1. Aggrieved by the order dated 15.12.2003, passed by the DRT-I, Chennai, the State Bank of Hyderabad, Chennai-6, has preferred this appeal.
The question involved in this appeal is whether the property tax, water and sewerage tax and electricity dues and also the amount due to flat owners association are public charges in respect of the property sold, to be discharged by the seller of the property.
2. The property of the defendant in the OA was mortgaged to the appellant Bank and the same was brought to sale by public auction held on 20.9.2001 by the Recovery Officer of the DRT, and the respondent herein namely, Mr. M. Somasundaram, purchased the property in the public auction for a sale consideration of Rs. 8,10,000/-. After purchase, the respondent came to know that there were dues in respect of property tax, water and sewerage tax, electricity dues, to the extent of Rs. 59,227/- and a sum of Rs. 12,600/- payable to the Flat Owners Association, and in all Rs. 71,827/-. The said amount was demanded by the auction purchaser either from the Recovery Officer or from the Tribunal. His representations were sent to the appellant Bank and they by their letter turned down the request by stating that while fixing the upset price, the arrears of tax, repairs etc. were taken into consideration and the upset price was also reduced from Rs. 9,70,000/- to Rs. 8,00,000/- and, therefore, the auction purchaser is not entitled to claim the said amount. The Recovery Officer submitted his report and on that report, the DRT took up a suo motu inquiry and the appellant Bank reiterated the very same contention before the DRT that the upset price was reduced by taking into consideration the tax due and repairs to be done etc. But the Tribunal allowed the claim of the auction purchaser and the said order is under challenge in this appeal.
3. Now the point for consideration is whether the auction purchaser is entitled to claim deduction of the property tax, water tax, electricity charges, in and out of the sale consideration.
4. The rights and liabilities of buyer and seller are governed by the provisions of the Transfer of Property Act, 1882. Section 55 of the Transfer of Property Act deals with the rights and liability of the buyer and seller which is as under- In the absence of a contract to the contrary, the buyer and the seller of immovable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following or such of them as are applicable to the property sold: (a) to disclose to the buyer any material delect in the property (or in the seller's title thereto) of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover; (b) to produce to the buyer on his request for examination all documents of title relating to the property which are in the seller's possession or power; (c) to answer to the best of his information all relevant questions put to him by the buyer in respect to the property or the title thereto; (d) on payment or tender of the amount due in respect of the price, to execute a proper conveyance of the property when the buyer tenders it to him for execution at a proper time and place; (e) between the date to the contract of sale and the delivery of the property, to take as much care of the property and all documents of title relating thereto which are in his possession as an owner of ordinary prudence would take of such property and documents; (f) to give, on being so required, the buyer, or such person as he directs, such possession of the property as its nature admits; (g) to pay all public charges and rent accrued due in respect of the property up to the date of the sale, and, except where the property is sold subject to encumbrances, to discharge all encumbrances on the property then existing.
Sub-clause (g) clearly indicates that the seller is bound to pay all public charges and rent in respect of the property sold and also all the encumbrances on such property due on the date of sale (Emphasis supplied) and to discharge all encumbrances on the property then existing. There cannot be any doubt that the amount due in respect of the property tax, water tax, sewerage tax etc. are public charges though not the amount due to Flat Owners Association in respect of the property upto the date of sale and the vendor is liable to pay those charges. The only exception is that if the property is sold on a contract to the contrary as stated in Section 55, the seller is not liable to pay these amounts. But in the instant case, there is no material to indicate that the property was sold on a contract to the contrary as stated in Section 55 or subject to any encumbrance.
5. Coming to the modes for recovery of the debts under RDDB&FI Act, 1993, Section 25 deals with modes of recovery of debts. Section 28 of the Act deals with other modes of recovery of debt. Section 29 speaks about the application of certain provisions of the Income-tax Act, which states- The provisions of the Second and Third Schedules to the Income-tax Act, 1961 (43 of 1961) and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of to the Income-tax; Provided that any reference under the said provisions and the rules to the "assessee" shall be construed as a reference to the defendant under this Act." Part-III of the Second Schedule to the Income-tax Act, 1961, deals with attachment and sale of immovable property. Rule 52 speaks about sale and proclamation of sale. Sub-clause (2) of Rule 52 states: "Where any immovable property is ordered to be sold, the Tax Recovery Officer shall cause a proclamation of the intended sale to be made in the language of the district." Rule 53 speaks about the contents of proclamation, which states: "A proclamation of sale of immovable property shall be drawn up after notice to the defaulter, and shall state the time and place of sale, and shall specify, as fairly and accurately as possible- (b) the revenue, if any, assessed upon the property or any part thereof; (c) the amount for the recovery of which the sale is ordered, and the reserve price, if any, below which the property may not be sold; and (d) any other thing which the Tax Recovery Officer considers it material for a purchaser to know, in order to judge the nature and value of property.
The word "revenue" occurring in Sub-clause (b) would mean only assessments, quit rents, crown rents or any other charge upon the land payable to the Government and it cannot be equated with property tax, collectable by Municipality to revenue assessed upon the lands. To sustain the above said proposition, the appellant relied upon the case of His Holiness Digyadassan Rajendra Ramadasjee Varu v. The Board of Trustees Tirumalai, Tirupathi Devasthanams by its Executive Officer and Anr. , wherein it was held that. "The expression "revenue" in Order 21 Rule 66(2)(b) comprehends only assessments, quit-rents, ground rents or any other charge upon the land payable to the Government, and it is difficult to equate property taxes collectable by a municipality to revenue assessed upon lands. The Legislature has deliberately omitted the house-tax payable to a municipality in Clause (b) of Rule 66(2) and, that being so, the non-inclusion of the municipal taxes in the sale proclamation relating to the houses sold in execution of a decree would not amount to a material irregularity so as to attract Order 21 Rule 90. It is only omission to mention something which is required by the statute that can be termed a material irregularity.
Failure to set out details which are not essential does not amount to a material irregularity within the meaning of Order 21 Rule 90.
6. The appellant Bank also relied upon the case of Mt. Rajo Kuer and Anr. v. Brij Bihari Prasad and Ors. , wherein it was held, "It is the duty of the decree-holder executing the money decree passed in his favour to make inquiries regarding prior encumbrances in order to comply with the provisions of Order 21 Rule 66 of the Code of Civil Procedure. Failure to make such an inquiry justifies the inference that there was a design inconsistent with bonafide dealing on the part of the decree-holder to avoid knowledge of the true state of affairs and that there was gross negligence on his part in this respect. Hence, the decree-holder will be imputed with constructive notice of the prior encumbrance". It is therefore, submitted that the auction purchaser should have enquired into with regard to encumbrances, including the public charges, failure to do so would amount to constructive notice of the prior encumbrances and the respondent, having failed to make an inquiry about the taxes due, would disable him from claiming those amounts.
7. Per contra, the learned Advocate for the respondent relied upon the case of Mt. Kaniz Fatma v. Imamuddin AIR 1925 Allahabad 704, wherein it was observed that, "The vendor's liability to discharge an undisclosed encumbrance is not ruled out under Section 55(g) of the Transfer of Property Act". It was held that, "The vendee was entitled to recovery from the vendor the amount which the vendee had to pay for buying the property at the auction sale". In M. Mahamood Mamuna Lebbai v. National Bank of India Ltd., Tuticorin through Manager AIR (31)1944 Madras 572, wherein it was held that, "The exclusion of Section 55(1)(g) ought to have been expressly mentioned in the sale deed and could not be by mere implication. The property was not sold subject to encumbrances and therefore in the absence of a contract to the contrary the vendor was under an obligation to discharge the encumbrances".
8. The learned Advocate for the respondent has further submitted that Sub-clause (g) of Section 55 of the Transfer of Property Act, requires that the seller has to pay all public charges and rent accrued as due in respect of the property upto the date of sale and except where the property is sold subject to encumbrances, to discharge all encumbrances on the property then existing. This aspect was not considered by the Andhra Pradesh High Court in AIR 1965 AP 334. The amount due in respect of the property tax, water tax, are public charges in respect of the property and, therefore, the seller is liable to pay all these dues.
That in the proclamation of sale also, there is no mention specifically about the prior dues on the property (i.e. property tax, water tax, sewerage tax, electricity charges including the amount due to the flat owners association. Nor it was stated in the sale proclamation that the property was sold "As is where is status". As such, the auction purchaser had no occasion to know about the public charges, rent, encumbrances over the property which was brought for sale. In fact Section 103 of the Madras City Municipal Corporation Act, 1919 states, "The property tax on buildings and lands shall, subject to the prior payment of the land revenue, if any, due to the Government thereon, be a first charge upon the said buildings or lands (Emphasis supplied) and upon the movable property, if any, found within or upon such buildings or lands and belonging to the person liable to such tax". As such, it is the bounden duty of the vendor to sell the property free from all encumbrances including the property tax, water tax. In the instant case, the properties were brought to sale for the non-payment of the amount due by the defendant to the appellant Bank and the same was done through the Recovery Officer, who is appointed under the statute and he plays the role of a vendor. As such, he should have furnished all the encumbrances over the property in the sale proclamation or he should have stated that the sale was "As is where is status" or the sale is subject to encumbrances. As there was no indication to the purchaser to enquire about the encumbrances in the property, the purchaser cannot be burdened with the encumbrances such as the property tax, water tax and electricity charges, and the seller alone is liable to clear the encumbrances. Moreover, when the property is sold through the Court, the common public would be led to think that the property brought to sale is free from encumbrance and the said confidence should not be defeated. But at the same time, the amount due to Flat Owners Association is a private deal and it cannot be construed either as a public charges or as a revenue due to the Government and hence the claim of the purchaser cannot be considered in this action.
The learned Advocate for the respondent further contended that even under Sub-clause (d) of Rule 53 under the Income-tax Act, 1961, the sale proclamation should contain, any other thing which the Tax Recovery Officer considers it material for a purchaser to know in order to judge the nature and value of the property. The word "any order thing" would include all the tax dues in respect of the property such as property tax, water tax, electricity charge etc. and therefore, it is incumbent upon the Recovery Officer to furnish all those material information in the sale proclamation, but he has not done so. As such, the auction purchaser had no occasion to know about the public charges such as property tax, water tax etc. over the property. That in the said circumstances, we are persuaded to conclude that the property was sold to the purchaser as if the property was free from encumbrance.
9. The learned Presiding Officer after careful consideration of the entire matter, came to the conclusion that it is obligatory on the part of the Recovery Officer to inform specifically about the prior dues, charges etc. on the property brought to sale, so that the intending purchaser can judge the real worth of the property meant for sale, so that he can make arrangements for necessary funds to purchase the property, and the property was also not sold on "As is where is basis" and therefore, the auction purchaser cannot be blamed for the risk factor which he has to face after the purchase of the property and the Recovery Officer remitted the entire sale proceeds to the appellant Bank without settling statutory dues like property tax etc, and the same is against the principles laid down in the case of Dena Bank v.Bhikhabhai Prabhudas Parekh & Co. and Ors. I (2000) BC 651 (SC) and held that the unauthorised retaining of the amount by the appellant Bank can be treated as undue enrichment of the Bank and directed the Bank to refund the amount of Rs. 71,827/- to the respondent auction purchaser, and I do not find any error in the said order passed by the DRT-I, Chennai, except the amount due to Flat Owners Association, which is disallowed and the appellant Bank is directed to pay Rs. 59,227/- (Rupees fifty-nine thousand two hundred and twenty-seven) only, to the respondent.
10. Before parting with the case, I wish to direct the Recovery Officers of the DRT concerned to indicate specifically in the sale proclamation that the properties are brought to sale "As is where is status" or subject to public charges, revenue and other encumbrances to avoid this kind of claim.
11. In the result, the appeal is allowed in part and the appellant Bank is hereby directed to pay Rs. 59,227/- (Rupees fifty-nine thousand two hundred and twenty-seven) only, to the respondent within four weeks from the date of receipt of the order and the claim of the respondent in respect of the amount due to the Flat Owners Association as Society Charges to the extent of Rs. 12,600/-, is disallowed.