Gauhati High Court
Board Of Trustees For The Port Of ... vs Official Liquidator, Gauhati High ... on 21 March, 2005
Equivalent citations: [2006]130COMPCAS595(GAUHATI), (2006)5COMPLJ130(GAU), (2006)2GLR644
Author: Ranjan Gogoi
Bench: Ranjan Gogoi
JUDGMENT Ranjan Gogoi, J.
1. This order will cover Misc. Case No. 3294 of 2004 filed by the ICICI Bank, one of the secured creditors of the company in liquidation, Him Containers Limited (hereinafter referred to as the "company") for appropriate orders for disbursement of the sale proceeds of the assets of the "company" amongst the secured creditors ; Misc. Case No. 382 of 2005 filed by M/s. Scrapt Traders Limited, the purchaser of the assets of the "company" for a direction from this Court for renewal/transfer of the leasehold right earlier granted to the company by the owner of the leased land Kolkata Port Trust as well as Company Application No. 6 of 2004 filed by the Kolkata Port Trust under Section 446 of the Companies Act, 1956 for a direction to the official liquidator for payment of arrear rent amounting to Rs. 1,11,04,114 for the period from July 16, 2001 (date of taking over possession of the land by the official liquidator) till September 13, 2004 (date of completion of sale by the official liquidator) and for a further direction to the official liquidator to hand over possession of the leased land to the applicant Kolkata Port Trust as the owner thereof. The questions arising in the aforesaid 3 applications being similar were considered together and accordingly this Court finds it convenient to decide on the tenability of the claims raised in the 3 cases noted above by means of the present common order.
2. The facts in brief that would be necessary for an adjudication of the claims made by the respective parties may be noticed at the outset :
3. Him Containers Limited (hereinafter referred to as "the company") was ordered to be wound up by this Court on September 1, 2000. On the basis of the orders passed by the company court, the official liquidator, on July 16, 2001, took over possession of the land which was leased to the company by the owner thereof, i.e., Kolkata Port Trust. The company was granted a lease of an area of land measuring approximately 40460.456 sq. metres situated within the Haldia Dock Complex in West Bengal for a period of 30 years with effect from December 22, 1982. The lease deed that was executed by and between the parties on May 2, 1983 visualized certain specific terms and conditions subject to which the lease was being granted. What would be important for the purpose of the present cases is the clause in the lease deed providing for a determination of the lease and the right of re-entry of the lessor in the event of any default in the payment of stipulated rent or in case the lessee company was to go into liquidation. According to the applicant, Kolkata Port Trust, by a notification dated May 14, 1992 issued under Section 52 of the Major Port Trusts Act, 1963, the monthly rent was enhanced to Rs. 1,76,003 per month and there having occurred default on the part of the company in the matter of payment of the monthly rent and a huge amount having accumulated on account of arrear rent, the lease was terminated by the lessor by serving an ejectment notice dated September 25, 2000. The company having failed to deliver possession of the leased land as demanded by the lessor, the lessor took steps to have the lessee, i.e., the company evicted under the provisions of the Public Premises (Eviction of Unauthorized Occupants) Act, 1971. According to the lessor, Kolkata Port Trust, it is at the stage of service of notice issued by the Estate Officer in the proceeding for eviction that the lessor could come to know of the company having been ordered to be wound up by the company court by order dated September 1, 2000. Immediately on coming to know of the said fact, a notice was issued by the lessor to the official liquidator informing him of the lessor's title to the leased land and the outstanding dues amounting to Rs. 1,71,37,286 along with interest on account of arrear rent. Soon thereafter, Company Application No. 5 of 2002 was filed by the lessor, Kolkata Port Trust before this Court under Section 535 of the Companies Act seeking a direction to the official liquidator to disclaim all interest in the leased land and to hand over possession of the same to the lessor. The aforesaid Company Application No. 5 of 2002 was decided by this Court by an order dated October 11, 2002, inter alia, holding that the retention of the leased land by the official liquidator is necessary to bring the liquidation proceedings to a successful conclusion and, therefore, the disclaimer prayed for ought not be granted. This court, by its aforementioned order, also held that the lessor would undoubtedly be entitled to claim rent for the period of possession of the leased property by the official liquidator.
4. The official liquidator, thus, continued to remain in possession of the leased land. Thereafter, pursuant to orders passed by this Court, a sale notice was published in the newspapers inviting bids/tenders for purchase of the assets of the "company". As per the terms and conditions of sale, the sale was to be as per the inventory made by the valuer on "as is where is and whatever there is" basis. The report of the valuer clearly mentioned that the assets included leasehold land measuring 40460.456 sq. metres which was obtained by the company on lease from the Port Trust of Calcutta for a period of 30 years commencing from December 22, 1982. It was also specifically mentioned by the valuer that the company had erected its structures on the said land for the purposes of starting a factory. The valuer in his report, also specifically recorded that it will be the responsibility of the new purchaser to negotiate with the Port Trust Authority for renewal or transfer of the leased land and for making all payments to the Port Trust Authority in this regard. The schedule of the land mentioned in the report of valuer enclosed as annexure A to the said report was in similar terms clearly indicating that the land on which the premises of the company stood was leasehold land belonging to the Port Trust of Calcutta which was obtained by the company in liquidation for the period of 30 years commencing December 22, 1982. Similarly, in the enclosures to the report showing the value of the assets, which were the subject-matter of sale, it is the goodwill value of the land determined on the basis of rent payable for the outstanding period of the lease that was mentioned with the following note :
It will be the responsibility of the new purchaser to negotiate with the Port Trust Authority regarding renewal or transfer of lease and all the payments to the Port Trust Authority to be made by the new purchaser.
5. Pursuant to the sale notice issued in the newspapers and as per the specific terms and conditions of sale, as noticed above, various interested parties, submitted their bids and eventually the amount offered by M/s. Scrapt Traders, i.e., the petitioner-applicant in Misc. Case No. 382 of 2005 having been found to be the highest, i.e., Rs. 7.20 crores, the sale of the assets of the company was approved in favour of M/s. Scrapt Traders by this Court by order dated June 23, 2004. The amount offered having been paid in full to the official liquidator, the assets of the company sold was handed over to M/s. Scrapt Traders by the official liquidator on September 13, 2004. The assets handed over included the leased land and accordingly the lessor, Kolkata Port Trust, has filed Company Application No. 6 of 2004 claiming the rent due in respect of the leased land during the period possession of which remained with the official liquidator by claiming the said amount of rent to be due and payable as costs and expenses of the liquidation proceedings. As renewal or transfer of the lease in favour of the purchaser, M/s. Scrapt Traders, had not been finalized in the meantime, directions for handing over of the leased land by the official liquidator to the lessor have also been prayed for. Similarly, the purchaser M/s. Scrapt Traders has filed Misc. Case No. 382 of 2005 for a direction to the Kolkata Port Trust for renewal/transfer of the leased land in its favour.
6. I have heard Shri S.K. Chaudhury, learned senior counsel for the lessor Kolkata Port Trust, Mrs. Milie Hazarika, learned senior counsel appearing for the purchaser, M/s. Scrapt Traders, Shri H. Roy, learned senior counsel for the official liquidator and Shri P. C. Deka, learned senior counsel who has appeared on behalf of the ICICI Bank, one of the secured creditors of the company in liquidation
7. Two questions arise for determination in the present proceeding. First is the entitlement of Kolkata Port Trust to the lease rent for the period during which the land had remained in the possession of the official liquidator by treating the said claim to be one on account of cost and expenses incurred by the official liquidator in connection with the liquidation proceedings ; the second is with regard to the entitlement of the lessor or the new purchaser to have possession of the leasehold land on the basis of the directions prayed for, as noticed above.
8. The submission advanced by Shri S.K. Roychaudhury, learned senior Counsel for the Kolkata Port Trust in support of the claim for rent during the period the leasehold land was in the possession of the official liquidator is primarily based on the earlier order of this Court dated October 11, 2002 passed in Company Application No. 5 of 2002. Shri Roychaudhury, learned Counsel has submitted that this Court has already held, while refusing the disclaimer prayed for, that retention of possession of the leased land by the official liquidator was necessary to bring the liquidation proceedings to a successful conclusion and that the lessor would be entitled to payment of rent during the period of such possession. The order passed by this Court is contended to be conclusive of the entitlement of the lessor in so far as the rent for the period is concerned. If the retention of the leased land by the official liquidator, as already held by the court, was necessary to bring the liquidation proceedings to a successful conclusion, the rent payable by the official liquidator, according to learned Counsel, must be construed by the court to be a part of the liquidation expenses, which learned Counsel contends would be payable in priority to any other debts due by the company. Referring to the proviso to Sub-section (2) of Section 529, learned Counsel has submitted that every secured creditor, who submits to the sale of the assets of the company in liquidation by the official liquidator, is liable to pay his portion of the expenses incurred by the official liquidator for the preservation of the security of the creditor in the company in liquidation. Drawing the attention of the court to Section 476 of the Act, learned Counsel has further submitted that in the event the assets of the company in liquidation are not sufficient to satisfy its liabilities, the court has been empowered to pass orders for payment out of such assets the costs, charges and expenses incurred in winding up in such priority as the court may think fit. In the present case, the amount realized by sale of the assets of the company in liquidation is evidently not sufficient to meet its liabilities. In such a situation, keeping in mind, the earlier order of this Court, the rent due to the Kolkata Port Trust being a part of the costs and expenses incurred for winding up the company, appropriate orders would be called for under the provisions of Section 476. In this regard, the submission advanced is that as the other assets of the company sold under order of this Court were situated on the leased land, the amount on account of rent for the leased land must be construed by the court to be a part of the winding up expenses, inasmuch as, had it not been for the possession of leased land by the official liquidator, such assets of the "company" could not have been sold at all, a situation that had already been visualized by this Court in its earlier order dated October 11, 2002. The provisions of Section 520 of the Companies Act dealing with the payment of costs, charges and expenses incurred in voluntary winding up as well as the provisions of Section 530(6), which provide for retention of such sums as may be necessary for the costs and expenses of winding up before applying the assets of the company in liquidation for payment of debts due has also been pressed into service by Shri Roychaudhury in support of the claim made.
9. The contention advanced by learned Counsel for the Kolkata Port Trust has met with no stiff resistance either from the official liquidator or from learned Counsel for the secured creditors. In fact, Shri H. Roy, learned Counsel for the official liquidator has submitted that had it not been for the retention of the leased land by the official liquidator, the assets of the company in liquidation, possibly, could not have been sold. Therefore, the rent due for the leased land during the period of possession of the same by the official liquidator must be construed by the court to be a part of the winding up expenses, which must be discharged in priority to all other debts.
10. The rival submissions advanced on behalf of the parties have received the due and anxious consideration of the court. The terms of the earlier order dated October 11, 2002 passed by this Court in Company Application No. 5 of 2002 have also been duly taken note of. This court, while rendering its earlier order, had already held that retention of the leased land by the official liquidator was absolutely imperative for a smooth completion of the winding up proceeding and that the lessor, i.e., Kolkata Port Trust would be entitled to receive its due rent for the period of such possession by the official liquidator. The various provisions of the Companies Act, as noticed by the court, in the preceding paragraphs while considering the submissions advanced on behalf of the lessor, clearly provide that costs and expenses incurred in the process of winding up would have priority over all other debts of the company. In fact, on a conjoint reading of the various provisions of the Act, as noted above, it is necessary to take the view that winding up expenses are required to be settled in the first instance and prior to settlement of any other debt of the company. The only question, therefore, that has to be decided by the court in so far as the claim of arrear rent is concerned is whether the said claim, in the facts of the present case, can be reasonably construed by the court to be part of the winding up expenses. This court in its earlier order dated October 11, 2002 having already held that retention of possession of the leased land by the official liquidator is absolutely necessary to bring the liquidation proceeding to a successful conclusion, perhaps, there is no other option for this Court but to hold that the rent payable by the official liquidator during the period of his possession of the leasehold land has to be construed as a part of the winding up expenses. If possession of the leased land had not been retained by the official liquidator, realization made by way of sale of the other assets of the company in liquidation could not have been successfully completed. In such a situation, the rent that is payable by the official liquidator for his possession of the leased land must be necessarily construed by this Court to be a part of the expenses incurred in the winding up proceeding. Had it not been for the retention of such possession of the leased land by the official liquidator, the sale of assets of the company in liquidation would not have materialized. Therefore, the rent payable by the official liquidator must be reasonably construed to be a part of the expenses incurred for the purposes of winding up of the company in liquidation. Viewed from the aforesaid perspective there can be no manner of doubt that the rent payable by the official liquidator for the possession of the leasehold land is a part of the costs and expenses of the winding up and payment of such costs and expenses to the lessor, Kolkata Port Trust, must be made before application/apportionment of the value of the assets of the "company" towards discharge of any of its debts. In this regard, the observations of the apex court in the case of Official Liquidators, U.P. Union Bank Limited (in liquidation) v. Rameshwar Nath Agarwal would be of particular significance. The apex court in the aforesaid case held that unless the court takes the view that the debt incurred (in the case before the apex court the debt was claimed to be in the form of rent due) was part of the costs and expenses of liquidation, the rent accruing due since the date of winding up cannot be claimed in priority over other ordinary debts.
11. On the view that this Court has taken, the next course of action will now be for the lessor Kolkata Port Trust to prove the actual quantum of rent due for the period of possession by the official liquidator, before the official liquidator and the official liquidator will disburse the said amount of rent due to the Kolkata Port Trust out of the sale proceeds realised by treating the amount due to be a part of the costs and expenses incurred in connection with the winding up of the company.
12. This would bring the court to a consideration of the second claim raised on behalf of the lessor Kolkata Port Trust and what may be termed as the counter claim raised by M/s. Scrapt Traders Limited in this regard. The lessor Kolkata Port Trust seeks an order from this Court directing the official liquidator to hand over possession of the leased land to it whereas M/s. Scrapt Traders has prayed for a direction to the Kolkata Port Trust for a renewal/transfer of the leased land in its favour.
13. Under the provision of Section 456 of the Companies Act with effect from the date of the order of winding up of a company, the property and effects of the company in liquidation are to be deemed to be in the custody of the court and the official liquidator takes over physical possession of such property and effects on behalf of the court. Taking over possession of the leased land by the official liquidator with effect from July 16, 2001 must, therefore, be construed to be on the aforesaid basis. Under the terms and conditions of the sale of the assets of the company in liquidation, details of which have already been noticed, it was made abundantly clear that the land on which the plant, fixtures, factory and other assets of the company were located is a leasehold land, lease of which was obtained by the company in liquidation for a period of 30 years commencing from December 22, 1982. Under the terms and conditions on which the sale of the assets of the company in liquidation was to be made, it was also made clear that it will be the responsibility of the new purchaser to negotiate with the Kolkata Port Trust for renewal or transfer of the lease. The valuation of the land made by the valuer was on the basis of the goodwill value of the land calculated on the balance rent payable for the unexpired period of the lease. In such circumstances, can it be said that the unexpired period of the lease was the subject-matter of the sale and what was sold along with the other assets was the unexpired period of the lease ? The answers to the above question is inbuilt in the clear and unambiguous stipulation appearing in different parts of the detailed terms and conditions governing the sale transaction, to the effect that the responsibility of renewal/transfer of the lease will be of the purchaser and the purchaser will also be liable to make all payments in this regard to the Port Trust Authority. M/s. Scrapt Traders had entered into the deal with its eyes open and what must be assumed by the court to be on a clear knowledge that what it is acquiring by virtue of the sale/purchase made is a mere right to negotiate for renewal/transfer of the lease. The contrary case pleaded by M/s. Scrapt Traders in the application filed, i.e., that balance period of the lease was one of the assets sold to the purchaser vesting in such purchase a right to a transfer/renewal of the lease will be difficult to accept in view of the clear stipulation to the contrary as embodied in the terms and conditions subject to which the sale was made.
14. In view of the above and having regard to the provisions contained in Section 456 of the Act, the handing over of possession of the leased land to M/s. Scrapt Traders by the official liquidator cannot be termed to be a legally effective act of handing over of the possession of the leased land. The official liquidator was not empowered to do so, except under orders of the court, and the court not having so authorized the official liquidator, the present possession of the purchaser of the leased land cannot be termed as legal possession which must be understood to have continued to remain with the official liquidator, on behalf of the court. As the purpose of such possession has been achieved by the sale of the assets of the company in liquidation, the official liquidator is now directed to hand over legal possession of the leased land to the lessor Kolkata Port Trust. This court notwithstanding the above direction, must, however, recognize in the lessor, i.e., Kolkata Port Trust a legal duty to fairly consider the pending claim of the purchaser M/s. Scrapt Traders for renewal/transfer of the lease so as to enable it to restart the business of the company in liquidation. This court, therefore, leaves it open to the concerned parties to fairly negotiate on the question of the renewal/transfer of the lease on mutually acceptable terms failing which, M/s. Scrapt Traders is left with the option of availing of all such legal remedies as may be open to it in law. In this regard, it may be appropriate to put on record that the claim, if any, of the Kolkata Port Trust to arrear rent due from the company prior to take over of possession of the leased land by the official liquidator will have to be treated as any other debt due from the company in accordance with the provisions of the Companies Act and not the liability of the purchaser that could be insisted upon for payment by M/s. Scrapt Traders, a position, glimpses of which were noticeable in the course of the hearing which has necessitated the present observation.
15. All the applications shall accordingly be treated as closed in terms of the directions and observations as above.