1. This judge's summons has been taken out by the official liquidator, inter alia, for a declaration that the transaction entered into between respondent No. 1 and the company (prior to the order of winding-up) is void and, in the circumstances, respondent No. 1 be directed to hand over the premises in question to the official liquidator. The judge's summons is resisted by respondent No. 1 only although the other respondents have been served.
2. The facts that give rise to this judge's summons are that the company being the Star of Cochin Chit Schemes Pvt. Ltd. owns a building known as 'Star of Cochin Building' at Bhandarkar Road, Matunga, Bombay - 400019. This second floor of the said building consists of 10 rooms. Five of these rooms were let out to one Mrs. Devki Amma, mother of one of the directors of the said company. The other five rooms were in possession and/or in use and occupation of the company itself. On July 7, 1978, a winding up petition was filed. It appears that pending the hearing of this petition, the said Devki Amma surrendered the tenancy in respect of the five rooms to the company and the company thereafter rented out the entire second floor (i.e., the five rooms which were formerly in possession of the said Devki Amma and the other five rooms which were in possession of the company), to respondent No. 1 on the terms and conditions incorporated in an agreement dated July 18, 1978. Thereafter an order dated January 19, 1979, was passed for winding up the company. It is the official liquidator's claim that since the transaction between the company and respondent No. 1 was entered into after the filing of the winding-up petition, the transaction is void and respondent No. 1 had, therefore, acquired no right, title and interest in the said premises and is bound to hand over possession of the premises in question to the official liquidator. It is the case of respondent No. 1 (a) that the official liquidator's application is barred by the law of limitation and the official liquidator would be entitled to no relief; (b) that the official liquidator had accepted rent from respondent No. 1 and is, therefore, stopped from contending that the transaction in question is void; and (c) that the transaction in question is bona fide and looking to the nature and circumstances of the case, the court will validate the transaction and deny relief to the official liquidator.
3. At the outset, it may be stated that there is no controversy as regards the fact that the winding up petition was filed on July 7, 1978, and that the winding up order was made on January 19, 1979. It is also not in dispute that the agreement executed between respondent No. 1 and the company is dated July 18, 1978, in other words, after the filing of the winding up petition. If this be the position, then in view of the provisions of section 536, sub-section (2) of the Companies Act, this transaction would be void, and the official liquidator would well be entitled to claim possessions of the premises which he has done by this judge's summons.
4. Mr. Kenia, the learned counsel for respondent No. 1, contended that by prayer (b) of the judge's summons, the official liquidator had sought a declaration that the agreement dated July 18, 1978, entered into between respondent No. 1 on the one hand and the other respondents, being the directors of the company, be declared null and void. That this application of the official liquidator was barred in view of the provisions of article 59 of the Limitation Act, for the same provides as under :
------------------------------------------------------------------------Description of suit Period of Time from which period beginslimitation to run------------------------------------------------------------------------59 To cancel or set Three years When the facts entitling theaside an plaintiff to have theinstrument or instrument or decreedecree or for the cancelled or set aside orrescission of a the contract rescinded firstcontract become known to him.------------------------------------------------------------------------
5. That, admittedly, the application was not made within three years. That in view of this the official liquidator would be entitled to no relief.
6. I am unable to accept this contention, for section 536, sub-section (2), of the Companies Act, provides as follows :
'536. (2) In the case of a winding-up by or subject to the supervision of the court, any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.'
7. Hence, by the statute itself, the transaction is deemed to be void. There is no question of the official liquidator asking for any declaration. Article 59 of the Limitation Act would, therefore, be of no application. The contention canvassed must fail. In any event, assuming that the official liquidator seeks such a declaration, the limitation would be twelve years. In this view of the matter also, the said contention must now fail.
8. Mr. Kenia next contended that it was as far back as March, 1979, that respondent No. 1 had furnished to the official liquidator a copy of the agreement dated July 18, 1978, entered into between respondent No. 1 and the company, through its directors. That the official liquidator thereafter took no steps. On the other hand, he accepted rent from respondent No. 1 in respect of the premises. Not only that, he even allowed respondent No. 1 to incur expenses for repairs of the premises. At a later stage, when there was a leakage in the premises, respondent No. 1 asked the official liquidator to allow him to repair the roof. At this stage, the official liquidator took up an obstructive attitude and refused to allow respondent No. 1 to repair the roof. That thereupon respondent No. 1 preferred a company application being Company Application No. 198 of 1981, which was resisted by the official liquidator. However, by an order dated March 29, 1982, respondent No. 1 was allowed to carry out the repairs to the roof, but without prejudice to the rights and contentions of the official liquidator. That all this must go to show (a) that there had been great delay on the part of the official liquidator in preferring this application and if the application has not been preferred within a reasonable time, relief must now be denied to the official liquidator; (b) that in view of the conduct of the official liquidator, he was estopped from making this application seeking possession of the premises; and (c) that looking to the facts of the case, it would not be just and equitable to grant any relief to the official liquidator on this judge's summons.
9. Now, as regards this contention, it may be stated that it is not in dispute that respondent No. 1 had furnished a copy of the agreement dated July 18, 1978, to the official liquidator as far back as March, 1979, but this is of no moment. If respondent No. 1 knew that the official liquidator was appointed liquidator of the company, then it was for him to prefer an application to get the transaction validated, which application he has not preferred even to this date. In so far as the payment of rent is concerned, the official liquidator has produced counterfoils of some of the rent receipts with an endorsement thereon that the official liquidator had accepted the rent from respondent No. 1 without prejudice to his rights and contentions and subject to the court's sanction. However, respondent No. 1, on his part, has also produced some rent receipts issued by the official liquidator bearing no such endorsement. But then the more acceptance by the official liquidator of moneys from respondent No. 1 can be of no consequence whatsoever, for the official liquidator cannot by his conduct, in this case, by acceptance of moneys by way of rent validate a transaction which, in law, is void and can only be sustained if the court so directs.
10. As regards the limb of Mr. Kenia's argument, viz., that it would not be just and equitable to grant relief to the official liquidator, it may be stated that the question to be posed is not whether respondent No. 1 would stand to lose moneys expended by him on the premises in question and/or what is the loss that would be caused to him, but the question that needs to be asked more particularly in view of the ratio in the case of Tulsidas Jasraj Parekh v. Industrial Bank of Western India, AIR 1931 Bom 2, is whether the transaction in question is in furtherance of the company's business and/or in the interest of the company in liquidation and/or its creditors. I have repeatedly asked this latter question to Mr. Kenia, but, at the hearing, he made no submission on this aspect. On the other hand, there is nothing to show that the transaction is in the interest of the company's business or in the interest of the liquidator. In view of this, this contention of Mr. Kenia is negatived.
11. The next contention of Mr. Kenia is that the transaction entered into by respondent No. 1 with the company is a bona fide transaction. Mr. Kenia urged that respondent No. 1 is a doctor by profession and was practising abroad. That he thought of coming to India and make his services available here. That he hence got in touch with one Popatlal Shah and asked him to look for suitable premises. That the said Popatlal Shah made several inquiries for obtaining suitable premises and even inserted an advertisement. It is in pursuance of this that negotiations came to take place with the company. That the said Popatlal was informed by the company that the entire second floor consisting of ten rooms of the building known as 'Star of Cochin Building' at Bhandarkar Road, Matunga, Bombay, was available. That one Devki Amma, mother of one of the directors, was in occupation of five rooms on the 2nd floor, whilst the other five rooms were in the possession of the company. That the said Devki Amma would surrender her tenancy to the company and a 'No objection certificate' would be obtained so that there would be no problem when a tenancy was created in favour of respondent No. 1 inclusive of the said five rooms. That on getting a 'No objection certificate' in respect of the five rooms a tenancy in respect of all the ten rooms would be created in favour of respondent No. 1. That other terms and conditions on which the tenancy was to be given were also agreed upon. That in pursuance of this oral agreement, a letter dated July 3, 1978, was addressed to the Government of Maharashtra seeking a 'No objection certificate'. It as only thereafter that an agreement dated July 18, 1978, was executed, whereunder the premises consisting of 10 rooms on the second floor were rented out to respondent No. 1. That respondent No. 1 has since then been in possession and occupation of these premises. That since respondent No. 1 wanted to run a nursing home in these premises, he renovated the same and spent a considerable amount thereon. That in March, 1979, respondent No. 1 forwarded a copy of the agreement to the official liquidator. That thereafter the official liquidator accepted rent from him. That time and again he called upon the official liquidator to repair the premises. That ultimately it was respondent No. 1 who expended moneys for the repairing of the premises, more particularly because he wanted to run a nursing home therein, whilst the official liquidator stood by and allowed respondent No. 1 to spend moneys. That all this must demonstrate the bona fides of the transaction that was effected between respondent No. 1 and the company. That there was and is no reason why the official liquidator should now be granted any relief whatsoever and relief must be denied.
12. The argument is but a paraphrasing of the previous contention, but I shall deal with it. The question is not whether respondent No. 1 acted bona fide or he was a victim of a deception or a fraud practiced on him by the company. The question is whether the transaction in question is in the interest of the business of the company or in the interest of the company (now in liquidation) or its creditors. If the answer to this is in the negative, then the question of sustaining the transaction cannot arise. Now, since the answer to this question is in the negative, the argument must fail. Moreover, on the showing of respondent No. 1 himself, he has been aware of the winding-up proceedings and of the official liquidator being appointed liquidator of the company and despite this, even till today he has not preferred any application seeking any directions for having the transaction validated or otherwise recognised. No explanation is offered as to why respondent No. 1 has taken no steps in this direction till today. The mere fact that he has paid some moneys to the official liquidator or expended some amount on repairs or renovation of these premises is of no consequence whatsoever. Mr. Kenia has clearly not been able to satisfy the position that the transaction in question was in furtherance of the company's business and/or the interest of the company and/or in the interest of the liquidation proceedings and/or the company's creditors. On the other hand, Mr. Modi has argued that if 10 rooms in this building remained vacant, then the value of the property especially in these days would certainly stand enhanced, and it would be this position, that would be in the interest of the company in liquidation and/or its creditors. Mr. Modi's contention is substantial. In view of this, the contention of Mr. Kenia must be negatived.
13. In view of the above discussion, the liquidator would well be entitled to relief in terms of prayers (a) and (b). In so far as prayer (c) is concerned, I make no order at this stage but the liquidator would be entitled to adopt fresh or separate proceedings for the same relief or any other relief he deems proper.
14. In the result, judge's Summons No. 653 of 1982 is made absolute in terms of prayers (a) and (b). Respondents to pay costs of this judge's summons to the applicant.
15. At this stage, Mr. Kenia has made three submissions (a) that respondent No. 1 is willing to deposit such moneys as the court may direct in the interest of the creditors and that he may be allowed to continue in the premises; (b) in the alternative, respondent No. 1 states that he is willing to buy over the building in which case nothing would really survive; and (c) that in the further alternative, a long time be given for the purposes of vacating the premises.
16. Now, considering the first submission of Mr. Kenia, in view of the discussion above, I do not see how the first submission can survive. The same must, hence, be rejected.
17. As regards the second submission, this can only arise as and when and if the building is put up for sale and not otherwise.
18. In so far as the third submission is concerned, it is true that respondent No. 1 has been in occupation of the premises for a considerable period and there would be hardship caused to him if he is asked to vacate, but, on the other hand, what cannot be lost sight of is the fact that respondent No. 1 has been in occupation of the premises for a considerable period, without a title and has kept the official liquidator out of the premises for a period of about five years and ten months and it is about time that the premises are restored to the official liquidator to enable him to get on with the liquidation proceedings, which, of course, stand hindered by such a controversy. The premises in question are not residential but then some time must now be granted to enable respondent No. 1 to vacate the same. In view of this, the official liquidator is directed not to take possession of the premises for a period of eight weeks from today.