Auction purchaser not liable to pay erstwhile owner’s dues: High Court

Saurabh Malik

Tribune News Service

Chandigarh, October 23

In a significant judgment that will change the way liabilities are recovered from loan defaulters, the Punjab and Haryana High Court has ruled that an auction purchaser was not liable to pay dues originally payable by the erstwhile owner-borrower and claimed by the Central Excise.

The issue was brought to the notice of the Bench comprising Justice Jaswant Singh and Justice Ashok Kumar Verma after a petition was filed against Punjab National Bank, Ludhiana, and other respondents by Kamla Engg & Steel Industries through counsel Aalok Jagga.

The Bench was told that the bank initiated recovery proceedings against a borrower by filing an application under the Recovery of Debts and Bankruptcy Act, 1993, before the Debts Recovery Tribunal. The application was decreed in the bank’s favour and it was held entitled to recover the amount from the borrowers after which the secured assets/mortgaged property was put to sale by way of an open auction.

After success in the auction, the petitioner approached the Greater Ludhiana Area Development Authority, but it expressed reluctance to transfer the property. It added that a letter issued by Central Excise Department said Rs 3,139.70 lakh was outstanding. The Bench ruled: “If the auction-purchaser has purchased the property from the secured creditor-bank, it is the secured creditor which has exercised its right of priority to sell the secured asset to recover and appropriate its dues. Hence, the auction purchaser cannot be called upon to pay the dues of the previous owner/borrower.”

The Bench held that that the petitioner-auction purchaser was not liable to clear the liability recoverable from the erstwhile owner-borrower-assessee to the Central Excise. However, the Central Excise was free to recover the dues by proceeding against the assessee, in accordance with law.

The Bench added it was also apparent that the Central Excise’s power to attach was only limited to excisable goods and/or moveable properties of the assessee and not immoveable property, for which it would have to issue a certificate to the collector. He would then proceed to recover the dues as arrears of land revenue, in terms of Section 67 of the Punjab Land Revenue Act, 1887.

The Bench said if electricity dues were pending and payable, the liability could not be avoided by the auction purchaser. He would have to clear such dues before seeking a fresh or reconnection of the electricity connection.

Before parting, the Bench acknowledged and appreciated “sincere and dedicated assistance” rendered by counsel Aalok Jagga and Sunish Bindlish.

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