On 15th December 2022, the Supreme Court in a Division Bench comprising of Justice K.M. Joseph and Justice Hrishikesh Roy observed that when the liability is capable of being estimated with reasonable certainty, the liability is not to be treated as a contingent one and should be considered as a liability which may be discharged at a future date. (Wave Industries Pvt. Ltd. Vs. State Of U.P. & Ors.)
Facts of the Case:
This appeal relates to the Amroha sugar mill which was one of the four loss making sugar mills owned and operated by the UPSSCL. For the unit at Amroha, a Slump Sale Agreement dated 17.7.2010 was entered into, followed by the sale deed dated 4.10.2010, between the UPSSCL and the appellant. The appellant submitted bid for Rs.13.94 crores for the Amroha Unit, all liabilities referred to in the said clause, accruing before the date of signing agreement were to be borne by the Seller and those of subsequent period, were to be borne by the Purchaser. The sale agreement was registered on 9.8.2010 and possession taken over on 17.8.2010. The dispute here relates to liability of unpaid duty, penalty, and interest.
When recovery proceeding relating to the period prior to 17.7.2010 was initiated by the respective departments, the appellant filed a writ petition before the Lucknow Bench of the High Court of Allahabad which was disposed directing State Government to afford hearing to the purchasers and decide their representation, with a speaking order. The appellant’s representation was disposed of on 7.6.2016 by declaring that the purchaser is liable for the outstanding liabilities in respect of the sugar unit at Amroha upto 30.11.2011. The payable duty with penalty and interest was quantified at Rs.5,68,797/- and the issue to be decided in this appeal is whether those outstanding liabilities are to be discharged by the seller or the purchaser.
While rejecting the challenge of the appellant to the speaking order the HC relied on clause 2.1 and since clause 2.4 provides for transfer of all contingent liabilities and legal cases in respect of the unit, to the purchaser, the recovery of such contingent liabilities after the signing date would only be from the purchaser and not from the seller. The appellant’s challenge to the speaking order was thus negated and the writ petition came to be dismissed upholding the speaking order holding that the disputed liabilities are to be borne by the purchaser.
Observations and Judgment of the Court:
The hon’ble court observed:
“Assessment orders and recovery citations have been issued by the taxing authorities in the name of the UPSSCL. Therefore, can such liability for transactions prior to the Slump Sale Agreement dated 17.7.2010 be fastened on to the purchaser. When the liability is capable of being estimated with reasonable certainty, the liability is not to be treated as a contingent one and should be considered as a liability which may be discharged at a future date. Such being the position in law and the liability in question not being a contingent one, the same cannot in our view be fastened on the purchaser who were not operating the unit, prior to the Slump Sale Agreement."
"The liability of the purchaser for the dues relating to activities and operations of the unit for the period anterior to 17.7.2010, could not have been fastened on the appellant in view of the clear provisions made in clause 9 of the Sale Deed read with Clause 12.1 and 12.2 of the Slump Sale Agreement as both are specific in nature. In the same context, the clause 2.6 which speaks of contingent liabilities and legal cases pending in respect of the unit, to be fastened on the purchaser and the seller being absolved of such liability, are generic conditions provided under clause 2.6 of the Slump Sale Agreement and we are not impressed by those. The reason being the contradictions in the specific conditions mentioned in the Slump Sale Agreement."
"In such circumstances, clause 9 of the sale deed being specific in our opinion, will govern the parties and will override anything contrary, contained in the Slump Sale Agreement. Prior to 17.7.2010, the appellant was neither a dealer nor a manufacturer and therefore, had no tax or duty obligations to satisfy for the operation of the Amroha unit. The rejection of the representation of the appellant appears to be arbitrary and the speaking order could not therefore have been sustained by the High Court in the impugned judgment. The liability not being a contingent liability, cannot be fastened on the shoulders of the appellant.”
The appeal was allowed and the contrary view taken in the speaking order and in the impugned judgment were therefore found to be unsustainable.
Case: Wave Industries Pvt. Ltd. Vs. State Of U.P. & Ors.
Citation: Civil Appeal No._of 2022 (Arising out of SLP (C) No. 3525 of 2018)
Bench: Justice K.M. Joseph and Justice Hrishikesh Roy
Date: December 15, 2022.
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