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Kamani Tubes Ltd. Vs. Official Liquidator and Liquidator, Kamani Bros. P. Ltd. and Another - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberAppeal No. 27 of 1981 in Company Application No. 102 of 1980 in Company Petition No. 109 of 1979
Judge
Reported in(1984)86BOMLR92; [1985]58CompCas233(Bom); 1984MhLJ618
ActsCompanies Act, 1956 - Section457; Bombay Rents, Hotel and Loadging House Rates Control Act, 1947 - Sections 13 and 15
AppellantKamani Tubes Ltd.
RespondentOfficial Liquidator and Liquidator, Kamani Bros. P. Ltd. and Another
Excerpt:
..... -- person in occupation of part of company's leased premises before taking over possession by official liquidator -- occupant accepting status of licensee from liquidator and giving undertaking to hand over possession of premises when demanded by liquidator -- occupant whether has to vacate premises on demand by official liquidator.;the nature of arrangement contemplated by the official liquidator for raising funds, of entering into a caretaker's agreement with other persons and delivering possession to them of the leased premises governed by bombay. rent act and which were used by a company in liquidation is unfair and impermissible. when the leased premises of the company are not necessary for the official liquidator for the purpose of winding up the business of the company, the..........have been directed to be wound up by an order of this court dated august 3, 1979, and the official liquidator was appointed to take steps for the winding up of the company. it appears that the official liquidator wanted to give out the premises in question on a caretaker basis and, therefore, he not only wrote to other tenants in the premises but also issued an advertisement in a local newspaper inviting offers from intending caretakers with a view to hand over the premises to them on caretaker basis. a part of the premises having an area of 1,334 square feet on the mezzanine floor in the building known as 'new kamani chambers' is admittedly in the occupation of respondent no. 2, namely, kamani metal and alloys ltd.2. when the appellants found that the official liquidator was.....
Judgment:

Chandurkar, Actg. C.J.

1. The appellants are admittedly owners of the premises which have been described in detail in annexures B, E, F and G to the affidavit in support of the judge's summons. There is no dispute that Kamani Bros. Pvt. Ltd., who were the lessees of these premises, have been directed to be wound up by an order of this court dated August 3, 1979, and the official liquidator was appointed to take steps for the winding up of the company. It appears that the official liquidator wanted to give out the premises in question on a caretaker basis and, therefore, he not only wrote to other tenants in the premises but also issued an advertisement in a local newspaper inviting offers from intending caretakers with a view to hand over the premises to them on caretaker basis. A part of the premises having an area of 1,334 square feet on the mezzanine floor in the building known as 'New Kamani Chambers' is admittedly in the occupation of respondent No. 2, namely, Kamani Metal and Alloys Ltd.

2. When the appellants found that the official liquidator was intending to part with the premises on caretaker basis, they took out a judge's summons for an order that the official liquidator should be directed to forthwith hand over to them quiet, vacant and peaceful possession of the premises described in Exs. E, F and G to the affidavit in support of the judge's summons. One of the prayers made in the judge's summons was that the official liquidator should also pay a sum of Rs. 6,16,810.47, being the arrears of rent and/or consideration and electric charge payable by the company in liquidation to the appellants. The appellants also prayed for a direction that the official liquidator will not dispose of or part with possession or alienate or encumber the premises in question.

3. In the affidavit field by the official liquidator in reply to the affidavit field on behalf of the appellants, it was stated that respondent No. 2 was in occupation as licensees of the official liquidator. The official liquidator took the stand that the advertisements in the newspapers inviting offers for taking the premises on caretaker basis were given pursuant to the direction of the company judge but that no offers had accepted by the official liquidator and none will be accepted without the permission of the court. According to the official liquidator, there was nothing wrong in giving the premises on caretaker basis because this would be done for the benefit of the creditors in the winding-up proceedings. The official liquidator disclosed that respondent No. 2 had given an undertaking as per court's direction. That undertaking admittedly is that respondent No. 2 will vacant the premises when asked to do so by the official liquidator.

4. An affidavit had also been field by respondent No. 2 claiming that he was in occupation as sub-tenants and/or permitted licensees of the company in liquidation with the knowledge and consent and permission of the appellants, the owners of the premises, and that they had been paying a sum of Rs. 2,001 since about 1975-76 in respect of the mezzanine floor of New Kamani Chambers. He, therefore, claims to be in exclusive use, occupation and possession of the suit premises and claim independent rights as sub-tenants and/or permitted licensees.

5. The learned single judge made no order on the summons against respondent No. 1 in respect of the properties described in exs. B, E, and G to the affidavit in support of the judge's summons on August 6, 1980, and a similar order was made on August 27, 1980, in respect of the premises mentioned in ex. F to the affidavit in support, which are the premises in the occupation of respondent No. 2. These orders of the learned single judge are now challenged in this appeal.

6. Mr. Chinoy, appearing on behalf of the appellant-company, has contended that in view of the decision of the Supreme Court in Ravindra Ishwardas Sethna v. Official Liquidator, High Court, Bombay, [1983] 54 Comp Cas 702, it is not permissible for the official liquidator to enter into a caretaker's agreement and deliver possession of the premises used by a company in liquidation as this was against the provisions of the Bombay Rent Act. According to the learned counsel, the controversy in the appeal is squarely covered by the said decision and the judge's summons should have been made absolute by the learned single judge.

7. Having gone through the decision in Ravindra Sethna's case : [1983]3SCR657 , it is clear that the arrangement of the kind which is contemplated by the official liquidator is not permissible because such an arrangement does not fall within the provisions of s. 457 of the Companies Act under the relevant clause of which the liquidator has the power to carry on the business of the company in so far as it may be necessary for the beneficial winding-up of the company. The facts of the decision will show that the liquidator in that case had taken possession of the premises of the company and subsequently by the order of the High Court, the liquidator had entered into a caretaker's agreement with the licensee and given possession of the premises to him on compensation and no terms and conditions set out in the agreement. Admittedly, the business of the company had come to a standstill and no business of the company was carried on by the liquidator for the purposes of winding-up. On those facts, after referring to the provisions of s. 457(1), cl. (b), which enabled the liquidator in a winding up by the court on business of the company so far as is necessary for the beneficial winding-up of the company with the sanction of the court, the Supreme Court observed that it is not open to the liquidator to carry on any business on the ground that it will be beneficial to the creditors or the contributories because the liquidator cannot carry on business for any other purpose except the purpose for which the power under s. 457 is conferred upon him, namely, for the beneficial winding up of the company. The Supreme Court pointed out that in such a case, the jurisdictional fact which must be ascertained and established for the exercise of the power by the liquidator to carry on business of a company, is that carrying on of the business of the company is necessary for the beneficial winding-up of the company. Then referring to the provisions of the Bombay Rent Act, the Supreme Court pointed out that if the company was a tenant or a lessee of the premises, then the company was a statutory tenant under the Rent Act and though the statutory tenancy confers the right to be in possession, if the tenant does not any more require the use of the premises, the provisions of the Rent Act, and especially ss. 13 and 15, completely prohibit giving the possession of the premises on licence or on sub-lease. The Supreme Court pointed out that entering into a caretaker's agreement is third way of parting with possession and observed (at p. 707) :

'This caretaker's agreement appears to us to be an euphemism for collecting compensation which is nothing else but the charge for use and occupation of the premises exclusively by the second respondent (the caretaker)'.

8. Pointing out that if the liquidator did not need the use of the premises for carrying out winding-up activity of the company, then parting with possession of the premises exclusively in favour of the caretaker was a facade to wriggle out of the provisions of the Rent Act. The following observation are instructive (at p. 708) :

'The Rent Act is no doubt enacted for protecting the tenants, and in-disputably its provisions must receive such interpretation as to advance the protection and thwart the action of the landlord in rendering tenants destitutes. But this does not imply that the court should lend its aid to flout the provisions of the Rent Act so as to earn money by unfair and impermissible use of the premises. And that is what the liquidator sought to do, and the court extended its help to the liquidator. This, in our opinion, is wholly impermissible. The learned company judge could not have authorised the liquidator to enter into such an agreement and, therefore, his order is liable to be set aside.'

9. The observation quoted above clearly show that the nature of the arrangement which is contemplated by the official liquidator for raising funds by making premises available for use to other persons on the basis of caretaker's agreement is unfair and impermissible. The facts in the instant case are in no way different. It is not the case of the official liquidator that the premises are necessary for him purposes of winding-up the business of the company. Indeed, the very fact that the premises have been offered by public advertisement on caretaker basis itself shows that the official liquidator does not need these premises. It is clear, therefore, that the landlord will be entitled to these premises if the official liquidator does not require them for the purposes of the winding-up of the business of the company.

10. It has, however, been vehemently contended on behalf of respondent No. 2 by Mr. Chinai that the decision of the Supreme Court is of no avail to the appellants in so far as respondent No. 2 is concerned. The learned counsel has pointed out that the ratio of the decision of the Supreme Court will be attracted only in a case where the official liquidator has handed over possession to the caretaker and, according to the learned counsel, in the instant case, respondent No. 2 had already been in possession much prior to the order of winding-up and it is contended that respondent No. 2 had been in possession as sub-tenants with express knowledge and consent of the appellants. Therefore, according to the learned counsel, so far as respondent No. 2 is concerned, he cannot be dispossessed in the summary manner contemplated by the decision of the Supreme Court.

11. Now, undoubtedly, it is difficult to dispute the fact that respondent No. 2 was already in possession when the official liquidator took possession of the premises. In the affidavit filed in reply to the judge's summons, the case of respondent No. 2 is that they were either sub-tenants or licensees of the company in liquidation. Now, undoubtedly, the official liquidator had made a report to the court with regard to the occupation of respondent No. 2 and the liquidator had sought directions from the court as to whether respondent No. 2 should be permitted to continue to occupy the premises in his possession. We have already referred to the affidavit of the official liquidator in which the liquidator has clearly made a statement that respondent No. 2 had given an undertaking as per the court's directions and respondent No. 2 was, therefore, in occupation as licensees of the official liquidator's report dated February 8, 1980, which is produced before us by the official liquidator, one of the points on which a direction was sought from the court was as follows :

'Whether the official liquidator may allow Kamani Metal & Alloys Ltd. (respondent No. 2) who was already in use and occupation of mezzanine floor in New Kamani Chambers on a monthly compensation Rs. 2,001 exclusive of electricity charges against usual undertaking on a stamped paper to hand over vacant possession of such premises immediately on demand of the official liquidator.'

12. This report followed meetings between the official liquidator and respondent No. 2 in the course of which, as the report shows, respondent No. 2 requested the official liquidator to maintain status quo and treat them either as sub-tenants or as licensees. The court gave a direction in the affirmative as sought by the official liquidator and the following undertaking was given on behalf of respondent No. 2 by the secretary of respondent No. 2.

'We, Kamani Metals & Alloys Ltd., who are occupying mezzanine floor in New Kamani Chambers on a monthly compensation of Rs. 2001 exclusive of electricity charges do hereby undertake to hand over vacant possession of these premises on demand from you. We also undertake to pay to the official liquidator monthly compensation of Rs. 2,001 each month in advance exclusive of electricity charges for the use and occupation of the premises.'

13. Undoubtedly respondent No. 2 had in the affidavit claimed the status of a sub-tenant and it is also argued before us, as already pointed out, that he had been in occupation long before the order of winding-up. However, it is difficult for us to see how respondent No. 2 can now be permitted to urge that he was already in possession as sub-tenant because his present position is expressly referable to the direction given by the court on the report of the official liquidator and respondent No. 2 had reiterated that they were licensees in the undertaking given to the official liquidator. It is true that if respondent No. 2 had not given the undertaking and taken the risk of continuing to occupy the premises subject to the official liquidator taking the normal steps for evicting them, they would have been required to prove that they were the sub-tenants and they could have been evicted only according to the procedure established by law, that is, by filing a regular suit, if necessary. The situation today is, however, not the same. Respondent No. 2 had accepted the status of licensees from the official liquidator and in view of the undertaking given to the official liquidator, it is not now open to respondent No. 2 to say that the official liquidator cannot require respondent No. 2 to vacate the premises. The mere fact that respondent No. 2 was already in possession is now of no avail. In view of the undertaking given that respondent No. 2 will vacate the premises on the official liquidator requiring them to do so and further since this arrangement has been arrived at in the course of the winding-up proceedings, the bar which is spelt out in the Supreme Court decision will also apply in the case of the premises in the occupation of respondent No. 2.

14. In this view of the matter, the appellants will be entitled to an order in terms of prayer cls. (a), (b) and (c) of the summons. They will, however, be entitled to possession only in accordance with the direction given the following paragraphs :

We have been told by the official liquidator that a scheme by one of the creditors for taking the company out of liquidation is being mooted and has already been submitted in court. According to the learned counsel for the official liquidator, if the company is revived in accordance with the said scheme, then the company should not be prejudiced by being deprived of the premises which the company would then be lawfully entitled to occupy and continue to be lessees thereof. The question about the validity of the scheme as well as with regard to the capacity of the alleged creditor to present the scheme is sub judice. Today it is not possible to say what would be the result of those proceedings. However, having regard to the fact that the present premises, which are the subject-matter of those proceedings, will be a valuable asset of the company in case it is revived, we think that the interest of everybody concerned and interested in the well being of the company will be sufficiently safeguarded if we make the order that the official liquidator will hand over possession of the premises to the appellants in case an order for reviving the company and for taking the company out of liquidation is not passed on or before December 31, 1984.

15. It is also contended by Mr. Chinoy, on behalf of the appellants, that the official liquidator has not been paid prior and subsequent to the order of winding-up. Now, so far as dues for the period prior to the order of winding-up are concerned, it cannot be seriously disputed that the appellant company will have to rank as a creditor in line with the other creditors, if there be any. So far as the period subsequent to the order of winding-up is concerned, admittedly an attachment order by the sales tax authorities has been served on the official liquidator with the result that the official liquidator is prevented from paying any rent directly to the appellants. The fact that there is such an order has not been disputed by the appellants. However, according to the learned counsel for the appellants, the minimum that the appellants are entitled to is an account as to how much amount has been credited on their behalf with the sales tax authorities out of the amount due by way of rent for the period after the order of winding-up. Mr. Nain, appearing on behalf of the official liquidator, has fairly stated before us that the entire amount of rent due and the amounts paid to the sales tax authorities along with the copies of the challans evidencing the payment to the sales tax authorities will be forwarded to the appellants within a period of for four weeks.

16. Subject to the direction given above, the appeal is thus allowed and the summons made absolute in terms of prayer cls. (a), (b) and (c). But we further direct that till December 31, 1984, the official liquidator shall not in any way part with possession. We may also make it clear that in the view which we have taken, the official liquidator will be entitled to ask respondent No. 2 to vacate the premises at such time as the official liquidator thinks it necessary for handing over possession of those premises also to the appellants and, accordingly, respondent No. 2 shall hand over possession to the official liquidator. In any case, respondent No. 2 shall hand over possession to the official liquidator. In any case, respondent No. 2 shall deliver possession to the official liquidator by November 30, 1984. Mr. Chinai wants to be safeguarded against any immediate dispossession. In the interest of justice, it will be sufficient to direct that respondent No. 2 will not in any case be dispossessed prior to March 31, 1984. There will be no order as to costs.


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