# OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM & ORS

- **Citation:** [2023] 7 S.C.R. 1082
- **Court:** Supreme Court of India
- **Decided:** 2023-05-04
- **Case number:** Civil Appeal No. 8015 of 2010
- **Bench:** Dinesh Maheshwari, Aniruddha Bose
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/official-liquidator-v-ujjain-nagar-palika-nigam-ors-37228
- **Pages:** 36

## Headnote

Companies (Court) Rules, 1959 - r.338 - Madhya Pradesh
Municipal Corporation Act, 1956 - s.185 - Post-liquidation liability,
if Official Liquidator (OL) was obliged to discharge - Whether the
claims made by the respondent No.1-Nigam towards arrears of
property tax and water tax of the company in liquidation, pertaining
to the post-liquidation period (from the date of order of winding up
and until the date of confirmation of sale of assets to the auction
purchaser), if admissible against the appellant-OL - Held: Yes - In
the present case, as per the terms and conditions of the sale notice,
the sale was on "as is where is whatever there is" basis - A further
disclaimer was also stated that the appellant-OL was not providing
any guarantee as to the quality, quantity or specification of the
assets sold - Such stipulations and disclaimers had definitely put
the purchasers to notice to get themselves acquainted with what the
property is (the nature and extent); where it is (the locational
attributes); and whatever there is (its quantity and condition) -
Bidders/purchasers were further warned to satisfy themselves in
regard to the aspects of nature, extent, location etc. after physical
inspection of the assets and were also informed that they would be
deemed to offer with full knowledge as to defects, if any - However,
the significant omission in those terms and conditions was to make
it obligatory on the bidder/purchaser to make himself aware about
encumbrances, liens and claims attached to the assets in question -
This omission strikes at the very root of the case of the appellant -
Further, in the face of undeniable operation of s.185, M.P. Act,
1956 over the property in question, the bidder/purchaser was entitled
to proceed on the assumption that even if there were any arrears of
such taxes under the M.P. Act, 1956, the same would not be
recoverable from him - Company Court and the High Court rightly
held that the liability on account of the property tax and water tax
claimed by the respondent No. 1 to the extent rejected by the
[2023] 7 S.C.R. 1082
1082
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appellant-OL was a post-liquidation liability, which the OL was
obliged to discharge, in view of the omission in the sale notice and
then, in view of the operation of r.338, 1959 Rules - In absence of
any statutory provision, the auction purchaser without notice of
any charge could not be made liable for the arrears of tax in question
during the post-liquidation period - Arrears of property tax and
water tax until the date of confirmation of sale would qualify as the
expenses for "preserving, realising or getting in" the assets of the
company and thus, shall have to be paid in priority by the appellantOL - View taken by the High Court calls for no interference -
Companies Act, 1956 - ss. 529A, 530.
United Bank of India v. Official Liquidator and Ors.
(1994) 1 SCC 575 : [1993] 3 Suppl. SCR 1; Haryana
Financial Corporation v. Rajesh Gupta (2010) 1 SCC
655 : [2009] 16 SCR 456 - distinguished.
UT Chandigarh Administration and Anr. v. Amerjeet
Singh and Ors. (2009) 4 SCC 660 : [2009] 4 SCR 541;
Punjab Urban Planning and Development Authority v.
Raghu Nath Gupta (2012) 8 SCC 197 : [2012] 8 SCR
118 - held inapplicable.
Ahmedabad Municipal Corporation v. Haji Abdul Gafur
Haji Hussenbhai (1971) 1 SCC 757; AI Champdany
Ltd. v. Official Liquidator and Anr. (2009) 4 SCC 486 :
[2009] 2 SCR 705 - relied on.
Municipal Board, Cawnpore v. Roop Chand Jain and
Anr. AIR 1940 All 456 - referred to.
Delhi Development Authority v. Kenneth Builders and
Developers Pvt. Ltd. and Ors. (2016) 13 SCC 561:
[2016] 3 SCR 1126 - referred to.
In re Toshoku Finance UK plc : [2002] 1 WLR 671; In
re Toshoku Finance UK plc - referred to.
Case Law Reference
[1993] 3 Suppl. SCR 1
distinguished
para 8.3
[2009] 16 SCR 456
distinguished
para 9
[2009] 4 SCR 541
held inapplicable
para 9
OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM
& ORS.
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SUPREME COURT REPORTS
[2023] 7 S.C.R.
[2

## Text

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SUPREME COURT REPORTS
[2023] 7 S.C.R.
OFFICIAL LIQUIDATOR
v.
UJJAIN NAGAR PALIKA NIGAM & ORS.
(Civil Appeal No. 8015 of 2010)
MAY 04, 2023
[DINESH MAHESHWARI AND ANIRUDDHA BOSE, JJ.]
Companies (Court) Rules, 1959 - r.338 - Madhya Pradesh
Municipal Corporation Act, 1956 - s.185 - Post-liquidation liability,
if Official Liquidator (OL) was obliged to discharge - Whether the
claims made by the respondent No.1-Nigam towards arrears of
property tax and water tax of the company in liquidation, pertaining
to the post-liquidation period (from the date of order of winding up
and until the date of confirmation of sale of assets to the auction
purchaser), if admissible against the appellant-OL - Held: Yes - In
the present case, as per the terms and conditions of the sale notice,
the sale was on "as is where is whatever there is" basis - A further
disclaimer was also stated that the appellant-OL was not providing
any guarantee as to the quality, quantity or specification of the
assets sold - Such stipulations and disclaimers had definitely put
the purchasers to notice to get themselves acquainted with what the
property is (the nature and extent); where it is (the locational
attributes); and whatever there is (its quantity and condition) -
Bidders/purchasers were further warned to satisfy themselves in
regard to the aspects of nature, extent, location etc. after physical
inspection of the assets and were also informed that they would be
deemed to offer with full knowledge as to defects, if any - However,
the significant omission in those terms and conditions was to make
it obligatory on the bidder/purchaser to make himself aware about
encumbrances, liens and claims attached to the assets in question -
This omission strikes at the very root of the case of the appellant -
Further, in the face of undeniable operation of s.185, M.P. Act,
1956 over the property in question, the bidder/purchaser was entitled
to proceed on the assumption that even if there were any arrears of
such taxes under the M.P. Act, 1956, the same would not be
recoverable from him - Company Court and the High Court rightly
held that the liability on account of the property tax and water tax
claimed by the respondent No. 1 to the extent rejected by the
[2023] 7 S.C.R. 1082
1082
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appellant-OL was a post-liquidation liability, which the OL was
obliged to discharge, in view of the omission in the sale notice and
then, in view of the operation of r.338, 1959 Rules - In absence of
any statutory provision, the auction purchaser without notice of
any charge could not be made liable for the arrears of tax in question
during the post-liquidation period - Arrears of property tax and
water tax until the date of confirmation of sale would qualify as the
expenses for "preserving, realising or getting in" the assets of the
company and thus, shall have to be paid in priority by the appellantOL - View taken by the High Court calls for no interference -
Companies Act, 1956 - ss. 529A, 530.
United Bank of India v. Official Liquidator and Ors.
(1994) 1 SCC 575 : [1993] 3 Suppl. SCR 1; Haryana
Financial Corporation v. Rajesh Gupta (2010) 1 SCC
655 : [2009] 16 SCR 456 - distinguished.
UT Chandigarh Administration and Anr. v. Amerjeet
Singh and Ors. (2009) 4 SCC 660 : [2009] 4 SCR 541;
Punjab Urban Planning and Development Authority v.
Raghu Nath Gupta (2012) 8 SCC 197 : [2012] 8 SCR
118 - held inapplicable.
Ahmedabad Municipal Corporation v. Haji Abdul Gafur
Haji Hussenbhai (1971) 1 SCC 757; AI Champdany
Ltd. v. Official Liquidator and Anr. (2009) 4 SCC 486 :
[2009] 2 SCR 705 - relied on.
Municipal Board, Cawnpore v. Roop Chand Jain and
Anr. AIR 1940 All 456 - referred to.
Delhi Development Authority v. Kenneth Builders and
Developers Pvt. Ltd. and Ors. (2016) 13 SCC 561:
[2016] 3 SCR 1126 - referred to.
In re Toshoku Finance UK plc : [2002] 1 WLR 671; In
re Toshoku Finance UK plc - referred to.
Case Law Reference
[1993] 3 Suppl. SCR 1
distinguished
para 8.3
[2009] 16 SCR 456
distinguished
para 9
[2009] 4 SCR 541
held inapplicable
para 9
OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM
& ORS.
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SUPREME COURT REPORTS
[2023] 7 S.C.R.
[2012] 8 SCR 118
held inapplicable
para 9
(1971) 1 SCC 757
relied on
para 10
[2009] 2 SCR 705
relied on
para 12.3
[2016] 3 SCR 1126
referred to
para 12.5
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8015
of 2010.
From the Judgment and Order dated 05.02.2009 of the High Court
of Calcutta in ACO No. 49 of 2008 and APOT No. 248 of 2008.
With
Civil Appeal No. 8016 of 2010.
Mrs. Rupali Samanta Ghosh, Sanjay Kumar Ghosh, Advs. for the
Appellant.
Ms. Christi Jain, Puneet Jain, Harshit Khanduja, Yogit Kamat,
M. Arora, Ms. Pratibha Jain, Sunil Roy, T. Srinivasa Murthy, P. N. Gupta,
Mrs. Bharti Gupta, Advs. for the Respondents.
The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
1. By way of these appeals, the appellant, being Official Liquidator1
of the company named IISCO Ujjain Pipe and Foundry Company
Limited2, has questioned the common judgment and order dated
05.02.2009 in APOT No. 248 of 2008 and APOT No. 235 of 2008,
whereby the Division Bench of the High Court at Calcutta has dismissed
the appeals against the common judgment and order dated 25.04.2007 in
C.A. No. 159 of 2006 and C.A. No. 160 of 2006, as passed by the
learned Company Judge of the High Court3 in allowing the company
applications preferred by respondent No.1 Ujjain Nagar Palika Nigam4,
claiming property tax and water tax from the appellant in relation to the
company in liquidation, from the date of order of winding up and until the
date of confirmation of sale of assets to the auction purchaser, who is
now represented by respondent No. 3.
1 'OL', for short.
2 Hereinafter also referred to as 'the company in liquidation'.
3 Hereinafter also referred to as 'the Company Court'.
4 Hereinafter also referred to as 'the Nigam'.
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2. Briefly put, the relevant facts are that the said company, IISCO
Ujjain Pipe and Foundry Company Limited, became sick and was referred
to the Board for Industrial and Financial Reconstruction5 under the
provisions of Sick Industrial Companies (Special Provisions) Act, 1956.
The BIFR recommended its winding up and, accordingly, it was ordered
to be wound up by the Company Court in its order dated 10.07.1997.
The appellant herein was appointed as the Official Liquidator and was
directed to take over possession of the assets of the company in liquidation.
3. Following an order passed by the Company Court on 04.04.2003,
the assets of the company in liquidation were put up for sale on "as is
where is whatever there is" basis by means of sale notice dated
09.05.2003. The said notice provided for inspection of the assets of the
company by intending purchasers and mentioned the availability of terms
and conditions of sale alongwith particulars about the assets of the
company at the office of the appellant. This sale notice reads as under:-
"SALE NOTICE
Pursuant to the order of the Hon'ble High Court, Calcutta
dated 4th April, 2003 offers are invited in sealed cover enclosing a
Bank Draft or Pay Order in favour of Official Liquidator, High
Court, Calcutta for an amount equivalent to 20% of the offered
amount as earnest money for sale of the assets of the Company
[In Liqn.] like land structure, building, machineries etc., lying at
Dewas Road, Ujjain M.P., and lease hold land building quarter at
Nana-Kheda, Indore road, Ujjain, M.P. The assets of the company
will be sold 'as is where is whatever there is basis'. Balance
amount is to be paid within 30 days from the date of sale and the
possession is not be made only after full payment of the purchase
price.
Sealed offers will be received by the Official Liquidator
upon 5 p.m. dated 26th June 2003 and the same will be opened on
27th June 2003 at 2.00 p.m. before the Hon'ble Judge taking
Company matters in the High Court at Calcutta for consideration
of such sealed offers. No one will be allowed to purchase in favour
of nominee or nominees.
Inspection of the assets of the Company [In liqn.] will be
allowed to the intending purchasers on 26th May 2003 and
5 For Short, 'BIFR'.
OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM
& ORS. [DINESH MAHESHWARI, J.]
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SUPREME COURT REPORTS
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27th May 2003 between 12 noon to 4 p.m. Terms and conditions
of sale alongwith the particulars of the assets of the Company [In
Liquidation] will be available at the office of the undersigned on
and from 22nd May 2003 during office hours at a cost of Rs.50/-
per catalogue and also at site during inspection period.
Dated this 9th day of May, 2003."
3.1. The abovementioned sale notice carried certain terms and
conditions appended to it, reinforcing that the sale would be on "as is
where is whatever there is" basis and stating that the appellant OL
would not be providing any guarantee about the quality, quantity or
specification of the assets sold; the tenderers were to satisfy themselves
in this regard after physical inspection of the assets of the company; and
the purchasers would be deemed to offer with full knowledge as to
defects, if any, in the description, quality or quantity of the assets sold.
The conditions relevant for the present purpose could be reproduced as
follows: -
"TERMS & CONDITIONS OF THE SALE
1. The SALE will be as per inventory made by the valuer on 'As
is where is whatever there is' basis subject to the confirmation
by the Hon'ble Court, The Official Liquidator shall not provide
any guarantee and/or warranty as to quality, quantity or
specification of the assets sold. The Tenderers/ bidders are to
satisfy themselves in this regard after physical inspection of
the assets of the company and the purchasers will be deemed
to offer with full knowledge as to defects, if any, in the
description, quality or quantity of 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 sale.
..........."
3.2. Pursuant to the aforementioned sale notice, the assets were
sold to one Nagendra Jain for a sum of Rs. 20.50 crore; and the sale
was confirmed by the order of Company Court dated 04.07.2003.
Subsequently, the respondent No. 3 was nominated in the place and
stead of the said Nagendra Jain as purchaser of the assets and properties
of the company in liquidation.
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4. After the sale of assets, the appellant OL invited claims from
the creditors of the company in liquidation by way of advertisements.
4.1. In response to such invitation of claims, the respondent No. 1
Nigam filed affidavit of proof of debt with the appellant, claiming towards
arrears of property tax a sum of Rs. 2,79,955/- for the year 1996-1997
and another sum of Rs. 4,63,69,137/- for the years 1997-1998 till
2003-2004, for the factory and staff quarters of the company in liquidation
at Ujjain. The respondent No. 1 Nigam also filed another affidavit of
proof of debts with the appellant to the tune of Rs. 11,14,612/- as arrears
of water tax for the period from 01.06.1996 to 31.10.2005.
4.2. In response to the claims so filed by the respondent No. 1
Nigam, the appellant OL issued four notices dated 24.01.2006. By way
of two such notices, the appellant admitted the claims to the tune of
Rs. 2,79,955/- on account of property tax and Rs. 2,162.20 on account
of water tax against the company in liquidation only to the extent of preliquidation period i.e., prior to the date of order of winding up by the
Company Court (10.07.1997). However, by way of other two notices
issued on even date, the appellant rejected the claim of respondent No.
1 to the extent of Rs. 4,63,69,137/- towards property tax and Rs.
11,12,449.80 towards water tax on the ground that such claims arose
after the date of order of winding up i.e., 10.07.1997.
5. In challenge to the part rejection of its claim, the respondent
No. 1 Nigam preferred two company applications before the Company
Court at Calcutta by Judge's Summons under Rule 164 of the Companies
(Court) Rules, 19596, particularly as regards admissibility of postliquidation claims.
6. For deciding the applications so preferred by the respondent
No.1, the Company Court framed the following question for adjudication:-
"The question before this Court is whether claims, that might arise
against the Official Liquidator representing the company in
liquidation, for any period of time, subsequent to the order of
winding up, can outright be rejected."
6.1. It was contended on behalf of respondent No. 1 Nigam -
applicant before the Company Court - that the OL was liable for both
pre-liquidation and post-liquidation rates and taxes; that as per Section
6 Hereinafter also referred to as 'the Rules of 1959'.
OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM
& ORS. [DINESH MAHESHWARI, J.]
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SUPREME COURT REPORTS
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185 of the Madhya Pradesh Municipal Corporation Act, 19567 the position
of respondent No. 1 was that of a secured creditor; and that in any case,
the OL was required to give reasons for rejection of claim which he had
not done. A reference was also made to Rule 163 of the Rules of 1959.
6.2. Similarly, it was contended on behalf of respondent No.3
auction purchaser, while placing reliance on the said Section 185 of the
M.P. Act of 1956, that he was not liable towards such taxes prior to the
date on which he occupied the property; and that the OL was liable to
pay all taxes till the execution of deed of conveyance in favour of the
purchaser.
6.3. On the other hand, it was contended on of behalf the appellant
OL that he was liable to pay only those taxes which accrued till the date
of winding up and became payable within one year thereof; that in view
of Section 529A of the Companies Act, 19568, workmen's dues and the
dues of secured creditors to the extent they were secured, were to be
paid pari passu, and prioritised over all other debts; and that Rule 154
of the Rules of 1959 provided for filing of affidavit of proof of debts as
on relevant date and the appellant had allowed taxes due on the relevant
date that had been proved.
7. In the common judgment and order dated 25.04.2007, the
Company Court, while allowing the applications so filed by the respondent
No. 1 Nigam, held that liability of the appellant OL was not restricted to
the claims and debts only until the date of order of winding up.
7.1. The Company Court further held that reliance placed by the
appellant OL on Section 530 of the Companies Act and Rule 154 of the
Rules of 1959 was patently misconceived, while observing that there
was no provision in either of them which restricted the claim only until
the date of order of winding up. It was also held that Section 530 of the
Companies Act would not absolve a company in liquidation of its liability
towards revenue and taxes; and that such liabilities in the post-liquidation
period were to be treated as a part of the cost of winding up and would
be prioritised over all other liabilities. As regards the auction purchaser,
the Company Court relied upon a decision of the Bombay High Court
holding that the purchaser was liable to pay property tax only from date
of purchase. The Company Court observed and held, inter alia, as under:-
7 Hereinafter also referred to as 'the M.P. Act of 1956'.
8 Hereinafter referred to as 'the Companies Act'.
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"The company may be wound up and its business closed down.
Yet, the Official Liquidator would be obliged to protect the assets
of the company in liquidation, until such time as the assets are
sold. For the protection of assets, the Official Liquidator
representing the company might have to retain rented premises,
obtain supply of electricity, engage security guards and take such
other steps involving expenses as the Official Liquidator might
deem necessary. Can claims on account of inter alia rent, electricity
charges that accrued after the date of winding up, be outright
rejected only on the ground that the claims were post liquidation
claims even though the company in liquidation might have sufficient
funds to satisfy the claims?
An electricity supplier, may, as argued by Mr. Ghosh, have the
option of disconnecting supply for non-payment of its dues and
appropriating the security deposit of the consumer. The right of
disconnection would not, however, make any difference to the
maintainability of the claim of the supplier.
It is not in dispute that the Official Liquidator has been making
payment of post liquidation electricity charges. The compulsion to
make payment cannot, however, make any difference to the legal
status of the claim.
If charges on account of supply of electricity after the date of
liquidation are payable, so is rent. The liability of a company to
pay rent and/or occupation charges and/or rates and taxes does
not automatically come to an end with the order of winding up of
the company.
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The dispute between the Official Liquidator and the applicant is
with regard to the rates and taxes for the period between 10th
July, 1997 being the date on which the company was directed to
be wound-up and 4th July, 2003 being the date on which the sale
in favour of the purchaser was confirmed. In other words, the
dispute is with regard to the taxes claimed for a period of
approximately six years.
The Official Liquidator has rejected the proof of debt on his
interpretation of the various provisions of the Companies Act and
OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM
& ORS. [DINESH MAHESHWARI, J.]
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SUPREME COURT REPORTS
[2023] 7 S.C.R.
the Company (Court) Rules framed thereunder and in particular
Section 528, 529A and 530 and Rule 154 of the Rules.
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The contention on behalf of the Official Liquidator, that debts and
claims and particularly claims on account of municipal tax are
payable only till the date of winding up of the company, in view of
Section 530 of the Companies Act, 1956, read with Rule 154 of
the Companies (Court) Rules 1959, is patently misconceived. There
is no provision either in the Companies Act or in the Companies
(Court) Rules which restricts claims and debts only till the date of
the winding up order.
Pre-liquidation claims, which had arisen before the Official
Liquidator took possession of the assets and properties of the
company, would necessarily have to be estimated by the Official
Liquidator on the basis of available records and the proof adduced
by the claimant and/or creditor. Post liquidation debts and claims
do not require to be proved.
Section 530 does not absolve a company in liquidation, represented
by the Official Liquidator, of its liability towards revenue and taxes.
The said Section merely provides for payment of revenues, taxes,
cesses and rates which became due and payable within 12 months
from the relevant date, being the date of the winding up order in
priority to other pre-liquidation debts. Post liquidation liabilities are
to be treated as part of the costs of winding up of the company in
liquidation and such liabilities get priority over all other liabilities of
the company.
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In winding up, liquidators who carry on the company's business
continue with rateable occupation of the premises and they are in
rateable occupation even if they occupy merely for the purpose
of fulfilling the outstanding contracts or preventing damage to the
company's property (Halsbury Laws of England, 4th Edn., Vol.39).
It is true that the Official Liquidator did not carry on any business
on behalf of the company. The Official Liquidator, however,
retained possession for beneficial winding up of the company.
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As rightly argued by Mr. Mukherjee, appointed as amicus curiae
by this Court, and by Mr. Banerjee, appearing on behalf of the
applicant, the expenses incurred in winding up are payable, not
provable. The principle of priority of certain creditors is applicable
to liability of the company at the time when the order for winding
up of the company was made. Costs and expenses incurred on
behalf of the company, in winding up ought to have paid in full."
7.2. The Company Court also took note of the fact that the
appellant OL had rejected the claims only on the ground that he was not
liable to pay post-liquidation expenses but had neither objected to the
determination of annual value nor filed any appeal under Section 184 of
the M.P. Act of 1956. The Court observed that unless an objection or
appeal was filed and the demand was reduced, the OL would be bound
to discharge the tax liability, as per the claim of the Nigam, even for
post-liquidation period. Therefore, the Court set aside the rejection notice
by the appellant but extended him liberty to file an appeal against the
demands, if so chosen, within thirty days and also provided that the
appellant would, within eight weeks from the date of receipt of the order
in appeal under Section 184 of the M.P. Act of 1956, consider and dispose
of the claims of the applicant (respondent No. 1), as determined in appeal
and in accordance with law.
8. The appellant challenged the aforesaid judgment and order dated
25.04.2007 of the Company Court by way of appeals before the Division
Bench of the High Court but, the appeals came to be dismissed by the
impugned judgment and order dated 05.02.2009.
8.1. The appellant OL contended before the Division Bench that
he had not carried on any business of the company and consequently,
did not in any way earn profit from use of the assets of the company in
liquidation; that the provisions of the Companies Act did not envisage
payment of post-liquidation taxes on property and water and the assets
were only custodia legis after the winding up order until the sale; and
that the sale was on "as is where is whatever there is" basis, which
would mean that the assets were not free from encumbrances when
sold and thereby, the liability of taxes was shifted to the purchaser.
8.2. The respondent No. 1 Nigam contended that the appellant
would be liable to pay taxes to the Nigam out of sale proceeds, and apart
from this, reiterated the submissions made before the Company Court.
OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM
& ORS. [DINESH MAHESHWARI, J.]
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Similarly, the auction purchaser, respondent No. 3, submitted that he
was neither the owner nor the occupier until 04.07.2003 when the sale
was confirmed and, therefore, there would be a shift of the charge to
the sale proceeds and not to the purchaser. However, a creditor of the
company, respondent No. 2, contended that the claim towards arrears
of property and water tax would be directed against the auction purchaser
and not the OL.
8.3. The Division Bench did not accept the submissions of appellant
and respondent No. 2 and held that respondent No. 3 - the auction
purchaser - was not liable to pay the said charges accrued post-liquidation
because, from the terms and conditions of sale, it could not be discerned
that the purchaser was put to notice about any liability towards arrears
due to the Nigam. The Division Bench held that in absence of clear
provision in the sale notice that intending purchaser had to satisfy himself
as regards assets of company in liquidation in all respects including
encumbrances, the appellant was obliged to discharge the post-liquidation
liability towards property and water taxes; and that it would not be
reasonable to fasten liability on a purchaser without informing him about
the encumbrances prior to the sale. The Division Bench also distinguished
the decision of this Court in the case of United Bank of India v. Official
Liquidator and Ors.: 79 Company Cases 262 [= (1994) 1 SCC
575] while taking note of the peculiar factual matrix and specific terms
and conditions of sale in that case. After making a comparison between
the terms and conditions of sale in the present case and those of sale in
the aforesaid case, it was observed that sale notice in the present case
was not couched in similar and comprehensive language and there was
no occasion for respondent No. 3 to make himself aware about the
encumbrances, if any, in respect of assets of the company in liquidation,
which he intended to purchase.
8.4. As regards the applicability of Section 530 of the Companies
Act, the Division Bench observed that the said provision had nothing to
do with payment of taxes which might have mounted between the date
of the order of winding up and the date of the sale of its assets. Similarly,
Rule 154 of the Rules of 1959, providing for the manner of estimation of
value of debts and claims on the date of the order of winding up of the
company was held to be of no application.
8.5. The Division Bench of the High Court observed and held as
under:-
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"There is no express provision in the sale notice that the liability to
bear charges on account of water and property taxes must be
borne by the purchaser. We are unable to comprehend that the
expression "as is where is whatever there is basis" comprises
within its ambit the liability to clear statutory charges as might
have accrued and are in arrears. The terms and conditions of the
sale do specify that the Official Liquidator shall not provide any
guarantee and/or warranty as to quality, quantity or specification
of the assets sold and the intending purchaser is required to satisfy
himself in this regard after physical inspection of the assets of the
company in liquidation and no complaint as to defects, if any, in
the description, quality or quantity of the assets sold would be
entertained after the sale is over and that any mistake in the notice
inviting tender shall not vitiate the sale. These, per se, in our opinion,
would not tantamount to a representation being made to an
intending purchaser that while bidding for the assets put up for
sale he is also to bear the expenses towards arrear dues of the
Nigam. Guarantee and/or warranty as to quality, quantity or
specification of the assets sold cannot be equated with the liability
attached to the same. The terms and conditions of the tender only
protect the Official Liquidator to the extent of quality, quantity
and specification and would not extend to claiming of immunity to
clear taxes claimed by the Nigam.
The Official Liquidator has laid much stress on Section 530 of the
Companies Act and Rule 154 of the Companies (Court) Rules.
We have failed to find the materiality of the said provisions for a
decision on the present dispute. Section 530 provides for
preferential payments. According to clause (a) of sub-section (1)
of Section 530 read with clause (c) of sub-section (8) thereof, all
revenues, taxes etc. due from the company in liquidation to a
local authority on the date of the winding up order and having
become due and payable during the preceding 12 months thereof
would be entitled to priority over all other dues. Section 530 has
nothing to do with payment of taxes which might have mounted
between the date of winding up and sale of its assets by the
purchaser. Rule 154 also cannot have any manner of application
since it provides the manner of estimation of value of debts and
claims on the date of the order of winding up of the company.
OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM
& ORS. [DINESH MAHESHWARI, J.]
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SUPREME COURT REPORTS
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It would be, in our opinion, thoroughly unreasonable to foist the
liability on a purchaser without first letting him know prior to the
sale about such liability. Enquiries at site must have been made by
the ultimate purchaser before he offered his bid. The purchaser
could have been informed there of the encumbrances. He could
have also been told about it prior to his depositing the balance sale
consideration. The proceedings before the Company Court were
decided without giving any opportunity to the Official Liquidator
to file counter affidavits to the applications filed by the Nigam, as
it appears from the stay petitions. We, however, find no averment
in the stay petitions to the effect that after the respondent no.3
had expressed interest to purchase the assets of the company in
liquidation, the Official Liquidator had made him aware that
purchase of such assets would carry with it the liability to pay
arrear taxes recoverable by the Nigam. In the absence of such
an averment, we find it difficult to hold that the respondent no.3
ought to bear the liability instead of the Official Liquidator.
At this stage, it would be worthwhile to consider the decision of
the Apex Court in United Bank of India (supra) cited by Mr. Ghosh.
The Official Liquidator, in that case, had sold the assets of the
company in liquidation on the basis of Terms and Conditions of
Sale to Triputi Jute Industries. Clause (2) of such terms and
conditions was as follows:
"2. The sale will be as per inventory list on 'as is where is
basis' and subject to the confirmation of the Hon'ble
Supreme Court of India. The Official Liquidator shall not
provide any guarantee and/or warranty in respect of the
immovable properties and as to the quality, quantity or
specification of the movable assets. The intending
purchaser must satisfy themselves in all respect as regards
the movable and immovable assets, as to their title,
encumbrances, area, boundary, description, quality,
quantity, and volume etc. and the purchaser will be deemed
to offer with full knowledge as to the description, area
etc. of the properties and defects thereof, if any. The
purchaser shall not be entitled to claim any compensation
or deduction in price on any account whatsoever and shall
be deemed to have purchased the property subject to all
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encumbrances, liens and claims including those under the
existing legislation affecting labour, staff etc. 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 sale."
It was on consideration of the express provisions of clause (2) of
the Terms and Conditions of Sale that the Apex Court proceeded
to hold as under:
"When the Official Liquidator sells the property and assets
of a company in liquidation under the orders of the Court
he cannot and does not hold out any guarantee or warranty
in respect thereof. This is because he must proceed upon
the basis of what the records of the company in liquidation
show. It is for the intending purchaser to satisfy himself in
all respects as to the title, encumbrances and so forth of
the immovable property that he proposes to purchase. He
cannot after having purchased the property on such terms
then claim diminution in the price on the ground of defect
in title or description of the property. The case of the
Official Liquidator selling the property of a company in
liquidation under the orders of the Court is altogether
different from the case of an individual selling immovable
property belonging to himself. There is, therefore, no merit
in the application made on behalf of Triputi that there
should be a diminution in price or that it should not be
made liable to pay interest on the sum of Rs 1 crore 98
lakhs".
It is understandable that once an intending purchaser is warned to
satisfy himself in all respects as regards the immovable assets as
in the said case, it is for his own benefit that he satisfies himself in
all respects including encumbrances of the immovable property
that he proposes to purchase. It is also quite understandable that
after having purchased the property on such terms any objection
that he was not aware of the encumbrances may not be
entertained.
However, it passes the comprehension of this Court as to why the
sale notice in the present case was not couched in similar and
OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM
& ORS. [DINESH MAHESHWARI, J.]
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comprehensive language as the one which fell for consideration
before the Apex Court. There being no occasion for the respondent
no.3 to make himself aware regarding the encumbrances, if any,
in respect of assets of the company in liquidation which he proposed
to purchase, it is too late in the day for the Official Liquidator to
contend that he ought to have participated in the bid upon being
fully satisfied and not having raised any objection at the relevant
time it is he only who is liable to bear the property and other
taxes.
We are of the view that the liability on account of property and
water taxes claimed by the Nigam, to the extent rejected by the
Official Liquidator is a post-liquidation liability which the Official
Liquidator is obliged to discharge in the absence of a clear provision
in the sale notice that the intending purchaser must satisfy himself
as regards the assets of the company in liquidation in all respects
including encumbrances.
In the fitness of things, we deem it necessary to direct the Official
Liquidator to issue future notices of sale of assets of companies
in liquidation in similar and comprehensive language as the one
quoted supra from the Apex Court decision to avoid
complications."
9. Aggrieved by the common judgment and order dated 05.02.2009
so passed by the Division Bench of the High Court, the appellant OL has
preferred these appeals.
9.1. Learned Counsel for the appellant has submitted that in true
operation of the applicable provisions of law, the appellant cannot be
made liable for the post-liquidation claims filed by respondent No. 1
while disregarding the interest and entitlement of pre-liquidation creditors.
It has been argued that the appellant has admitted the pre-liquidation
claims and has rightly rejected the post-liquidation claims as per Section
530 of the Companies Act, since the workers/employees were discharged
from service. Learned Counsel for the appellant would submit that the
assets and properties of the company in liquidation are deemed to be in
the custody of the Court and the appellant has not carried on any business
nor utilised water after liquidation of company for gaining profit.
9.2. It has been strenuously argued by the learned counsel that
the High Court was not justified in treating post-liquidation liabilities as a
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part of the cost of winding up and thereby, giving such liabilities a priority
over all other liabilities of the company in liquidation, which is not
permissible under Sections 529A, 530 and other provisions of the
Companies Act. This would also be prejudicial to pre-liquidation creditors,
being the workers, statutory creditors and general body of creditors.
9.3. It has also been argued that the respondent No. 1 had never
taken the necessary legal steps for realisation of its dues as claimed in
its affidavit of proof of debt and the High Court did not even consider
such affidavit before fastening the liability of post-liquidation claim on
the appellant.
9.4. Learned Counsel has also submitted that the benefit given to
respondent No. 3 by the High Court should not have been given in view
of the terms and conditions of sale of the assets of the company in
liquidation. Learned Counsel has vehemently submitted that the tenderers/
bidders had to satisfy themselves about all the relevant aspects concerning
the assets, when being sold on "as is where is whatever there is" basis;
and therefore, the purchaser would be deemed to have full knowledge
of the defects, encumbrances, and statutory dues before purchasing the
assets and properties of the company in liquidation. Learned counsel
would emphasise that when the terms and conditions of the sale clearly
mentioned that sale of assets would be on "as is where is whatever
there is" basis, after having purchased the property on such terms, the
purchaser is not entitled to make any claim as regards diminution in the
price on the ground of defect in title or description of the property. It has
further been submitted that the case of OL selling the property of a
company in liquidation under the orders of the Court is altogether different
from the case of an individual selling immovable property belonging to
himself. Reliance has been placed on decisions of this Court in United
Bank of India (supra), Haryana Financial Corporation v. Rajesh
Gupta: (2010) 1 SCC 655; UT Chandigarh Administration and Anr.
v. Amerjeet Singh and Ors.: (2009) 4 SCC 660; and Punjab Urban
Planning and Development Authority v. Raghu Nath Gupta: (2012)
8 SCC 197.
10. The submissions made on behalf of the appellant have been
essentially supported on behalf of respondent No. 2, Steel Authority of
India Limited, one of the creditors of the company in liquidation, who
has lodged the claim alongwith its subsidiary IISCO Ltd. It has been
contended on behalf of respondent No. 2 that the findings of the High
OFFICIAL LIQUIDATOR v. UJJAIN NAGAR PALIKA NIGAM
& ORS. [DINESH MAHESHWARI, J.]
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SUPREME COURT REPORTS
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Court are not in accord with the law on the point pertaining to ouster
clauses in the sale notice clearly stating that the sale of assets of the
company in liquidation was on "as is where is whatever there is" basis.
It has been argued that the auction purchaser takes the property subject
to all defects of title and the doctrine of caveat emptor directly applies
to such purchaser. A decision of this Court in the case of Ahmedabad
Municipal Corporation v. Haji Abdul Gafur Haji Hussenbhai: (1971)
1 SCC 757 has been relied upon.
11. Per Contra, learned counsel for respondent No. 1 has
submitted that the appellant OL, as a custodian of the property, is liable
to pay the post-liquidation claim too as raised by Nigam.
11.1. Learned Counsel has submitted that the claims raised by
respondent No.1 constitute "liquidation expenses", being the expenses
that had to be paid by the appellant OL to maintain the property while
being in his custody; and, therefore, the obligation is to be met out of the
value realised from the sale of assets of the company. In this regard,
learned counsel for the respondent No. 1 has submitted that in terms of
Rule 338 of the Rules of 1959, the expenses incurred by the OL for
"preserving, realising or getting in" the assets of the company are required
to be paid in priority and the said Rule provides for the order of preference
thereafter in relation to other costs and expenses payable out of the
assets of the company.
11.2. Learned Counsel has also submitted that preferential
payments prescribed in Section 530 of the Companies Act are for payment
of specified claims thereunder and that too after payment of costs and
expenses of winding up that are properly incurred by the appellant and
which are paid in priority. Moreover, the said Section 530 relates to
claims for pre-liquidation period for which, there is a need for prescribing
priority but, the said provision has no application for the expenses incurred
by OL during post-liquidation period, which are required to be paid in
priority. In regard to the liability and priority concerning post-liquidation
expenses, reliance has been placed on a few English decisions, including
that In re Toshoku Finance UK plc: [2002] 1 WLR 671.
11.3. Learned Counsel for respondent No. 1 has placed strong
reliance on Section 185 of the M.P. Act of 1956 to submit that the
provision creates an obligation to pay municipal taxes as a first charge
on the land and building as also the movable properties and the proviso
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expressly provides that arrears of tax are not recoverable from any
occupier who is not the owner, if the arrears are of the period when
such occupier was not in occupation. Therefore, in view of the proviso,
arrears of tax for the period prior to confirmation of auction sale, cannot
be recovered from the auction purchaser and have to be paid by the OL.
11.4.