CAUSE TITLE:
OFFICIAL LIQUIDATOR
VERSUS UJJAIN NAGAR PALIKA NIGAM & ORS.
DATE OF ORDER:
04-05-2023
JUDGE(S):
Dinesh Maheshwari, Aniruddha Bose.
PARTIES:
Petitioner:Official Liquidator
Respondent: Ujjain Nagar Palika Nigam &Ors
SUBJECT
The Supreme Court recently made this observation while ruling on the issue of the purchaser's obligation vis-à-vis the official liquidator towards the post-liquidation liability of a wound-up company. The cryptic terms and conditions of sale in the present case, lacking in material stipulations, never required a purchaser to conduct a search as regards encumbrances.
FACTS
- According to the terms of the Sick Industrial Companies (Special Terms) Act, 1956, the company, IISCO Ujjain Pipe and Foundry Company Limited, became sick and was submitted to the Board for Industrial and Financial Reconstruction (BIFR). The company was directed to be wound up on the advice of BIFR. Following that, the Appellant was chosen as the Official Liquidator and given instructions to assume control of the company's assets during the liquidation process.
- As a result, a sale notice was used to put the company's assets up for sale on an "as is, where is, whatever there is" basis. According to the sale notice, the tenderers were required to confirm their understanding after physically inspecting the company's assets, and the purchasers were assumed to have offered full knowledge of any flaws in the description, quality, or amount of the assets sold.
- Later, for a total of Rs. 20.50 crore, the assets were sold to one Nagendra Jain, but the third Respondent was named as the buyer instead. Following the transaction, the appellant used advertisements to solicit claims from creditors. The first Respondent (Nigam) responded by filing proof of debt claims for unpaid water and property taxes for the Ujjain factory and staff housing of the company that is in liquidation. The Appellant, on the other hand, admitted two claims limited to the amount of the pre-liquidation period and rejected other claims because they emerged after the date of the order of winding up. Concerning the acceptability of post-liquidation claims, the Company Court determined that the Appellant's liability was not limited to claims and debts only until the date of the order of winding up.
- The High Court likewise confirmed the Company Court's findings, observing that the auction bidder was not obligated to pay the charges accumulated post-liquidation because it could not be determined that the purchaser was informed of any duty to the Nigam. As a result, present appeals.
ANALYSIS OF COURT
- After reviewing the pleadings, the Apex Court determined that the Appellant used broad technical expressions in the terms and conditions of the sale in the present case, stating that the sale could be on an "as is where is whatever there is" basis, and that the Appellant was not providing any guarantee as to the quality, quantity, or specification of the assets sold.
- "Such stipulations and disclaimers were undoubtedly bringing the purchasers' attention to the need to familiarise themselves with the type, extent, and location of the property as well as its contents, amount, and condition. The bidders/buyers were further advised to satisfy themselves regarding the nature, extent, location, quantity, and quality of the assets after a physical inspection, and they were also informed that they would be deemed to offer with full knowledge of any defects in the description, quality, or quantity of the assets sold, according to the Court.
- The Bench explained that all of these requirements primarily related to the physical characteristics of the assets in question, but that a crucial requirement was left out: the bidder or purchaser was required to be aware of any encumbrances, liens, or claims that were attached to the assets in question.
- The Apex Court approved of the Respondent's argument that because of the absence of any statutory provision, the auction purchaser without notice of any charge was not able to become liable for the arrears. The Apex Court found that the provisions of the M.P. The Act of 1956 were not creating any such encumbrance or charge on the property that would attach to the property for all times while under all circumstances nor they could be said to entitle any encumbrances which reduce the value of the property.
- According to the two-judge bench opinion, "the bidder/purchaser is entitled to move forward on the assumption that even if there were any arrears," referring to the Proviso to Section 185 of the Madhya Pradesh Municipal Corporation Act, 1956, which states that no arrears of any such tax could be from any occupier who is not the owner, By the M.P. Act of 1956, "the bidder/purchaser is entitled to proceed on the assumption that even if there were any arrears of such taxes, the same would not be recoverable from him."
- In light of this, the Apex Court dismissed the appeal and upheld the High Court's reasoning that the Appellant must pay property tax and water taxes in arrears up to the date of confirmation of sale to qualify as expenses for "preserving, realizing, or getting in" the Company's assets.
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