Bombay High Court: While deciding a petition filed by a Cooperative Credit Society challenging the rejection of its application to implead an auction purchaser in execution proceedings, a Single Judge of S. G. Chapalgaonkar, J., held that the auction purchaser cannot be burdened with debtor’s liabilities unless the entire business as a going concern is transferred. The Court noted that in the present case only assets of a dormant business were purchased under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’), and therefore the purchaser was not liable to discharge the business dues of the debtor. The Court, therefore, concluded that the order of the Executing Court rejecting impleadment was correct, and dismissed the writ petition.
Background:
The petitioner had advanced a substantial amount to the debtor. Upon default, an award was passed by the Co-operative Court for recovery of dues along with interest. Execution proceedings were thereafter initiated before the Civil Judge, Senior Division. While these proceedings were pending, the secured creditor, namely the Maharashtra State Co-operative Bank, took possession of the debtor’s assets under the SARFAESI Act and auctioned them. The auction purchaser received possession of movable and immovable properties under a sale certificate.
The petitioner sought impleadment of the auction purchaser in execution proceedings, contending that the purchaser had accepted all encumbrances presently on the property and those that may arise in future, as per tender conditions and sale certificate. It was argued that since the entire business of the debtor was now run by the purchaser, the purchaser was obliged to discharge all dues. On the other hand, the auction purchaser opposed the application, submitting that liability was limited to encumbrances attached to secured assets and not to the business dues of the debtor.
Analysis and Decision:
The Court emphasised that the petitioner had put to execution the award passed for recovery of dues pertaining to advances made to the debtor. The Court noted that while execution was in progress, the secured creditor possessed and auctioned the assets under the provisions of the SARFAESI Act. The Court observed that the tender notice clearly showed bids were invited for sale of properties of the debtor as per the description mentioned therein.
The Court highlighted that the successful bidder received possession of assets and the sale certificate depicted that the purchaser had accepted all encumbrances presently on the property, which may arise in future, and agreed to pay the same as per tender conditions. It was further noted that the sale certificate incorporated a list of encumbrances and dues, including electricity, sales tax, professional tax, provident fund, workers’ salary, sugarcane purchase tax and other liabilities not quantified as on the date of valuation of assets. The Court observed that the sugarcane factory was closed much prior to the auction and what was auctioned were only assets, while the registration of the debtor was still in existence.
The Court further emphasised that the exposition of law held in Rana Girders Ltd. v. Union of India, (2013) 10 SCC 746, makes it clear that if an auction purchaser has purchased the entire business as an ongoing concern, it would be responsible to discharge liability of the erstwhile owner. However, the Court observed that purchase in case of assets of dormant business, auction purchaser is not liable to discharge liability arising out of business of erstwhile owner. The Court highlighted that careful reading of the stipulation in the tender notice and sale certificate shows that the auction purchaser agreed to discharge all liabilities and dues of authorities and departments in respect of secured assets, and if payable in law, attachable to secured assets.
The Court noted that the petitioner had advanced amounts which were defaulted and therefore approached the Co-operative Court seeking recovery. However, the Court observed that in the absence of any charge of such dues on the assets, the auction purchaser cannot assume liability. The Court emphasised that the Executing Court rightly observed that the petitioner was not diligent during the auction process and was now attempting to shift liability onto the auction purchaser. The Court further noted that the dues of the petitioner can never be classified as dues to property, as they are essentially business dues of the debtor.
Consequently, the Court held that there was no reason to entertain the application for impleadment of the auction purchaser in execution of the award initiated against the debtor. Accordingly, the writ petition was dismissed and rule discharged.
[Sangli Zilla Parishad Employees v. Ninaidevi Sahakari Sakhar Karkhana Ltd., Writ Petition No. 7905 of 2023, decided on 01-12-2025]
Advocates who appeared in this case:
For the Petitioner: Umesh Mankapure a/w Parth Pitambare a/w Pankajsinh Deshmukh, Om Mangave and Siyal Magdum, Advocate
For the Respondents: Suryajeet P. Chavan, Advocate, Girish Godbole, Senior Advocate a/w Rahul Desai a/w Prasad Nagargoje, Vaishali Shelar i/by Shruti Tulpule and pradeep Salgar, Advocate