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Wave Industries Pvt. Ltd. vs. State of U.P.

Civil Appeal · 2022 INSC 1281Decided 15 Dec 2022
Civil Appeal No. 9272 of 2022
K.M. Joseph · Hrishikesh Roy

Background

Wave Industries purchased the loss-making Amroha sugar mill from the U.P. State Sugar Corporation (UPSSCL) through a Slump Sale Agreement (17.7.2010) and a subsequent sale deed (4.10.2010). After the purchase, tax authorities sought to recover outstanding duty, penalty and interest of about Rs. 5.68 lakh relating to the mill's operations from before the sale, and the State government held the purchaser (Wave Industries) liable to pay these dues. The High Court of Allahabad upheld this, reading the agreement's clause on "contingent liabilities" as transferring pre-sale dues to the purchaser; Wave Industries appealed.

Decision Breakdown

The Supreme Court held that the specific clauses of the Sale Deed and the Slump Sale Agreement (Clauses 9, 12.1 and 12.2) clearly assigned liabilities arising before the "signing date" to the seller (UPSSCL) and only post-signing liabilities to the purchaser. The Court found that a definite business liability that had already arisen before the sale, even if only quantified or demanded later, is not a mere "contingent liability" that could be shifted to the purchaser under the agreement's general clause; the specific provisions must override the general one. Since the disputed dues related entirely to the period before the purchaser took over, they remained the seller's responsibility, and the High Court's order and the State's speaking order fastening this liability on the purchaser were set aside.

Lesson Learnt

In a business sale or slump-sale agreement, specific contractual clauses allocating pre- and post-sale liabilities will prevail over vaguer general clauses about "contingent liabilities", and a liability that has already accrued before a sale, even if not yet quantified, is not "contingent" and cannot simply be passed on to the buyer unless the contract clearly says so.

Official source (sci.gov.in)View Judgment (PDF)

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