Case: Ai Champday Industries Ltd Vs. Official Liquidator

2. Wool-Combers of India Limited (the company) went in liquidation. Appellant purchased 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, 2006.3. Appellant 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, statingbefore 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 thereof.Appellant 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 ofon receipt of the said notice took out a Chamber Summons praying, inter alia, for the following reliefsNecessary 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 above;(c) Injunction 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 September, 2006.(e) Injunction 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 this summons;(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 Honble Court may deem fit and proper.By reason of an order dated 7th February, 2008, the said application has been dismissed, statingconsidered 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 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.n intra court appeal preferred thereagainst has been dismissed by a Division Bench of the said court.

Court's reasoning:
12. The terms and conditions of the sale must be read as a whole. It must be given a purposive meaning.Encumbrance, 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.14. If 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. Respondent-Municipality 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 sale proceeds.15. Companies 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 itsmay 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.There 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 charge.In 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 the contrary must be express and not implied, as a result whereof the meaning of term encumbrance would beadvertisement did not specify that all public charges have to beCorporation 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.Dues 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