Delhi High Court
Jindal Menthol And Investments Ltd. vs Prakash Industries Ltd. on 8 May, 2000
Equivalent citations: [2001]106COMPCAS473(DELHI)
JUDGMENT Mukul Mudgul, J.
1. This petition has been filed by the petitioner under Section 9 of the Arbitration and Conciliation Act, 1996. The petitioner has prayed that interim orders be passed restraining the respondents from selling, parting with possession or transferring the waste heat recovery system equipment, leased by the petitioner to the respondents and has further sought relief due to the defaults of the respondents in repayment and, therefore, sought permission for the receiver to be appointed by this Court to take over the possession of the said equipment which was given on lease to the respondents under lease agreement dated 24-2-1993. This application has been resisted by the respondents/lessees by contending that the appointment of a receiver is hit by the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 ('the Act'). The respondent in particular has relied upon a judgment of the Supreme Court in Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association [1992] 75 Comp. Cas. 440. The learned counsel has stressed upon paragraph 13 of the said judgment wherein the Supreme Court has held as follows :
"We are also unable to agree with the contention of the learned counsel for the appellant-company that the leasehold interest of the appellant-company in the premises leased out to it is property for the purpose of Section 22(1). It is no doubt true that the leasehold interest of the lessee in the premises leased out to him is property which can be transferred and the said interest can also be attached and sold by way of execution in satisfaction of a decree against the lessee. In that sense, it can be said that the leasehold interest of a company is its property. But the question is whether the same is true in respect of the interest of a company which is in occupation of the premises as a statutory tenant by virtue of the protection conferred by the relevant rent law because, in the instant case on the date of reference to the board, the proceedings for eviction of the appellant-company were pending and the appellant-company was in occupation of the premises only as a statutory tenant governed by the provisions of the Karnataka Rent Control Act. In Gian Devi Anand (Smt.) v. Jeevan Kumar , this Court has laid down that the termination of a contractual tenancy does not bring about a change in the status and legal position of the tenant unless there are contrary provisions in the relevant Rent Act and the tenant, notwithstanding the termination of tenancy, does enjoy an estate or interest in the tenanted premises. It is further laid down that this interest or estate which the tenant continues to enjoy despite termination of the contractual tenancy creates a heritable interest in the absence of any provision to the contrary. This Court has also held that the Legislature which, by the Rent Act, seeks to confer the benefit on the tenants and to afford protection against eviction, is perfectly competent to make appropriate provision regulating the nature of protection and the manner and extent of enjoyment of such tenancy rights after the termination of contractual tenancy of the tenant including the rights and the nature of protection of the heirs on the death of the tenant." (p. 451)
2. The learned counsel for the petitioner has submitted that the Supreme Court had made the above observations in the context of a statutory tenancy of a company by virtue of a lease and these observations could not apply to the facts of the present case in favour of the respondent. The plea of the respondent thus is that the following observations of the Supreme Court:
"... it is no doubt true that leasehold interest of the lessee in the premises leased out to him is property which can be transferred and the said interest can also be attached and sold by way of execution in satisfaction of a decree against a lessee. In that sense, it can be said that the leasehold interest of a company is its property...." (p. 451) To contend that since the respondents had leasehold interest in the leased equipment, it is the company's property and, hence, covered by the ambit of Section 22 of the said Act.
3. The learned counsel for the petitioner on the other hand has relied upon a judgment of the learned Single Judge of this Court in Credit Capital Finance Corporation v. Foremost Indus tries Ltd. [1996] 87Comp. Cas. 251. Construing the judgment of Shree Chamundi Mopeds Ltd. 's case (supra), the learned Single Judge of this Court held :
"... This provision shows that it is attracted only when the proceedings are with respect to any of the properties of the industrial company. In the present case, the leased equipment cannot be said to be the property of the company. This lease agreement between the parties shows that the ownership of the equipment, the subject-matter of lease throughout remains with the lessor, in the present case, the plaintiff. When the ownership of the equipment, the subject-matter of the lease agreement, remains vested with the plaintiff, it cannot be said that the present proceedings relate to property of the industrial company...." (p. 255)
4. The learned Single Judge further held as follows :
"... In taking this view, I find support from a decision of the Supreme Court in Shree Chamundi Mopeds Ltdv.Church of South India Trust Association . This was a case of lease of a property in favour of a company which was under this SICA. It was held that leasehold rights in a property cannot be said to be a property of the sick industrial company. The application is dismissed." (p. 255)
5. The principal contention before me is that the view of the learned Single Judge in relying upon the Supreme Court judgment in the case of Shree Chamundi Mopeds Ltd. (supra), is not the correct view in law, particularly when the Supreme Court had made the observations in the case of Shree Chamundi Mopeds Ltd. (supra}, in the context of a statutory tenancy of a lease property. In my view, without going into the plea that reliance on the case of Shree Chamundi Mopeds Ltd. (supra), by the learned Single Judge was justified or not, the finding of the learned Single Judge that the lease agreement between the parties clearly shows that the ownership of the equipment remained with the lessor, is sufficient to show that Section 22 would not apply in respect of an equipment which was leased. In the present case also, there is no dispute between the parties that the agreement between the parties clearly stipulates that the equipment leased remained the property of the lessor petitioner here.
6. The learned counsel for the petitioner has further relied upon a judgment of the learned Single Judge of this Court in GE Capital Transportation Financial Services Ltd. v. Dee Pharma Ltd. [1999] 96 Comp. Cas. 192 to contend that in the case of ownership of machinery which vested with the financial company by which the equipment has been leased out; the provisions of Section 22 would not apply because such provisions only apply to the property of the lessee-company and the equipment which was leased could not be said to be the property of the company. The learned Single Judge has after construing the clauses of the lease of the equipment held as follows :
"A perusal of these clauses shows that the ownership of the machinery vested with the petitioner though possession of the same was with the respondent, merely putting the possession of the machinery at the disposal of the respondent by no stretch of imagination would mean that the ownership of the property vested in the respondent-company. Since the respondent-company is not the owner of the machinery in question, therefore, mere registering of the case by the BIFR would not disentitle this Court to pass an order as prayed for by the petitioner because the property does not belong to the respondent-company. In this regard, I am supported by the decision of this Court in Credit Capital Finance Corporation v. Foremost Industries Ltd, . In that case, the plaintiff had entered into an agreement of lease of certain equipment in favour of the defendant-company and filed a petition under Section 20 of the Arbitration Act for appointment of an arbitrator. The receiver was appointed in respect of the leased equipment. The defendant-company filed two applications, one was a petition under Section 446 of the Companies Act and the second was an application contending that under Section 22 of the SICA, the receiver could not have been appointed. This Court, after interpreting Section 22 of the SICA, came to the conclusion that the provisions of Section 22 would be attracted only when the proceedings were in respect of any of the properties of the industrial company. Since ownership of the equipment, the subject-matter of lease, throughout remained with the petitioner in that case, therefore, appointment of the receiver was upheld because Section 22 was not attracted." (p. 196)
7. The learned counsel for the petitioner has submitted that these observations which were upheld by the learned Division Bench in Company Appeal No. 29 of 1998, by order dated 9-10-1998, apply with full force to the facts of the present case. The petitioner has also relied upon the judgment of the learned Single Judge in the case of Kotak Mahendra Finance Ltd. v. Dave Paints Ltd. , to contend that Section 22 would not apply to the facts of the present case. The Bombay High Court held that financed vehicles which are not owned by the sick company do not fall within the purview of Section 22. The learned Single Judge held as follows :
"... The answerable question, therefore, is whether the properties which are not owned by the sick industrial undertaking, are covered under Section 22(1) of the Act of 1985. If the finance company resorts to recovery of its properties, viz., its vehicles which have been given on lease to the lessee company, it cannot be said that it is property of the lessee company (sick industrial undertakings) or it is covered under Section 22(1) or such recourse can be equated with the kind of proceedings contemplated under Section 22(1). The expression 'against the properties' occurring in Section 22(1) is not without significance because it implies that action of winding up or for execution, distress or such like proceeding must be against the property of the sick industrial company. It is true that by the Sick Industrial Companies (Special Provisions) Amendment Act, 1993, Section 22(1) was amended and, 'and no suit for the recovery of money or for the instrument of any security, against the industrial company or guarantee in respect of any loans or advances granted to the industrial company' was inserted after, 'no proceedings for the winding up of the industrial company or for the execution, distress or the like against any of the properties of the industrial company or for the appointment of receiver in respect thereof, but the said amendment cannot be of any help to the lessee company because as observed above, so far as finance company is concerned, it has not filed any suit against the lessee-company for recovery of money against the industrial company or for enforcement of any security against the lessee-company or for enforcement of guarantee in respect of any loans given to the lessee-company or for any advance granted to the lessee-company." (p. 404)
8. Upon perusing the aforesaid judgments I am satisfied that the reliance by the learned counsel for the respondents on the judgment in the case of Shree Chamundi Mopeds Ltd. (supra) of the Supreme Court and in particular the observations in paragraph 13 of the said judgment extracted hereinabove is not justified. The Supreme Court had made the above observations qua a leasehold interest in immovable property. However, there is nothing in the observations in paragraph 13 in the case of Shree Chamundi Mopeds Ltd. (supra), judgment which could warrant a proposition that the leased equipment would also fall within the purview of Section 22. The Supreme Court while holding that the leasehold interest of a property was not covered by Section 22 held that the tenancy was statutory by virtue of the protection of the relevant rent law but the aforesaid observations of the Supreme Court cannot be construed to justify the plea that Section 22 relates to the leased equipment. The observations of the Supreme Court that the leasehold interest of a company was in a sense property of the company were made in the context of the lease of an immovable property and cannot be said to apply to the lease of an equipment financed by the lessor company where the agreement clearly stipulated that the leased equipment would continue to remain the property of the lessor company. The bar contemplated by the relevant portion of Section 22 reads as under :
".. . no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof."
Thus, even Section 22 in terms refers only to the properties of the company.
9. This plea of the learned counsel for the respondent, if accepted, would defeat the very purpose of leasing out the equipment by the petitioner as the leased equipment was purchased initially by the petitioner-company from its own funds and was then leased out to the respondent-company. Such a construction would affect unfairly the rights of a company which is the owner of the leased equipment. Such a construction is, therefore, not warranted as the lessee-company would in such an event not merely deprive the lesser-company from receiving the instalments due, but also deprive it from taking steps to secure/possess its own equipment in respect of which the sick company has defaulted in making the payments.
10. In this view of the matter I am satisfied that the ownership of the leased equipment in the present case in accordance with the agreement between the parties clearly remained with the petitioner financing company. The provisions of Section 22 would, therefore, not apply to the facts of the present case. In this view of the matter the appointment of the receiver to secure the leased equipment cannot be resisted by the respondents and it is, therefore, directed that the receiver will take possession of the said leased equipment as per the order of this Court dated 15-11-1999. The learned counsel for the respondent has relied upon the judgment in Sundaram Finance Ltd. v. NEPC India Ltd. [1999] 19 SCL 278 (SC), wherein the Supreme Court has held in para 20 that the Court should ensure that effective steps are taken to commence the arbitral proceedings and the Court while exercising jurisdiction under Section 9 may pass conditional orders to put the applicant to such terms as it may deem fit with a view to see that effective steps are taken by the applicant for commencing the arbitral proceedings. In the present case, it is stated that the arbitrator appointed by the petitioner has not yet started the proceedings.
11. It is, therefore, directed that the arbitrator shall immediately commence proceedings within two weeks from today. The parties to complete their pleadings within six weeks of the arbitrator commencing the proceedings and the arbitrator to give his award within four months from commencement of the proceedings pursuant to this order.