Palika Towns LLP Vs. State of UP and 2 others - Merely because the petitioner is a bonafide auction purchaser who had purchased assets Corporate Debtor through auction/bidding so conducted by orders of NCLT, will not absolve it from paying arrears of lease rental and interest thereon.

HC Allahabad (27.05.2022) in Palika Towns LLP Vs. State of UP and 2 others [Civil Misc. Writ (C ) Petition No. – 10123 of 2021] held that;

• Merely because the petitioner is a bonafide auction purchaser who had purchased assets Corporate Debtor through auction/bidding so conducted by orders of NCLT, will not absolve it from paying arrears of lease rental and interest thereon.

Excerpts of the order;  

# 19. The learned counsel for the petitioner in rejoinder affidavit had reiterated the argument, which he had made at the first instance while arguing the writ petition. However, the same is not being repeated, as the same is nothing but repetition of the argument, made at the time of arguing the petition.

Question of Determination

• “(i) Whether under the the facts and circumstances of the case, the petitioner has any lawful right to claim refund of Rs. 05,80,28,025/- along with interest @ 18% per annum, deposited by him to get the lease of the disputed plot transferred in its name as per Transfer Memorandum dated 24.12.2020?

• (ii) Whether payment of the dues attached to the disputed property can be questioned by the petitioner when as per sale certificate dated 11.09.2012, the disputed plot was sold on “AS IS WHERE IS”, “AS IS WHAT IS”, “WHATEVER THERE IS”, AND “NO RECOURSE” basis and accepting the conditions, and the petitioner deposited the amount to get the lease transferred in its name?

• (iii) Whether the claim of refund of the disputed amount is hit by the principle of approbate and reprobate?

• (iv) Whether under the IBC, the petitioner as an auction purchaser of lease hold rights of the disputed plot, has protection under the IBC from payment of lease rent and other dues attached to the property, particularly when the right of the liquidated company in the disputed property was purchased by the petitioner on “AS IS WHERE IS”, “AS IS WHAT IS”, “WHATEVER THERE IS”, AND “NO RECOURSE” basis?”

# 31. Apparently the words “AS IS WHERE IS” finds its root in the common law doctrine of “Caveat Emptor” which means ‘let the buyer beware’. This doctrine puts the duty on the purchaser to carry out all necessary inspection of the property before entering into an agreement. If the purchaser fails to conduct such an inspection, then later, on identification of defects in the property may not be a ground to revoke or claim damages under the contract. In such cases it is presumed that the purchaser had the notice of defects, if any.

# 33. Nonetheless the Transfer of Property Act, 1882, also envisages the duty of the seller to disclose to the buyer any material defect in the property or in the seller’s title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover. This is, however, subject to the presence of contract to contrary between the parties.

 

# 34. Now, another facet needs to be examined as to what are the types of defects which a buyer is expected to inquire into before purchasing the property. There are two types of defects namely latent defects and patent defects. Latent defects are such type of defects which are unlikely to be discovered by a purchaser during investigation. On the other hand, the second category is patent defects which are discoverable if the buyer would have carried out inspection. Here in the present case the defects falls under the second category, being patent defects as Court finds that on 24.09.2018 the public announcement was made by Liquidator inviting claims due from the Corporate Debtor wherein in item no. 5 the details of the demised premises in question was given. Further the sale notice for assets of the Corporate Debtor was also published which is annexure- 4 at page no. 45 wherein again description of the land was given. It is a matter of common knowledge that whenever a property is being sought to be sold through auction and the reserve price runs into crores of rupees (which in the present case is 145.67 crores) then it is clearly expected that purchaser might have got carried out inspection of the title deed as well as of the liabilities attached to it. The petitioner herein is a registered liability partnership company duly registered with Government of India Ministry of Corporate Affairs and thus, it becomes highly implorable and inconceivable that the petitioner was not having knowledge about the liability of the Corporate Debtor. The present case can also be analyzed from another point of angle that the petitioner is not a illiterate person but the presumption is that legal option is freely accessible to it. It is not a case wherein the demised premises which is being put to auction is in remote part of the country or there is no via media of getting internal details of the Corporate Debtor and its liabilities particularly when it is a matter of common knowledge that once the demised land is leasehold then obviously an intending party would approach the lessor to get the details with respect to title and position of lease rentals. In other words, this Court cannot peep into mind of the petitioner so as to perceive as to whether any investigation was conducted at the level of intending party or to what extent.

 

# 35. This Court further finds that the defect, if any, falls under the category of patent defect which could have been easily discovered in case proper investigation of the property in question would have been done at the end of the petitioner. Moreover, an additional fact to be noticed at the stage is that the petitioner on 24.12.2020 itself became a signatory to the Transfer Memorandum clearly accepting the terms and conditions/covenant of lease deed in question which was executed on 26.06.2021 along with subsequent lease deeds and also the supplementary lease deed executed between the GNIDA and Corporate Debtor while stepping into the shoes of the Corporate Debtor. Transfer Memorandum dated 24.12.2020 as discussed above in particular clause 4, 5, 7 and 11 itself depicts that the petitioner is liable to pay the arrears of lease rentals and interest thereon. The terms and conditions of the Transfer Memorandum dated 24.12.2020 itself became a basis of the sale certificate executed between corporate debtor and the petitioner on 30.07.2021 as internal page 3 itself shows that the sale certificate was being issued in pursuance of the Transfer Memorandum dated 24.12.2020. Moreover, clause 4 of the sale certificate dated 30.07.2021 which is internal page 4 shows that after execution of the transfer memorandum dated 24.12.2020 the transferee being the corporate debtor has assured and undertaken that the demise premises in question is free from all encumbrance meaning thereby that even in fact the liabilities and the obligation so contained in the lease deed dated 26.06.2021 followed by subsequent lease deed so executed there on between the GNIDA and the Corporate Debtor was accepted by the petitioner while undertaking to comply with the terms and conditions and the obligations set out therein and the same became the basis of the sale certificate.

 

# 36. This Court finds that the words so employed in the sale certificate being “AS IS WHERE IS”, ”AS IS WHAT IS”, “WHATEVER THERE IS” AND “NO RECOURSE” are to be interpreted in such a manner so as to give with a logical conclusion in the light of the instrument so executed between the parties while bounding the petitioner to clear the unpaid arrears of lease rentals as well as interest on delayed payment.

 

# 37. Answering to the question no. (iv) this Court has to bear in the mind the fact that the demise premise in question which has been put to auction is a lease land as already discussed earlier and the contractual obligation so set out and settled between the GNIDA and the Corporate Debtor which has not been disputed by any of the parties. More so, the petitioner being an auction purchaser by virtue of Transfer Memorandum dated 24.12.2020 coupled with the sale certificate dated 30.07.2021 got itself bound with the contractual obligation as set out in the lease deed. The IBC Code-2016 may grant protection to the petitioner with respect to the purchase and the transfer of the demised land through auction, however, so far as the contractual obligations are concerned, they are governed by the underline agreements which are in the shape of lease deed so executed from time to time. The view of the Court further stands amplified from the execution of the Transfer Memorandum dated 24.12.2020 wherein the petitioner not only stepped into the shoes of the Corporate Debtor but also agreed to comply with the terms and conditions and covenant contained in the lease deed.

 

# 38. Nonetheless, the sale certificate dated 30.07.2021 itself pressed into service the contractual obligation as set out in the lease deed and Transfer Memorandum as these are the instruments which not only delivered the possession of the lease land but also created relationship of lessor and lessee. In the opinion of the Court the IBC Code 2016 only grants limited protection to the petitioner to be inducted by mode of stepping into the shoes of Corporate Debtor, however, in order to be a lessee the conditions so provided in the lease deed and the Transfer Memorandum are to be adhered to. This Court has also to bear in mind the fact that the petitioner rights as a lessee has not been created by any fiction of law, however, the same is to be governed by the obligation so contained in the lease deed. Thus, this Court is of the firm opinion that IBC Code-2016 does not grant any protection to the petitioner for possessing the status of an auction purchaser in such a manner so as to wriggle out from the contractual obligation of nonpayment of lease rents in the light of doctrine of “AS IS WHERE IS”, ”AS IS WHAT IS”, “WHATEVER THERE IS” AND “NO RECOURSE”

# 45. Another aspect which needs to be considered is with respect to the fact that whether the claim so set up by the GNIDA can be negated on the ground that it had not lodged and got registered its claim in the proceeding under IBC Code. It has come on record that GNIDA did not get registered its claims in the proceedings purported to be under IBC Code-2016, however, this Court finds that merely because the claim has not been registered by GNIDA under IBC Code cannot be a ground to negate their claim particularly when the demised premises in question is leasehold and one of the condition for recognizing the petitioner being an auction purchaser as a lessee is making good the deficiency in the payment of lease rentals along with interest thereon. Learned Senior Counsel could not point out any of the provisions so as to fortify the legal submission that mere non registration of the claim before the competent authority under IBC Code coupled with the fact that Transfer Memorandum and sale certificate has been executed therein denuded the GNIDA from claiming the arrears and interest thereon.

 

# 80. Another issue which needs to be taken note of is the fact as to whether a writ petition under Article 226 of the Constitution would lie seeking mandamus for only refund of money when the same is disputed. The said issue is no more res integra as in the case of Suganmal Vs. State of Madhya Pradesh reported in AIR 1965 Supreme Court page 1740 wherein the Hon’ble Apex Court observed as under:-

• “6. On the first point, we are of opinion that though the High Court have power to pass any appropriate order in the exercise of the powers conferred under article 226 of the Constitution, such a petition solely praying for the issue of a writ of mandamus directing the State to refund the money is not ordinarily maintainable for the simple reason that a claim for such a refund can always be made in a suit against the authority which had illegally collected the money as a tax. We have been referred to cases in which orders had been issued directing the state to refund taxes illegally collected, but all such had been those in which the petitions challenged the validity of the assessment and for consequential relief for the return of the tax illgally collected. We have not been referred to any case in which the courts were moved by a petition under article 226 simply for the purpose of obtaining refund of money due from the State on account of its having made illegal exactions. We do not consider it proper to extend the principle justifying the consequential order directing the refund of amounts illegally realised, when the order under which the amounts had been collected has been set aside, to cases in which only orders for the refund of money are sought. The parties had the right to question the illegal assessment orders on the ground of their illegality or unconstitutionality and, therefore, could take action under Art. 226 for the protection of their fundamental right and the Courts, on setting aside the assessment orders exercised their jurisdiction in proper circumstances to order the consequential relief for the refund of the tax illegally realised. We do not find any good reason to extend this principle and, therefore, hold that no petition for the issue of a writ of mandamus will be normally entertained for the purpose of merely ordering a refund of money to the return of which the petitioner claims a right. ”

# 84. Meticulously, analyzing the facts of the case in hand from the four corners of law this Court cannot subscribe to the argument of the learned Senior Counsel who appears for the petitioner as the controversy sought to raked up by the petitioner devolves around factual issues relating to the contractual obligation so embodied in the underline instruments be that the lease deed so executed from time to time or the Transfer Memorandum so executed between the parties. More so, the sale certificate itself has been issued after noticing the fact that the petitioner transferee (auction purchaser) is bound by the covenants contained in the lease deed as well as the Transfer Memorandum. Writ jurisdiction cannot be expanded in an elastic manner so as to stretch it to such a position which tantamounts to giving its judicial seal while delving into the factual issue as to whether pressure/coercion so adopted was practiced upon the petitioner. Nonetheless, to put the nail in the coffin the above noted instruments being sale deed certificate, Transfer Memorandum had not been put to challenge before any Court of law. More so, the conduct of the petitioner itself explicitly makes it clear that the petitioner has approbated and reprobated at the same time just in order to get the benefits and to wriggle out from obligations.

86. In summation of the discussion made herein above, we hold: –

(a). Merely because the petitioner is a bonafide auction purchaser who had purchased assets Corporate Debtor through auction/bidding so conducted by orders of NCLT, will not absolve it from paying arrears of lease rental and interest thereon.

(b). The Insolvency Bankruptcy Code- 2016 grants limited protection to the petitioner (auction purchaser) while allowing it to step into the shoes of the Corporate Debtor but in order to the lessee of the principle lessor (GNIDA) the petitioner has to honour the commitments and discharge its contractual obligation as embodied in the lease deeds, Transfer Memorandum and Sale Certificate.

(c). The conduct of the petitioner also dis-entitles it to be granted relief under the equitable jurisdiction as the petitioner has approbated and reprobated at the same time as on one hand it seeks to become a lessee while being put in possession for enjoying the immovable assets of Corporate Debtor but on the other hand it wriggles and resiles from the contractual obligation.

(d). The words so employed in the Certificate of Sale Deed dated 11.09.2019 being “AS IS WHERE IS”, ”AS IS WHAT IS”, “WHATEVER THERE IS” AND “NO RECOURSE” read with the Transfer Memorandum dated 24.12.2020 so executed between the petitioner (auction purchaser) and GNIDA as well as the Sale Certificate dated 30.07.2021 itself creates contractual obligation upon the petitioner to honor the commitments and to discharge the obligations so embodied in the lease deed dated 26.06.2021 and the subsequent lease deeds for the payment of past lease rentals and interest thereon.

(e). GNIDA being the principal lessor has paramount interest over the demised land put to auction and it has legal as well as contractual right to raise demand of out standing arrears of lease rentals and interest thereon.

(f). High Court under Article 226 of the Constitution of India cannot by a judicial fiat creates a podium to facilitate avoidance of agreements while wriggling out from contractual obligations so embodied therein.

(g). A writ petition containing solitary relief of refund of the amount deposited for fulfilling contractual obligation, is not maintainable.

(h). Even otherwise, in absence of any challenge being made to the covenants of the Transfer Memorandum dated 24.12.2020 and the Sale Certificate dated 30.07.2021, the petitioner is not entitled to refund of the amount so deposited by him claiming it to be under protest.

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