When Liability Can Be Estimated With Certainty It Should Be Considered As Liability Which May Be Discharged In Future & Not A Contingent One: SC

The Supreme Court has observed that when liability can be estimated with certainty, it should not be treated as a contingent one and should be considered as a liability which can be discharged in future.

The bench of Justice K.M. Joseph and Justice Hrishikesh Roy observed that "When the liability is capable of being estimated with reasonable certainty, the liability is not to be treated as a contingent one and should be considered as a liability which may be discharged at a future date."

In this case, a Slump Sale Agreement was entered into, followed by the sale deed between the UP State Sugar Corporation Limited (UPSSCL-Seller) and the appellant-purchaser.

The appellant submitted bid for Rs.13.94 crores and as per Slump Sale Agreement, all liabilities, accruing before the date of signing agreement were to be borne by the Seller and those of subsequent period, were to be borne by the Purchaser.

The dispute here relates to liability of unpaid duty, penalty, and interest.

The issue to be decided by the Supreme Court was whether those outstanding liabilities are to be discharged by the seller or the purchaser.

Advocate T. Srinivasa Murthy appeared for the appellant whereas Additional Solicitor General of India Balbir Singh appeared for the State. UPSSCL is represented by Advocate Pradeep Misra.

The Court noted that there is no dispute that the liability towards the duty in question are in respect of business transactions for the period anterior to the signing date of the Slump Sale Agreement.

The Court noted that the business liability had definitely arisen out of the operation of the unit during the period before the same was sold to the appellant, although the liability is to be quantified and discharged at a future date.

While observing that the liability in question is not a contingent one, the Court held that the same cannot be fastened on the purchaser who were not operating the unit, prior to the Slump Sale Agreement.

The Court held that the liability of the purchaser for the dues relating to activities and operations of the unit for the period anterior to signing date, could not therefore have been fastened on the appellant in view of the clear provisions made in clause 9 of the Sale Deed read with Clause 12.1 and 12.2 of the Slump Sale Agreement.

"…the liability in question, not being a contingent liability, cannot be fastened on the shoulders of the appellant. The contrary view taken in the speaking order and in the impugned judgment are therefore found to be unsustainable. The appeal is accordingly allowed by setting aside the impugned judgment leaving the parties to bear their own cost.", the Court held.

Cause Title- Wave Industries Pvt. Ltd. v. State of U.P. & Ors.

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