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What is the case about ? 

  • The appellants preferred the appeals against the order and judgement passed by division bench of HC at Calcutta dated 05.02.2009.
  • The High Court upheld the decision passed by the Company Judge of High Court wherein the company applications ( preferred by the respondent) were allowed.
  • The respondent claimed property tax and water tax from the appellant in relation to the company which is in liquidation.  
  • The claim is preferred from the date of winding order of the company till the date of confirmation of sale of assets.
  • The brief of relevant facts of the case is that the IISCO Ujjain Pipe and Foundry Company Limited was referred to the Board for Industrial and Financial Reconstruction under provisions of Sick Industrial Companies (Special Provisions) Act, 1956.
  • The company was recommended to wind up by the Board. Consequently an order was passed by the Company Court in 1997 which appointed the appellant as the Official Liquidator to take over the possession of the assets.

Company in liquidation means the company is under the process of coming to end. It can be understood as winding up of the company.

Contentions of the Parties

  • The learned counsel appearing on behalf of the appellant, as per section 529A of the Companies Act, 1956 was liable to pay taxes only upto date if winding up and which becomes payable within one year.

[Section 529 A talks about overriding of prefrential payments such as debts due to the secured creditor. This was enacted to protect the workers and the secured lenders of the Companies]

  • It was submitted that the appellant had not objected to the determination of annual value nor filed any appeal as provided under Section 154 of the Madhya Pradesh Municipal Corporation Act,1956.
  • It was contended that the appellant had submitted the pre-liquidation taxes and rightly rejected, as per section 530 of  Companies Act, the post liquidation taxes.

[ Section 530 provides for the sequence of payments that should be made in course of winding up of the company]

  • The counsel appearing on behalf of the respondent submitted that the appellant being the custodian of the property was liable to pay post liquidation taxes. 
  • The counsel contended that as per Rule 338 of the Rules of 1959 , the liquidation expenses are those expenses which were incurred for the maintainability of the property and thus the appellant was liable to pay them.
  • It counsel referred to the case of Re Toshoku Finance UK plc: [2002], to establish the liability and priority regarding post-liquidation expenses.
  • The counsel of respondent submitted that in light of section 185 of the Madhya Pradesh Municipal Corporation Act of 1956, arrears of taxes which are prior to the auction sale cannot be recovered by the purchaser hence the appellant will be liable to pay them. This section sets the auction purchaser free and the appellant herein, Official Liquidator becomes liable to pay.


  • The apex court said that there are no positions as such in the case that requires interference to the judgement and order passed by the High Court. The appeals were, thereof, dismissed.
  • Court observed that appellant’s reference to section 529A and 530 of the Companies Act has no reference in the present case.
  • The court in regard to section 185 of the M.P Act observed that this section clearly says that any sum of taxes would not be recoverable from thr person occupying the property if he is not the owner. Hence, the auction purchaser is not liable to pay the arrears of tax of the property.
  • Court referred to the case of Ahmedabad Municipal Corporation and AI Champdany Ltd for determining the liability of the auction purchaser. Court observed that in the present case the purchaser was not liable  to any kind of sum as there was no prior notice given to him regarding the same.
  • The apex court upheld the decision of the division bench of HC that section 530 of the Companies Act do not apply to the taxes which are mounted between the wind up and date of order of sale of the assets.
  • Court observed that as per the facts and circumstances of the case, the arrears of taxes ( property and water) before the date of confirmation of sale will be regarded as expenses incurred for maintainability and preserving the property and the appellant, Official Liquidator is liable to pay on priority.
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