Official Liquidator Vs. Ujjain Nagar Palika Nigam & ORS
Case Number: Civil Appeal No. 8015 of 2010 & Civil Appeal No. 8016 of 2010
Judges Name: Hon’ble Judges Mr. Dinesh Maheshwari, Mr. Aravind Kumar
Order dated: 04.05.2023
Facts of the Case:
- The IISCO Ujjain Pipe and Foundry Company Limited (“Company”) became financially distressed and was referred to the Board for Industrial and Financial Reconstruction (“BIFR”) under the Sick Industrial Companies (Special Provisions) Act, 1956.
- BIFR recommended the winding up of the Company, leading to the appointment of the Appellant as the Official Liquidator, responsible for taking possession of the Company’s assets.
- The assets of the Company were put up for sale on an “as is where is whatever there is” basis, where the potential buyers were required to conduct a physical inspection and assume full knowledge of any defects in the assets.
- The assets were sold to one Mr. Nagendra Jain, but the third respondent was nominated as the purchaser.
- After the sale, the Appellant invited claims from creditors through advertisements.
- The first Respondent (Mr. Nigam) filed a proof of debt claiming arrears of property tax and water tax for the factory and staff quarters of the Company in liquidation at Ujjain.
- The Appellant admitted two claims related to the pre-liquidation period but rejected other claims arising after the date of the winding-up order.
- The Company Court held that the Appellant’s liability was not limited to claims and debts until the winding-up order and that post-liquidation claims should be considered.
- The High Court upheld the Company Court’s decision, stating that the auction purchaser was not liable for charges accrued post-liquidation unless they were made aware of the liability to Nigam.
- The present appeals were filed based on these issues related to the admissibility of post-liquidation claims and the liability of the auction purchaser.
Hon’ble Supreme Court Observed/ Held As Follows:
- That the terms and conditions of the sale clearly stated that the assets were sold on an “as is where is whatever there is” basis, with a disclaimer that the Appellant did not provide any guarantee regarding the quality, quantity, or specification of the assets.
- The Court noted that these stipulations and disclaimers put the purchasers on notice to inspect the nature, extent, location, quantity, and quality of the assets and that they would be deemed to have knowledge of any defects in the assets.
- However, the Court pointed out that the terms and conditions failed to make it obligatory for the bidder/purchaser to be aware of encumbrances, liens, and claims attached to the assets.
- The Court concluded that the provisions of the M.P. Act of 1956 did not create any encumbrance or charge on the property that would persist under all circumstances, and they did not diminish the value of the property.
- Based on this analysis, the Court accepted the argument that the auction purchaser, without notice of any charge, could not be held liable for the arrears of tax during the post-liquidation period.
- Consequently, the Apex Court dismissed the appeal and upheld the reasoning of the High Court, which stated that the arrears of property tax and water tax until the date of confirmation of the sale should be considered as expenses for “preserving, realizing, or getting in” the assets of the company and should be paid in priority by the Appellant.