Ahmedabad Municipal Corporation v Haji Abdulgafur Haji Hussenbhai 1971 AIR 1201 SC-1

AREA: EXCEPTIONS TO CAVEAT EMPTOR

FACTS:

The appellant sued the respondent buyer to recover the Property Tax which was outstanding against the property which had been purchased in a Court Sale in the execution of the mortgage decree.

Before making the bid, the buyer had made inquiries from the Official Receiver about any pending dues against the property, but no information was s provided about any pending house taxes, etc. Subsequently, the Municipal Corporation attached the property for arrears of house tax against which the buyer sued the Corporation for declaration arrears were not recoverable by the sale of the property.

ISSUE:

Can the auction purchaser be held liable on the ground of constructive knowledge of the existence of arrears of taxes under the rule of ‘caveat emptor’ despite his being a transferee for consideration without notice?

JUDGMENT:

U/S 100 of TPA, a charge is not enforceable against the transferee of a property for consideration who has no notice of the charge except when there is an express legal provision in the applicable Bombay Municipal Corporation Act, 1949,

1. The impugned Act merely provides for the creation of a charge, but does not provide that the charge is enforceable against the transferee of property for consideration,

2. Contention by Appellant that Section 100 of TPA does not apply to auction sales and nor is the auction buyer subject to all charges and encumbrances attaching to the judgment debtor,

3. According to Section 3, TPA, a person is said to have notice of a fact when he has actual notice of a fact or but for willful abstention or gross negligence to inquire, he ought to have implied knowledge of the charge on property,

4. No principle of law imputes constructive knowledge of outstanding taxes and the possibility of these taxes being in arrears,

5. Respondent cannot be attributed with constructive knowledge of the existence of tax arrears for the following reasons;

6. Buyer could not have reasonably thought that the municipality did not care to recover the arrears of taxes for a long time;

7. Municipal Corporation was far more negligent and blameworthy than the respondent in allowing the arrears to accumulate;

8. Though the respondent made inquiries from the receivers, they did not give any intimation about the arrears;

9. Building was under the occupation of tenants and the rent was recovered by the Receivers, and

10. There is a reasonable assumption that the Municipal Tax is a Prior Charge on the property under Section 61 of the Provincial Insolvency Act 1920, must have been paid by the Receivers

11. Official Receivers while receiving rent from tenants did not discharge tax liability nor did they provide information about non-payment of taxes to the purchaser despite inquiries by him

12. Therefore, the case is not covered by the doctrine of Caveat Emptor and attachment of property by Municipal Corporation must be held to be illegal.