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Vikram Cotton Mills Ltd. Vs. Industrial Finance Corporation of India and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany;Property
CourtAllahabad High Court
Decided On
Case NumberSpecial Appeal Nos. 983, 984 and 985 of 1967
Judge
Reported in[1968]38CompCas458(All)
ActsCompanies Act, 1956 - Sections 391; Transfer of Property Act, 1882 - Sections 2
AppellantVikram Cotton Mills Ltd.
Respondentindustrial Finance Corporation of India and ors.
Appellant AdvocateU.S. Avasthi, Adv. for the appellant in Special Appeal No. 983 of 1967 and ;U.S. Avasthi, ;K.M. Sinha, ;S.N. Bhattacharya and ;Sri Dhar, Advs. for the appellant in Special Appeal No. 984 of 1967; ;J.N
Respondent AdvocateS.N. Kacker, ;K.M. Sinha, ;J.N. Tiwari and ;Gur Pratap Singh, Advs. for the respondents in Special Appeal No. 983 of 1967, ;S.N. Kacker and ;J.N. Tiwari, Advs. for the respondents in Special Appeal No
Excerpt:
- - industrial finance corporation of india (hereinafter called 'the corporation '), on mortgage of its entire land, buildings and machinery, stipulating repayment by instalments in seven years, beginning from 1953. due to the company's failure to pay the stipulated instalments, the corporation took possession of the mortgaged property from the company. the company was also indebted to a number of unsecured creditors, so the company discussed its position with them as well as the corporation and with the concurrence of all the creditors, it made an application to this court in july 1954, under section 158 of the then indian companies act, 1913, for sanction of the scheme of arrangement annexed thereto, in order to enable the resuscitation and working of the company, rather than allow.....gyanendra kumar, j.1. these are three connected appeals against the judgment and order of takru j. dated october 16, 1967, arising in the following circumstances. messrs. vikram cotton mills ltd., lucknow (hereinafter called ' the company ') took a loan of rs. 10,50,000 on december 19, 1950 from messrs. industrial finance corporation of india (hereinafter called ' the corporation '), on mortgage of its entire land, buildings and machinery, stipulating repayment by instalments in seven years, beginning from 1953. due to the company's failure to pay the stipulated instalments, the corporation took possession of the mortgaged property from the company. the company was also indebted to a number of unsecured creditors, so the company discussed its position with them as well as the corporation.....
Judgment:

Gyanendra Kumar, J.

1. These are three connected appeals against the judgment and order of Takru J. dated October 16, 1967, arising in the following circumstances. Messrs. Vikram Cotton Mills Ltd., Lucknow (hereinafter called ' the company ') took a loan of Rs. 10,50,000 on December 19, 1950 from Messrs. Industrial Finance Corporation of India (hereinafter called ' the Corporation '), on mortgage of its entire land, buildings and machinery, stipulating repayment by instalments in seven years, beginning from 1953. Due to the company's failure to pay the stipulated instalments, the Corporation took possession of the mortgaged property from the company. The company was also indebted to a number of unsecured creditors, so the company discussed its position with them as well as the Corporation and with the concurrence of all the creditors, it made an application to this court in July 1954, under Section 158 of the then Indian Companies Act, 1913, for sanction of the scheme of arrangement annexed thereto, in order to enable the resuscitation and working of the company, rather than allow it to go into liquidation. In substance, the arrangement was that the corporation would lease the Mills to the General Fibre Dealers Ltd., Calcutta (hereinafter called ' the Fibres ') for a period of 10 years to start with, on a yearly rental of Rs. 2,50,000 which would be utilised for the liquidation of the debts of the company. However, that scheme could not be sanctioned because the Industrial Finance Corporation Act, 1948, did not contemplate the creation of a lease of the property held by it as a mortgagee. Subsequently, the aforesaid Act was amended in 1955 which permitted the creation of a lease of the mortgaged property by the Corporation. So another application for the sanction of the scheme of arrangement under Section 391 of the Companies Act, 1956, was presented with a lease-cum-maintenance programme. The above scheme was sanctioned by the company judge on May 21, 1956. In pursuance of the aforesaid sanction, the Corporation executed a lease deed in favour of the Fibres on July 6, 1956. This was followed by a deed of agreement dated July 15, 1956, between the company and the Fibres, with the result that the lease became operative with effect from July 15, 1956.

2. In order to appreciate the controversy between the parties, it is necessary to refer to the broad features of the lease, which may be summarised as below :

Paragraph 14 of the lease deed says that Rs. 11,17,171 for principal and Rs. 2,22,222-5-0 for interest calculated at the rate of 5 1/2 per cent, per annum with six monthly rests (totalling Rs. 13,29,393-5-0) was payable up to June 14, 1956, by the company to the Corporation.

Paragraph 21 says that on April 5, 1956, the Fibres had paid a sum of Rs. 1,25,000 to the Corporation for appropriation towards the first half-yearly instalment of rent and had further paid a sum of Rs. 1,25,000 to the Corporation as soon as they got possession on July 15, 1956, for appropriation towards the eighth instalment falling due at the end of the fourth year. It was further agreed that the second half-yearly instalment of the lease rent of Rs. 1,25,000 would become payable six months after the date of the running of the Mills by the Fibres.

3. Clause 1 of the lease-deed provides that the lessee would ' hold the mortgaged premises... for the term of ten years, commencing from the day possession of the Mills is delivered to the lessee, yielding and paying therefor the yearly rent of Rs. 2,50,000 only by equal six monthly instalments.'

4. The arrangement was that during the first four years the entire lease rent of Rs. 2,50,000 per annum was to be paid to the Corporation, aggregating to a payment of Rs. 10,00,000.

Clause 1(d) says :

' After the aggregate payment of rupees ten lakhs shall have been made to the Corporation then during the next six years or such further period as may become necessary for liquidation of the dues of the Corporation in full pay to the Corporation an yearly minimum sum of rupees fifty thousand by equal six monthly payments...... until all dues of the Coporation now existing or accruing due hereinafter including the future interest on the balance of principal sum due from time to time are paid in full Provided however that in the event of it taking more than ten years to liquidate the amount due to the Corporation, the terms of this lease shall be automatically extended by such period as may be necessary to Pay the entire amount due to the Corporation.'

Clause 2(b) provides that the Fibres shall provide a bank guarantee in the sum of Rs. 16,75,000 for ensuring payment of rent to the Corporation regularly as and when the same becomes due.

Clause 2(f) requires the lessee ' not to remove the mortgaged plant or any part thereof from the mortgaged premises without the previous consent in writing of the Corporation. '

Clause 2(i) enjoins the lessee 'to use, manage, run and work..... the mortgaged premises or any part or parts thereof in a proper and workmanlike manner and in the same way as plant, engines and machinery would usually be run and worked by a man of ordinary prudence under similar circumstances of his own plant, engines and machinery and to maintain such plant, engines and machinery in good condition and replace all such spares and accessories as may be necessary. '

Clause 2(n) says, 'On the expiration or sooner determination of these presents to remove at its own costs all its additions to the mortgaged premises after repairing all damages caused by such removal and yield up quiet and peaceful possession of the mortgaged premises in as good condition as the same now are, subject only to the changes caused by natural wear and tear. '

Clause 4(d) says, 'If any half-yearly instalment of rent be not paid on the date fixed for the payment thereof the same shall bear interest at the rate of six per cent, per annum...'

Clause 4(a) provides, ' The lessee shall at his own costs be entitled to make additions and extensions to the plant and machinery but the value of such additions and extensions shall not without the consent in writing of the Corporation exceed rupees five lakhs. In making such additions and extensions the lessees shall not do any act whereby the value of the existing plant and machinery shall be adversely affected or depreciated......The Corporation shall have a charge on the said additions and extensions for all rent and other monies due to it hereunder.....The lessee shall be entitled at any time on or before the determination of these presents, provided no rent be then in arrears, to dismantle, remove or take away all such additions and extensions in plant, machinery, provided that it shall make good all damages caused by such removal and restore the mortgaged premises to their former state or condition or pay such damages as may be caused to the mortgaged premises by such additions and extensions or such removal.'

Clause 4(f) says, ' On or before the expiry of the said term......the lessee may obtain a renewed lease for a further period of ten years of the mortgaged premises from the Corporation (in case something is still due to it under the mortgage) .....at such rent and on such terms and conditions as may be mutually agreed upon between the lessee and the Corporation.....'

Clause 4(g) lays down, ' In case the lessee shall neglect to pay rents, rates, taxes and assessments......or to insure and keep insured the same..... it shall be lawful for..... the Corporation to pay any such rents, rates, taxes and assessments and to insure and keep insured the mortgaged premises.....and the lessee shall on demand pay to the Corporation all rents, rates, taxes and assessments and insurance premia with interest thereon at the rate of six per cent, per annum from the date of payment by the Corporation to the date of payment by the lessee.'

5. It has to be remembered that the scheme of arrangement was between the creditors and the shareholders of the company. The Fibres were no party thereto. Therefore, the Fibres were bound only by the terms and conditions of the lease dated July 6, 1956 and the agreement dated July 15, 1956 and not by the scheme of arrangement as a whole. However, the provisions of the scheme can also be looked into for the collateral purpose of seeing whether it contemplated a situation when the lease was not renewed after the expiry of ten years but the dues of the Corporation and other creditors still remained unpaid. In this connection Clause (15) of the scheme of arrangement may be quoted with advantage :

' In case of non-renewal of the lease for any reason after the expiry of ten years any payment legally due to the creditors shall remain a charge upon the assets of the company which may be in its hands subject to the rights of the Industrial Finance Corporation as mortgagees if any then subsisting. '

6. It is also worthy of note that on December 7, 1965, a tripartite meeting was held at New Delhi in which the representatives of the company as well as of the Fibres and the Corporation had taken part and in which, inter alia, it was decided (a) that the company will move the High Court for obtaining permission for the sale of surplus machinery for a minimum amount of rupees three lakhs ; (b) that immediately after the negotiations for the sale of machinery had been completed by the company, the latter will move another application before the High Court for the modification of the scheme by which (i) the period of the lease will be extended till such time as the entire dues of the Corporation are paid off, and (ii) the entire lease rent will be paid to the Corporation and nothing will be paid to the company so long as any money remained due to the Corporation; and (c) that the lessee will take immediate steps to pay the amount of rupees one lakh with interest to the company which the former had withheld.

7. From the proceedings of the above meeting it appears that not only the Fibres but the company and the Corporation also thought that the term of the lease was ten years only and, therefore, required the company to move the High Court to extend the period of the lease till such time as the entire dues of the Corporation were paid off. This is also clear from some of the letters of the Corporation and the company that they considered the period of the lease to be ten years only. Similar inference is deducible from the underlined portions of the lease deed and the scheme of arrangement quoted above. We shall, however, deal with this matter in greater detail a little later.

8. In pursuance of the tripartite agreement arrived at in the joint meeting held on December 7, 1965, the company on January 17, 1966, moved an application before the company judge saying that as on 31st December, 1965, a balance of at least Rs. 3,64,734 was still payable by the company to the Corporation, hence the surplus machinery may be allowed to be sold by the company and the sale proceeds utilised for the payment of the dues of the Corporation. This application was registered as company application No. 16 of 1966. It is significant that the company did not apply for extension of the period of the lease, though it was so agreed in the meeting of all the three parties held on December 7, 1965. The order of the learned company judge passed on Application No. 16 of 1966, is one of the subject-matters of these appeals.

9. As the Fibres were interpreting the lease to be for a period of only ten years, they started removing from the Mill premises what they alleged to be their own machinery and parts. But the company considered the same to be mere replacements, so it objected to the removal of the machinery by the Fibres. Hence on February 22, 1966, the company filed suit No. 11 of 1966 in the Court of the Civil Judge, Allahabad at Lucknow praying for an injunction restraining the Fibres from dismantling and removing any machinery or parts installed at the premises of the mills. The company also obtained a temporary injunction in the above terms. The result was that the Fibres stopped payment of the lease rent to the Corporation which had fallen due on March 7, 1966, pending decision of the above dispute and also because they put forward a counter-claim against the company. Nevertheless, the Fibres had no justification to withhold the payment of the lease rent to the Corporation because of their dispute with or counter-claim against the company.

10. As noted above, the Fibres interpreted the lease to mean that it was for a fixed period of ten years certain and no more, so it stopped working the mills on July 15, 1966. On the other hand, the company and the Corporation now contend that the period of ten years mentioned in the lease deed was only a tentative period to be considered in the first instance, and inasmuch as more than rupees four lakhs still remained unpaid to the Corporation in July 1966, the lease stood automatically renewed for further half-yearly periods, till the entire dues of the Corporation were paid in full in terms of Clause 1(d) of the lease deed. This is one of the main controversies between the parties which has to be resolved in these appeals.

11. On July 19, 1966, the Corporation filed a miscellaneous application before the learned company judge praying for appointment of a receiver to take charge of the company's premises and machinery etc. which may be auctioned by him and the sale proceeds paid to the Corporation towards the liquidation of the dues outstanding against the company and to deposit the excess amount in court payable to the company. It may be noted that at the time of making the above application in July, 1966, the dues of the Corporation were more than rupees four lakhs, but at the time of disposal of this application by the learned company judge on October 16, 1967, they were reduced to only about Rs. 45,000 because in the meantime the company had paid about Rs. 4,10,000 to the Corporation out of the sale proceeds of its surplus machinery, in pursuance of the order of the company judge dated September 26, 1966.

12. It is again noteworthy that the prayer of the Corporation for appointment of a receiver was for the limited purpose of auctioning the assets and machinery of the mills in order to pay off the dues of the Corporation and for none other. Mr. S.N. Kacker appearing for the Fibres, however, concedes that it was at his oral request that the learned company judge had appointed the receiver inasmuch as there was a serious dispute between the Fibres and the company regarding the former's right to remove various machinery and other equipment which the Fibres claimed to be additional machinery and parts and which they thought they were entitled to remove, but the company considered the same to be mere replacements of its old machinery and equipment. Thus the real dispute was between the Fibres and the company regarding the identity of the old and new machinery and equipment. As already seen above, the company had gone to the extent of filing a civil suit restraining the Fibres from dismantling and removing any machinery or parts installed in its premises and had also obtained a temporary injunction in the above terms. By his order under appeal the learned company judge has made the Corporation liable for the remuneration and expenses of the receiver as well as the cost of watch and ward. This is challenged by the Corporation in Special Appeal No. 985 of 1967. The principal duty of the Receiver, according to the order under appeal is to,

'permit the Fibres, their duly authorised agents and workers to enter upon the mill premises and to dismantle and remove the machineries and spare parts to which they are entitled under their lease deed and the agreement with the company, and he shall likewise permit the company, its duly authorised agents and workers to remove the machineries and spare parts which have been authorised to be sold or have been authorised by this court to sell in order to pay off its dues to the Corporation.'

13. We think that in view of the above facts and circumstances, the remuneration and other expenses of the receiver should be borne by the Fibres and the company, half and half, as it was for their benefit that the receiver was really appointed and still exists.

14. The third application, the decision whereon is also the subject-matter of these appeals, was moved by the company on September 20, 1967, saying that the company had already paid off about Rs. 4,10,000 from the sales of its excess machinery and only a balance of about Rs. 45,000 had remained to be paid to the Corporation. The company, therefore, prayed for one month further time to pay up the same by sale of its remaining surplus machinery and removal thereof by the purchaser. This appears to have been impliedly granted by the learned company judge in direction No. (2) given to the receiver.

15. Inter alia, the questions for determination in these appeals were (1) whether the receiver should continue and if so, on what terms and conditions? (2) to whom should the mills be handed over and on what terms? (3) what old and/or new machinery and stores should be retained or given to the company and what to the Fibres and, on what terms And (4) who is liable for the payment of municipal taxes and railway dues in respect of the lease period? Fortunately, during the hearing of the appeals, Mr. Bhattacharya appearing for the company and its board of trustees and and Mr. S.N. Kacker appearing for the Fibres on January 18, 1968 agreed to the termination of the receivership on the following terms:

(1) The premises of the Vikram Cotton Mills may be handed over to the company so that the mills may be re-started.

(2) The 46 old spinning machines and the five new spinning machines in the old spinning department shed may be handed over to the company.

(3) The 11 new spinning machines along with their accessories in the old sizing department shed may be taken away by the General Fibre Dealers Ltd.

(4) The stores (as shown in Part II of the inventory made by the Finance Corporation of India in September 1967) may be taken by the General Fibre Dealers Ltd. The stores shall not be deemed to include the hosiery machinery, which belongs to the company; nor shall they include 3440 ball-bearing spindles, which shall also go to the company.

(5) The three old winding machines and one of the new winding machines (i.e. Cimco machine) may be retained by the company, and the one remaining new winding machine (i.e. Rctoconor) may be taken away by the General Fibre Dealers Ltd.

(6) The three new electric transformers shall be retained by the company but the company shall be held liable to the General Fibre Dealers Ltd. for a sum of Rs. 15,000 in respect of one of those transformers together with a sum of Rs. 14,000 being the sale proceeds of two old transformers sold by the company with the permission of the court.

(7) All machines and equipment that may be in the premises but which have not been mentioned above shall go to the company.

(8) The General Fibre Dealers Ltd. shall be liable for the payment of municipal taxes and railway dues in respect of the period during which the lease is held to subsist. They also undertake to re-imburse the company for any amount decreed against the latter in respect of ground rent for the said period.

16. Even after the above agreed arrangement, there remained the question of certain payments and adjustments between the Corporation and the company as also about the liability to pay the cost of watch and ward. On February 2, 1968 the Corporation filed detailed accounts in this court. Hence on February 5, 1968, the company moved Miscellaneous Application No. 795 of 1968 praying for certain directions to be given to the receiver and the Corporation and also for allowing the company to file detailed objections in respect of the accounts submitted by the Corporation on February 2, 1968. After hearing the learned counsel for the Corporation and the company and with their consent this court by its order dated February 5, 1968, directed as follows :

1. The receiever shall hand over the four bank drafts amounting to Rs. 99,250 to the Industrial Finance Corporation.

2. The Corporation shall issue a bank draft in favour of the company for the balance left, after deducting the amounts claimed by the Corporation (Rs. 60,000).

3. The company is permitted to file detailed objections in respect of the accounts submitted by the Corporation (on 2-2-1968) before the learned company judge ; and if such objections are allowed, the Corporation undertakes to refund the amounts in question.

4. The Corporation is permitted to credit to its account the amounts of Rs. 13,390 and Rs. 17,160.30 already paid to it by the company by means of bank drafts.

5. The Corporation is released from its undertaking to pay the amount of Rs. 1,80,000 to the income-tax department on account of income-tax due from the company.

6. The company shall be liable for all costs incurred under the head of 'Watch & Ward ' either by the Fibres or by the receiver, the amount due being determined by the learned company judge ; and the Corporation shall have no liability in respect thereof.

7. The Corporation shall return the original mortgage deed dated December 19, 1950, to the company with an endorsement of full satisfaction and shall inform the Registrar of Companies accordingly. (It may be noted that whether the learned company judge allows the objections of the company in respect of the Corporation's account or not, the full amount claimed has been paid to the Corporation and there is consequently full satisfaction.)

17. Regarding item (5) above, Mr. Gopal Behari, appearing for the respondent, Commissioner of Income-tax, stated in writing on 20-2-1960 that the amount of income-tax due from the company has been reduced from Rs. 1,85,525.66 P. to Rs. 57,608.53 only, as a result of the appeal filed by the company to the Appellate Assistant Commissioner of Income-tax, Range I, Lucknow.

18. This brings us back to the main question as to what is the term of the lease created in favour of the Fibres. In order to determine this question one has first of all to read the lease deed itself. It is a well recognised principle of interpretation that the impugned document must be read as a whole, keeping in view the real intention of the parties ; secondly, the various clauses of the document must be read in harmony with one another, so as to avoid conflict and contradiction, as far as possible. If there is a provision which runs counter to the main theme and object of the deed, the same should be overlooked. It is in this background that we have to judge the lease deed dated July 6, 1956. As already noted earlier, the opening Clause 1 of the lease deed provides that the lessee will held the mortgaged premises for a term of ten years, commencing frcm the day possession of the mills is delivered to the lessee. Clause 2(n) says that on the expiration or sooner determination of these presents the lessee would yield up quiet and peaceful possession of the demised premises. Likewise, Clause 4(e) provides that the lessee shall be entitled to dismantle, remove and take away all its additions and extensions in plant and machinery, at any time on or before the termination of these presents. The above clauses indicate that the period of the lease was a term certain, which was ten years.

19. Similarly, Clause 4(f) says that on or before the expiry of the said term, the lessee may obtain a renewed lease for a further period of ten years, in case something is still due to the lessor under the mortgage. The use of the words ' said term ' and ' for a further period of ten years' clearly show that the period of the lease was ten years.

20. It is true that Clause 1(d) of the lease deed provides that in the event of its taking more than 10 years to liquidate the amount due to the Corporation, the term of the lease shall automatically be extended by such period as may be necessary to pay the entire amount due to the Corporation. The mention of a specific period of ten years in the above Clause itself shows that the period of the lease was really ten years, particularly when in the earlier part of the same Clause it is said that after the aggregate payment of Rs. 10,00,000 (in the first four years) has been made to the Corporation then during 'the next six years' the lessee shall pay to the Corporation a yearly minimum sum of rupees fifty thousand. In this view of the matter, the provision for the automatic extension of the lease to an uncertain period beyond ten years in Clause 1 (d) is to be overlooked.

21. Again Clause 3 6 of the scheme of arrangement, which was arrived at with the concurrence of all the three parties concerned and was submitted to the court well before the actual execution of the lease deed dated July 6, 1956, also prescribes a period of ten years for the lease.

22. It is correct that the intention of the parties regarding the term of a lease has to be judged at the time of the execution of the document and not what they think about it earlier or later on. Yet, if all the three parties (the Corporation, the Fibres and the company) agreed in their meeting held on December 7, 1965 that the company was required to move an application before the High Court for the modification of the Scheme, by which the period of the lease will be extended, this is a clear indication of the fact that the period of the lease was really ten years and that it could not automatically extend itself without the modification of the scheme by the court.

23. We also find that on March 23, 1966, the Corporation wrote to the company.

' You are well aware that the period of lease will expire on the 15th July, 1966, when the lessees will call upon the Corporation to take back possession of the premises and which the Corporation will have to do under the provisions of the lease. '

24. Likewise, on April 15, 1966, the Corporation wrote another letter to the company saying :

'The tenure of the lease may expire in July, 1966, when the lessees will call upon us to take back the possession of the premises.....As for the provisions of the lease deed for the automatic renewal of the lease till the dues of the Corporation are paid off we are advised that the option for renewal of the lease rests with the lessees and the Corporation cannot insist on the automatic renewal thereof......the lease will come to an end on the 15th July, 1966, and we cannot insist on the lessees for its continuation till all dues are paid off. '

25. There is yet another reason why a definite period of ten years had to be mentioned as the tenure of the lease. Section 105 of the Transfer of Property Act defines ' lease ' thus :

' A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised...... to the transferor by transferee, who accepts the transfer on such terms. '

26. A lease, which is silent as to the duration of its term, would not be a lease within the meaning of Section 105, Transfer of Property Act. Uncertainty as to the term of the lease will be fatal to its validity. The use of the words ' for a certain time ' in Section 105 means really certain at the time of the execution of the lease or capable of being made certain at a future date on the principle id certum est quod certum radd potest. It is true that under the Indian law a lease may be in perpetuity as well, unlike the law in England, but that is altogether a separate class of lease. In other words, when a lease is not in perpetuity, it must be for a period certain, as is the position in England. Such a period may, of course, be either express or implied.

27. In the instant, case, we find that it was not possible at the time of the creation of the lease or even subsequently to determine exactly what would be the requisite period for liquidating the dues of the Corporation, so the lease would have been invalid, but for the fact that a specific period of ten years was provided for therein.

28. It has to be remembered that apart from the intervening interest at the rate of 5 1/2 per cent, per annum with six monthly rests, it was further provided in Clause 4(d) of the lease deed that:

' If any half-yearly instalment of rent be not paid on the date fixed for the payment thereof the same shall bear interest at the rate of six per cent, per annum. '

29. Similarly, in Clause 4(g) it was provided that in case the Corporation had to pay rents, rates, taxes, and insurance premia, etc., ' the lessee shall on demand pay to the Corporation all rents, rates, taxes and assessments and insurance premia with interest thereon at the rate of six per cent, per annum. ' Thus apart from the regular lease rent the quantum of the liability of the Fibres could not have been ascertained at any point of time since the Corporation might have had to realise sums from the company in the shape of rents, rates, taxes, assessments and insurance premia with interest thereon at the rate of six per cent, per annum, apart from the interest at the aforesaid rate on the unpaid half-yearly instalments of lease rent. The quantum of such liabilities being uncertain, the automatic extended period of lease would also be uncertain and could not exactly be calculated, with the result that Clause 1(d) of the lease deed, which rendered the extension of the lease period uncertain would be bad and unenforceable. However, Clause 4(f), which provides for renewal of the lease for a further period of ten years certain, at the option of the lessee is quite valid, provided, of course, that some dues of the lessor still remained unpaid under the mortgage.

30. A number of authorities both English and Indian have been cited at the Bar by the learned counsel for the parties in support of their respective contentions. But it is not necessary to mention all of them here. However, reference may be made to : (i) Halsbury's Laws of England, third edition, volume 23, page 532, Note 1189, which reads :

'The duration of the term must either be fixed by specifying the number of years in the first instance or by reference to some collateral matter in itself certain or capable before the lease takes effect of being rendered certain Lace v. Chandler [1944] 1 All E.R, 305 If to a certain term the lease purports to add a term which is uncertain, it is valid only to the certain term. '

(ii) It was held by a Division Bench of the Bombay High Court that if the alleged disposition purported to be a transfer of the right to enjoy the property neither for a certain time, nor in perpetuity, then it was an attempt to create by lease, an interest unknown to the law and as such was bad Municipal Corporation of Bombay v. Secretary of State, (1904) I.L.R. 29 BOM. 580.

31. In Say v. Smith, (1563) 1 Plowd. 269, 271 the lease was for ten years by indenture, wherein the lessor had granted that if the lessee pays at the end and term of every ten years, 10,000 tiles, then he shall have perpetual demise of the land, from ten years to ten years continually following, and out of the memory of man. It was held that this was a good lease for no more than ten years, for beyond that no other term had any certain commencement, continuance, or end.

32. In Quynne v. Mainstone, (1828) 3 C. & P. 302 Best C. J. approved Plowden's commentary which said;

'if one makes a lease for three years, and so on from three years to three years, during the life of J. S., this shall be a good lease for no more than six years, for during six years, there is certainty, ...... and therefore it shall only be good for six years in all.'

33. Applying the principle of the case Say v. Smith and Quynne v. Mainstone to the facts of the present case, we find that to a definite term of ten years, Clause 1(d) purports to add a term, which is uncertain, by saying that the lease would stand automatically extended to such uncertain period when the dues of the Corporation are completely wiped out. The lease in question should, therefore, be deemed to be valid only for the certain term of ten years; and beyond that the extended uncertain period contemplated in Clause 1(d) of the lease would be bad and should be overlooked, for want of certain continuance or end.

34. It has also to be borne in mind that when the lease was created, a sum of Rs. 13,39,393-5-0 was payable by the company to the Corporation as calculated up to 14-6-1956. Therefore, even if the Fibres were to pay Rs. 2,50,000 to the Corporation for the first four years (totalling Rs. 10,00,000) and Rs. 50,000 per year for the next six years (totalling Rs. 3,00,000) as contemplated under the lease, there would have still remained a sum of Rs. 39,393-5 due to the Corporation, apart from the intervening interest calculated at the rate of 5 1/2 per cent, per annum with six monthly rests. Yet it was not said that the term of the lease would be twelve years or so. This shows that some other mode of liquidation within the stipulated period of ten years was also contemplated, as is clear from the words used in Clause 2(n) which says that, ' on the expiration or sooner determination of these presents'. Likewise, Clause 4(e) provides that 'the lessee shall be entitled at any time on or before the termination of these presents, provided no rent be then in arrears, to dismantle, remove or take away all such additions and extensions in plant and machinery.' These provisions further indicate that the period of the lease was ten years and no more, though it could be renewed for another 10 years, at the option of the Fibres, in case some dues of the Corporation still remained unpaid under the mortgage.

35. Consequently we hold, though for somewhat different reasons, that the learned company judge was right in coming to the conclusion that the period of the lease was ten years and no more which expired on July 15, 1966. That being so, the lease did not stand automatically extended beyond ten years, nor could the Fibres be held liable to pay any dues of the Corporation beyond the stipulated period of ten years.

36. It was next argued by Mr. Brijlal Gupta, learned counsel for the Corporation, and Mr. C. S. P. Singh for the company, that, at any rate, in view of Section 2(d) of the Transfer of Property Act and inasmuch as the lease deed was created in pursuance of the Scheme sanctioned by the company judge, it should be deemed to have come into being under the orders of the court. Their contention is that the application of the provisions of Section 105 of the Transfer of Property Act would be excluded in this particular case and even if Clause 1(d) of the lease was otherwise bad, on account of uncertainty of the period of the lease, it would still be operative because it had the sanction of the court. In support of his contention Mr. Brijlal Gupta has placed feliance on the case of Ramjibhai Virpal Shah v. Gordhandas Muganlal Bhagat, : AIR1954Bom370 wherein, it was held that Section 2(d) clearly excluded the application of the provisions of Section 105 of the Transfer of Property Act to the relationship which has been created by a decree. In other words, when one is dealing with a contractual relationship created under a decree of a court, the provisions of Section 105, Transfer of Property Act, as such would not be applicable.

37. Likewise, Mr. C.S.P. Singh, appearing for the company has argued that the scheme sanctioned by the court had the force of a statute and he relies upon the case of In re Garner Motors, Ltd . There can be no dispute about the principles laid down in the aforesaid authorities. However, it is noteworthy that in Ramjibhai's case the relationship between the parties had been created by a decree of the Court, which is not the case here. In the instant case the learned company judge had only sanctioned the scheme, but had not ordered the creation of the lease; nor was it in execution of an order of the company judge. Similar was the position in In re Garner Motors Ltd., [1937] 1 Ch. 594 for there it was held that the scheme granted, by the court had a statutory operation. Here we are not concerned with the scheme, which had been sanctioned by the company judge, but with the lease entered into between the Corporation and the Fibres, which was made neither under the order of the Court nor in execution of its order. In fact, the sanctioning of a scheme of arrangement by the company court is neither an enforceable order nor an executable order, but is only an order of approval of the scheme put before it. The above authorities have, therefore, no application to the instant case, as would further be clear from the discussion that follows.

38. Section 2(d) of the Transfer of Property Act reads :

' .....nothing herein contained shall be deemed to affect......(d) save as provided by Section 57 and Chapter IV of this Act, any transfer by operation of law or by, or in execution of, a decree or order of a Court of competent jurisdiction.....'

39. Therefore, the two questions, which fall for determination, are: (I) whether the lease of the mills was made by a decree or order of the company judge, and (ii) what is meant by the word ' herein ' as used in Section 2 of the Transfer of Property Act, i.e., does it refer to the whole of the Transfer of Property Act or only to the provisions of Section 2 itself

40. As regards the first question it has to be remembered that only the scheme of arrangement under Section 291 of the Companies Act, 1956, was presented to the learned company judge, for his approval, together with a copy of the proposed lease deed. By his order dated May 21, 1956, the learned company judge sanctioned the above scheme, but it was as late as on July 6, 1956, that the Corporation actually executed the lease deed in question in favour of the Fibres. The lease was not created by the order of the court, but only in pursuance of the scheme sanctioned by the court. In other words, what had been sanctioned or ordered by the learned company judge was the scheme of arrangement and not the lease which came into existence later on by a deed of contract, entered into between the Corporation and the Fibres. Therefore, it would be erroneous to think that the lease itself had been created by or in execution of an order of the company judge.

41. As a matter of fact even the scheme had merely been approved or sanctioned by the company judge. Approval or sanction by the company court of a particular scheme is not the same thing as making a directive or executable order, particularly when we find the scheme of arrangement was between the company and its creditors, to which the Fibres (lessees) were no party. That being so, the lease cannot be considered to be by or in execution of an order of the company judge. For authority reference may be made to the case of Motilal Shivlal v. Poona Cotton and Silk Mfg, Co. Ltd., (1917) 41 Indian Cases 246. The facts of that case were that Motilal Shivlal instituted a mortgage suit in the High Court of Bombay against the mortgagor company, the Poona Cotton and Silk Mfg. Co. Ltd., which was in liquidation. The liquidators of the company applied to the district court in which the liquidation proceedings were pending for sanction to raise Rs. 25,000 for costs of litigation on the security of the assets of the company. The district judge gave the sanction and apparently decided that the mortgaged property was assets which could be charged. Thereafter the liquidators executed two documents of charge for Rs. 10,000 each in favour of the plaintiffs, reciting the decision of the district judge. It was held that the liquidator's charges could not be treated as transfers in execution of an order of a court, within the scope of Section 2(d) of the Transfer of Property Act, inasmuch as the district court's sanction was not an order capable of execution but merely an authority to the liquidators to act in such a manner if occasion should arise.

42. Likewise, in Sankaram v. Narasimhukt, A.I.R. 1927 Mad. 1 (F.B.) it was held that a sale by the official receiver of the insolvent's property is not a transfer contemplated by Section 2(d) of the Transfer of Property Act, simply because the court had sanctioned the sale, nor was the official receiver an agent of the court. The above Full Bench decision of 1927 was followed by a Division Bench of the Madras High Court in Kamsala Narasappa v. Hussain Sab : AIR1935Mad55 .

43. Coming to the second question, it was held by the Calcutta High Court in Naba Krishna Pal v. Mohit Kali Devi, (1911) 9 Indian Cases 840 that the word ' herein ' used in Section 2 of the Transfer of Property Act means ' in that section ' and not ' in the Transfer of Property Act ', as a whole. In this view of the matter Section 2(d) would not be deemed to affect the provisions of Section 105 of the Transfer of Property Act.

44. Mr. Kacker has argued for the Fibres that by their act and conduct the Corporation and the company are estopped from contending that the lease was automatically renewable beyond a period of ten years, inasmuch as by their letters referred to earlier and their agreement at the meeting of the parties held on December 7, 1965, they had caused the Fibres to believe that the term of the lease was only ten years and accordingly the Fibres, acting upon such belief, had stopped working the mills ; so it is no longer open to them to deny that the term of the lease was ten years only. We are afraid, no such plea is open to the Fibres in so far as they always believed that the term of the lease was ten years and no more. Nothing new was instilled into their mind by the company and the Corporation. Before the plea of estoppel could be invoked by the Fibres, they had to establish that their belief that the term of the lease was only ten years had initially been caused by the Corporation or the company. What can be said at best in favour of the Fibres is that the company and the Corporation had only confirmed the belief of the Fibres that the term of the lease was ten years and no more. Such an act of the company or the Corporation cannot amount to estoppel against them, when they now plead that the term of the lease stood automatically extended beyond a period of ten years, on account of the Fibres' failure to pay off all the dues of the Corporation within the prescribed period of ten years. The plea of estoppel put forward by Mr. Kacker has, therefore, no force.

45. In the result we hold that:

(i) The period of lease was ten years and no more which expired on July 15, 1966. That being so, the lease didnot stand automatically extended beyond ten years and the Fibres are not liable to pay any dues of the Corporation beyond the stipulated period of ten years.

(ii) The other disputes between the parties stand decided in terms of our orders dated January 18, 1968 and February 5, 1968, which were passed with the consent of the counsel for the parties concerned.

(iii) The remuneration and expenses of the receiver shall be borne by the Fibres and the company half and half and the receivership shall terminate on completion of our directions contained in the aforesaid orders dated January 18, 1968 and February 5, 1968 which should be carried out within one month from today (or such further time as may be allowed by this Bench),

(iv) In the circumstances of the case the parties shall bear their own costs of these appeals.

46. We decide these three appeals in the above terms.


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