Calcutta High Court
The Hongkong And Shanghai Banking ... vs The Official Liquidator on 26 September, 2007
Equivalent citations: AIR2008CAL35, (2008)1CALLT150(HC), [2008]172COMPCAS599(CAL), AIR 2008 CALCUTTA 35, 2008 (3) AKAR (NOC) 377 (CAL.), 2008 AIHC (NOC) 304 (CAL.) = AIR 2008 CALCUTTA 35, 2008 CLC 369 (CAL), (2008) 142 COMCAS 599, (2008) 1 CALLT 150
Author: Surinder Singh Nijjar
Bench: Surinder Singh Nijjar, Tapen Sen
JUDGMENT Surinder Singh Nijjar, C.J.
1. This appeal has been filed challenging the order of the Trial Court dated 7th August, 2007 in C.A. No. 366 of 2006 in C.P. No. 162 of 2003 (Buxa Dooars Tea Company (India) Limited v. Hongkong & Shanghai Banking Corporation Limited.).
2. The case of the petitioner/appellant is that it is the owner of premises No. 31 B.B.D Bagh (South). Kolkata-.700 001. One Buxa Dooars Tea Company (India) Limited in liquidation (hereinafter referred to as the Company (in liquidation) since about 1978 was a tenant under the petitioner in respect of an air-conditioned office area measuring about 7031 sq. ft. on the second floor of the premises owned by the appellant. The Company (in liquidation) stopped paying rent to the petitioner in or about 1990. Therefore, an eviction suit had been filed against the Company (in liquidation) in the year 1990. The suit was, however, dismissed for default. Thereafter, the appellant, as the owner of the premises, again served a notice dated 12th January, 2004 on the Company (in liquidation), inter alia, terminating their tenancy in respect of the premises under Section 106 of the Transfer of Property Act, requiring the Company (in liquidation) to give up vacant and peaceful possession of the premises to the appellant. The Company failed to comply with the notice. Therefore, the appellant again filed a civil suit being C.S. No. 1 of 2005 in this Court seeking a decree for eviction of the Company (in liquidation) from the said premises, mesne profits and other reliefs. The suit was decreed in terms of prayer 'A' of the Master Summons taken out on behalf of the appellant (plaintiff) dated 10th March, 2005. The Company (in liquidation) filed an appeal from the aforesaid order decree dated 13th September, 2005. The Appeal Court passed a conditional stay order dated 20th December, 2005 directing the Company (in liquidation) to pay at the rate of Rs. 20 per sq. ft. for an area of 7013 sq. ft. per month until the appeal was heard and disposed of. The payment was directed to be made from the date of the decree, i.e. October 2005. It was also directed that in delault of payment of the amount, the stay granted will be automatically vacated. In terms of the aforesaid order, the Company (in liquidation) paid the initial aggregate amount of Rs. 5,62,480/- on 14th January, 2006 being the rent for the month of October, 2005 to January, 2006 at the rate of Rs. 1,40,620/- and a further monthly payment of Rs. 1,40,620/- on 15th February, 2006. Thereafter, the Company (in liquidation) defaulted in making payment in terms of the conditional stay order and the decree dated 13th September became executable. The fact of such default is recorded in the letter of the Advocate-on-Record of the appellant dated 3rd April, 2006. By order dated 17th August, 2007 the appeal itself was dismissed. It appears that the Company Petition No. 162 of 2003 was filed seeking winding up of the Company (in liquidation). By order dated 1st March, 2006 the Company Court passed the winding up order and the Official Liquidator was directed to forthwith take possession of the assets of the Company. The appellant came to know about the winding up order on 8th May, 2006. Till then the decree dated 13th September, 2005 had not been executed. The appellant, therefore, served a notice dated 10th May, 2006 on the Official Liquidator pointing out that on default having been committed by the Company (in liquidation) in making payment as directed by the Appeal Court on 20th December, 2005, from the month of March, 2006 the stay order passed by the Appeal Court stood automatically vacated. The appellant, therefore, put the Official Liquidator on notice that it had no right to remain in possession of the premises without making payment in terms of the order of the Appeal Court dated 20th December, 2005. It was also stated that the occupation charges for the month of March 2006 and April 2006 at the rate of Rs. 1,40,620/- per month have already fallen due and the same are payable forthwith. The Official Liquidator was, therefore, asked to hand over vacant possession as well as to make payment of the amounts due.
3. Relying on these facts the appellants had filed C.A. No. 366 of 2006 arising out of C.P. No. 162 of 2003 under Section 535 read with Section 458 of the Companies Act 1953, with the following prayers:
(a) The Official Liquidator be directed to disclaim and make over possession to the appellant of the said premises situated on the second floor of premises No. 31, B.B.D. Bagh (South), Kolkata-700001 more-fully described in annexure "A" to the affidavit in support of the Judges Summons.
(b) Injunction restraining the Official Liquidator from using or in any manner dealing with any portion of the said premises, other than handing over the said premises to the applicant, morefully described in annexure "A".
(c) Direction upon the Official Liquidator to pay Rs. 1,40,062/- per month on and from March, 2006 in terms of the order of the Hon'ble Appeal Court dated 20th December, 2005 till such time as the possession of the said premises is made over to the Applicant;
(d) Direction upon the Official Liquidator to forthwith remove his padlock from the entrance of the said premises morefully described in annexure "A" and thereafter not to interfere with the applicant's possession, occupation and user thereof;
(e) Ad interim order in terms of prayers above;
(f) Such further and/or order or orders be passed and/or direction or directions be given as this Hon'ble Court may deem fit and proper.
4. On 15th May, 2006 the petition was directed to be listed marked as 'For Order', two weeks after the Summer Vacation. In the meanwhile, the Official Liquidator was directed to carry out an inventory of the goods and assets of the Company (in liquidation) at the premises in question. The appellant was also directed to consider providing a godown to the satisfaction of the Official Liquidator, where the assets presently lying at the premises in question may conveniently and safely be stored till sale thereof. It was also directed that if godown space to the satisfaction of the Liquidator is provided, the assets may be shifted to the godown space. When the matter came up for hearing on 21st June, 2006, the Company Judge again directed the Official Liquidator to shift the goods from the office space immediately upon godown space being provided by the appellant to the satisfaction of Official Liquidator. The matter was again directed to appear as marked 'For Orders' two weeks hence.
5. The learned single Judge has taken note of the fact that notice of termination of the tenancy was given by the appellant on 11.10.04 prior to the order of winding up on 1.3.2006. The suit has been decreed on 13th January, 2005. The learned single Judge concluded that the applicant has chosen one course of action and can pursue the same by filing an application for execution of decree. The petitioner has taken advantage of the decree as sums payable after the passing of the decree till February, 2006 have been accepted. Having acted upon the decree the petitioner cannot be allowed to take recourse to another course of action viz. Disclaim. The learned single Judge further observed that: "by filing an application under Section 535 the petitioner intends to nullify the decree passed. This cannot be affirmed."
The Company has gone into liquidation subsequently and the applicant cannot be allowed to take advantage of the said liquidation proceedings by filing a disclaimer application when it has acted pursuant to the decree.
6. Consequently, the application for disclaimer was dismissed by order dated 10.8.07. Hence the present, appeal.
7. We have heard the learned Counsel for the parties at length.
8. Mr. Anindya Mitra, learned senior advocate appearing for the appellant, submits that the premises in question being the registered office of the Company (in liquidation), are no longer needed by the Company. The premises are also not required by the Official Liquidator for the winding up of the Company (in liquidation). The Company (in liquidation) cannot be permitted to take advantage of its own wrong having a committed a default the Company (in liquidation) had become a rank trespasser in the tenanted premises. The entire situation is such that neither the appellant is being paid the occupation charges of the tenanted premises nor the possession is being made over to the appellant. The fact that the Company is in liquidation is a clear indicator of the fact that the Company is not in a position to pay the occupation charges. Therefore, by retaining the possession thereof the Company (in liquidation) would be burdened by an onerous obligation. In such circumstances, a direction is required to be issued to the Official Liquidator to disclaim the property in question.
9. In support of the submission the learned Counsel has relied on Judgment of the Supreme Court in the case of Ravindra Ishwardas Sethna and Anr. v. Official Liquidator, High Court, Bombay and Anr. and a Judgment in the case of Ashoka Steel Corporation Pvt. Ltd. (in Liquidation) & Hariram Chamaria and Ors. v. The Official Liquidator, High Court at Calcutta 1999(2) CLJ 491. On the other hand, the Official Liquidator has submitted that the tenancy rights of the premises are valuable assets belonging to the Company (in liquidation). Learned Counsel for the Official Liquidator further submitted that the disclaimer application has been made by the Company during the subsistence of the landlord and tenant relationship. Once the decree has been passed appellant would have no right to claim any rent. There is no subsisting relationship of landlord and tenant. The learned single Judge has rightly held that the only remedy now available to the appellant is to seek execution of the decree. Both remedies cannot be availed at the same time. In support of the submission the learned Counsel has relied on a Judgment Board of Trustees, Port of Kolkata, In re: (2004) 119 Company Cases page 637 and a Judgment of the Supreme Court in the case of United Bank of India v. Official Liquidator and Ors. (1994)79 Company Cases page 262.
10. Mr. Pratap Chatterjee, learned Counsel for the intervenor, submitted that this application for disclaimer has been made dishonestly. The decree in the Civil Court has been obtained by fraud. The Official Liquidator, according to Mr. Chatterjee, is colluding with the appellant. The application under Section 535 is wholly misconceived. At the time when the application was filed, the appellant had the decree for eviction in his favour. Once the decree was passed there was a severance in the relationship of landlord and tenant. Thereafter, there would be no tenure. Therefore, there could be no onerous covenant as the Company (in liquidation) would not be liable to make any payment by way of rent.
11. We have considered the submission made by the learned Counsel for the parties.
12. In the case of Ravindra Ishwardas Sethna and Anr. (supra) the Supreme Court considered the scope and ambit of the powers of the Liquidator under Section 457 of the Companies Act. The relevant provisions of the aforesaid section read as under:
457. Powers of Liquidator.-(1) The Liquidator in a winding up by the (Tribunal) shall have power, with the sanction of the (Tribunal),
(b) to carry on the business of the company so far as may be necessary for the beneficial winding up of the company; ....
13. In this case the Company (in liquidation) had its office in two shops, which were owned by the appellants. Upon the winding up order being made, the Official Liquidator took possession of the aforesaid two shops. Subsequently, the Official Liquidator sought directions of the Company Court as to whether the premises should be let out on lease or licence or whether the furniture and fixtures in the premises should be sold. The Company Court directed that the premises be given on caretaker basis after obtaining proper document on compensation that was fixed by the Court. After following due procedure the Liquidator entered into an agreement with the second respondent and gave possession to the second respondent on terms and conditions set out in the agreement. The appellants being the landlords of the premises took out a Judge's summons praying for a direction to terminate the caretaker's agreement and to hand over the vacant and peaceful possession of the premises to the appellant. The Company Judge rejected the claim of the appellant. The Judgment of the learned single Judge was upheld by the Division Bench of the Bombay High Court. The landlords had approached the Supreme Court by way of special leave petition.
14. Interpreting the aforesaid provisions of the Act, the Supreme Court held that Section 457 of the Companies Act enables the Liquidator to carry on the business of the Company so far as may be necessary for the beneficial winding up of a Company. This power cannot be exercised at the discretion of the Liquidator without the sanction of the Court. The Liquidator cannot carry on business for any other purpose except the purpose or for which the power is conferred upon him, viz., for the beneficial winding up of the Company. He cannot carry on any business on the ground that it would be beneficial to the creditors or the contributors. It was observed as follows:
6...The jurisdictional fact which must be ascertained and established for the exercise of the power by the Liquidator to carry on business of a Company, is that carrying on of the business of the Company is necessary for the beneficial winding-up of the Company. However, the language of the section being unambiguous and clear, one does not need the assistance of precedents to come to a conclusion that the Liquidator with the sanction of the Court can carry on the business of the Company only to the extent that such carrying on of the business is necessary for the beneficial winding up of the Company.
8. The Liquidator has adopted a contradictory posture which the learned Company Judge has unfortunately overlooked. If the Liquidator wanted to exercise power under Section 457(1)(b) to carry on business of the Company so far as necessary for its beneficial winding-up, the business which was to be carried on must be the business of the Company. Giving premises on lease, licence or under caretaker's agreement was not the business of the Company. If some other business of the Company was to be carried on, the use of the office premises would be necessary for carrying on the business of the Company. If possession of the premises was to be retained for carrying on the business of the Company, the Liquidator could not have sought the direction of the Court to hand over possession under any nomenclature such as lease, licence, caretaker's agreement or any other facade to the second respondent. Now if the Liquidator wanted to exercise power under Section 457(1)(b), he ought to have, with reference to the object clause in the Memorandum of Association of the Company, shown that giving on lease or licence or under caretaker's agreement was part of the routine business of the Company. Such is not the case here. In fact, as the business has come to a grinding halt, the office premises are of no use to the Liquidator. He has, therefore, devised a scheme by which he can knock out the compensation for the use and occupation of the premises, not necessary for the use of the Company, in contravention of the Rent Act and unfortunately the Court accorded sanction to this venture of the Liquidator disregarding the relevant provisions of the Companies Act.
15. These observations make it clear that if the Liquidator wants to exercise power under Section 457(1)(b), the business to be carried on must be with reference to the object clause in the Memorandum of Association of the Company. It was also observed that as the business had come to a grinding halt, the office premises are of no use to the Liquidator. Similar is the position in the present case. No business is being transacted by the Company for the past number of years. Therefore, the premises in dispute are of no use to the Liquidator. In fact, the learned Counsel appearing for the Official Liquidator has categorically stated that the Company is liable to pay the amounts due as the occupation charges fixed by the Appellate Court. In fact, the Company is not in a position to pay any amount. The only reason given for not restoring possession of the premises to the appellant was that some office furniture was lying in the premises. The godown offered by the appellant in terms of the Court's order dated 15th May, 2006 was not to the satisfaction of the Liquidator. The Liquidator is quite prepared to hand over the vacant possession of the premises provided the appellant makes available a suitable godown for the office furniture. Therefore, it is quite clear that the premises are not required to carry on the business of the Company for the beneficial winding up of the Company.
16. A learned single Judge of this Court, in the case of Ashoka Steel Corporation (supra) has also interpreted the provisions of Sections 446 and 535 of the Companies Act. In that case also the Company (in liquidation) was a tenant. The original period of the lease expired by efflux of time. Therefore, an application was made by the owner for a direction to the Official Liquidator to make over the vacant possession of the tenanted premises or in the alternative, for a direction to the Official Liquidator to disclaim the property. It was observed as follows:
26. In the said circumstances, the Official Liquidutor could have no reason to hold on to the property, the leasehold right whereof could no longer be said to be part of the assets of the Company (in liquidation) ....
29. Applying the ratio of the said two decisions and the principles explained therein, I am unable to accept Mr. Rajshekhar's submissions that the Official Liquidator should remain in possession of the land in question, since it appears to me that the Official Liquidator can have no reason to remain in possession of the property in question for the proper completion of the winding up of the Company and his continued possession therein will, in fact, prove onerous to the said process.
17. We are in respectful agreement with the observations of Justice Altamas Kabir, learned single Judge of this Court (as His lordship then was). Section 535 of the Companies Act provides that:
535(1) where any part of the property of a company which is being wound up consists of:
(a) land of any tenure, burdened with onerous covenants;
(b) shares or stock in companies;
(c) any other property which is unsaleable or is not readily saleable, by reason of its binding the possessor thereof either to the performance of any onerous act or to the payment of any sum of money; or
(d) unprofitable contracts;....
18. A bare perusal of this section shows that it is intended to help the Company to get rid of burdensome assets, which are unproductive and are not necessary for the beneficial winding up of the Company. We are unable to accept the submissions of Mr. Chatterjee that the disclaimer application is not maintainable as there is no subsisting tenure of land upon the decree of the Civil Court having been passed. The term "burdensome covenant" would only relate to any land of any tenure held by the Company. Clauses (b) and (c) relate to other assets, in the form of stocks and shares and any other property. Under Clause (c) a disclaimer application would lie to get rid of any property possessed by the Company which is burdened with the performance of any onerous act or to the payment of any sum of money. To accept the submission of Mr. Chatterjee, would be to reconstruct Section 535 of the Companies Act by deleting Clauses (b), (c) and (d) thereof. It is well settled that whilst, construing a statutory provision, the Court would not reconstruct the same. Even otherwise accepting this submission would be against the spirit and intention of the section, that enables the Company (in liquidation) to get rid of "assets" which have, in fact, become burdensome liabilities. In that view of the matter, we are of the opinion that in the present also the continued possession by the Official Liquidator of the premises will, in fact, prove onerous to the winding up process. Under the orders of the Appellate Court dated 20th December, 2005, the Company would be required to pay a sum of Rs. 1,40,620/- per month. Since the Company is already in liquidation it would hardly be in a position to pay such a huge amount of money every month. Even, the Judgment of the Supreme Court in the case of Union Bank of India (supra) would be of no assistance to the case put forward by the Official Liquidator. In that case also it has been clearly held that under Section 535 of the Companies Act, 1956, the High Court may give leave to the Official Liduidator to disclaim land of any tenure which is part of the property of the Company (in liquidation) if it is burdened with onerous covenants. It has also been held that the intention of Section 535 is to protect the creditors of the Company (in liquidation) and not mulet them by reason of onerous covenants. We have already noticed above that the Company would have to pay a huge amount of occupation charges under the orders of the Appeal Court. Therefore, it would be in the best interest, of the Company (in liquidation) to get rid of this liability. It is completely unproductive, and cannot possibly be necessary for the beneficial winding up of the Company. In the case of Board of Trusties, Port of Kolkata (supra) it has been clearly held that a disclaimer ought to be ordered by the Court only if it is essentially in the interest of the Company being wound up. If retention of such property is required to effectively carry out the winding up proceeding, no disclaimer would be ordered. In our opinion, these observations would not be applicable in the facts and circumstances of this case. Rather the observations would support the case put forward by the appellant. No reason has been put forward by the Official Liquidator as to why premises would be necessary for the beneficial winding up of the Company (in liquidation).
19. We are also unable to agree with the finding of the learned single Judge that allowing the disclaimer application would result in nullifying the decree passed in favour of the appellant. The rights flowing to the appellant from the decree dated 10.3.05 in C.S. No. 1 of 2005, are wholly independent from the cause of action in the present proceedings. One proceeding can not be intermingled with the other. Even after the delivery of possession, pursuant to the order passed in this appeal, the appellant would be entitled to seek execution of the part of the decree which remains unsatisfied. Therefore, it cannot be said that the order allowing disclaimer would have the effect of nullifying the decree. In case the application for disclaimer is dismissed the decree would still be executable, in its entirety. The remedy under the Companies Act is wholly independent of the remedy that would be available to the appellant on the basis of the decree of the Civil Court. On the facts of that case in Ravindra Ishwardas Sethna's case (supra) at has been held that, the land of which the disclaimer was sought was subject to a 99 year lease at an annual rent of Rs. 1,200/-. The lease was to extend for another 37 years and was thereafter liable to renewal for a further 99 years. That too, at a meagre rental of Rs. 1200/- per annum. It was, therefore, held that the land shall not burden with any onerous covenant. Such is not the position in this case.
20. We are also unable to accept the submission of Mr. Chatterjee that the Official Liduidator has colluded with the appellant. No material is placed before the Court substantiate such a serious allegation. This bold assertion of Mr. Chatterjee has to be stated only to be rejected. Allegations such as collusion and mala fide can be accepted by the Court only on the clear and cogent proof thereof. There is no such proof in this case.
21. The appeal is, thus, allowed. The Judgment of the learned single Judge is set aside. A direction is issued to the Official Liquidator in terms of prayer Clause "C" of the stay petition, which reads as follows:
(c) The Official Liquidator be directed to disclaim and make over possession to the petitioner of the said premises situated on the second floor of premises No. 31, B.B.D. Bagh (South), Kolkata - 700001 more fully described in annexure "A" hereof.
The appellant shall be at liberty to pursue its remedy in accordance with law for execution of the decree that remains unsatisfied.
Tapen Sen, J.
22. I agree.