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

Civil Appeal No. ________of 2022 (Arising out of SLP (C) No. 3525 of 2018)

WAVE INDUSTRIES PVT. LTD. Appellant(s) VERSUS STATE OF U.P. & ORS. Respondent(s)

WITH Civil Appeal No. _______of 2022 (Arising out of SLP (C) No. 4053 of 2018)

Civil Appeal No. _______of 2022 (Arising out of SLP (C) No. 3537 of 2018)

Civil Appeal No. _______of 2022 (Arising out of SLP (C) No. 12724 of 2018)

J U D G M E N T

Hrishikesh Roy, J.

Leave granted.

Signature Not Verified

2. Digitally signed by Neetu Khajuria Heard Mr. T. Srinivasa Murthy, the learned counsel Date: 2022.12.15 19:43:37 IST Reason:

appearing for the appellants. Also heard Mr. Balbir

Page 1 of 17 Singh, the learned Additional Solicitor General of India

appearing for respondent-State. The U.P State Sugar

Corporation (respondent no.2) for short “the UPSSCL”, is

represented by Mr. Pradeep Misra, the learned counsel.

3. For the sake of convenience, we will take the facts

of SLP(C) No. 3525 of 2018, for the purpose of this

judgment: -

The appellants were the writ petitioners before the

High Court who were unsuccessful in their challenge to

the order dated 7.6.2016 whereby the liability for

payment of Rs.2,14,169/- duty, Rs. 2,41,169/-penalty, and

Rs.1,40,459/- interest, amounting to Rs. 5,68,797/- is

declared to be borne by M/s Wave Industries Pvt. Ltd.

(Purchaser) and not by the Seller i.e. “UPSSCL”.

4. 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.

Page 2 of 17

5. The above arrangements were preceded by the

advertisement dated 29.6.2009 in the newspaper proposing

slump sale of the loss making sugar mills of UPSSCL. A

pre-bid meeting was next held on 10.7.2009 with the

prospective buyers where, inter alia, concern was raised

on outstanding liabilities against the units on sale.

The appellant submitted bid for Rs.13.94 crores for the

Amroha Unit and as per Clause 12 of the Slump Sale

Agreement dated 17.7.2010, 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 accordingly on 9.8.2010

and possession of the Amroha unit was taken over by the

appellant on 17.8.2010 and since then the appellant has

been managing the unit. Subsequent to the Slump Sale

Agreement, formal sale deed was executed on 4.10.2010 and

in Clause 9 thereof it was made clear that the seller

shall be liable to bear all assessments, rents, rates,

taxes, outgoing and impositions of whatsoever nature

Page 3 of 17 relating to the Unit upto the signing date and thereafter

these will be the liability of the purchaser. 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 and the

said Writ Petition No.2587(M/B) of 2013 was disposed of

by the High Court on 22.3.2013, with a direction to the

State Government to afford hearing to the purchasers and

decide their representation, with a speaking order.

6. The appellants 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.

Page 4 of 17

7. Before we proceed further it would be proper to take

note of certain defined terms in the Slump Sale Agreement

dated 17.7.2010:

“Certain Liabilities:

Certain Liabilities shall mean such liabilities, debts and other obligations in respect of the Unit including contingent liabilities of Unit except Excluded Liabilities.

Current Liabilities:

B. Statutory Dues

(vi) Income Tax

(vii) Sale Tax/VAT

(viii) Entry Tax

(ix) Others due including Purchase tax.

Excluded Liabilities:

“Excluded Liabilities shall mean Liabilities claimed till Signing Date which are being retained/settled by the Seller.

Explanation: For the purposes of this definition liabilities accrued but unclaimed shall not be settled or retained by the seller but the same shall stand transferred to the purchaser.

Liabilities : Liabilities shall mean all the liabilities on account of borrowings by the Page 5 of 17 Company, and all other liabilities whether ascertained or uncertained, contingent and disputed, in relation to the Unit, any claims by or due to third parties, and labour, excise, sales tax claims etc.

Signing Date:

Signing Date shall mean the date of signing of this Agreement.

Purchase Price:

Purchase Price shall mean bid amount plus Net Working Capital Adjustment plus all other amount mentioned in clause3 of this Agreement.

Taxes:

Taxes shall mean all and any statutory or other governmental levies, taxes charges, cess, penalties, rates, stamp duties and other dues pertaining or relating to the Sale of the Unit as contemplated herein, including but not limiting to sales tax, income tax, registration charges etc. Bid Amount Bid amount shall mean that sum of Rs. 17.01 Crores (Rupees Seventeen crores one lakh only) as mentioned by the purchaser in the Financial Proposal (RFP Application)”

8. Clause 2.1 provided that the unit is being sold as a

going concern on as is where is basis and all rights,

Page 6 of 17 title and interest of the seller in the unit together

with all assets and liabilities except excluded

liabilities are to be transferred by the seller and

delivered to the purchaser. Clause 2.1 reads as under:-

"2.1 In consideration of the Purchase Price to be paid by the Purchaser to the Seller in the manner set out herein and subject to the provisions of this Agreement, on the Closing Date, the Seller shall Transfer and deliver to the Purchaser and the Purchaser shall purchase, acquire and accept from the Seller, all right, title and interest of the Seller in and to the Unit, together with all Assets and Liabilities except Excluded Liabilities, as a going concern on an as is where is basis"

collectively ("The Unit")"

9. Clause 2.6 speaks of transfer of contingent

liabilities and it provided that all contingent

liabilities and legal cases shall be transferred by the

seller to the purchaser and purchaser is solely liable

in respect of such contingent liabilities from the

signing date and the seller shall have no liabilities

whatsoever in such respect. Clause 2.6 reads as under:-

"2.6 It is hereby further agreed between the parties that all contingent liabilities and

Page 7 of 17 legal cases pending in respect of the Unit, shall be transferred by the Seller to the Purchaser and the Purchaser is solely liable in respect of such contingent liabilities from the Signing Date and the Seller shall have no liabilities whatsoever in such respect.

10. Clause 12 speaks of payment of taxes and stamp duty

and it is stated that after signing date the purchaser

shall be liable and responsible for all obligations or

liabilities in respect of the operations and activities

of the unit after the signing date. The following sub-

clauses of Clause 12 being relevant are extracted :-

“12.1 The purchaser shall save as herein expressly provided, bear, pay and discharge all assessments, rents, taxes, outgoing and impositions of whatsoever nature relating or pertaining to the operations and activities of the Unit pertaining to the period after the Signing Date. The Purchaser shall be liable and responsible for all obligations or liabilities arising from or in respect of the operations and activities of the Unit of the Seller after the Signing Date.

12.2 The purchaser shall bear, pay and discharge all liabilities, obligations, assessments, rents, rates, taxes, outgoings and impositions of whatsoever nature relating or pertaining to the operations and activities of the after the signing date.

Page 8 of 17 12.3 Save and except as herein otherwise provided, the Purchaser shall bear and pay the stamp duty, registration charges and sales tax or any other applicable tax, if any payable, on or in respect of the Transfer of the Unit. 12.4 Capital Gains Tax, if any payable in connection with the Transfer contemplated under this Agreement, shall be borne by the Seller.”

11. The sale deed was executed on 4.10.2010 for a total

consideration of Rs. 13.94 crores and the agreement dated

17.7.2010 was made part of the sale deed. Clause 8(d)

of the sale deed reads as under:-

"8(d) All taxes, levies, cesses or any charges in respect to the Unit/Land, whether levied by a government authority, such as municipal or property tax that are due up to the date of Agreement ("Signing Date") have been paid in full by seller.

Further Clause 9 of the sale deed reads as under:-

"9. The Seller shall be liable to bear all assessments, rents, rates, taxes outgoing and imposition of whatsoever nature relating or pertaining to the Unit up to the Signing Date and thereafter, the same shall be the liability of the Purchaser.

Page 9 of 17

12. In the speaking order dated 7.6.2016, the appellant’s

representation was rejected and the liability of duty,

interest, and penalty, for the period prior to the date

of purchase of the Amroha unit has been fastened on the

appellant. The same is premised on clause 2.6 of the

Slump Sale Agreement which stated that all contingent

liabilities and legal cases pending in respect of the

unit shall be transferred by the UPSSCL to the purchaser

and the appellant as the purchaser shall be solely

responsible in respect of the contingent liabilities on

or after the signing date.

13. While rejecting the challenge of the appellant to

the speaking order dated 7.6.2016, the High Court relied

on clause 2.1 of the agreement and adverted to the

expression “except excluded liabilities in the said

clause” and held that it means liabilities claimed till

signing date which are retained or settled by the Seller

and since tax liabilities are not shown to be part of the

“excluded liabilities” and since clause 2.4 provides for

transfer of all contingent liabilities and legal cases

Page 10 of 17 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.

14. The questions to be answered here are (1) whether

the dues arising out of the operations and activities of

the sugar unit prior to the date of acquisition is to be

borne by the seller and whether subsisting dues arising

out of transactions occurring on dates prior to the sale,

can be characterized as contingent or conditional

liability or is it an accrued liability which may be

computed or discharged at a subsequent date; (2) Whether

a purchaser of a sugar mill could be treated as a dealer

or service provider as an entity liable for discharging

dues even if they had not been acting as a dealer or

service provider or otherwise as an entity on whom,

liability could be fastened; (3) Whether the speaking

Page 11 of 17 order is vitiated, due to conflict of interest, a point

which the impugned order does not indicate was argued

before the high court.

15. There is no dispute that the liability towards the

duty in question for the Amroha unit are in respect of

business transactions for the period anterior to the

signing date of the Slump Sale Agreement. Moreover

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.

16. In Bharat Earth Movers vs. Commissioner of Income

Tax, Karnataka1, on the issue of contingent liability,

Justice R C Lahoti in his opinion, which has stood the

test of time, on behalf of the three Judge Bench stated

the following:-

“4. The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be

1 (2000) 6 SCC 645

Page 12 of 17 allowed although the liability may have to be quantified and discharged at a future date.

What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.”

17. In the case in hand, the business liability for the

Amroha unit had definitely arisen out of the operation

of the unit during the period before the same was sold

to the appellant, although the liability is to be

quantified and discharged at a future date. 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 dated 17.7.2010.

Page 13 of 17

18. Pertinently, in clause 12.1 and 12.2 of the Slump

Sale Agreement read with Clause 9 of the Sale Deed, the

liability of the purchaser, for the operation and

activities of the unit, arose only after the signing

date. This would suggest that dues relating to the

activities and operation of the unit in the period upto

17.7.2010 (signing date), were the liabilities of the

UPSSCL while the dues relating to activities and

operation of the unit for the period subsequent to

17.7.2010, were to be the responsibility of the

purchaser. 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 therefore 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

Page 14 of 17 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.

19. Furthermore, in view of the specific and detailed

provisions with regard to the distribution of liabilities

in respect of the dues whereby duties in respect of the

transactions upto the date of agreement are to be borne

by the Seller i.e. UPSSCL and the buyer is made

responsible only for dues in respect of post-sale

transactions, we are unable to agree with the impugned

order dated 1.11.2017 which erroneously in our view, held

that the liabilities for the transactions made prior to

the sale agreement, are to be borne by the purchaser.

20. That apart, prior to 17.7.2010, the appellant was

neither a dealer nor a manufacturer and therefore, had

Page 15 of 17 no tax or duty obligations to satisfy for the operation

of the Amroha unit. It is the UP State Sugar Corporation

Limited which had collected all the dues from their

customer on behalf of the State Government and they are

under an obligation to deposit the collected sum in the

government treasury. But for those transactions, for the

period prior to 17.7.2010, the UPSSCL are trying to usurp

the collected sum and are trying to pass on the burden

to the appellant who was neither the dealer nor they had

anything to do with the operation of the unit prior to

17.7.2010. In such circumstances, 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. In

view of the foregoing, the liability in question, not

being a contingent liability, cannot be fastened on the

shoulders of the appellant. The contrary view taken in

the speaking order and in the impugned judgment are

therefore found to be unsustainable. The appeal is

Page 16 of 17 accordingly allowed by setting aside the impugned

judgment leaving the parties to bear their own cost.

21. The appeals arising out of SLP (C) No. 4053 of 2018,

SLP(C) No. 3537 of 2018 and SLP(C) No. 12724 of 2018 are

also disposed of, in the above terms.

………………………………………………………J. [K.M. JOSEPH]

………………………………………………………J. [HRISHIKESH ROY] NEW DELHI DECEMBER 15, 2022

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