Industrial Finance Corporation ... vs Sidda Syntex And Ors.
1996 Latest Caselaw 326 Del

JUDGMENT

J.K. Mehra, J.

(1) This is a petition by the auction purchaser - Hindustan Electro Graphites Limited. Briefly staling, the facts of the case are that a Company named Sidda Syntax Limited (hereinafter referred to as 'SSL') was availing of financial benefits from Industrial Finance Corporation (hereinafter referred to as IFC') and on Ssl failing to meet its obligations under the agreement for loan facilities, Ifc initiated proceedings under Section 30 of Industrial Finance Corporation Act for recovery of its dues which ran into several crores. The assets, i.e., the immovable property as also the plant and machinery both movable and immovable of the said Ssl were sought to be auctioned by an order dated 5.5.1987 passed by this Court. This Court had appointed a Receiver, who was to affect the sale of the property by inviting sealed tenders. He was given the liberty to enter into private negotiations with the various tenderers and other parties also with a view to obtain maximum price. The sale was subject to confirmation by this Court. The petitioner No. 1 was Ifc while other charge holders were respondents No. 2 and 3, namely Industrial Development Bank of India and Industrial Credit & Investment Corporation of India Limited respectively. This Court while ordering sale also directed that, "The sale proceeds will be deposited by the Receiver in this Court and directions of this Court will be obtained for disbursing in proton to satisfaction of the dues of petitioner No. 1 and other pan passu charge holders, namely respondent No.2 and 3, The respect overcharges of the parties will shift to the sale proceeds...". The terms of sale are contained in Notice for Sale. The sale was concluded vide orders of this Court dated 23.5.1989. The properties of the Company Ssl were sold ultimately for a sum of Rs. 4.6 crores and such sale was confirmed by an order of this Court passed on 9.10.1991. The sale proceeds, I am told, have been duly deposited and the sale certificate issued pursuant to the orders of this Court and possession of assets sold has also been taken over by the purchasers. On 27.6.1991, the Commercial Tax Officer, Special Circle, Udaipur issued a demand notice under Section 9(1) of Rajasthan Civil Tax Act informing the purchaser of the pendency of a demand of Rs. 89,33,059.00 against Ssl and alleging that according to law, the responsibility of depositing the said amount was that of the purchaser. This was followed by the notice of demand on Form STR-2 issued on 27.8.1991 calling upon the purchaser to deposit the aforesaid amount and threatening that in the event of failure, the Commercial Tax Officer will proceed for attachment and for sale of immovable property. The purchaser, feeling aggrieved by the said notices has approached this Court for quashing of those notices. Notice of this application was issued to, Inter-alia, the Registrar, Sales Tax Authorities, who appeared and opposed the application. They justified their claim under the aforesaid Section 9(1) of Rajasthan Sales Tax Act.

(2) Before proceeding any further, it will be desirable to notice provisions of Sections 30 (1) and (10) of Industrial Finance Corporation Act as also Section 9(1) of Rajasthan Sales Tax Act. Section 30 of I.F.C. Act. "30.Special provisions for enforcement of claims by the Corporation-(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to the guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Corporation or where the Corporation requires an industrial concern to make immediate repayment of any loan or advance under Section 29 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of Section 28 of this Act and of Section 69 of the Transfer of Property Act, 1882,. any officer of the Corporation generally or especially authorised by the Board in this behalf may apply to the Court for one or more of the following reliefs; namely:-- (a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Corporation as security for the loan or advance, or (b) for transferring the management of the industrial concern to the Corporation or 604 The Delhi Law Times 1996 (c) fur an ad interim injunction where there is apprehension of the machinery or the equipment being removed from the premises of the industrial concern without the permission of the Board. ... (10) An order of attachment or sale of property under this section shall be carried into effect as far as may be practicable in the manner provided in the Code of Civil Procedure, 1908, for the attachment or sale of property in execution of a decree, as if the Corporation were the decree-holder."

Section 9(1) of Rajasthan Sales Tax Act. "9(1).When the ownership of the business of a dealer liable to pay the tax is entirely transferred, any tax payable in respect of such business and remaining unpaid at the time of the transfer, shall be payable by the transferee, as if he were the dealer liable to pay such tax; and the transferee shall also be liable to pay tax on the sale or purchase of goods effected by him with effect from the date of such transfer and shall within thirty days, of the transfer, apply for registration unless he already holds a certificate of registration."

(3) The petitioner before this Court has sought quashing of the notices dated 27.6.1991 and 27.8.1991. From the notice of 27.8.1991, it is clear that till that date, there was no attachment issued against any of the assets of Ssl or the properties of Ssl, which were sold. Even the notice of demand was subsequent to the date on which offer of the petitioner had already been accepted subject, however, to the confirmation by this Court. It is also not disputed that Ssl as a Company, is still maintaining its corporate existence quite distinct and independent of Ifc as also the purchaser, who is the petitioner only of the assets sold, before this Court. It is also not in dispute that it was only the plant and machinery, both immovable and movable and the immovable property which was sold and no stocks in trade or raw materials were sold to the petitioner. The goodwill of the business of the assessor has also continued to remain with SSL. The provisions of Section 9 would be attracted or become available to the Revenue Authorities for raising a claim against the purchaser only if the ownership of the business of a dealer (SSL in this case) liable to pay the tax is entirely transferred. That would mean if the said business is transferred as a going concern together with the goodwill and all business dealings, which in other words would mean when it is a case of the buyers stepping into the shoes of die dealer for running or owning the entire business that the provisions of Section 9(l) could beattracted. Thatisnotthecasehere. Counsel for the respondent has placed reliance on the case of Alpha Silicones v. Assistant Commercial Tax Officer (Recovery) reported as 77 (1990) Sales Tax Cases 68. In that case, there was no dispute that the ownership of the entire business of the assessee had been transferred and theshortquestionwasthatdatefromwhichhftwould become liable for the tax dues of the transferor dealer. The present case is altogether different. Bonafides of the sale and the validity thereof have not been challenged before this Court by the department. In this case, admittedly the ownership of the entire business was never transferred and it was only some of the assets of the Company Ssl, which were transferred and that too, subject to the conditions mentioned in the orders of this Court quoted hereinabove. The remedy of the Tax Authorities would in such a case lie against the dealer (assessee) only and balance of such sale proceeds which become available to the assessee and not against the bonafide purchaser for value without notice of such liability.

(4) Counsel for the department has not been able to satisfy me as to how the provisions of Section 9(1) would be attracted in a case of the present nature where as already held above, business of the dealer has not been entirely transferred, but it is only some of the assets which have been transferred. There is clear definition between the entire business and assets. When entire business is transferred, it essentially includes goodwill also as well as stocks entered, raw material, none of which was present in the present case. None was transferred to the purchaser.

(5) Arguments were also addressed on the provisions of Section 30 of Ifc Act as also Section 29 of State Financial Corporation Act. In the light of my findings above, it is not necessary for me to go into this question. It would also be not necessary to go into this as the rights of Ifc are not under challenge before me.

(6) In the light of the above discussion, I accept the petition and quash and set aside the impugned notices to the extent they relate to the purchaser who is the petitioner. In the circumstances of the case, there will be no order as to costs.