Summary
The U.P. State Sugar Corporation sold its loss-making Amroha sugar mill to Wave Industries by a slump sale agreement dated 17 July 2010 and a sale deed. The State later held the purchaser liable for duty, penalty and interest of Rs 5.68 lakh relating to the mill's operations before the sale. It relied on a clause transferring contingent liabilities to the purchaser, and the Allahabad High Court upheld that order. The Supreme Court reversed it. A liability that has definitely arisen and can be estimated with reasonable certainty is not contingent, even if it is quantified later. The specific clauses in the agreement and the sale deed made the seller bear pre-signing taxes, and they prevail over the general contingent-liability clause. The purchaser was not a dealer before the sale.
Issues
- Whether duty, penalty and interest arising from operations of a sugar unit before the signing date of a slump sale are 'contingent liabilities' transferred to the purchaser, or accrued liabilities of the seller.
- Whether a purchaser who was neither dealer nor manufacturer before the sale can be fastened with tax dues for the seller's pre-sale transactions.
Provisions considered
- Clauses 2.1, 2.6, 12.1 and 12.2 of the Agreement; Clauses 8(d) and 9 of the Sale Deed, Slump Sale Agreement dated 17.07.2010 and Sale Deed dated 04.10.2010The specific clauses making the seller bear all taxes and impositions relating to the unit up to the signing date and the purchaser only thereafter govern over the generic clause transferring contingent liabilities and pending cases. (¶¶ 7, 8, 9, 10, 11, 18)
Held
- Following Bharat Earth Movers v. CIT, a business liability that has definitely arisen and can be estimated with reasonable certainty is a liability in praesenti even though quantified and discharged later, and is not contingent; the duty dues here arose from the unit's operation before the sale, so they could not be treated as contingent liabilities passing to the purchaser. (¶¶ 16, 17)
- Clauses 12.1 and 12.2 of the agreement and clause 9 of the sale deed specifically allocate dues for the period up to 17.07.2010 to the seller and later dues to the purchaser; these specific terms override the generic contingent-liability clause 2.6 on which the speaking order rested. (¶¶ 18, 19)
- Before 17.07.2010 the appellant was neither a dealer nor a manufacturer and had no duty obligations, while the seller had collected the dues from customers and was bound to deposit them; shifting the burden to the purchaser was arbitrary, and the speaking order dated 07.06.2016 and the High Court judgment upholding it were unsustainable. (¶¶ 15, 20)
Result
Civil Appeal No. 9272 of 2022 allowed and the Allahabad High Court (Lucknow Bench) judgment dated 01.11.2017 in W.P. (M/B) No. 20032 of 2016 set aside, parties bearing their own costs; Civil Appeal Nos. 9273 to 9275 of 2022 disposed of in the same terms.