Official Liquidator vs. Ujjain Nagar Palika Nigam & Ors. (Civil Appeal No. 8015 of 2010, with connected Civil Appeal No. 8016 of 2010)
Background
A sick company, IISCO Ujjain Pipe and Foundry Company Limited, was ordered wound up in 1997, and the Official Liquidator (OL) took charge of its assets. The assets were eventually auctioned in 2003 on an "as is where is whatever there is" basis, and the sale was confirmed in July 2003. The local municipal body, Ujjain Nagar Palika Nigam, then claimed several years of accumulated property tax and water tax dues covering the roughly six-year gap between the winding-up order (1997) and the confirmation of sale (2003). The Official Liquidator admitted the tax dues that had accrued only up to the date of the winding-up order, but rejected the much larger claims for the post-winding-up period, arguing his liability was capped at pre-liquidation dues under the Companies Act. The Company Court and, on appeal, the Calcutta High Court's Division Bench both ruled against the Official Liquidator, holding him liable for the post-liquidation dues as well, leading to this further appeal to the Supreme Court.
Decision Breakdown
The Supreme Court held that a company's liability to pay municipal rates, taxes, rent and similar charges does not automatically end merely because a winding-up order has been passed: the Official Liquidator, who continues to hold and is obligated to protect the company's assets until they are sold, must bear such ongoing carrying costs (just as he would have to pay ongoing electricity or rent charges) as part of the expenses of "preserving, realising or getting in" the company's assets, which rank in priority for payment ahead of other liabilities. The Court also examined whether the auction purchaser could be made liable instead, and held that in the absence of any specific term in the sale notice fixing tax liability on the purchaser, and given a specific provision in the applicable Madhya Pradesh municipal law that protected an occupier who was not the owner from being made liable for tax arrears predating their occupation, the purchaser could reasonably assume he would not be saddled with pre-existing tax arrears. Since the sale notice's terms and conditions were silent/ambiguous on this point, that ambiguity was resolved against the Official Liquidator who drafted it, rather than against the purchaser. Both appeals were accordingly dismissed, upholding the High Court's view that the post-liquidation property and water tax arrears (until the date of confirmation of sale) were liquidation expenses payable in priority by the Official Liquidator.
Lesson Learnt
A company's statutory dues and municipal taxes do not stop accruing, or automatically become someone else's problem, simply because the company has gone into liquidation: the liquidator remains responsible for such carrying costs as expenses of preserving the company's assets, and if a court-sale notice is silent on who bears pre-existing tax liabilities, that silence is held against the party who drafted the sale terms, not against the purchaser who relied on them.