Bombay High Court
Sarigam Containers Pvt. Ltd. And ... vs Magatul Industries Limited (In ... on 2 June, 2008
Author: A.M. Khanwilkar
Bench: A.M. Khanwilkar
JUDGMENT A.M. Khanwilkar, J.
Page 1888
1. By way of present application, applicant M/s Videocon International Limited has approached this Court seeking a direction against the Official Liquidator to forthwith remove the seals put by him on the office premises being room no. 33 on the third floor in the building known as Ajaydeep situated at 240, Perin Nariman Street, Fort, Mumbai(hereinafter referred to as the said premises) and permit the applicant to enter the same and use the said premises as tenant thereof.
2. Briefly stated, the said premises were owned and possessed by M/s Magatul Industries Limited (Company in Liquidation hereinafter referred to as the Company). The petitioner M/s Sarigam Containers Private Limited, one of the creditors of the said Company in Liquidation had issued statutory notice on 26th July 1996. As the demand remained unfulfilled, the petitioner proceeded to file Company Petition No. 14 of 1997 praying for winding up of the Company, on or about 25th October 1996/28th November 1996.
Page 1889
3. The said Company Petition was accepted by the Company Judge on 16th January 1997, whereafter the Company entered appearance in the said proceedings. During the pendency of the said Company Petition, however, the Company executed rent note on 20 rupees stamp paper on 13th June 1997.
4. The said document gives the description of the premises as all part and parcel of office room no. 33 on the 3rd floor admeasuring 431 square feet and the address, as indicated above. It is mentioned therein that the Company is owner of 806 equity shares of Rs. 10/- each bearing Nos. 15639 to 16444 and 4838 Loan Bond Certificates of Rs. 5/- each bearing Nos. 77785 to 82632 of Deepak Talib Estate Private Limited. Consequent to the Company holding of said equity shares and loan bond certificates, had been allotted the said office premises and had every right to lease out the same. It is then stated that the Company has let out and leased the said premises to the applicant with effect from the date of Rent Note (i.e. 13th June 1997) on terms and conditions mentioned therein. The monthly rent was fixed at Rs. 2500/-. The tenure of the lease was fixed as 11 months. It is noted that the applicant had paid a sum of Rs. 27,500/- towards advance of 11 months rent to the Company. It is also provided that the said premises have been granted to the applicant for its office use and the applicant were to be entitled to sub-lease or assign the said premises to anybody and the Company had no objection for the same. The other term in the said agreement which needs to be adverted to is that of actual possession of the premises was handed over to the applicant and the applicant was occupying it as office premises. The Rent Note was executed at Mumbai. The 11 months term of lease deed was to expire on 12th May 1998.
5. Significantly, it is noticed that supplementary lease agreement was executed on 20 rupees stamp paper on 14th January 1998 reiterating the terms specified in the earlier agreement and extending the lease for further period on same terms and conditions.
6. The above noted Company Petition eventually came to be admitted on 3rd March 1998.
7. It is also noticed that the applicant sent letter dated 5th May 1998 to the Company requesting for renewal of lease on same terms and conditions in respect of the said premises which was to expire on 12th May 1998 as per the supplementary agreement dated 14th January 1998. No further communication or document has been placed on record to indicate whether that request was formally accepted by the Company or otherwise.
8. The case of the applicant is that the Company extended the lease term for further period on same terms and conditions. Be that as it may, the winding-up order came to be passed by the Company Judge in the pending company petition on 12th January 1999.
9. Acting upon the aforesaid order, the Official Liquidator proceeded to take over possession of estate and properties of the Company. In the process, the representatives of Official Liquidator visited the premises belonging to the Company on the 3rd floor as well as on the 5th floor in the same building Ajaydeep at Perin Nariman Street, Fort, Mumbai. On reaching site, Page 1890 it was noticed that on the main door of the premises on the 5th floor being rooms no. 51 and 52, the name plate of the Company could not be found, instead, on the main door, the name of M/s Videocon Leasing and Industrial Finance Limited was displayed. When the representatives of the Official Liquidator entered inside and told the security man the purpose of their visit, the security man took them to one Shri. Dhawal Desai, Executive Director of the Company in Liquidation. When Shri. Dhawal Desai was apprised about the winding-up order and the purpose of visit, he informed that the premises being rooms no. 51 and 52 in one block along with furnitures and fixtures were given on rent to M/s Videocon Appliances Limited since 13th June 1997. The representatives of the Official Liquidator prepared rough inventory of furnitures and fixtures lying inside, which is annexed to the Minutes dated 19th March 1999. It was noticed that besides the furnitures and fixtures, computers, key-boards, printers were lying inside the premises which, on the basis of slips pasted on the computers were presumably belonging to the said occupant under the lease deed. The representative of the Official Liquidator then visited the said premises on the third floor being office premises No.33 belonging to the Company in liquidation. However, it was noticed that even the said premises were given to the applicant along with furnitures and fixtures as per Annexure-I. In the said premises, one Shri. P. Haridasan of the applicant herein was found present. The representatives of the Official Liquidator directed him to take care of furniture and fixtures lying therein under his superdari. Even said Shri. P. Haridasan assured to produce agreement which would indicate that the lease in favour of the applicant was subsisting. The Official Liquidator thereafter issued letter to the applicant in relation to the said premises no. 33 calling upon to hand over possession of the said premises to the Official Liquidator without fail. Similar letter was sent to M/s Videocon Appliances Limited in respect of premises no. 51, 52. The Official Liquidator sent another letter on 1st April 1999 to the applicant herein as well as M/s Videocon International Limited to deliver possession of the respective premises. Eventually, the Official Liquidator sealed the said premises no. 33 on 13th April 1999. The applicant herein thereafter made representation to the Official Liquidator to remove seal forthwith as the same was put behind the back of the applicant and without any prior notice. As the Official Liquidator did not relent, the applicant has approached this Court by way of present application which was filed on 23rd April 1999.
10. Initially, when the Company Judge was moved on 29th April 1999, no interim relief was granted. However, later, on 30th September 1999, the Company Judge directed handing over possession of the said premises no. 33 to the applicant who, in turn, was to remain in possession thereof as agent of the Official Liquidator on monthly royalty of Rs. 6000/- while making it clear that all the contentions were kept open. Pursuant to the said order, applicant has already been put in possession of the said premises on 15th October 1999.
11. As aforesaid, the relief claimed in the present application is for a direction to the Official Liquidator to remove the seal put by him at the office premises being room no. 33 on the third floor and permit the applicant to Page 1891 enter upon and use the same as tenant thereof. The fact that the applicant has already been permitted to enter the premises in terms of order dated 30th September 1999 that does not finally dispose of the relief claimed by the applicant, but it was only an interim arrangement allowing the applicant to remain in possession of the premises as agent of the Official Liquidator, subject to the further order to be passed on this application on merits.
12. Be that as it may, the applicant, in the first place, has referred to the agreement and/or Rent Note dated 13th June 1997 to assert that the applicant was in lawful possession of the said premises along with furnitures, fixtures, fittings, telephone connection installed therein on monthly rent of Rs. 2500/- and was put in possession thereof by the Company. The applicant has then referred to the supplementary agreement dated 14th January 1998 extending the lease period on same terms and conditions. The applicant has then referred to letter received from Official Liquidator dated 13th March 1999 calling upon the applicant to hand over possession of the said premises immediately on expiry of the lease period on 12th April 1999. The applicant thereafter refers to letter received from Official Liquidator dated 1st April 1999 and has also stated that similar letter was received by applicant's associate Company Videocon Appliances Limited who were in possession as tenant of premises on the 5th floor. It is stated that the applicant as well as the said associate Company (Videocon Appliances Limited) gave reply to the Official Liquidator expressing inability to hand over possession of the respective premises and claimed that they were protected by law and can be dispossessed only by taking recourse to action under Sections 12 and 13 of the Bombay Rent Act. It is stated that on 13th March 1999 when the premises were closed, the persons claiming to be representatives of Official Liquidator visited the site and unauthorisedly sealed the premises which were used by the applicant as accounts Section. It is asserted that day-today account books important files, computer, fixtures, furniture and net-work cables installed in the said premises were suddenly sealed which has caused irreparable loss, harm and injury to the applicant in its day-to-day working. It is also stated that belongings of the staff of the applicant were also locked up in the premises and the staff was stranded outside. That no access was possible even to the day-to-day account books and other important files, thereby applicant failed in fulfilling its statutory obligations-in absence of office record and files. The applicant asserts that the sealing of the said premises was totally high-handed, illegal and has caused irreparable harm and injury to the applicant. The applicant then stated that the applicant had brought all these facts to the notice of the Official Liquidator by letter dated 17th April 1999 which was duly received in the office of Office Liquidator pm 19th March 1999 calling upon him to remove the seals forthwith, but was of no avail. In this backdrop, the applicant has approached for the reliefs, as referred to earlier.
13. In support of its case, the applicant relied on the copies of supplementary lease agreement dated 14th January 1998, Rent Note dated 13th June 1997, letters exchanged between Official Liquidator and the applications dated 30th March 1999 and 7th April 1991.
Page 1892
14. The Official Liquidator has opposed this application by filing affidavit of Ujwal Roy, the then Official Liquidator dated 14th June 1999. According to the Official liquidator, the Company in Liquidation is the owner of the said premises which were purportedly given to the applicant and another premises on the 5th floor to its associate Company (Videocon Appliances Limited). According to the Official Liquidator, since the applicant as well as its associate Company are not the original tenant, the question of getting protection under the provisions of the Bombay Rent Act does not arise. It is stated that since the lease period has already expired on 12th April 1999, the applicant as well as its associate company (Videocon Appliances Limited) are obliged to return possession of the concerned premises to the Official Liquidator. In the circumstances, the Official Liquidator had called upon the applicant and its associate Company to vacate the premises. Since that request was not complied with by the applicant as well as the associate Company, the Official Liquidator had no option but to proceed to take possession of the premises and as the premises were found closed at the relevant time, came to be sealed. The Official Liquidator has also sought direction from this Court that the associate company (Videocon Appliances Limited) should hand over possession of the premises on the 5th floor to the Official Liquidator as the Company in Liquidation is owner thereof and the premises would be required in the process of liquidation. Along with the reply affidavit the Official Liquidator has placed on record minutes dated 19th March 1999 and its accompaniment reproducing the event that unfolded at the time of visit to the site for taking over possession of the premises. Besides the Rent Note and supplementary agreement relied by the petitioner, the Official Liquidator has also placed on record similar rent note and supplementary agreement executed in favour of the associate Company of the applicant (Videocon Appliances Limited) by the company on same date to lease out premises of the Company in Liquidation on the 5th floor being room Nos. 51 and 52.
15. Besides reply of the Official Liquidator, even the petitioners have opposed the present application by filing affidavit of Deepak Hemendrakumar Sheth dated 11th October 1999. In substance, the petitioners have disputed the claim of the applicant. According to the petitioners, the documents pressed into service by the applicant purportedly executed by the Company in Liquidation are in any case void, illegal and bad in law. The petitioners have asserted that the Advocates for the applicants have not even bothered to give inspection of the concerned documents. While referring to the copies of documents placed on record by the applicant, the petitioners have commented that the said documents are ante-dated and fabricated. At any rate, the same are void having been executed after the institution of the Company Petition. The petitioners have further stated that the transaction is questionable also because of the unrealistic amount of rent mentioned in the document and there was nothing to show that such rent was factually paid to the Company in Liquidation at any point of time. According to the petitioner, right claimed by the applicant is based on the transaction which is without any consideration; and the consideration stated is so inadequate that it would raise presumption of want of good faith. The petitioners also assert that business of the Company in Liquidation Page 1893 was of manufacture and sale of the specialty chemicals and to develop, process and export and deal in and to carry on business in colours, vanishes, detergents etc. As such, the Company had no business and/or right to let out the subject premises to the applicant after the winding-up petition had already been presented and were fully aware about the same. The only purpose of such transaction was to defeat the claim of other creditors. The petitioners have asserted that the so-called transaction was not bonafide and for the benefit of and in interest of the Company or for keeping the Company as a going concern. The petitioners have relied on the orders and communications which are appended to the reply affidavit.
16. The Official Liquidator filed further affidavit dated 6th September 2007 and has supported the stand taken by the petitioners that since the transaction in favour of the applicant in respect of the said premises was after the commencement of the winding-up action, the same was void and could not be validated by the Court, as it was not in good faith. The Official Liquidator has denied the case of the applicant that the applicant is a lawful tenant of the Company in Liquidation. The Official Liquidator has also placed on record that the applicant was put back in possession on 15th October 1999 as agent in respect of the premises no. 33 on the 3rd floor on monthly royalty of Rs. 6000/- pursuant to the order dated 30th September 1999. The Official Liquidator has also asserted that the two documents relied by the applicant are inadmissible also because the same are insufficiently stamped and not registered. The Official Liquidator has once again reiterated its stand that the premises are required by him for beneficial winding-up of the Company to satisfy the dues of the stakeholders in the Company.
17. Significantly, the applicant filed further affidavit on 3rd December 2007 sworn by Shri. Bharat More, Manager (Legal) of the applicant Company. In this affidavit, the applicant has disclosed entirely new facts which are not even referred to in the original application or the documents on the basis of which the applicant has set up claim in respect of the said premises. The case now made out by the applicant is that on 7th November 1994, the applicant had entered into sponsorship agreement with the Company in Liquidation whereby the applicant and its group companies had agreed to purchase equity shares of the Company in Liquidation of the value of Rs. 4,37,50,000/-and agreement to that effect was also executed between the applicant and the Company in Liquidation providing for terms and conditions of such sponsorship. By the said agreement, the applicant and its group companies were to pay the amount of over Rs. 4.37 crores to the Company and which was to be recovered by them by selling equity shares after the same were got listed on the stock exchange by the Company. It is then stated that as the Company failed to honour its obligation, it was decided between the parties that the Company would pay back the amount received from the applicant and its associate companies for which agreement confirming the liability of the Company was executed. As per the said agreement, the Company not only accepted its liability to pay the principal amount, but also agreed to pay interest at the specified rate. It is the case of the applicant that it was agreed that the aforesaid premises were to be Page 1894 given to the applicant and its group companies under arrangement arrived at between the applicant and its group companies and the Company in Liquidation. The applicant now asserts that under the said transaction, the applicant is creditor of the Company in Liquidation and is entitled to receive substantial amount from the Company; for which reason it has a charge over the suit premises as per the said transaction. It is the case of the applicant that it is a bonafide occupant of the said premises and it is not as if the premises are given to the applicant only on payment of Rs. 2500/- per month as rent, but right has been created in favour of the applicant based on the sponsorship agreement entered into by the applicant and the Company and subsequent confirmation of liability by the Company which is in the nature of liquidated amount. The applicant would rely on the copy of sponsorship agreement dated 7th November 1994 executed by the Company in Liquidation in favour of Videocon Leasing and Industrial Finance Limited; agreement dated 13th June 1997 between said Videocon Leasing and Industrial Finance Limited and the Company in Liquidation whereunder the Company in Liquidation accepted its liability to repay and refund sum of Rs. 1.33 crores. The applicant also relies on agreement dated 13th June 1997 whereunder Company in Liquidation accepted its liability to pay the amount specified therein. Similar agreement has been executed between Videocon Appliances Limited and the Company in Liquidation to acknowledge and confirm the liability and assuring that the amount will be repaid within one year. The applicant then relies on the correspondence and the loan bond certificates as well as equity share certificates.
18. The petitioner has also filed reply affidavit to the further affidavit filed by the applicant sworn by Deepak Hemendrakumar Sheth, Director of the petitioner Company dated 7th December 2007. The petitioners have challenged the locus of Shri. Bharat More to file further affidavit. In that, he has no personal knowledge of the facts which were unfolded in 1994. The petitioners have denied the claim of applicant of having paid any amount to the Company in Liquidation. It is then stated that assuming that the applicant has paid such amount, its status would at best be one of unsecured creditor. Such payment cannot be the basis to enter into purported lease deed and/or rent note which is the case originally made out. The petitioners have asserted that the transaction in favour of the applicant is not bonafide and is in collusion so as to thwart the rights of the creditors.
19. The Official Liquidator has also filed further affidavit dated 10th December 2007 challenging the new case made out by the applicant for the first time after eight years of pendency of the application. According to the Official Liquidator, the applicant has not come to the Court with clean hands. Additionally, the Official Liquidator asserts that even if the agreement now pressed into service were to be looked into, the same was in favour of Videocon Leasing and Industrial Finance Limited and not the applicant Company. In any case, the said agreement has no relevance to the alleged rent note dated 13th June 1997 entered between applicant Company and the Company in Liquidation. For that reason also, the sponsorship agreement dated 7th November 1994 will be of no avail. It is also stated Page 1895 that the sponsorship agreement dated 7th November 1994 relied by the applicant clearly provides for default clause; and for failure to honour the said agreement by the Company, entitled the applicant to initiate appropriate action against the Company-which has not been done. The applicant cannot be permitted to rely on the sponsorship agreement which has no connection with either rent note or the supplementary agreement. In short, it is stated that the applicant is purportedly put in possession of the premises pursuant to the rent note. However, the said rent note is not bonafide transaction. The Official Liquidator, therefore, prays that the application be not only dismissed, but the applicant be directed to vacate the premises and hand over vacant, quiet and peaceful possession thereof to the Official Liquidator.
20. I have heard learned counsel for the parties as also perused pleadings and documents on record. The counsel for the applicant has filed two compilations of reported judgments. However, during the hearing, reference is made only to cases reported in (1962) XXXII Company Cases, 876 in the case of J. Sen Gupta (Private) Limited; (1970) 10 Company Cases 1161 in the case of Globe Financiers (P) Ltd. v. Official Liquidator; in the case of Dinesh and Anr. v. Hemchandra and Ors. and in the case of Anthony C.Leo v. Nandlal and Ors. . He had additionally relied on Ram Sewak Jaiswal v. Abdul Majeed and Ors. . On the other hand, counsel for the Official Liquidator has relied on the decision in the case of Kanchan Kumar Dhar v. Dr L.M. Visari and Ors. reported in (1986) 60 Company Cases 746.
21. The first question that needs to be addressed is, whether the transaction relied upon by the applicant is affected by Section 536, in particular, Sub-section (2) of the Act. Section 536 (2) of the Companies Act reads thus :
536. Avoidance of transfers, etc. after commencement of winding up. - (1) ... (2) In the case of a winding up by the Tribunal 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 Tribunal otherwise orders, be void.
The expression commencement of the winding-up is no more res-integra. In the present case, the Company Petition was presented on 29th October 1996/28th November 1996. Going by the said dates, the winding-up action commenced therefrom. The order of winding-up of the said Company Petition was eventually passed on 12th January 1999. Whereas, the applicant claims right on the basis of rent note dated 13th June 1997, which right was continued in favour of the applicant under supplementary agreement dated 14th January 1998, both these transactions have been entered into by the Company in Liquidation during the pendency of winding-up petition. Naturally, therefore, such a transaction is void unless the Court otherwise orders.
Page 1896
22. The next question is, whether the subject transaction deserves to be validated by the Court. The parameter on the basis of which the Court would exercise such a discretion has been expounded in catena of decisions. Before considering facts of the present case, it would be apposite to refer to the decision on which reliance was placed by the applicant. Referring to the case of J. Sen Gupta (Private) Limited (supra), it is seen that the gamut of case law has been discussed and eventually, the Court proceeded to restate the settled principles in the following words :
It seems to me, therefore, upon considering various authorities on this subject that the following principles are doubtiess applicable to Sub-section (2) of Section 536 of the Companies Act, 1956:
1. The court has an absolute discretion to validate a transaction.
2. This discretion is controlled only by the general principles which apply to every kind of judicial discretion.
3. The court must have regard to all the surrounding circumstances, and if from all the surrounding circumstances it comes to the conclusion that the transaction should not be void, it is within the power of the court under Section 536 (2) to say that the transaction is not void.
4. If it be found that the transaction was for the benefit of, and in the interests of, the company or for keeping the company going or keeping things going generally, it ought to be confirmed.
23. In the present case, even if the pleadings are fairly read, there is absolutely no case made out by the applicant that the rent note and the supplementary agreement or any other agreement was executed by the Company in liquidation as well as the applicant without any knowledge of the winding-up proceedings. In the absence of such plea, it necessarily follows that both the Company in Liquidation as well as the applicant had complete knowledge about the winding-up proceedings. As a matter of fact, the Company in Liquidation was admittedly served with the Company petition as back as on 18th January 1997. Appearance on behalf of the Company in Liquidation was also entered in the proceedings after service of the notice and yet the rent note in question came to be executed on 13th June 1997, which is obviously with the knowledge of the winding-up proceedings. If transaction is entered with such knowledge, the question is, whether such a transaction can be treated as bonafide. For the sake of repetition, it is apposite to re-state the legal position that, if the transaction is for the benefit of and in the interest of the Company or for keeping the Company going or keeping the things going generally, it ought to be confirmed being bonafide. However, this is a factual aspect to be pleaded and proved. Significantly, this aspect is no where pleaded in the application under consideration. Moreso, if we were to look at the agreement in question, even the said agreement no where (even remotely) suggests that the same was executed by the parties without the knowledge of the winding-up proceedings or for that matter, the transaction was for the benefit of and in the interest of the Company or for keeping the Company going or keeping the things going generally. In the absence of such pleading, there is no need to examine any other aspect as the jurisdictional fact to exercise discretion in favour of the applicant so as to Page 1897 validate the transaction is completely lacking. Thus understood, the application will have to be thrown out on this sole ground.
24. I would, however, proceed to analyse the documents on the basis of which the applicant claims right to remain in possession of the suit premises. That right is claimed on the basis of a rent note dated 13th June 1997. The rent note gives the description of the premises as office room no. 33 on the 3rd floor admeasuring 431 square feet. It is then stated that the Company in Liquidation is the owner of 806 equity shares of Rs. 10/- each and 4838 loan bond certificates of Rs. 5/- each. It is then stated that in pursuance of such holding of equity shares and loan bond certificates, the Company in Liquidation became entitled to and has been allotted office premises referred to earlier and has right to lease out the same. It is then stated that the Company in Liquidation has let out and the applicant has taken on lease the said premises with effect from the date of the agreement on terms and conditions referred to therein. The monthly rent has been fixed at Rs. 2500/-. The tenure of the lease was to be 11 months. It is then stated that the applicant has paid advance rent of 11 months of Rs. 27,500/- by cheque to the Company in Liquidation and it has been received by the Company. In the first place, the amount of rent specified in the agreement at the rate of Rs. 2500/- per month for the premises admeasuring 431 square feet situated at a prime location in Mumbai in commercial complex at Fort is not only starkly inadequate, but preposterous. The agreement does not refer to any other consideration or deposit paid by the applicant to the Company before parting with such a prime property. Indeed, the document mentions the agreement as lease. However, the tenure is prescribed as only for eleven months. It was argued that the tenure was extendable on same terms and conditions for further period. The fact remains that this arrangement has been arrived at by the parties with knowledge of pending winding-up action. We shall refer to the afterthought stand now taken for the first time in the latest affidavit filed by the applicant a little later. Reverting to the stand founded on the rent note, upon scrutiny of the said document clause by clause set out therein, the arrangement seems to be most unnatural. For, no landlord would create right in favour of lessee, to whom premises are given only for a period of eleven months permitting the lessee to sub-lease or assign premises to any other person for which lessor would have no objection. Significantly, the applicant has been inducted in the premises which have been let out along with furnitures, fixtures and fittings belonging to the Company in Liquidation. Going by the terms of this agreement, as aforesaid, the same seems to be palpably unnatural. More so, there is nothing in the agreement to even remotely suggest as to what were the compelling circumstances necessitating the Company in Liquidation to enter into such transaction during the pendency of winding-up action and inspite of its knowledge. So much so that such a transaction can neither be said to be in the interest of Company nor for keeping the Company going or keeping the things going generally. No such case is made out in the pleadings of the applicant or for that matter in the subject documents itself. If so, the question of validating such a transaction does not arise.
Page 1898
25. Besides, I find force in the stand taken on behalf of the petitioners and the Official Liquidator that the documents pressed into service by the applicant seem to be fabricated. This is so, because the applicant is relying on the rent note dated 13th June 1997 which is executed on 20 rupees stamp paper bearing no. 3421 dated 11th June 1997. The said stamp is, however, issued in the name of Videocon Leasing and Industrial Finance Limited and not in the name of the applicant herein. Besides, the Official Liquidator has placed on record agreements pertaining to the premises on 5th floor-which were made available to the Official Liquidator. Significantly, rent note of the same date viz. 13th June 1997 executed in favour of the associate Company, Videocon Appliances Ltd., pertaining to 5th floor premises, room Nos. 51 and 52, also is on the stamp paper of Rs. 20/- bearing same serial No.3421 dated 11th June 1997. Even the said stamp paper is issued in the name of Videocon Leasing and Industrial Finance Limited and not in the name of the party to the agreement Videocon Appliances Limited or the Company in liquidation. Both these stamp papers were purportedly issued from Ahmednagar on 11th June 1997, but have been executed in respect of the property situated at Mumbai. Admittedly, the document records that the same was executed on 13th June 1997 at Mumbai. As the intention of the parties in executing the rent note was to create lease for a term exceeding one year, as can be inferred from the subsequent conduct and the stand taken before this Court, obviously such a lease was required to be registered in terms of Section 17 (d) of the Registration Act, 1908. It is only to avoid registration that the applicant and the Company in Liquidation have limited the lease term to 11 months, which obviously is not in good faith. Insofar as the decision of the Allahabad High Court in the case of Ram Sewak Jaiswal's case (supra) is concerned, the said decision is of no avail to the applicant having regard to the fact situation of the present case.
26. As mentioned earlier, the rent note not only authorises the applicant to use the premises for its office use, but also enables the applicant to sub-lease or assign the same to third party and the Company in Liquidation would take no objection for the same. If the lease is for a limited period of eleven months, the question of providing such a right to the lessee, itself, makes the document/transaction suspicious and not in good faith, especially because there is nothing to indicate as to what was the compelling need to enter into such transaction by the Company in Liquidation. By no stretch of imagination, the transaction can be said to be for the benefit of the Company and in the interest of the Company or for keeping the Company going concern or keeping the things going generally. It cannot be overlooked that this transaction has been entered with full knowledge of institution of winding up petition. Besides, the subject rent note no where reflects even remotely that in addition to the meager compensation of Rs. 2500/- per month, the Company in Liquidation was to receive any other consideration irrespective of the fact that the premises are located in a prime locality in Fort area in Mumbai and admeasuring about 431 sq.ft. Taking over all view of the matter, there can be no doubt that the transaction was not in good faith. As the threshold entry of the applicant is tainted, the fact that the applicant continued to remain in possession on account of subsequent supplementary agreement will be of no avail to the applicant.
Page 1899
27. Let us turn to the supplementary agreement on which the applicant relies. This agreement is again on 20 rupees stamp paper which is issued at Ahmednagar bearing serial number 949 dated 14th January 1998. The supplementary agreement is also admittedly executed on 14th January 1998 at Mumbai which is over six hours travelling distance by road from Ahmednagar. Besides, the stamp paper is issued in the name of Advocate S.B. Pallod of Ahmednagar and not in the name of Videocon International Limited in whose favour the agreement was executed by the Company in Liquidation. On the same date, another agreement is executed by the Company in Liquidation in favour of the associate Company of the applicant being Videocon Appliances Limited, pertaining to the premises on 5th floor. Copy of the said agreement is produced by the Official Liquidator along with reply affidavit. Even the said agreement bears same serial number 949 dated 14th January 1998 issued in the name of Advocate S.B. Pallod of Ahmednagar. Admittedly, both these agreements record that the same have been executed at Mumbai on 14th January 1998. It is intriguing that the agreement has been executed on the same date at Mumbai when the stamp paper was issued at Ahmednagar in the name of Advocate S.B. Pallod, that too, in respect of the property at Mumbai. Moreover, no explanation is forthcoming either from the supplementary agreement or for that matter, from the application and the subsequent affidavits filed by the applicant as to the necessity of executing the supplementary agreement on 14th January 1998 even though the tenure of the rent note dated 13th June 1997 was subsisting till May 1998. The description of the document to be supplementary lease agreement is only deceptive. In fact, by this agreement the parties have purportedly agreed for extending the lease period on same terms and conditions as noted in the rent note dated 13th June 1997. In that sense, it will have to be treated as a fresh agreement for the further period. Assuming that it is to be treated as supplementary agreement, then naturally, the lease term under the agreement dated 13th June 1997 stood extended for a period which would be far in excess of one year's lease period, necessitating compulsory registration of the said agreement. Thus understood, the documents pressed into service by the applicant to establish its right to remain in possession as lawful tenant have been executed not in good faith or for that matter, in the interest of the Company in Liquidation.
28. Having realised this difficulty after opening of the arguments of the applicant, the applicant has now thought it fit to file further affidavit dated 3rd December 2007 so as to assert completely new case for the first time before this Court. Now, the applicant, in substance asserts that, the applicant was put in possession of the suit premises; and Videocon Appliances Limited in respect of premises on 5th floor being room Nos. 51 and 52, by way of arrangement under the agreement separately executed on the same date viz. 13th June 1997. The agreements now relied for the first time before this Court are between Videocon Leasing and Industrial Finance Limited and the Company in Liquidation dated 13th June 1997 executed on 20 rupees bearing serial number 3421 dated 11th June 1997 issued in the name of Videocon Leasing and Industrial Finance Limited. I am at a loss to understand as to how stamp papers bearing same serial number issued at Ahmednagar on the same day have been used for executing separate agreements between Page 1900 the separate parties. Be that as it may, the agreement records the fact that there was agreement between Videocon Leasing and Industrial Finance Limited and the Company in Liquidation dated 9th November 1994, whereunder the said Videocon Leasing and Industrial Finance Limited had agreed to act as sponsorer of the subscription of the Company in Liquidation on terms referred to therein.
29. We shall revert back to the efficacy of sponsorship agreement a little later. The agreement under reference records that the Company in liquidation accepted its liability to pay Rs. 1.33 crores which was receivable by Videocon Leasing and Industrial Finance Limited under the sponsorship agreement. Clause 3 of the agreement under consideration refers to the fact, which is also mentioned in the rent note, that the Company is owner of 806 equity shares of Rs. 10/- and 4838 loan bond certificates of Rs. 5/- each of Deepak Talib Estates Private Limited and as a consequence of such holding, the Company was allotted office room no. 33 on the 3rd floor. However, area of the premises in this agreement is mentioned as 290 square feet only instead of 431 square feet mentioned in the rent note. Be that as it may, this agreement also refers to the fact of ownership of the Company in Liquidation pertaining to premises on the 5th floor on account of 600 equity shares of Rs. 10/- each and 3600 loan bond certificates of Rs. 5/-each, consequent to which holding the said premises on the 5th floor being rooms no. 21, 51 and 52 have been allotted to the Company in Liquidation. What is significant to note is clause 4 and clause 6 of the agreement under consideration. It mentions that the parties thereto have agreed that the party of second part shall sell the aforesaid equity shares and loan stock bond certificates to the party of first part together with the right of occupancy enjoyment of office premises bearing Nos. 51 and 52 for a total stated consideration. The consideration amount was to be appropriated from the dues payable by the Company in Liquidation to Videocon Leasing and Industrial Finance Limited.
30. Going by this agreement, it is obvious that the intention of the Company in Liquidation and Videocon Leasing and Industrial Finance Limited was to indirectly sell the subject property of the Company in Liquidation or create third party interest therein to said Videocon Leasing and Industrial Finance Limited under the garb of adjusting the consideration amount so as to appropriate the outstanding dues payable by the Company under the sponsorship agreement.
31. Be that as it may, it may be relevant to note that the sponsorship agreement makes no reference, not even a remote reference, that in case of non-compliance of the terms of the sponsorship agreement, the Company in Liquidation would offer the premises to disburse its liability. On the contrary, the sponsorship agreement makes express provision for the consequence in case of default. None of the consequence provided under the agreement would entitle M/s Videocon Leasing and Industrial Finance Limited to take over the assets or the property of the company. Whereas, the said party(Videocon Company and Industrial Finance Limited) was free to pursue claim for specific performance of the said agreement and specified interest on the outstanding dues. Clause IX of the sponsorship agreement also Page 1901 provides that disputes or differences between the parties are to be resolved by way of arbitration. Admittedly, it is not the case of the applicant that Videocon Leasing and Industrial Finance Limited has chosen to proceed against the Company in Liquidation due to default committed by the Company in Liquidation as per the terms and conditions of the sponsorship. The fact that large amount was payable to Videocon Leasing and Industrial Finance Limited can be no basis to assume that under the sponsorship agreement or otherwise the Company was liable and bound to create tenancy in favour of any of its associate companies such as, the applicant and Videocon Appliances Limited. For our purpose, what is relevant to note is that the applicant as well as Videocon Appliances Limited are claiming possession of the respective premises under rent note dated 13th June 1997 and not either under the sponsorship agreement or the agreement simultaneously executed on 13th June 1997-about which reference is made for the first time in the further affidavit after lapse of 8 years of filing of the application.
32. The circumstances about the genuineness of the said transaction and the document have already been adverted to in the earlier part of this order. Even assuming that the sponsorship agreement was genuine and executed in the ordinary course of business by the Company in Liquidation in favour of M/s. Videocon Leasing and Industrial Finance Limited prior to presentation of winding-up action, the fact remains that the applicant herein nor the Videocon Appliances Limited can legitimately rely on the said transaction to justify their possession of the disputed premises in their respective occupation, which has been possible only on account of rent note dated 13th June 1997 executed after presentation of the winding up petition with knowledge thereof. Though separate agreements have been executed on the same date (i.e.13th June 1997), as the parties to the respective agreement are separate juristic persons, it is not possible for the applicant as also Videocon Appliances Limited to rely on the agreement between Videocon Leasing and Industrial Finance Limited and the Company in Liquidation, assuming that the said agreement makes reference to the manner in which outstanding amount of Rs. 1.33 crores were to be paid and settled.
33. Assuming that the applicant and Videocon Appliances Limited could be permitted to do so on the argument that Videocon Leasing and Industrial Finance Limited is the associate company, I have no hesitation in concluding that the subject transaction cannot be validated as it is not in good faith. It is not as if that transaction has been entered without knowledge of the pending winding-up action. Similarly, it is not the applicant's case that the transaction was for the benefit and in the interest of the Company or for keeping the Company going or keeping things going generally. The attempt of the applicant and the associate companies was obviously to take over possession and corner the assets of the Company in Liquidation under the guise of such agreement. The applicant as also its associate companies would at best be treated as unsecured creditors so as to receive the outstanding dues payable to them, if any.
34. If the new case of the applicant is to be accepted, that stand would be diametrically opposite to the stand taken in the application that the Page 1902 applicant and Videocon Appliances Limited were inducted as lessees in the respective premises. If the agreements now produced were to be kept in mind, the Company in Liquidation has agreed to transfer the respective premises in favour of the applicant and Videocon Appliances Limited. Obviously, such inconsistent documents have been articulated so as to defeat the legitimate claim of other stakeholders of the Company in liquidation and also to evade the provisions of law. For, if the case of applicant and Videocon Appliances Limited was that they were put in possession of the suit premises on account of the other agreement and not rent note agreement, obviously that would be a case of agreement to sell coupled with possession requiring compulsory registration under the provisions of the Bombay Stamp Act, 1958. Presumably, to avoid such liability, in anticipation that the transaction if not validated by the Court, the stamp duty so paid would be totally wasted, the applicant and associate companies were advised to execute such inconsistent documents and take advantage on all fronts of such dubious deeds.
35. Suffice it to observe that entry of the applicant and Videocon Appliances Limited in the respective premises itself is founded on a void transaction. As I have already found that the said transaction is not a bonafide transaction and at any rate not for the benefit of and in the interest of company or for keeping the Company going or keeping things going generally, the question of validating such a transaction by the Court does not arise. As the transaction is covered by the sweep of Section 536 (2) of the Companies Act and being an improper transaction for the reason already recorded, the same cannot be validated by the Court. In fact, there is no formal prayer for validating the transaction made either by the applicant or Videocon Appliances Limited.
36. From the aforesaid discussion, the argument of the applicant that the applicant was in possession of the premises on account of charge and was entitled to hold the same as charge over the outstanding dues, will have to be stated to be rejected. The applicant has approached this Court with clear case that it was in possession as tenant on monthly rent basis inducted by the Company in Liquidation. If at all the Company in Liquidation was liable to pay any amount, that is to be paid to Videocon Leasing and Industrial Finance Limited and not to the applicant or Videocon Appliances Limited. In that sense, neither the applicant nor Videocon Appliances Limited can claim that they were in possession of the respective premises and having charge thereon towards the outstanding dues. The arrangement arrived at under agreement of repayment and appropriation of the outstanding amount to be adjusted against the consideration in respect of the disputed premises does not take the matter any further. The claim of the applicant and Videocon Appliances Limited would then be only of a creditor. The said agreements no where expressly mention that possession of the premises has been made over to the applicant or Videocon Appliances Limited under the said arrangement. In other words, the possession of the premises with the applicant and Videocon Appliances Limited is only on account of the rent note dated 13th June 1997 and the subsequent supplementary agreement. No more and no less. Sofar as that transaction is concerned, I have already held that the same is not bonafide or in the interest of or for the benefit of Page 1903 the Company in Liquidation nor the said transaction is for keeping the Company going concern or keeping the things going generally. As a result, the said arrangement cannot be validated by the Court.
37. Before proceeding further, I shall now refer to the reported decisions pressed into service at the time of arguments. Reliance was placed on the observations in the case of Globe Financiers (P) Limited (supra). However, in that case, the High Court was called upon to consider the question as to whether or not a company in liquidation could, in view of the provisions of Delhi Rent Control Act, 1958, sell or otherwise transfer its tenancy rights without consent of landlord. Exposition in the said decision, therefore, will have to be considered in the context of the said background. The issue that arises in our case is, however, whether the transaction in question ought to be validated by the Court. That aspect has been considered elaborately in the earlier part of this order. Suffice it to observe that this decision is of no avail to the applicant.
38. Learned counsel for the applicant has relied on the decision of our High Court in Dinesh and Anr. v. Hemchandra and Ors. (supra). Once again, this decision has no relevance to the issue that is required to be addressed in the present matter. In that case the question considered was, whether the landlord can claim possession on the ground that the tenant had agreed to surrender possession. That decision therefore, will have no relevance to the facts of this case. Reliance was also placed on the decision of the Supreme Court in the case of Anthony v. Nandlal and Ors. (supra) to contend that merely because the Official Liquidator has been appointed by the Court for proceeding with the winding-up of the Company in Liquidation, that does not result in vesting of the property in the Official Liquidator free of all encumbrances. It is held that rights and obligations of third party in respect of property under custodia legis remain unaffected and Receiver cannot interfere with rights of third party. There can be no difficulty in accepting the general proposition that mere appointment of court receiver does not result in vesting of property of the Company in the court receiver or the Official Liquidator. They are supposed to act only as administrator of the said property.
39. However, the principal question in our case is, whether the transaction entered between the parties and in favour of the applicant and Videocon Appliances Limited is affected by the sweep of Section 536 (2) of the Act and if yes, should the transaction be validated. On both the counts I have already elaborately examined the matter and recorded my opinion against the applicant.
40. That takes me to the last decision pressed into service on behalf of the Official Liquidator to dispel the argument of the applicant that the applicant was paying rent to the Company in Liquidation. In the case of Kanchan Kumar Dhar v. Dr L.M. Visarai and Ors. (supra), our High Court Page 1904 has held that acceptance of rent by Liquidator cannot validate a void lease. The validation has to be by the Court. In the present case, I have already found that the lease in respect of property of the Company in Liquidation executed by the Company during the pendency of winding-up action was void and the same cannot be validated(as it is not executed in good faith). It is a different matter that the applicant or Videocon Appliances Limited have paid monthly compensation to the Company in Liquidation or the Official Liquidator. That will not make any difference for deciding the issue on hand as is the view taken in the case of Kanchan Kumar v. Dr L.M. Visarai (supra). It will have to be kept in mind that insofar as premises on 3rd floor possessed by the applicant were sealed by the Official Liquidator on 13th APRIL 1999, The applicant has been put in possession on 15th October 1999, only pursuant to the Court's order dated 13th September 1999, which is obviously without prejudice to the rights and contentions of parties and keeping all questions open as noted in the order itself.
41. That takes me to the nature of order that is required to be passed in the fact situation of the present case. For the reasons already recorded, the application will have to be dismissed. At the same time, the Official Liquidator will have to be directed to take back possession of the subject premises and the furniture, fixtures and fittings on the 3rd floor of the building forthwith and to sell the said property in auction so as to derive best returns to facilitate settlement of claims of all the stake holders of the Company in accordance with established procedure and norms.
42. In the present case, although Videocon Appliances Limited is not party to the application nor a formal report is submitted by the Official Liquidator (except mentioning that request in the reply affidavit) in relation to the premises on the 5th floor along with furniture, fixtures and fittings belonging to the Company in Liquidation, now in possession of Videocon Appliances Limited, associate company of the applicant herein, however, for the selfsame reason, the Official Liquidator will have to be directed to proceed even in respect of the said premises on the same basis as in respect of premises on 3rd floor occupied by the applicant.
43. Indubitably, jurisdiction of the Company Court does not end with the passing of order of winding-up, but the Company Judge continues to supervise the action of winding up by the Official Liquidator, whether the affected party approaches the Company Judge or the Official Liquidator brings any issues before the Company Judge, the Company Judge is also free to exercise jurisdiction on the basis of facts and material which would come to his notice in the proceedings pertaining to the Company in Liquidation. As in the present case, although the applicant has approached this Court limiting its relief to premises on 3rd floor which were in its occupation before sealing, however, the material which has come on record and brought to my notice by the Official Liquidator indicates similar complicity of Videocon Appliances Limited in respect of 5th floor premises. It would be but necessary and in the interest of justice to pass appropriate direction even in respect of those premises.
44. On the finding already recorded that the transaction between the Company in Liquidation on the one hand and the applicant as well as said Page 1905 M/s Videocon Appliances Limited on the other hand being void, the Official Liquidator will have to take steps to recover market rent from the applicant as well as said Videocon Appliances Limited with effect from 13th June 1997-from which date respective parties claim to be in possession of the concerned premises. Indeed, the Official Liquidator shall provide adjustment of amount paid by the applicant or Videocon Appliances Limited, as the case may be, towards monthly rent/compensation under the agreement or the order of this Court as also for the period during which the premises on the 3rd floor room no. 33 remained sealed between 13th April 1999 till 15th October 1999.
45. In view of the finding recorded in respect of the documents in question which are relied by the applicant, it will also be appropriate to direct the applicant to deposit all the abovereferred original documents(Agreements) in this Court within four weeks from today. On depositing the said documents(Agreements), the same shall stand impounded and forwarded to the Deputy Inspector General of Registration and Deputy Controller of Stamps, Old Custom House, Mantralaya, Mumbai-32 to proceed against the concerned party in respect the said documents in accordance with law.
46. Accordingly, I proceed to pass the following order:
(i) Application is dismissed with costs quantified at Rs. 10,000/- to be paid by the applicant to the Official Liquidator who, in turn, shall credit the said amount to the account of the Company in Liquidation. Costs to be paid within four weeks from today.
(ii) The Official Liquidator shall forthwith take steps to take over possession of the premises being room no. 33 on the 3rd floor from the applicant along with fittings, furniture and fixtures in the same condition in which it was handed over to the applicant. That shall be done not later than eight weeks from today.
(iii) The Official Liquidator shall forthwith initiate action to take over possession of the premises on the 5th floor being room Nos. 51 and 52 from M/s Videocon Appliances Limited along with furniture, fixtures and fittings in the same condition in which it was handed over to them and report compliance not later than eight weeks from today.
(iv) The Official Liquidator shall forthwith initiate action to determine the market rent to be recovered from the applicant in respect of 3rd floor premises and M/s Videocon Appliances Limited in respect of 5th floor premises with effect from 13th June 1997 till they are dispossessed. On determining the market rent, the Official Liquidator shall recover the determined amount from the applicant as well as M/s Videocon Appliances Limited while providing adjustment to them towards the amount already paid by them from time to time towards monthly rent in terms of the agreement or the Court's order, as the case may be, as also to exclude the period during which the premises on 3rd floor remained sealed between 13th April 1999 till 15th October 1999.
(v) The applicant as well as its associate company M/s Videocon Appliances Limited are directed to forthwith deposit the original copies of all the agreements appended to the Application, affidavit in support of the application as well as further affidavit of Shri. Bharat More Page 1906 dated 3rd December 2007 and produced alongwith the affidavits filed on behalf of the Official Liquidator, in this Court within eight weeks from today. On depositing the said documents, it would stand impounded and then made over to the Deputy Inspector General of Registration and Deputy Controller of Stamps, Old Custom House, Mantralaya, Mumbai-32 for proceeding against the said documents in accordance with law. All questions in that behalf are kept open to be decided on merits.
(vi) Order accordingly.
47. After the Order was pronounced, Counsel for the Applicant seeks stay of operation of this Order to enable the Applicant to take up the matter in appeal. As the Applicant has remedy of appeal, in the interest of justice, it is ordered that the Official Liquidator may proceed to take other steps in terms of this Order except to dispossess the Applicant from the premises on the third floor, for a period of four weeks from today.