P.W.1 wherein he had categorically stated that they did not enquire T.P.Narayanasamy as to whether there was sales tax arrears. P.W.1 has also stated in his cross examination that he had not enquired either T.P.Narayanasamy or T.N.Subash about S.V.Traders. 17. In reply Mr. V.Raghavachary learned counsel for the appellant submitted that the plaint contains the necessary pleadings and it can be inferred from the plaint that the plaintiffs have no notice about the sales tax arrears of their vendors and they are bonafide purchasers. The learned counsel submitted that there is no need to plead that the plaintiffs made enquires with their vendors regarding their sales tax arrears. The learned counsel relied upon the following decisions: (i) 62 Law Weekly 377 (Adinarayana Vs. Jagannadha Rao). (ii) A.I.R.1934 Privy Council 68 (Bhup Narain Singh Vs. Gokul Chand Mahton and others). (iii) A.I.R. 1929 Patna 300 (Ramdeni Singh and another Vs. Gumani Raut and another). (iv) A.I.R. 1977 Allahabad 328 (Ram Lakhan Vs. Ram Govind and others). (v) A.I.R. 1984 Patna 277 (Rameshwar Singh Vs. Hari Narayan Singh and others). 18. The learned counsel on either side submitted that the Honourable Supreme court in the decision reported in 2006 (1) S.C.C. 615 (State of Karnataka and another Vs. Shreyas Papers (P) Ltd., and others) has approved the decision of the Division Bench of this Court reported in 1998 (1) C.T.C. 124 (referred to supra) equivalent to 108 S.T.C. 161 and therefore the law laid down in 1993 (3) M.T.C.R. 8 (referred to supra) and 1985 W.L.R. 240 (referred to supra) is no longer good law. https://hcservices.ecourts.gov.in/hcservices/ 19. Now we have to consider the above submissions of the learned counsel. (i) In 1985 W.L.R. 240 (referred to supra) the Division Bench has laid down as follows:- "If the tax assessed remained unpaid for a period of 21 days after the notice of demand had been served, that charge can be enforced by invoking the provisions of the Revenue Recovery Act, under Section 24(2) of the Tamil Nadu General Sales Tax Act. Since the learned Judge has not considered the scope of S.24(1) but proceeded only on the basis of S.24(2) we are not inclined to agree with the view expressed by the learned Judge that arrears of sales tax cannot be recovered from the properties sold by the assessee after a charge has fastened itself on the properties of the defaulter, on his default in paying the arrears of sales tax within the time stipulated by S.24(1)." (ii) In 1993 (3) M.T.C.R. 8 (referred to supra), the Division Bench after referring to the decision reported in 1985 W.L.R. 240 (referred to supra) has observed as follows:- "The Division Bench held that as a result of Sec. 24(1) of the Act, a charge was created over the properties for the sales tax amount due by the transferor even before the transfer was actually effected and the said charge can be enforced against the properties transferred which are in the hands of the transferee. The decision in Ahamedabad Municipality Vs. Haji Abdul (A.I.R. 1971 S.C.1201) relied on by the learned counsel for the appellant is not quite relevant, for, that decision was rendered with reference to Sec. 141 of the Bombay Provincial Municipal Corporation Act 1949. Sec. 141(1) of the Bombay Provincial Municipal Corporation Act 1949 merely creates a charge for the property tax. There is no provision in the Bombay Provincial Municipal Corporation Act, similar to Sec. 24(2) of Tamil Nadu General Sales Tax Act, 1959, providing for enforcement of the charge created under Sec. 141 (1) of the Bombay Provincial Municipal Corporation Act. Therefore, the ratio of the decision of the Supreme Court in Ahmedabad Municipality Vs. Haji Abdul (A.I.R. 1971 S.C. 1201) cannot be applied to the facts of the present case. We are inclined to follow the decision of the Division Bench of this Court in Deputy Commercial Tax Officer Vs. Azha Kumari (1985 W.L.R. 240)