Wednesday, January 27, 2010

Duties of an Official Liquiator: TCI Distribution v. OL

I had previously posted on a decision of a Single Judge of the Madras High Court on the role and duties of an Official Liquidator. The facts in TCI Distribution Centres v. Official Liquidator (C.A. 1953/2008 in C.P. 526/2000) were that the Official Liquidator had sold certain properties through an auction-sale. The auction-purchaser later found out that the properties were not exactly the same as described in the sale advertisement. On this basis, the purchaser sought to set aside the sale which had been conducted on an “as is where is whatever there is” basis. The Single Judge had held that the doctrine of caveat emptor would apply in such cases; and the purchaser must be able to show the existence of either deceit or negligent mis-statement before he can succeed in getting an auction-sale by the OL set aside. This decision of the Single Judge has been reversed on appeal by a Division Bench. The judgment of the Division Bench is reported as TCI Distribution Centres Ltd. v. Official Liquidator, [2010] 153 Comp Cas 437 (Mad).

The Division Bench has held that the doctrine of caveat emptor does not apply. It was held that the doctrine “… cannot be extended to a case, where the vendor did not have title to the property…” The judgment indicates that an OL carrying out an auction-sale is under a statutory obligation to verify the title of the properties of the company-in-liquidation which are being brought to sale. The observations of the Court are not easily reconcilable with the judgment of the Supreme Court in United Bank of India v. Official Liquidator, [1994] 79 Comp Cas 262. In that case, the Supreme Court had held that the intending purchaser must satisfy himself as to the title and condition of the property. Accordingly, the DB judgment may need reconsideration.

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