Positron Biogenics Pvt. Ltd. vs Uttar Pradesh State Industrial Development Authority and Anr. - The outstanding dues of the property tax relating to period prior to sale confirmation are thus dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given in section 53 of IBC. The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale as has been held by the Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (supra).”

  NCLT All. (2026.09.02) in Positron Biogenics Pvt. Ltd. vs Uttar Pradesh State Industrial Development Authority and Anr. [(2026) ibclaw.in 3509 NCLT, IA No. 485 of 2023 in CP(IB) No. 55/ALD/2017] held that; 

• In view of the above, the mere “as is where is” condition or the subsequent transfer of the leasehold interest cannot convert the pre-CIRP liability of the Corporate Debtor into an independent personal liability of the Applicant. The pre-CIRP dues of the Corporate Debtor were required to be dealt with through the liquidation process in accordance with Section 53 of the Code, particularly when the Respondent No. 1 had already lodged its claim in the liquidation proceedings of the Corporate Debtor.

• The outstanding dues of the property tax relating to period prior to sale confirmation are thus dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given in section 53 of IBC. The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale as has been held by the Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (supra).”

• Thus, in view of the law laid down by the Hon’ble NCLAT in Bhatpara Municipality Through its Chairperson v. Nicco Eastern Pvt. Ltd. (supra), the outstanding dues pertaining to the period prior to the issuance of the Sale Certificate/handing over of possession are to be treated as pre-CIRP liabilities of the Corporate Debtor and dealt with in accordance with the waterfall mechanism prescribed under Section 53 of the Code, and cannot simultaneously be recovered from the auction purchaser merely because the purchaser required transfer of the leasehold interest in its favour. Accordingly, the Applicant/Auction Purchaser cannot be held liable to pay the pre-CIRP dues of the Corporate Debtor.

• 
  

Excerpts of the order;

# 1. The instant application has been filed on 08.10.2023, by M/s Positron Biogenics Private Limited (hereinafter referred as “Applicant/ Auction Purchaser”) under section 60(5) and Section 53(1) of the Insolvency and Bankruptcy Code, 2016 (“IBC/Code”) read with Rule 11 of National Company Law Tribunal Rules, 2016 against Uttar Pradesh State Industrial Development Authority (hereinafter referred to as “Respondent No.1/UPSIDA”) and the Liquidator (hereinafter referred to as “Respondent No.2”) of M/s L.M.L. Limited i.e., Corporate Debtor. The Applicant inter alia seeks the following prayers:

• a) Allow the present application;

• b) Kindly pass an order to the Respondent No.1 Uttar Pradesh State Industrial Development Authority (UPSIDA) to Transfer the Part of Parcel A,B & C, Site-03, Panki Industrial Area, Kanpur and Refund an Amount of Rs 82, 53,013.37 (INR Eighty Two Lakhs Fifty Three Thousand Thirteen and Paise Thirty Seven Only) to Applicant which paid UNDER PROTEST towards the dues of Respondent No 2 i.e. LML Limited to avoid the delay in implementation of the Project;

• c) Pass an order declaring that Respondent No.1 Uttar Pradesh State Industrial Development Authority (UPSIDA) is not entitled to claim any dues of Respondent no 2 over the property of the Applicant;

• d) Pass such other or further order(s) as may be deemed fit and proper the facts and circumstances of the instant case.”

# 2. The brief facts as submitted by the Applicant are as follows:

• a. The Corporate Debtor i.e., M/s L.M.L Limited was admitted into Liquidation on 23.03.2018, on an application filed by the Resolution Professional.

• b. Pursuant to the issuance of Public Announcement in Form-A, the Respondent No.1 has filed a claim to the tune of Rs. 2,77,12,397/-, which has been admitted in toto by the Resolution Professional under the category of ‘Operational Creditor’.

• c. Subsequently, the Liquidator issued an auction notice dated 07.09.2022 for sale of assets of the Corporate Debtor and thereafter, E-auction was held on 04.10.2022. The Applicant herein was declared as the successful bidder for Property No. Parcel A, B and C, Site-III, Panki Industrial Area, Kanpur. A sale certificate was executed ‘as is where is basis’, ‘no recourse basis’ on 28.12.2022, and possession of the aforesaid property was handed over to the Applicant on 30.12.2022.

• d. However, on application for transfer of the aforesaid plot to the Applicant being the auction purchaser, the Respondent No.1 rejected the transfer and raised a demand of Rs. 82,53,013.53 being the rental dues for the year 2000-2008 in order to execute the transfer of the aforesaid plot. Detailed distribution of outstanding demand over the period of 2000 to 2008 as stated in the Application has been reproduced below: . . . . 

• e. The Applicant submits that the demand of Rs. 82,53,013.53 was paid under protest by the Applicant to the Respondent No.1 to register the transfer of land on the understanding that the same shall be repaid by the Respondent No.1 pending the outcome of this application.

# 3. The Applicant submits that it is a bona fide purchaser of the said property conducted through the legally established procedure under the Code, and has already deposited the entire sale proceeds in the liquidation account of the Corporate Debtor. The Applicant also submits that the sale proceeds received by the Liquidator were also duly distributed in accordance with Section 53(1) of the IBC.

# 4. It is further submitted that the creditors of the Corporate Debtor would receive their dues in terms of the waterfall mechanism provided under Section 53(1) of the IBC. In this regard reliance has been placed on the Judgement of Hon’ble NCLAT in Bhatpara Municipality Th. Chairperson v. Nicco Eastern Pvt. Ltd., (Company Appeal (AT) (Ins) No. 714 of 2021).

# 5. The Applicant finally submits that the demand of Respondent No.1 is not maintainable in terms of provisions of the Code and the Applicant cannot be asked to pay the alleged dues for pre-CIRP period.

REPLY OF RESPONDENT NO.1

# 6. The Respondent No.1 /UPSIDA in its reply filed vide diary no. 656 dated 13.03.2024 disputes and denies the relief made in the present application and submits as follows:

a. The Respondent No.1/ UPSIDA submits that the aforesaid property was leased to the Corporate Debtor for a period of 66 years vide lease deed dated 23.12.1994 and the Corporate Debtor being the original lessee should have informed Respondent No.1/lessor that the company is undergoing insolvency proceedings.

b. The Respondent No.1 contends that a Transfer memorandum was issued by UPSIDA on 05.09.2023 only on execution of an affidavit and indemnity bond by the Applicant on 05.09.2023 in favour of Respondent No.1 stating that the Applicant shall immediately pay all demands raised by UPSIDA.

c. Furthermore, as submitted, Clause 2 of the said Transfer Memorandum stipulates as follows:

• “2. Deposits made by ex-allottee against the plot will be adjusted first towards interest and Lease Rent upto payment and balance if any, towards premium. In case a balance playability is found after adjustment as above, the same shall be payable by you.”

d. It is further submitted that the Applicant is bound by covenants of lease deed and thus cannot evade payment of arrears of lease rentals as well as rentals thereon.

e. The Respondent No.1 further submits that sale was made in “as is where is basis”, “As is what is basis”, “Whatever there is basis” and “No recourse basis” as per certificate of sale deed dated 28.12.2022, which in itself creates contractual obligations to discharge the payment of past lease rentals and interest thereon.

REPLY OF RESPONDENT NO.2

# 7. The Respondent No.2 / Liquidator has filed his reply dated 24.01.2024, in which he submits as follows:

a. The Applicant was declared as successful bidder for aforementioned property and it was sold on “as is where is basis”, “As is what is basis”, “Whatever there is basis” and “No recourse basis” as mentioned in clause Q of e-auction process document dated 07.09.2022 as well as certificate of sale dated 19.10.2022.

b. The Respondent No.2 further submits that the claim of Respondent No.1 has been admitted and it will be distributed to stakeholders by the liquidators as per Section 53 of the Code and payment to operational creditors are covered under Section 53(1)(f) of the Code.

c. It is also submitted that he does not have any role in the present matter and all allegations are bought up against Respondent No.1.

WRITTEN SUBMISSIONS

# 8. The Applicant also filed written submissions on 14.03.2024, wherein the submissions already dealt with in the preceding paragraphs have been reiterated.

FINDINGS AND ORDER

# 9. We have heard the learned counsels for the Applicant and Respondents and perused the material on record.

# 10. The instant application has been filed by the Applicant/Auction Purchaser under section 60(5) of the Code against U.P. State Industrial Development Authority (UPSIDA) claiming refund of the amount which has been deposited under protest as per the demand raised by UPSIDA on the property sold through e-auction by the liquidator during liquidation of the Corporate Debtor. The principle issue for consideration is whether the amount paid by the Applicant under protest to the Respondent No.1/UPSIDA is liable to be refunded.

# 11. It is not in dispute that the Applicant was declared the successful auction purchaser of the said properties pursuant to the e-auction held on 04.10.2022. The Certificate of Sale dated 28.12.2022 and the Possession/Delivery Letter dated 30.12.2022 have been placed on record as Annexure-5 and Annexure-6, respectively. Accordingly, the Applicant acquired the leasehold interest in the said properties pursuant to the sale conducted in the liquidation proceedings on 28.12.2022.

# 12. In the facts of the present case, it is also relevant to consider the circumstances in which the Applicant deposited the amount of Rs.82,53,014/- with Respondent No.1. Upon perusal of the letters dated 17.08.2023 and 25.08.2023 addressed by the Applicant to UPSIDA attached as Annexure 10, it is evident that the Applicant had, at the outset, disputed its liability to discharge the pre-liquidation dues of the Corporate Debtor and specifically requested Respondent No.1 to lodge its claim with the Liquidator in accordance with the provisions of the Code.

# 13. In the aforesaid letters, the Applicant further stated that its pharmaceutical project was being stalled on account of the pending transfer of the subject property and, therefore, while reserving its rights and proposing to approach this Adjudicating Authority under Section 60(5) of the Code, deposited the demanded amount of Rs.82,53,014/- vide Demand Draft No.496798 dated 25.08.2023 under protest. The Applicant also expressly recorded its understanding that the said amount would be refunded to it, with interest, in the event of the application being decided in its favour. Also, the affidavit and indemnity executed by the Applicant formed part of the documents furnished in connection with the transfer of the assets, and was given in the context of the payment made under protest. Therefore, the documents furnished for seeking transfer of the assets were consequential to the protest payment and cannot be treated as an independent undertaking or deposit by the Applicant towards the pre-CIRP dues of the Corporate Debtor.

# 14. Further, during the course of hearing held on 03.08.2026, the learned Counsel appearing for the Applicant submitted that, as UPSIDA was not executing the transfer documents, the Applicant was compelled to deposit the pre-CIRP dues under protest. Thus, the payment cannot be construed as a voluntary acceptance of the underlying liability or as an admission that the pre-CIRP dues of the Corporate Debtor were payable by the Applicant.

# 15. Further, on perusal of the E-Auction Process Document it is noted that the asset was sold on “AS IS WHERE IS, AS IS WHAT IS, WHATEVER THERE IS AND WITHOUT RECOURSE BASIS” and required the bidder to make their own independent inquiries regarding “claims/rights/dues” affecting the asset. Thus, while the Applicant was put on notice regarding the dues affecting the asset, the said document does not specifically provide that the Applicant would assume the pre-CIRP debt of the Corporate Debtor towards UPSIDA as its own liability over and above the sale consideration of Rs. 26.73 crore.

# 16. This position is further borne out from the Terms and Condition attached as Annexure-1 to the Certificate of Sale. Though Clause 7 thereof records that the Applicant has conducted due diligence and has satisfied itself regarding the “dues in respect of Asset”, the Certificate of Sale does not contain any express undertaking by the Applicant to discharge the pre-CIRP dues of Corporate Debtor towards UPSIDA. On the contrary, Clause 12 records that the original lease deed dated 04.07.2000 between UPSIDC and Corporate Debtor was handed over as a title document. Thus, what was transferred was the leasehold interest of the Corporate Debtor in the asset pursuant to the liquidation sale and not, in express terms, the pre-CIRP liabilities of the Corporate Debtor.

# 17. The nature of UPSIDA’s claim is also corroborated by the claim record available on the IBBI website, which records a claim of Rs. 2,77,12,397/- lodged by UPSIDA. The said claim was lodged more than one year prior to the auction sale in favour of the Applicant and it has been admitted in full. Although the said amount differs from the subsequent demand of Rs. 82,53,013.37/-, the record establishes that UPSIDA had already asserted its monetary claim against the Corporate Debtor in the insolvency proceedings prior to the Applicant’s acquisition of the property.

# 18. Now, proceeding to examine the nature of the demand, it is evident from the demand letter dated 14.08.2023 that Respondent No.1/UPSIDA demanded an amount of Rs.82,53,013.37/- towards maintenance charges, interest on maintenance charges, lease rent and GST on lease rent. The period-wise computation shows that the maintenance charges relate to the period from 01.07.2000 to 31.03.2009. The Respondent No.1/ UPSIDA has not specifically denied, in its reply, the period to which the aforesaid maintenance charges pertain. Thus, the principal maintenance dues had accrued during the period when the Corporate Debtor was the lessee of the subject properties, much prior to commencement of the CIRP on 30.05.2017 and the subsequent acquisition of the properties by the Applicant pursuant to the liquidation sale in 2022. Accordingly, the liability towards the principal maintenance charges had accrued against the Corporate Debtor, being the lessee during the relevant period, and could not merely by virtue of the subsequent liquidation sale, be treated as a liability originally incurred by the Applicant.

# 19. Further, the amount of Rs. 63,30,997.37/- towards interest on maintenance charges was thereafter calculated on the aforesaid defaults up to 31.08.2023 and the demand also includes Rs. 30,638/- towards lease rent and Rs. 5,515/- towards GST on lease rent. The fact that interest was computed up to a date subsequent to commencement of CIRP or even subsequent to the auction sale does not alter the character of the underlying principal liability. The interest is consequential upon the failure of Corporate Debtor to discharge the maintenance charges which had already fallen due between 2000 and 2009. All these amounts are therefore arising from a pre-CIRP liability demanded from the Applicant on account of Corporate Debtor.

# 20. The subsequent Lease Deed dated 06.11.2023 also does not alter the above position. The said Lease Deed creates continuing obligations upon the Applicant as the present lessee, including payment of lease rent and maintenance/service charges during its own tenure. It does not expressly state that the Applicant has assumed the already accrued pre-CIRP debt of the Corporate Debtor. The condition in the Transfer Memorandum dated 05.09.2023 that dues of the “ex-allottee” found payable in future may be recovered from the “current transferee” also cannot, in the facts of the present case, be treated as an unequivocal novation of UPSIDA’s already lodged and collated pre-CIRP claim, particularly when the Applicant’s payment was expressly made under protest.

# 21. Further, during the course of hearing on 03.08.2026, on the point of distribution in accordance with Section 53 of the Code, the Ld. Counsels representing the respective parties submitted as follows:

• “1. Ld. Counsel representing the applicant states that she is the successful Auction Purchaser and has purchased the assets in an open e-auction as a going concern in the auction process conducted by the Liquidator.

• 2. She states that there was a claim lodged by UPSIDA during the CIRP / liquidation process and the claim has been collated for pre-CIRP outstanding amount. However, UPSIDA was not executing the documents of transfer/ mutation. Ld. Counsel further submits that since the UPSIDA was not executing the documents, therefore it was compelled to deposit the dues of the pre-CIRP under protest.

• 3. The present applications have therefore been filed for seeking refund of the amount paid by the applicants to the UPSIDA on account of the formalities to be completed for the said purpose.

• 4. Ld. Counsel representing the Liquidator states that the liquidation assets have already been sold to the extent of about 280 crore, and out of which, approximately Rs. 259 crore has already been distributed. The remaining amount is also in the process of being distributed in accordance with the provisions of section 53 of Code.

• 5. Ld. Counsel, Mr. Rahul Kr. Jadaun, has put in appearance for UPSIDA and states that he would not have any grievance, if the distribution takes place in accordance with Section 53 of the Code and as per the entitlement of the UPSIDA.”

# 22. In view of the above, the mere “as is where is” condition or the subsequent transfer of the leasehold interest cannot convert the pre-CIRP liability of the Corporate Debtor into an independent personal liability of the Applicant. The pre-CIRP dues of the Corporate Debtor were required to be dealt with through the liquidation process in accordance with Section 53 of the Code, particularly when the Respondent No. 1 had already lodged its claim in the liquidation proceedings of the Corporate Debtor.

# 23. At this juncture, it would be apposite to refer to the law laid down by the Hon’ble NCLAT in Bhatpara Municipality Through its Chairperson v. Nicco Eastern Pvt. Ltd., (2021) (Company Appeal (AT) (Ins) No. 714 of 2021) wherein it was held as follows:

• “14. Thus the liquidator had a duty to prepare an asset memorandum containing the value of the assets. Clause (f) of sub regulation 2 of regulation 34 stipulates the inclusion of “any other information that may be relevant for the sale of the asset”. Regulation 13 of the said Regulations (supra) enjoins upon the liquidator to submit a preliminary report to the Adjudicating Authority with the Asset Memorandum. Therefore, the liabilities with respect to the assets should have been brought to the notice of the Adjudicating Authority by the liquidator.

• 15. Clause (g) of sub section 1 of section 55 of the Transfer of Property Act, 1882 binds the seller as hereunder: –

• “(1) The seller is bound –

• (g) to pay all public charges and rent accrued due in respect of the property up to the date of the sale, the interest on all encumbrances on such property due on such date, and, except where the property is sold subject to encumbrances, to discharge all encumbrances on the property then existing.

• 16. The outstanding dues of the property tax relating to period prior to sale confirmation are thus dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given in section 53 of IBC. The auction-purchaser cannot be held liable to pay any such dues relating to period prior confirmation of sale as has been held by the Hon’ble Supreme Court in the matter of AI Champdany Industries Ltd. vs. The Official Liquidator & Anr. (supra).”

# 24. Thus, in view of the law laid down by the Hon’ble NCLAT in Bhatpara Municipality Through its Chairperson v. Nicco Eastern Pvt. Ltd. (supra), the outstanding dues pertaining to the period prior to the issuance of the Sale Certificate/handing over of possession are to be treated as pre-CIRP liabilities of the Corporate Debtor and dealt with in accordance with the waterfall mechanism prescribed under Section 53 of the Code, and cannot simultaneously be recovered from the auction purchaser merely because the purchaser required transfer of the leasehold interest in its favour. Accordingly, the Applicant/Auction Purchaser cannot be held liable to pay the pre-CIRP dues of the Corporate Debtor.

# 25. In view of the foregoing discussion, the amount of Rs. 82,53,013.37/-, as demanded by UPSIDA vide letter dated 14.08.2023 and paid by the Applicant under protest towards the pre-CIRP dues of the Corporate Debtor, is not liable to be borne by the Applicant merely on account of its purchase of the asset in liquidation. The Applicant is accordingly entitled to refund of the said amount. UPSIDA shall remain entitled to receive its admissible claim against the liquidation estate in accordance with Section 53 of the Code, as also recorded in the order dated 03.08.2026, wherein the Ld. Counsel representing UPSIDA submitted that UPSIDA would have no grievance if the distribution takes place in accordance with Section 53 of the Code and as per its entitlement.

# 26. The Respondent No.1/ UPSIDA is directed to refund an amount of Rs. 82,53,013.53/- to the Applicant.

# 27. Accordingly, the present application bearing IA No. 485 of 2023 is allowed in the aforesaid terms.

--------------------------------------------------

AI Champdany Industries Ltd. vs. The Official Liquidator and Anr. - 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 be expanded.

  SCI (2009.02.19) in AI Champdany Industries Ltd. vs. The Official Liquidator and Anr. [(2017) ibclaw.in 1204 SC, Civil Appeal No. 1118 of 2009 (Arising out of SLP (C) No. 15285 of 2008)] held that;

• 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.

• 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.

• The real core of the saving provision of law must be not mere enforceability of the charge against the property charged but enforceability of the charge against the said property in the hands of a transferee for consideration without notice of the 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 be expanded.

• A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. It is trite that when a Parliament or State Legislature makes an enactment, the same would prevail over the common law.

Excerpts of the order;

# 1. Leave granted.

# 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, stating :

• “that before 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.”

# 4. 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 of sale.

Appellant on receipt of the said notice took out a Chamber Summons praying, inter alia, for the following reliefs :

• “(a) Necessary 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 Hon’ble Court may deem fit and proper.”

# 5. By reason of an order dated 7th February, 2008, the said application has been dismissed, stating :

• “Having considered 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.”

# 6. An intra court appeal preferred thereagainst has been dismissed by a Division Bench of the said court.

# 7. Mr. Sunil Kumar, learned senior counsel, in support of this appeal, would contend that a purchaser is not liable to pay the property tax prior to the date of purchase and remedy of the respondent municipality, if any, was to have its claim satisfied from the sale proceeds in terms of Sections 529 and 529A of the Companies Act, 1956.

# 8. Mr. Sibaji Sen, learned senior counsel appearing on behalf of the respondent-Municipal Corporation, on the other hand, would draw our attention to the advertisement for sale to contend that the appellant had a duty to make an enquiry in regard to the Company’s encumbrance as also in terms of the provisions of Sections 55(1) and 55(2)(g) of the Transfer of Property Act. 

The learned counsel appearing on behalf of the official liquidator would support the said contention.

# 9. The company went in liquidation. It was directed to be wound up. The official liquidator indisputably took charge of both movable and immovable assets of the company. The fact that the company went in liquidation was given due publicity. Respondent-Municipality did not file its claim before the official liquidator. It did not stand in queue to get the same recovered and/or adjusted from the sale proceeds.

Indisputably the manner in which the claim of a creditor in respect of the dues of the company in liquidation is to be realized has been laid down in Sections 529 and 529A of the Companies Act, 1956.

# 10. Dues in relation to the Municipal Tax in terms of the provisions of the said Act do not create any encumbrance on the property. It does not create any charge. It is considered to be a personal liability. On the aforementioned premise, we have to construe the terms and conditions of sale. It reads as under :

• “1. The sale will be held as per inventory made by the Valuer on “As is Where is And Whatever There is” basis and subject to confirmation by the Hon’ble High Court at Calcutta. The Official Liquidator shall not provide any guarantee and/or warranty as to the quality, quantity or specification of the assets sold. The Offerers/Bidders are to satisfy themselves in this regard after physical inspection of the assets/properties as to the title, encumbrance, area, boundary, measurement, description etc. of the Company (in Liquidation) and the purchasers will be deemed to offer with full knowledge as to the defects, if any in the descriptions, 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.”

# 11. Both the learned Single Judge as also the Division Bench of the High Court held that having regard to the fact that an inventory was made on “as is where is and whatever there is” basis and furthermore in view of the fact that a duty was cast upon the offerer to satisfy themselves in regard to the physical inspection of the assets/properties as to the title, encumbrance, area, boundary, measurement, description etc. of the assets of the company in liquidation and the purchaser would be deemed to be offering his prices therefor with full knowledge as to the defects containing the descriptions, quality or quantity of the assets sold, the appellant was bound to make an investigation in regard to the liabilities of the company in liquidation.

# 12. The terms and conditions of the sale must be read as a whole. It must be given a purposive meaning. The word ‘encumbrance’ in relation to the word ‘immovable property’ carries a distinct meaning. It ordinarily cannot be assigned a general and/or dictionary meaning. We may however notice some dictionary meanings of the said word as reliance thereupon has been placed by Mr. Sibaji Sen.

In Stroud’s Judicial Dictionary of Words and Phrases 5th Edition Encumbrance is defined as “being, ‘a claim, lien, or liability, attached to property’; and this definition is wide enough to cover the plaintiff’s claim,” which was, as assignee for value of a reversionary interest, against a person coming in under a subsequent title.”

In Supreme Court on Words and Phrases it is stated that “the word ‘encumbrance’ means a burden or charge upon property or a claim or lien upon an estate or on the land.”

In Advanced Law Lexicon Encumbrance is defined as “an infringement of another’s right or intrusion on another’s property.”

In Black’s Law Dictionary Encumbrance is defined as “any right to, or interest in, land which may subsist in another to diminution of its value, but consistent with the passing of the fee.”

# 13. 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 its value.

Reliance has been placed by Mr. Sen on a decision reported in Ahmedabad Municipality Vs. Haji Abdul [AIR 1971 SC 1201] wherein it was held :

• “The plaintiff purchased the property in November, 1954 and in our opinion it could not have reasonably been expected by him that the receivers would not have paid to the municipal corporation, since 1949 the taxes and other dues which were charged on this property by statute. According to Section 61 of the Provincial Insolvency Act, 1920 the debts due to a local authority are given priority, being bracketed along with the debts due to the State.”

We may 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. It is in that view of the matter Section 100 of the Transfer of Property Act was found to be capable of being invoked therein, which reads as under :

• “100. Charges – Where immoveable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.

• Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.”

# 16. 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.

# 17. In Ahemdabad Municipality itself it was held :

• “According to the submission it is not necessary for the saving provision to expressly provide for the enforceability of the charge against the property in the hands of a transferee for consideration without notice of the charge. This submission is unacceptable because, as already observed, what is enacted in the second half of Section 100 of Transfer of Property Act is the general prohibition that no charge shall be enforced against any property in the hands of a transferee for consideration without notice of the charge and the exception to this general rule must be expressly provided by law. The real core of the saving provision of law must be not mere enforceability of the charge against the property charged but enforceability of the charge against the said property in the hands of a transferee for consideration without notice of the charge. Section 141 of the Bombay Municipal Act is clearly not such a provision. The second contention accordingly fails and is repelled.”

It was further more held :

• “Reliance was next placed on a Full Bench decision of the Allahabad High Court in Nawal Kishore V. The Municipal Board, Agra, ILR (1943). All 453 = (AIR 1943 All 115 (FB)). According to this decision the question of constructive notice is a question of fact which falls to be determined on the evidence and circumstances of each case. But that Court felt that there was a principle on which question of constructive notice could rest, that principle being that all intending purchasers of the property in municipal areas where the property is subject to a municipal tax which has been made a charge on the property by statute have a constructive knowledge of the tax and of the possibility of some arrears being due with the result that it becomes their duty before acquiring the property to make enquiries as to the amount of tax which is due or which may be due and if they fail to make this enquiry such failure amounts to a wilful abstention or gross negligence within the meaning of Section 3 of the Transfer of Property Act and notice must be imputed to them.”

# 18. Clause (g) of Sub-section (1) of Section 55 of the Transfer of Property Act whereupon reliance has been placed by Mr. Sen reads as under :

• “In the absence of a contract to the contrary, the buyer and the seller of immoveable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following, or such of them as are applicable to the property sold:-

• (1) The seller is bound –

• (g) to pay all public charges and rent accrued due in respect of the property up to the date of the sale, the interest on all encumbrances on such property due on such date, and, except where the property is sold subject to encumbrances, to discharge all encumbrances on the property then existing.”

# 19. 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 be expanded.

The advertisement did not specify that all public charges have to be paid.

Municipal Corporation 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.

# 20. All claims against the companies were required to be filed before the liquidator until the property was sold as provided for under Section 457 of the Companies Act. In terms of Section 456 thereof once an order for winding up is made the liquidator has to take into custody the properties, effects and actionable claims to which the company is or appears to be entitled. Section 528 provides that all debts payable on a contingency and all claims against the company, present or future are admissible to proof against the company. Section 529 provides for the same rule as in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. Section 530 provides for certain priorities to secured creditors and other unsecured creditors.

Once the property is sold, the assets of the company are required to be distributed to the creditors in order of preference. As the respondent- Municipality was not a secured creditor, the impugned Judgment cannot be sustained.

# 21. Almost a similar question in regard to the dues of the electrical charges came up for consideration before this Court in Isha Marbles Vs. Bihar State Electricity Board and Anr.[(2017) ibclaw.in 1177 SC] : [1995 (2) SCC 648]. In that case sale of the assets of industrial undertaking took place in terms of the provisions of the State Financial Corporation Act, 1951. Having regard to the provisions of the Indian Electricity Act, 1910 a three Judge Bench of this Court held that a liability on the purchaser cannot be imposed which was not incurred by them stating :

• “63. We are clearly of the opinion that there is great reason and justice in holding as above. Electricity is public property. Law, in its majesty, benignly protects public property and behoves everyone to respect public property. Hence, the courts must be zealous in this regard. But, the law, as it stands, is inadequate to enforce the liability of the previous contracting party against the auction-purchaser who is a third party and is in no way connected with the previous owner/occupier. It may not be correct to state, if we hold as we have done above, it would permit dishonest consumers transferring their units from one hand to another, from time to time, infinitum without the payment of the dues to the extent of lakhs and lakhs of rupees and each one of them can easily say that he is not liable for the liability of the predecessor in interest. No doubt, dishonest consumers cannot be allowed to play truant with the public property but inadequacy of the law can hardly be a substitute for overzealousness.”

# 22. 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.

# 23. In Union of India & Ors. Vs. Sicom Ltd. & Anr. [(2017) ibclaw.in 124 SC] : [2009 (1) SCALE 10], it is stated :

• “11. Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the king; debts which a prerogative entitles the Crown to claim priority for before all other creditors. [See Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) p. 1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. It is trite that when a Parliament or State Legislature makes an enactment, the same would prevail over the common law.

• 12. Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision.

• 13. To achieve the same purpose, the Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the tax-payer. This aspect of the matter has been considered by this Court in a series of judgments.”

# 24. For the reasons aforementioned, the impugned judgment cannot be sustained. It is set aside accordingly. The appeal is allowed with costs. Counsel’s fee assessed at Rs.10,000/-

---------------------------------------------------