Bombay High Court
The Official Liquidator High ... vs Modistone Ltd on 5 May, 2017
Bench: R.D. Dhanuka
ppn 1 olr-136.15 in cp-166.02(j).doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
OFFICIAL LIQUIDATOR's REPORT NO.136 OF 2015
IN
COMPANY PETITION NO.166 OF 2002
In the matter of Companies Act, I of
1956;
And
In the matter of Modi Stone Ltd. (In
Liqn).
Board of Industrial and Financial Reconstruction .. Petitioner
---
Mr.Pravin Samdhani, Senior Counsel with Mr.Simil Purohit a/w
Mr.Mangesh Nalawade i/by Mr.Jayesh Vyas for Modi Rubber Ltd.
Mr.Cherag Balsara a/w Mr.Ashraf Dimondwala i/by Dimondwala & Co.
for Bharat Marketing and Advertising Co. Pvt. Ltd.
Mr.Sharan Jagtiani a/w Mr.Aditya Pimple for the official liquidator.
Ms.Yogini D. Chauhan, Deputy Official Liquidator present.
---
CORAM : R.D. DHANUKA, J.
RESERVED ON : 17th February 2017
PRONOUNCED ON : 5th May 2017
Judgment :-
. The Official Liquidator has placed this official liquidator's
report for declaration of lease deed dated 30th September 1997 executed
between Modi Stone Limited (in liquidation) and Modi Rubber Limited
and sub-lease dated 20th May 2002 executed between Modi Rubber
Limited and Bharat Marketing and Advertising Company Private Limited
(for short "Bharat Marketing") as void and has also prayed for an order
and direction against the said Bharat Marketing to hand over possession
of the property of the company in liquidation to the official liquidator.
ppn 2 olr-136.15 in cp-166.02(j).doc
2. During the course of the arguments, learned counsel for the
official liquidator, however, did not press any relief in so far as
declaration of lease deed dated 30th September 1997 executed between
the company in liquidation and Modi Rubber Limited as void but
pressed only for the relief in so far as the sub-lease dated 20 th May 2002
executed between Modi Rubber Limited and Bharat Marketing is
concerned. Some of the relevant facts for the purpose of deciding this
report are as under :-
3. On 30th September 1997, Modi Stone Limited (in
liquidation) executed a Lease Deed in favour of the Modi Rubber
Limited in respect of the property of the company situated at Flat No.2,
ground floor along with garage in the basement of the building known as
"Normandie Co-operative Housing Society, Carmichael Road, Mumbai-
400 026 on the terms and conditions recorded in the said lease deed.
4. Clause 11 of the said lease deed dated 30th September 1997
provided that lessee shall not sublet, assign, underlet or part with
possession of the demised premises or any part thereof or permit the
same to be used on leave and license or caretaker or any other basis
without the previous consent in writing of Modi Stone Ltd. which
shall not be unreasonably withheld in case of a respectable and
responsible party. Clause 13 of the said lease deed provided that lessee
shall peaceably surrender yield up and deliver up the demised premises
at the end or on sooner determination of the said term together with all
the additions thereto and all fittings and fixtures thereto to the lessor in
good and substantial repairs order and conditions.
ppn 3 olr-136.15 in cp-166.02(j).doc
5. Clause (IV) of the said lease deed dated 30th September
1997 provides for re-entry of the lessor upon demised premises or any
part thereof upon determination of the lease deed but without prejudice to
any claim right of action or remedy which either of the parties may
have against the other in respect of any antecedent breach, non-
performance or non-observance of any of the covenants, conditions,
stipulations or obligations therein contained. It is further provided that
the lessor shall have given a notice to the lessee in writing to make
good the breach of covenant in respect of which the re-entry is intended
and if failed to do so within a reasonable time but not less than 30 days
after receipt of such notice. The said lease deed was not registered. The
lease period mentioned in the said document was for the term of 10 years
and 11 months commencing from 1 st October 1997 and expiring in the
month of July 2008.
6. It is the case of Modi Rubber Limited that on 1 st October
1997, the said Modi Rubber Limited addressed a letter to Modi Stone
Limited alleging that all the rooms in the said flat needed complete
renovation including change of flooring and new fittings. In the said
letter, it was alleged that since the said flat was required for its senior
executive, it was needed to be renovated to high standard. The said
Modi Rubber Limited by the said alleged letter requested Modi Stone
Limited to convey its decision in the matter.
7. It is the case of Modi Stone Limited that by letter dated 7 th
October 1997, Modi Stone Limited informed Modi Rubber Limited that
if Modi Rubber Limited agrees to renovate the said flat at its own costs,
the parties can come to some mutual understanding in respect of certain
ppn 4 olr-136.15 in cp-166.02(j).doc
clauses in the lease deed. By letter dated 12 th October 1997, Modi Rubber
Limited has alleged to have informed Modi Stone Limited that Modi
Rubber Limited will agree to renovate the said flat which will require
heavy expenditure on renovation, in excess of Rs.50 lakh and if it is
required to carry out such repairs and renovation, they will have the right
of two more extensions beyond the stipulated period on the same terms
and conditions as contained in the lease deed dated 30 th September
1997. By the said letter dated 12 th October 1997, the said Modi Rubber
Limited asked Modi Stone Limited to confirm as to whether Modi
Stone Limited was agreeable to prepare an addendum to the lease and
on that condition, Modi Rubber Limited will incur expenditure in excess
of Rs.50 lakh on renovation of the said flat.
8. It is the case of Modi Rubber Limited that on 18 th October
1997, the Modi Stone Limited addressed a letter to Modi Rubber Limited
and agreed to confer upon the said Modi Rubber Limited the right to
extend the lease by having two more extensions for the same period of
10 years each beyond stipulated period on the same terms and conditions
as contained in the lease deed dated 30th September 1997. It was alleged
in the said letter that upon exercising the right, the lease period will
automatically extend and there will be no need for entering into a new
agreement.
9. It was, however, alleged to have been clarified in the said
letter that any renovation made by Modi Rubber Limited will not be
removed from the flat at the time of the said Modi Rubber Limited
handing over vacant and peaceful physical possession of the said flat to
Modi Stone Limited.
ppn 5 olr-136.15 in cp-166.02(j).doc
10. It is the case of Modi Rubber Limited that the said company
addressed a letter to Modi Stone Limited on 11th February 1998 informing
the said company that as per the understanding arrived at between the
parties, the said Modi Rubber Limited had alleged to have carried out
and completed renovation of highest standard in the said flat. According
to the said alleged letter, the cost of renovation alleged to have been
incurred by Modi Rubber Limited was Rs.54.35 lakh. Modi Stone
Limited, by its letter dated 1st March 1998 to Modi Rubber Limited, has
conveyed that it was satisfied with the quality of work and the timely
completion of the renovation work carried out by the said Modi Rubber
Limited and has alleged to have appreciated that the said Modi Rubber
Limited had invested a heavy amount of Rs.54.35 lakh on the renovation
work as Modi Stone Limited was not financially in a position to
undertake to the said renovation work. It is the case of the official
liquidator that all these correspondence alleged to have been exchanged
between Modi Stone Limited and Modi Rubber Limited are backdated
and fabricated. There is no acknowledgment of any of these letters
alleged to have been exchanged between the parties.
11. The said Modi Stone Limited filed an application being case
No.32 of 1998 under Section 15(1) of the Sick Industrial Companies
(Special Provisions) Act, 1985 (SICA) with the Board of Industrial and
Financial Reconstruction (BIFR). By an order dated 15th April 1998,
Modi Stone Limited was declared as a Sick Industrial Company in terms
of Section 3(1)(o) of the SICA. Thereafter, Modi Stone Limited filed
rehabilitation proposal with the BIFR on 5 th November 1998. By an
order dated 25th April 2001, the said BIFR decided the said proposal and
recommended winding up of the said Modi Stone Limited.
ppn 6 olr-136.15 in cp-166.02(j).doc
12. By its letter dated 11th May 2001, the BIFR forwarded
copies of the said orders to the Registrar of this Court. On 8 th August
2001, the appeal filed by Modi Stone Limited before AAIFR came to be
dismissed. On 24th January 2002, this Court registered a winding up
petition on receipt of papers from the BIFR. The said winding up petition
came to be accepted by this Court.
13. It is the case of Modi Rubber Limited that on 4 th May 2002,
the said Modi Stone Limited addressed a letter to Modi Rubber Limited
replying to the letter dated 16th April 2002 and requesting Modi Stone
Limited to grant written permission in respect of the sub-lease of the said
property in favour Bharat Marketing thereby purporting to have granted
consent to Modi Rubber Limited for execution of sub-lease in favour of
Bharat Marketing. In the said alleged letter, it was mentioned that Bharat
Marketing would be made aware of and agree to be bound by the terms
of the lease deed dated 30th September 1997 read with deed of
confirmation dated 20th May 1999 and this would be mentioned in the
sub-lease itself.
14. It was alleged to have been mentioned that the said sub-lease
should beside the normal clauses have a stipulation that in case of Modi
Rubber Limited did not pay the rent to Modi Stone Limited in terms of
lease deed dated 30th September 1997, the rent would be liable to be
recovered by Modi Stone Limited directly from Bharat Marketing. It was
further mentioned that in the event of Modi Rubber Limited surrendering
the premises, Bharat Marketing would become the tenant of Modi Stone
Limited and the tenancy would be subject to the terms and conditions as
existing between Modi Stone Limited and Modi Rubber Limited. It is the
ppn 7 olr-136.15 in cp-166.02(j).doc
case of the official liquidator that these letters alleged to have been
executed by Modi Stone Limited in favour of Modi Rubber Limited and
also Bharat Marketing are disputed by the official liquidator.
15. On 20th May 1999, the said Modi Stone Limited and Modi
Rubber Limited executed a deed of confirmation thereby confirming the
execution of lease deed dated 30th September 1997. The said confirmation
deed was registered on 27th January 2000.
16. In the continuation Deed dated 20th May 1999, there is no
reference to any of the correspondence alleged to have been exchanged
between Modi Stone Limited and Modi Rubber Limited alleging
extension of lease deed provided in the lease deed dated 30 th September
1997. On 20th May 2002, the said Modi Rubber Limited has alleged to
have executed a sub-lease with Bharat Marketing. In the said sub-lease,
there is a reference to the lease deed dated 30th September 1997 and
registered deed of confirmation dated 20th May 1999. There is also a
reference to the letter dated 16th April 2002 alleged to have been
addressed by Modi Rubber Limited to Modi Stone Limited and letter
dated 4th May 2002 alleged to have been addressed by Modi Stone
Limited to Modi Rubber Limited requesting for written permission to
grant sub-lease and the said permission alleged to have been granted by
Modi Stone Limited respectively. In the said sub-lease also, there is no
reference to any of the other correspondence alleged to have been
exchanged between Modi Stone Limited and Modi Rubber Limited
regarding extension of lease period provided in the lease deed dated 30 th
September 1997. This sub-lease is not registered.
ppn 8 olr-136.15 in cp-166.02(j).doc
17. In the said sub-lease deed dated 20 th May 2002, it was
alleged that the said sub-lease would be for a term equivalent to the
unexpired residue less the last three days of the term created by the
recited indenture of lease deed dated 30th September 1997.
18. The said Modi Stone Limited is ordered to be wound up by
an order dated 25th July 2002 passed by this Court and the official
liquidator of the said company Modi Stone Limited in liquidation came to
be appointed. On 10th January 2003, Modi Stone Limited has alleged to
have addressed a letter to Bharat Marketing to pay rent directly to Modi
Stone Limited as Modi Rubber Limited had defaulted in paying rent to
Modi Stone Limited (in liquidation). On 14th June 2003, Bharat
Marketing paid rent directly to the official liquidator.
19. On 31st October 2003, the official liquidator addressed a
letter to Bharat Marketing to produce documentary proof as to how the
said company was occupying the premises of the company (in
liquidation) within seven days from the date of receipt of the said letter
and informed that in case of failure, the official liquidator shall take
possession of the said premises without further notice.
20. By letter dated 5th November 2003, (wrongly stated as 5th
October 2003), Bharat Marketing informed the official liquidator about
purported sub-lease dated 20th May 2002 and forwarded a copy thereof to
the official liquidator.
21. In the affidavit filed by Bharat Marketing in this Court, it is
alleged that Bharat Marketing was paying rent to Modi Stone Limited
ppn 9 olr-136.15 in cp-166.02(j).doc
between January 2003 and May 2003 which period was much after the
order of winding up and the appointment of the official liquidator.
22. On 9th March 2004, the official liquidator filed a report for
seeking direction to take possession of the premises and to appoint a
Valuer for determining the market rent. On 23 rd April 2004, Bharat
Marketing filed a reply to the said report dated 9 th March 2004. On 8th
July 2004, this Court adjourned the said report to 5th August 2004 and
ordered that in the meantime, the said Bharat Marketing can continue to
deposit monthly rent without prejudice to the rights and contentions of
the parties.
23. The said Bharat Marketing recorded that in the hearing of
the official liquidator's report dated 9th March 2004, this Court directed
the official liquidator to encash a draft submitted by the said Bharat
Marketing which was lying with the official liquidator towards the
payment of monthly rent. The official liquidator accepted the rent of
Rs.4,92,520/- from Bharat Marketing pursuant to the order passed by
this Court without prejudice to the rights and contentions of the official
liquidator and issued a receipt on 12th July 2004.
24. On 8th August 2008, Modi Rubber Limited has alleged to
have addressed a letter to Bharat Marketing purporting to extend the
term of the sub-lease for another period of 10 years and 11 months less
the last three days of the extended term on the same terms and
conditions as of lease deed dated 30th September 1997 and directed
Bharat Marketing to pay rent directly to the official liquidator. The
official liquidator has placed this document on record.
ppn 10 olr-136.15 in cp-166.02(j).doc
25. On 4th March 2011, the official liquidator addressed a letter
to Bharat Marketing. The official liquidator referred to an order dated 24 th
July 2009 passed by this Court in Company Application No.426 of
2009 filed by Modi Stone Employees Union directing the official
liquidator to take possession of the said premises after verifying that there
are no restraint order pertaining to the said premises. By the said letter,
the official liquidator called upon Bharat Marketing to hand over
possession of the said premises within two weeks from the date of said
letter. In the said letter, it was alleged that in case of failure on the part
of Bharat Marketing to hand over possession of the said premises, the
matter would be reported to this Court for initiating necessary
proceedings against the said company.
26. On 14th March 2011, the said Bharat Marketing through its
advocate addressed a letter to the official liquidator and referred to the
order dated 8th July 2004 passed by this Court directing Bharat Marketing
to continue to deposit monthly rent without prejudice to the rights and
contentions of the parties. In the said letter, it was alleged that in
compliance of the said order, the said company had been paying the rent
regularly to the official liquidator. Bharat Marketing called upon the
official liquidator to withdraw the said letter dated 4 th March 2011. The
official liquidator forwarded a copy of the Company Application No.426
of 2009 filed by Modi Stone Employees Union to the advocate of Bharat
Marketing and a copy of the order passed by this Court. The said Bharat
Marketing through its advocate's letter dated 5th April 2011 forwarded
copies of the lease deed dated 30th September 1997 and sub-lease dated
20th May 2002 and also a copy of the confirmation deed dated 20 th May
1999 and letter of extension.
ppn 11 olr-136.15 in cp-166.02(j).doc
27. Bharat Marketing thereafter filed a Company Application
No.697 of 2011 inter alia praying for leave under Section 446(1) of the
Companies Act, 1956 to file a declaratory suit in the Court of Small
Causes, Bombay in respect of the premises against the official liquidator.
By an order dated 13th April 2011, this Court granted leave in favour of
Bharat Marketing to file a declaratory suit in the Court of Small Causes,
Bombay. After granting the said leave under Section 446 (1), the said
Bharat Marketing on 18th April 2011 filed a suit before the Court of
Small Causes at Bombay against Modi Rubber Limited, Modi Stone
Limited (in liquidation) and the official liquidator inter alia praying for a
decree that the said Bharat Marketing is the lawful sub-tenant or deemed
tenant of Modi Rubber Limited and/or Modi Stone Limited (in
liquidation) and the official liquidator in respect of the premises and also
prayed for permanent injunction and order against the defendants in the
said suit. The official liquidator has filed a written statement in the said
suit denying the allegations made in the affidavit filed by Bharat
Marketing.
28. On 10th August 2012, the Court of Small Causes passed an
order on interim application filed by Bharat Marketing for temporary
injunction against the defendants to the said suit from dispossessing the
plaintiff or from doing any act so as to disturb or interfere with his
peaceful and exclusive use, occupation, enjoyment and possession of the
suit premises without following due process of law.
29. On 5th February 2014, the official liquidator filed a report
before this Court for permission to sell the subject movables/articles lying
in the premises situated at 18, Camac Street, Kolkatta and also for
ppn 12 olr-136.15 in cp-166.02(j).doc
permission to ascertain the present fair market rate/rent in respect of
the premises in question.
30. The said Modi Rubber Limited by its letter dated 26 th March
2014 informed the official liquidator that the said company had
advanced loan aggregating to Rs.25,64,76,000/- to the Modi Stone
Limited- the company in liquidation @18% p.a. interest and with a view
to secure the said loan, the company in liquidation had created mortgage
of various assets of the company in liquidation including the flat in
question. On 26th February 2015, the official liquidator filed its report
inter alia praying for various reliefs already summarized as aforesaid.
This official liquidator's report was opposed by Modi Rubber Limited as
well as Modi Stone Limited and Bharat Marketing by filing separate
affidavits-in-reply and by making oral submissions across the bar.
31. Mr.Jagitiani, learned counsel appearing for the official
liquidator invited my attention to the lease deed dated 30 th September
1997, alleged sub-lease dated 20th May 2002 and various correspondence
referred to aforesaid, the averments made in the declaratory suit filed by
Bharat Marketing before the Court of Small Causes and also the
affidavits filed by Modi Rubber Limited and Bharat Marketing and other
pleadings on record.
32. It is submitted by the learned counsel for the official
liquidator that the BIFR had made a recommendation on 25th April 2001
to wind up company in liquidation and forwarded the said order made
by the BIFR to this Court. This Court registered a winding up petition by
an order dated 24th January 2002. He submits that winding up of the
ppn 13 olr-136.15 in cp-166.02(j).doc
company shall be commenced under Section 441 of the Companies Act,
1956 from the date when the reference is made by the BIFR to this Court.
33. It is submitted that the final order of winding up under
Section 536(2) of the Companies Act, 1956 is not relevant. On the date
of recommendation of the winding up by the BIFR, the winding up
proceedings commences.
34. Learned counsel for the Official Liquidator placed reliance
on the judgment of Supreme Court in case of NGEF Ltd. vs. Chandra
Developers Pvt. Ltd., (supra) and more particularly paragraphs 54 to 57,
60 and 67 and would submit that the company court is custodian of the
interest of the company and its creditors. The Court has to apply its mind
as regard the question whether the disposition of the assets of the
company is in the interest of the creditors or not. He submits that the
provisions of section 536(2) of the Companies Act, 1956 enures to the
benefits of the creditors and it is duty of the company court to see that
the transaction is one which must benefit the creditors of the company.
He submits that under section 536(2) disposal of the assets of the
company has to be dealt with and not the disposal of the asset by the
company. He submits that sub-lessee has not filed any application or
raised any plea to validate the transaction of alleged sub-lease between
Modi Rubber Ltd. and the sub-lessee.
35. Learned counsel for the Official Liquidator placed reliance
on the unreported judgment of this court delivered on 5 th September,2012
in case of BIFR vs. Hindustan Transmission Products Ltd. (In
liquidation) in OLR No.145 of 2011 and more particularly paragraphs 19
ppn 14 olr-136.15 in cp-166.02(j).doc
and 24 and would submit that under section 536(2) of the Companies Act,
1956, any disposition of the property made after commencement of
winding up is void unless the court otherwise orders. He submits that
even if the alleged transaction of sub-lease has to be validated under
section 536(2) of the Companies Act, 1956, the applicant has to plead and
prove not only that the transfer is bonafide but also that the transfer was
in the interest of the company. He submits that if the transfer of the
property is not in the best interest of the company, it cannot be validated.
He submits that the said judgment was delivered by this court in the
Official Liquidator's Report and the company court having come to the
conclusion that the transaction was not in the interest of the company and
its creditors did not be validate it and accordingly directed the Official
Liquidator to take physical possession of the said property for the benefit
of the creditors and workers of the company in liquidation. He submits
that the said judgment squarely applies to the facts of this case.
36. Learned counsel for the Official Liquidator placed reliance
on the judgment of this court in case of Sunita Vasudeo Warke
vs.Official Liquidator, 2013(2) Mah.L.J.777 and more particularly
paragraphs 10 to 12, 15 and 17 in support of the submission that under
section 536(2) of the Companies Act any disposition of the property of
the company which has been made after the commencement of winding
up proceedings is void unless the court otherwise orders. He submits that
unless the transaction is effected bonafide in the ordinary course of
current business of company, such transaction cannot be validated. He
submits that in this case neither it is pleaded nor proved by Modi Rubber
Ltd. that further disposition of the property by it by granting the property
ppn 15 olr-136.15 in cp-166.02(j).doc
on sub-lease in favour of Bharat Marketing in the best interest of the
company in liquidation and was in ordinary course of business and was
bonafide. It is submitted that even if this court comes to the conclusion
that an oral application can be made by the respondents for validating the
alleged sub-lease, the respondents have failed to plead and prove that the
said transaction was made in ordinary course of business was bonafide
and was in the best interest of the company in liquidation.
37. Learned counsel for the Official Liquidator placed reliance
on the judgment of Calcutta High Court in case of Re. Prudential Capital
Markets Ltd. (In Liquidation) (2007) 140 Comp. Cas 754 Cal. and in
particular paragraphs 1, 3, 4, 9, 10, 12, 17 to 23, 27, 33 to 43, 48 to 54
and 60. He submits that under section 536(2) of the Companies Act,
company court can declare the disposition of the property of the company
even by a third party as void. He submits that Calcutta High Court in the
said judgment had declared the lease deed as void and had held that the
transferee was not entitled to any protection under Andhra Pradesh Rent
Control Act and directed the transferee to deliver vacant possession of the
shop room to the Official Liquidator. He submits that the said order was
passed by Calcutta High Court on a letter for direction filed by the
Official Liquidator, identical to the procedure of filing report. He submits
that the alleged sub-lease in favour of Bharat Marketing by Modi Rubber
Ltd. was admittedly after commencement of the winding up and without
obtaining consent of the company court and is thus ex-facie void under
section 536(2). He submits that even otherwise the said unregistered sub-
lease is illegal under the provisions of Transfer of Property Act, 1882. He
submits that the judgment of Calcutta High Court squarely applies to the
facts of this case.
ppn 16 olr-136.15 in cp-166.02(j).doc
38. It is submitted by the learned counsel that the said Bharat
Marketing cannot seek protection under the provisions of Maharashtra
Rent Control Act in view of the fact that the said alleged sub-lease was
created after commencement of the winding up of the company in
liquidation. He also placed reliance on section 107 of the Transfer of
Property Act, 1882.
39. Learned counsel for the Official Liquidator placed reliance
on the judgment delivered by the Division Bench of this court in case of
The Superintendent of Stamps and Chief Controlling Revenue
Authority, Bombay vs. Govind Parmeshwar Nair, 1967 Mh.L.J. 641 and
in particular paragraphs 12, 13 and 15 in support of the submission that
the transaction may amount to disposition of the property though it may
not amount to the transfer of the property. The disposition is a word
having much wider connotation than transfer. It is submitted that creation
of sub-lease of the property in liquidation after commencement of the
winding up of the company in liquidation amount to disposition which is
void under section 536(2) of the Companies Act, 1956.
40. Learned counsel for the Official Liquidator also placed
reliance on the dictionary meaning of the term 'disposition'. He also
placed reliance on the meaning of disposition from the Black's Law
Dictionary, Sixth Edition. He submits that according to the dictionary
meaning of 'disposition' according to the learned author, even transferring
of the property to the care or possession of another also amounts to
disposition. He submits that the creation of sub-lease in favour of Bharat
Marketing handing over possession thereof to the sub-lessee amounts to
disposition under section 536(2) of the Companies Act.
ppn 17 olr-136.15 in cp-166.02(j).doc
41. Learned counsel for the Official Liquidator also placed
reliance on the Words and Phrases and more particularly on the word
disposition. He submits that though the property can be dealt within one
of the number of ways, the property remain in existence and such dealing
with the property would amount to disposition.
42. Learned counsel for the Official Liquidator placed reliance
on the judgment of Chancery Division in case of In re J.Leslie
Engineers Co. Ltd. (In Liquidation) (1976) The Weekly Law Reports,
292 and in particular pages 293, 294, 297, 299, 303 and 304 in support of
the submission that the disposition of the property of the company in
liquidation in favour of the creditors by the ex-directors or transfer of the
property by a third party directly or indirectly would amount to
disposition of the assets of the company and would attract section 536(2)
of the Companies Act, 1956. He submits that the consent for subletting in
favour of Bharat Marketing was purported to have been given by the ex-
directors of the company after commencement of the winding up and thus
would attract section 536(2) of the Companies Act, 1956 and is void.
43. Learned counsel for the Official Liquidator placed reliance
on the judgment of this court in the matter of Magnasound India Ltd.
filed by Asha Bhosale passed in Official Liquidator's report reported in
2016(1) Bom.C.R.44 and in particular paragraphs 32 and 38 in support of
the submission that under section 536(2), sale of the assets by a third
party would be within the mischief sought to be remedied by section
536(2) of the Companies Act. He submits that in this case the lessee had
alleged to have taken consent of the lessor before creating sub-lease.
ppn 18 olr-136.15 in cp-166.02(j).doc
44. It is submitted by the learned counsel for the Official
Liquidator that since the sub-lease is created after commencement of the
winding up which amounts to disposition of the property under section
441(2) of the Companies Act, 1956, it would be rendered void unless an
application seeking validation of transfer is made. He submits that this
Court has ample power to direct the Official Liquidator to take possession
of the said immovable property which is in possession of Bharat
Marketing under section 536(2) read with section 446 of the Companies
Act. In support of this submission learned counsel for the Official
Liquidator placed reliance on the judgment of of this Court in case of
Kanchan Kumar Dhar, Official Liquidator vs. Dr.L.M. Visarai & Ors.,
(1986) 60 Company Cases 746 (Bom) and in particular paragraphs 6 and
12 and also the judgment of this Court in case of Sarigram Containers
Pvt. Ltd. vs. Magatul Industries Ltd. (In Liquidation), 2008 (5)
Bom.C.R. 112 and in particular paragraphs 4, 9, 12, 14, 21, 23 to 26, 32
and 35.
45. Learned counsel for the Official Liquidator placed reliance
on section 446(2)(d) and would submit that in view of the said non-
obstante provision, the Company Court has jurisdiction to entertain or
dispose of any suit or proceedings by or against the company, any claim
made by or against the company or even any question of priorities or any
other question whatsoever, whether of law or fact, which may relate to or
rise in the course of winding up of the company. It is submitted that the
Company Court can even transfer the suit filed by the sub-lessee before
the Small Causes Court and can try the said suit itself if so desired.
ppn 19 olr-136.15 in cp-166.02(j).doc
46. It is submitted that since an issue has arisen in these
proceedings as to whether the sub-lease created by Modi Rubber Limited
in respect of the property of the respondent company in liquidation after
commencement of winding up proceedings without leave of the Court,
whether such transaction is void or not, the said question can be decided
by this Court itself under section 446(2)(d) of the Companies Act, 1956,
He submits that any question relating to or arising in course of the
winding up of the respondent company in liquidation can be decided by
this Court by exercising jurisdiction under the said provision. It is
submitted that the Small Causes Court cannot decide whether the
transaction entered into between the lessee with the sub-lessee relating to
the property of the company in liquidation is void or not and the said
issue can be decided only by the Company Court.
47. Learned counsel placed reliance on the judgment of the
Supreme Court in case of Sudershan Chits (I) Ltd. vs. O. Sukumaran
Pillai & Ors. (1984) 4 SCC 657 and in particular on page 661 and would
submit that the Parliament devised a cheap and summary remedy by
conferring jurisdiction on the Court winding up the company to entertain
petitions in respect of claims for and against the company. It is submitted
that it is the duty and power of the Company Court to accelerate the
disposal of winding up proceedings, and the object behind enacting
section 446(2) is to receive such construction at the hands of the Court as
would advance the object and at any rate not thwart it. He submits that
this Court is not even bound to transfer the declaratory suit filed by the
sub-lessee before this Court or to wait for the out come of the said suit
before issuing any direction to the Official Liquidator to take possession
ppn 20 olr-136.15 in cp-166.02(j).doc
of the immovable property of the company in liquidation from the sub-
lessee.
48. Learned counsel for the Official Liquidator also placed
reliance on the judgment of the Gujarat High Court in case of O.L. Of
Aryodaya Spinning & Weaving Mills Co. Ltd. vs. Charansingh
Dhupsingh & Ors. (2005) 125, Company Cases 765 (Gujarat) and in
particular the relevant paragraphs on pages 776, 778 to 780, 782 and 789.
He also placed reliance on an unreported judgment of the Division Bench
of this Court delivered on 31st March, 2015 in case of Omkar
Kanegaonkar vs. Deepak @ Gajanan Kanegaonkar & Ors. in Appeal
(Lodging) No.688 of 2014 and in particular paragraphs 9 and 10. He
submits that the Division Bench of this Court has held that since the
purported lease agreement was unregistered document which was
required to be registered and stamped under the provisions of section 34
of the Maharashtra Stamp Act, 1956 and section 17 read with section 49
of the Registration Act, 1908, the Company Court can ignore the said
document as inadmissible in evidence.
49. It is submitted that the Division Bench of this Court also
rejected the contention of the appellant in the said matter that exclusive
jurisdiction to decide the legality or otherwise of the purported lease
agreement was with the Rent Court constituted under the provisions of
the Maharashtra Rent Control Act. He submits that in the said judgment,
this Court has held that under section 446(2)(d) of the Companies Act, the
Company Court has jurisdiction to entertain any question of priorities or
any other question whatsoever whether of law or fact, which may relate
ppn 21 olr-136.15 in cp-166.02(j).doc
to or arise in course of the winding up of the company. He submits that
the Division Bench of this Court in the said judgment has upheld the
judgment of the Company Court in the Official Liquidator's Report
directing the Ex-directors to hand over vacant and peaceful possession of
the premises to the company in liquidation to the Official Liquidator.
50. In his alternate submission, without prejudice to the
submissions made aforesaid, it is submitted by the learned counsel for the
Official Liquidator that the letters dated 12 th October, 1997 and 18th
October, 1997 alleged to have been exchanged between Modi Stone
Limited and Modi Rubber Limited purporting to agree upon an unilateral
right of extension in favour of Modi Rubber Limited are ex-facie back
dated. It is submitted that Modi Rubber Limited could not have agreed to
enter into principal lease agreement dated 30th September, 1997 without
knowing actual condition of the premises and in ordinary course would
not have agreed to bear renovation charges of more than Rs.50,00,000/-.
He submits that the alleged right of extension / renewal is not referred in
the Deed of Confirmation dated 20th May, 1999 and also in the sub-lease
dated 20th May, 2002 between Modi Rubber Limited and Bharat
Marketing.
51. It is submitted that the said alleged renewal of the lease deed
by exchange of two letters required registration compulsorily and in view
of the admitted fact that those letters purporting renewal lease deed not
having been registered, cannot be relied upon by the parties before this
Court as an admissible evidence. In support of this submission, learned
counsel for the Official Liquidator placed reliance on the judgment of the
ppn 22 olr-136.15 in cp-166.02(j).doc
Supreme Court in case of State of Uttar Pradesh & Ors. vs. Lalji
Tandan, (2004) 1 SCC 1.
52. It is submitted that whether those two alleged letters would
renew the principal lease or would extend the principal lease period, both
letters amounts to disposition of the property after commencement of the
winding up and therefore, are void. It is submitted that this Court has
ample powers under section 536(2) of the Companies Act to declare such
disposition as void and thus the pendency of the suit filed by Bharat
Marketing in the Small Causes Court, Bombay seeking a declaration of
the alleged sub-tenancy/deemed tenancy is of no significance and has no
embargo on the powers of the Company Court to declare such
transaction as void. He submits that if this Court declares the alleged sub-
lease as void, this Court has ample power to direct the alleged sub-lessee
to hand over possession of the properties of the company in liquidation to
the Official Liquidator or can direct the Official Liquidator to take
possession of such property.
53. It is submitted that Modi Rubber Limited and Bharat
Marketing have claimed their alleged rights on the basis of the principal
lease and sub-lease respectively. Both these parties have also placed
reliance on the alleged letters thereby renewing the principal lease and
sub-lease and have not claimed their alleged rights as tenants holding
over. It is submitted that the said Bharat Marketing also in its declaratory
suit filed before the Small Causes Court has claimed tenancy only on the
basis of the alleged valid and subsisting sub-lease. Without prejudice to
the aforesaid submissions, it is submitted that in any event neither Modi
ppn 23 olr-136.15 in cp-166.02(j).doc
Stone Limited nor Bharat Marketing has made out a case of tenancy
holding over within the meaning of section 116 of the Transfer of
Property Act, 1882. It is submitted that insofar as the payment of rent by
the said Bharat Marketing to the Official Liquidator is concerned, the said
payment is accepted by the Official Liquidator pursuant to the order dated
8th July, 2004 passed by this Court without prejudice to the rights and
contentions of the Official Liquidator and thus acceptance of the rent in
this situation cannot create any right, title or interest in favour of the
alleged sub-lessee.
54. Mr.Samdhani, learned senior counsel for Modi Rubber Ltd.
on the other hand submits that even if the Official Liquidator takes
control of the assets of the company in liquidation, the assets do not vest
in him. He submits that a relationship of lessor and lessee is subject to
the terms of the lease deed and are governed by the Transfer of Property
Act, 1882. It is submitted that the directions for recovery of possession
of the leasehold property sought in the report submitted by the Official
Liquidator cannot be granted in the report since report submitted by the
Official Liquidator is in the nature of administrative directions and not for
adjudication of the claims or dispute. He submits that such reliefs if at all
can be considered, can be considered by the Company Court only in the
company application and not in the report submitted by the Official
Liquidator. He submits that in the company application, the company
court can even record oral evidence wherein such oral evidence cannot be
recorded in the report submitted by the official liquidator. Learned senior
counsel gave an illustration before this court i.e. if the company in
liquidation is a lessor and if the lessee commits any breach of the
ppn 24 olr-136.15 in cp-166.02(j).doc
provisions of the lease agreement, the lessor can terminate lease and
initiate action in the court of law for recovery of possession. He thus
submits that no such directions for recovery of possession can be granted
by this court in Official Liquidator's Report. He however does not dispute
that the court can transfer the declaratory suit filed by Bharat Marketing
and Advertising Company Pvt.Ltd. pending before Small Causes Court to
this court for adjudication or can direct the party to file a suit in this court
and can determine the said issue.
55. It is submitted that since the Official Liquidator has now
given up a challenge to the lease deed dated 30 th September, 1997 entered
into between the company in liquidation and Modi Rubber Ltd., the only
prayer remains for adjudication is for declaration of the sub-lease as void
and for possession of the property from the sub-lessee. He submits that
as per the terms and conditions of the lease deed, the lease was valid for
10 years and 11 months i.e. till August 2008. He submits that the sub-
lease was granted for the same period for which the lease was granted in
favour of Modi Rubber Ltd. except shorter by three days and the said sub-
lease dated 2nd May, 2002 did not go beyond the terms of the lease.
56. Learned senior counsel invited my attention to clause 11 of
the lease deed and would submit that if the lessee wants to sublet or
assign or part with possession of the demised premises or any part thereof
or permit the same to be used on leave and licence or caretaker or any
other basis, the lessee is entitled to seek permission of the lessor and if
such permission is applied, the lessor cannot unreasonably withheld in the
case of respectable and responsible party. He submits that it is not the
ppn 25 olr-136.15 in cp-166.02(j).doc
case of the Official Liquidator that Bharat Marketing is not a respectable
and responsible party. He submits that if the lessor unreasonably
withholds the permission for creating any of the aforesaid rights in the
property, the lessee is automatically relieved of the said obligation. It is
submitted that the Official Liquidator has admitted the execution of the
lease dated 18th October,1997 between the company in liquidation and
Modi Rubber Ltd. Learned senior counsel in support of this submission
placed reliance on the judgment of Supreme Court in case of Kamala
Ranjan Roy vs. Baijnath Bajoria, AIR 1951 SC (1) and in particular
paragraph 9.
57. It is submitted by the learned senior counsel that in the
Official Liquidator's report, the Official Liquidator seeks adjudication of
the authenticity, validity and legality of letter of extension exchanged
between the company in liquidation and Modi Rubber Ltd. and seeks that
this court should hold that those letters are anti-dated which allegations
cannot be adjudicated upon in this report. Learned senior counsel placed
reliance on the judgment of this court in case of Commercial Art
Engravers Pvt. Ltd. vs. Indian and Eastern Newspapers Society, (1978)
Vol.48 Company Cases 36 and in particular relevant paragraphs on pages
46 and 47.
58. It is submitted by the learned senior counsel that even if the
company is wound up, the status of the company is not changed. In place
of the company in liquidation, charge and assets of the company are taken
over by the official liquidator. The official liquidator does not become a
super landlord. The relationship between the lessor and lessee continues
ppn 26 olr-136.15 in cp-166.02(j).doc
even after the company in question is wound up. In support of this
submission, learned senior counsel placed reliance on the judgment of the
Supreme Court in the case of Nirmala R. Bafna vs. Khandesh Spinning
and Weaving Mills Co. Ltd. & Anr., reported in (1992) 2 SCC 322 and
in particular paragraph 2 to 6, 9, 14 and 17 to 19 and would submit that
merely because the company goes into liquidation and the liquidator is
appointed, the rights of his client i.e. Modi Rubber Limited vis-a-vis the
company in liquidation did not undergo any change.
59. It is submitted by the learned senior counsel that the lease
agreement between the company in liquidation and Modi Rubber Limited
is not in dispute. He submits that the said lease deed admittedly
contained a covenant for subletting with prior consent of lessor. The said
consent has to be granted by the lessor. He submits that the permission
for grant of such consent in the lease deed is already concluded when the
lease deed was executed in the year 1997 which was much before the
commencement of the act of winding up of the respondent company in
liquidation. He also placed reliance on Section 108 (j) of the Transfer of
Property, 1882 and would submit that privity of contract continues
between the sub-lessee and lessee and also between the lessee and the
company in liquidation under the lease document of 1997. Learned senior
counsel placed reliance on the judgment of the Gujrat High Court in the
case of Kanubhai H. Prajapati and Ors. Vs. Official Liquidator &
Ors., reported in (1999) 1 GLR 429 and in particular paragraphs 17 to 19
in support of his aforesaid submission. He also placed reliance on the
judgment of the Delhi High Court in the case of Basumati Mahajan
Vs.Foremost Industries India Ltd., reported in 1995 (34) DRJ 732 and
in particular paragraph 10 in support of the aforesaid submission.
ppn 27 olr-136.15 in cp-166.02(j).doc
60. Learned senior counsel placed reliance on Section 108 (c)
of the Transfer of Property Act, 1882 which provides for rights and
obligations of the lessor. He submits that consent of the lessor, if any,
which is an obligation on the part of the lessor in this case to grant
approval for subletting or for creating leave and license would not
amount to disposition of the property of the company in liquidation.
61. It is submitted by the learned senior counsel that the consent
given in writing on 4th May 2002 by the company in liquidation which
was post commencement of winding up was only an administrative
formality of giving consent for the purpose of creation of sub-lease which
consent was granted in view of the existing covenant of consent which
was admittedly part of the lease document which was executed much
prior to commencement of winding up and thus cannot amount to
disposition of the property of the company in liquidation. He submits
that an interest was already created in the property in favour of Modi
Rubber Limited with a covenant to create sub-lease. Lease creates an
interest in the property.
62. It is submitted that even if this Court comes to the
conclusion that subletting by Modi Rubber Limited in favour of Bharat
Marketing was illegal or contrary to the provisions of the lease deed or
contrary to the provisions of the Companies Act, 1956 in view of the fact
that there is no right of re-entry provided in the lease deed, there is no
consequence of any alleged breach committed, if any, by Modi Rubber
Limited or by the company in liquidation. In support of this submission,
learned senior counsel placed reliance on the judgment of this Court in
ppn 28 olr-136.15 in cp-166.02(j).doc
the case of Madarsa'heb & Ors.Vs. Sannabawa' Gujaransha'h, reported
in ILR XXI Bombay 195 and in particular relevant paragraphs on page
197 thereof. He also placed reliance on the judgment of John Nadjarian
Vs.E.F. Trist, reported in AIR (32) 1945 Bombay 399 and in particular
relevant paragraphs on pages 401 and 402 in support of the aforesaid
submission.
63. Learned senior counsel placed reliance on the judgment of
this Court in the case of Monark Enterprises Vs.Kishan Tulpule &
Ors., reported in (1992) 74 Comp Cas 89 (Bom) and more particularly
the relevant paragraphs on pages 119 to 121 in support of the submission
that since the consent for subletting or granting the property on leave
and license was already granted in the lease deed itself, there was no
question of any disposition of the property of the company in liquidation
and the provision of Section 536 (2) of the Companies Act, 1956 is thus
not attracted to the facts of this case. He submits that in this case, sub-
lessee was admittedly placed in possession of the said property by the
lessee long back and since then the sub-lessee has been in possession of
the property in question.
64. In so far as the submission of the learned counsel for the
official liquidator that there was no application made by the lessee or
sub-lessee, for validation of transaction is concerned, it is submitted by
the learned senior counsel that the Court can validate the transaction
even without any formal application made by the lessee in writing. In
his alternate submission, he submits that since there is no right of re-
entry provided in the lease deed, this Court cannot pass any order on the
ppn 29 olr-136.15 in cp-166.02(j).doc
application of the official liquidator in this report for handing over
possession of the property in question to the lessee or sub-lessee. Learned
senior counsel placed reliance on the judgment of the Supreme Court in
the case of Pankaj Mehra & Anr. Vs. State of Maharashtra & Ors.,
reported in (2000) 2 SCC 756 and in particular paragraphs 7, 8, 14, 15,
17, 18 and 20 in support of the submission that since the sub-lease was
granted in favour of Bharat Marketing by the lessee by exercising rights
under the lease deed between the lessee and the company in liquidation
and the transaction being a bonafide transaction, this Court has an ample
power to validate such transaction. He submits that no prejudice of any
nature whatsoever is caused to the company in liquidation. He submits
that the transaction of the sub-lease is in ordinary course of business
and thus the transaction requires validation by this Court by exercising
its power under Section 536 of the Companies Act, 1956.
65. Learned senior counsel placed reliance on an unreported
judgment of this Court in the case of Pavlova Estates Private Limited
Vs. MSTC Limited delivered on 9th May 2014 in Company Application
No.80 of 2012 in Company Petition No.1214 of 1999 and in particular
paragraphs 21 to 26 in support of his submission that the Company Court
has an ample power to consider the transaction carried out by the
company in liquidation in good faith and with honest intention which
transaction is just and fair while passing an order of validation of the
transaction in question and the same can be done in even without any
formal application.
66. It is submitted by the learned senior counsel that in this case,
the lease period was extended by the lessor in favour of the lessee which
ppn 30 olr-136.15 in cp-166.02(j).doc
did not require any execution of fresh lease deed. He submits that there
is distinction between the renewal and the extension. He submits that
conditions required for renewal of lease are not applicable in case of
extension of lease. It is submitted that the right of extension was granted
to the lessee by the lessor in view of the lessor having incurred heavy
expenditure for renovation of the lease property. In support of his
submission that there is distinction between the renewal and the
extension, learned senior counsel placed reliance on the judgment of the
Supreme Court in the case of State of U.P. & Ors. Vs. Lalji Tandon
(dead), reported in AIR 2004 SC 32 and in particular paragraph 13
thereof.
67. It is submitted that even if it is considered that lease granted
by the company in liquidation to the lessee and the sub-lease granted by
the lessee in favour of the sub-lessee are not renewed for any reason
whatsoever, it will amount to month to month lease/tenancy.
68. It is submitted by the learned senior counsel that even if
head-lease between the lessor and the lessee is not considered, the
relationship between the lessee and the sub-lessee as landlord and tenant
continues. Between the head-lessor and the lessee, the relationship of
landlord and tenant exist and the relationship of lessee and sub-lessee
exist. Sub-lessee is in possession of the said premises and has been
paying rent to the lessor directly. He placed reliance on the judgment of
Supreme Court in case of Anthony vs. K.C.Ittoop & Sons and others
(2000) 6 SCC 394 and in particular paragraphs 2 to 4, 8 to 14, 16, 18 and
20 and also placed reliance on section 107 of the Transfer of Property
ppn 31 olr-136.15 in cp-166.02(j).doc
Act. He also placed reliance on the judgment of Supreme Court in case
of Biswabani Pvt. Ltd. vs. Santosh Kumar Dutta and others (1980) 1
SCC 185 and in particular paragraphs 5 to 8, 10 and 14. He submits that
the lessee is not a tresspasser but is either tenant holding over or a tenant
at sufferance.
69. Learned senior counsel for the Modi Rubber Ltd. placed
reliance on the judgment of Supreme Court in case of Vishal N.Kalsaria
vs. Bank of India and others, AIR 2016 SC 530 and in particular
paragraphs 24 and 25 on the consequences of non registration of a lease
agreement. He submits that the tenancy was created orally. Learned
senior counsel distinguished the judgment of Calcutta High Court in case
of Prudential Capital Markets Ltd. (In Liquidation), In Re (2007) 140
Company Cases 754 (Cal) on the ground that in that judgment there were
prohibitory orders passed by the Reserve Bank of India from transferring
the property much before presentation of the winding up petition. He
submits that in this case, there was no such prohibition against Modi
Rubber Ltd. from creating sub-lease in favour of Bharat Marketing. He
invited my attention to the paragraphs 44, 50, 54, 56 and 60 of the said
judgment delivered by Calcutta High Court. It is submitted that in this
case the Official Liquidator has accepted the head-lease as valid and on
this ground alone, judgment of Calcutta High Court relied upon by
learned counsel for the Official Liquidator is clearly distinguishable in
the facts of this case.
70. Mr.Balsara, learned counsel appearing for Bharat Marketing
adopted the submissions made by Mr.Samdhani, learned senior counsel
ppn 32 olr-136.15 in cp-166.02(j).doc
for Modi Rubber Ltd. and made additional submissions. He submits that
there are several complicated issues involved in this report filed by the
Official Liquidator which cannot be decided by this court in the report
submitted by the Official Liquidator for seeking certain directions. It is
submitted that no presumption can be drawn in the report submitted by
the Official Liquidator that the correspondence exchanged between the
lessee and the sub-lessee and between the lessor and the lessee are
fraudulent. It is submitted that in view of section 41 of the Bombay
Presidency Small Causes Court Act the Small Causes Court has exclusive
jurisdiction to adjudicate upon the issues involved in this report and not
by this court by exercising powers under the provisions of Companies
Act, 1956.
71. It is submitted by the learned counsel that there is no dispute
that this court has power under section 446(2) of the Companies Act to
transfer the suit filed by the sub-lessee before the Small Causes Court.
He submits that unless the said suit is actually transferred to this court,
this court cannot decide the issue involved in that suit in this report
submitted by the Official Liquidator. He submits that the Official
Liquidator seeks possession of the tenanted premises in this report and
transgressing the transaction of the Small Causes Court. He submits that
admittedly the said suit was filed by Bharat Marketing after obtaining
leave of this court under section 446(1) of the Companies Act, 1956 and
thus this court cannot decide the issue involved in the said suit in these
proceedings on that ground also. It is submitted that the declaration of
the tenancy is not an action in rem and the exclusive jurisdiction vest in
the Small Causes Court to decide the said issue. He submits that this
ppn 33 olr-136.15 in cp-166.02(j).doc
court cannot take the full trial and adjudicate the issue of tenancy in this
report which is of a summary in nature.
72. Mr.Jagtiani, learned counsel for the Official Liquidator in
rejoinder submits that under the provisions of Companies Act, 1956, it is
the duty of the Official Liquidator to gather all the assets of the company
in liquidation for the purpose of distribution of those assets amongst the
secured and unsecured creditors and also the workers. The Official
Liquidator acts as a trustee of the secured and unsecured creditors and
workers. He submits that the claims of 1823 workers are already admitted
by the Official Liquidator. The Official Liquidator has adjudicated upon
the claims of 158 creditors. He submits that the Official Liquidator acts
in the manner provided under the special provisions of the Companies
Act, 1956. All the rights of the company in liquidation are sub-ordinate
to the powers of the Official Liquidator under the provisions of
Companies Act, 1956. He submits that there was no arms length
transaction between the lessee and the sub-lessee. The lessee has no
interest of whatsoever nature today in the said premises. He submits that
the right of lessee under section 108(j) of the Transfer of Property Act are
subordinate to the special provisions under the Companies Act, 1956.
73. It is submitted that this court has to consider the interest of
creditors and contributories and keep in mind the duties and
responsibilities of the Official Liquidator while deciding this matter and
not the alleged execution of the sub-lease. The Company court has to
protect the interest of contributories such as workers and others which
shall prevail. He submits that the transaction of lease is entirely distinct
ppn 34 olr-136.15 in cp-166.02(j).doc
transaction and different from the sub-lease. He submits that it is not the
case of the sub-lessee that it is in possession of the said premises as the
lessee or tenant on month to month basis. He submits that it is the case of
the sub-lessee that all throughout that he was in possession as sub-lessee
under the alleged sub-lease dated 28th May, 2002.
74. It is submitted by the learned counsel that the creation of
sub-lease by the lessee in favour of the sub-lessee itself is a distinct
disposition and is hit by section 536(2) of the Companies Act, 1956
which property is an asset of the company in liquidation. He submits that
even the disposition by a third party of the property of the company in
liquidation will be hit by section 536(2). He submits that the mischief
rule has to be applied for such transaction. It is submitted that by virtue
of creation of alleged sub-lease in favour of Bharat Marketing by Modi
Rubber Ltd. without prior permission of the Official Liquidator, new
rights and encumbrances are alleged to have been created in favour of the
said Bharat Marketing thereby frustrating the distribution of the process
of the assets to the contributories and other creditors. He submits that if
Bharat Marketing is not directed to handover the possession of the said
premises to the Official Liquidator for the purpose of sale and for the
purpose of distribution of the sale proceeds, the entire process of winding
up would be frustrated. It is submitted that since the disposition of the
property by the lessee with the alleged permission of the company in
liquidation is after commencement of the winding up of the company in
liquidation, it is void and hit by section 536(2) of the Companies Act.
75. It is submitted that the company in liquidation had made an
attempt of revival before BIFR but had failed. The appeal filed by the
ppn 35 olr-136.15 in cp-166.02(j).doc
company in liquidation against the order of BIFR recommending the
winding up had been dismissed. He submits that the lessee and sub-lessee
are group companies. Only after recommendation of BIFR for winding
up of the respondent company in liquidation, the then management of the
respondent company antedated various documents and has alleged to
have created a sub-lease in favour of Bharat Marketing and Advertising
Company Pvt.Ltd. with a view to frustrate the process of winding up.
76. In his alternate submission, learned counsel for the Official
Liquidator submits that there was no provision in the lease deed that the
said lessee Modi Rubber Ltd. was going to create any sub-lease in favour
of Bharat Marketing or anybody else. It is submitted that the execution
of the sub-lease by Modi Rubber Ltd. is not a continuation of a lease.
There is no provision in the lease deed that the sub-lease has to be
granted by the lessee in favour of a third party. There is no contractual
provision made in the lease deed for creation of the lease/tenancy. There
is no thus substance in the submission of the learned counsel of Modi
Rubber Ltd. that a permission for creation of sub-lease was already
provided in the lease deed itself and more particularly in clause (11)
thereof.
77. It is submitted that there is a fundamental change in the
situation in view of the commencement of winding up of the respondent
company in liquidation. In view thereof, clause (11) of the lease deed
could not continue in operation. The rights and obligation of the company
in liquidation after the date of commencement of winding up are subject
to the provisions of the Companies Act, 1956. In his alternate submission,
ppn 36 olr-136.15 in cp-166.02(j).doc
learned counsel for the Official Liquidator submits that the purported
consent by the lessor itself was after commencement of the winding up of
the respondent company. The alleged consent was given by the
respondent company only on 4th May, 2002. The said alleged consent
given by the lessor itself was hit by section 536(2) of the Companies Act,
1956.
78. Insofar as issue as to whether the sub-lessee or lessee can
apply for validation of transfer on oral application is concerned, it is not
the case of the Official Liquidator that a separate application for
validation is required in writing. It is however submitted that no case is
made out by the lessee or sub-lessee for validating transaction as the
same is void. He placed reliance on the judgments of this court in case of
BIFR vs. Hindustan Transmission Products (In Liquidation) (supra),
Sunita Vasudeo Warke (supra) and in case of judgment of Supreme Court
in case of Pankaj Mehra and another vs. State of Maharashtra and
others, (2000) 2 SCC 756. He submits that the burden is always on the
party who seeks validation of the transaction to plead and the prove that
the transaction was in the best interest of the company in liquidation and
was bonafide. He submits that there is no such case pleaded or proved by
Bharat Marketing in the affidavit in reply.
79. It is submitted by the learned counsel that in respect of the
premises admeasuring 3000 sq.ft.area of Carmichael Road which is a
prime property, the sub-lease is granted allegedly on payment of
Rs.50,000/- per month which itself is a sham and ex-facie fraudulent and
not at arms length.
ppn 37 olr-136.15 in cp-166.02(j).doc
REASONS AND CONCLUSIONS :-
80. The official liquidator has now not challenged the lease
deed dated 30th September 1997 between Modi Stone Limited which is
now in liquidation and Modi Rubber Limited in respect of the property
in question admeasuring about 3000 sq.ft and one garage in the basement
of the building known as "Normandie Co-operative Housing Society,
situate at 25, Carmichael Road, Mumbai. The said lease was for a period
of 10 years and 11 months commencing from 1 st October 1997 and
was to be in force till July 2008. Under clause 11 of the said lease deed,
Modi Rubber Limited had agreed not to sublet, assign, underlet or part
with possession of the demised premises or any part thereof or permit the
same to be used on leave and license or caretaker or any other basis
without the previous consent in writing of Modi Stone Ltd. which shall
not be unreasonably withheld in case of a respectable and responsible
party.
81. Clause (IV) (1) of the said lease deed dated 30th September
1997 provides for re-entry of the lessor upon demised premises or any
part thereof upon determination of the lease deed or in case of any
antecedent breach, non-performance or non-observance of any of the
covenants, conditions, stipulations or obligations therein if Modi Rubber
Ltd. had not made good the breach of covenant in respect of which the
re-entry was intended within a reasonable time but not less than 30 days
after receipt of such notice.
82. A perusal of the said lease deed clearly indicates that it was
not intended in the said lease deed that lessee was permitted to give the
ppn 38 olr-136.15 in cp-166.02(j).doc
said premises on sub-lease in favour of any third party including Bharat
Marketing. The said lease deed also did not provide any extension of the
lease period. It is also an admitted position that the said lease deed dated
30th September 1997 was not registered.
83. A perusal of the record further indicates that Modi Stone
Ltd., now in liquidation had filed an application being Case No.32 of
1998 under Section 15(1) of the SICA with the BIFR. By an order
dated 15th April 1998, the said Modi Rubber Ltd. was declared as a Sick
Industrial Company in terms of Section 3(1)(o) of the SICA Act. It is not
in dispute that on 25th April 2001, the BIFR decided the proposal made
by Modi Stone Ltd and recommended the said company for winding up
under the provisions of the Companies Act, 1956 read with the provisions
of the SICA. The BIFR, thereafter, forwarded the said copies of the said
orders to the Registrar of this Court on 11 th May 2001. An appeal filed by
the said Modi Stone Ltd. before AAIFR against an order of
recommendation of the BIFR for winding up of the company came to be
dismissed on 8th August 2001. It is not in dispute that this Court,
thereafter, registered a winding up petition on receipt of the papers from
BIFR and accepted the said petition. By an order dated 25th July 2002,
the said Modi Stone Ltd. came to be wound up by this Court and the
official liquidator came to be appointed.
84. During the course of arguments, the learned senior counsel
for the Modi Rubber Ltd. and the learned counsel for the Bharat
Marketing invited my attention to some of the correspondence alleged
to have been exchanged between the said Modi Stone Ltd, now in
ppn 39 olr-136.15 in cp-166.02(j).doc
liquidation and Modi Rubber Ltd. on one hand and also the
correspondence alleged to have been exchanged between Modi Rubber
Ltd. And the Bharat Marketing. It is the case of Modi Rubber Ltd. that
vide letter dated 1st October 1997, the said Modi Rubber Ltd. had
brought to the notice of the said Modi Stone Ltd., now in liquidation that
the said flat required renovation. It was alleged in the said letter that the
representative of the said Modi Stone Ltd. was requested to carry out
the said renovation work. In the said letter, the said Modi Rubber Ltd.
had alleged that if the renovation work was not done, the said company
may not be able to use and enjoy the leased premises for the purpose
for which it had been taken.
85. Reliance is also placed on the alleged letter dated 7th
October 1997 from Modi Stone Ltd. to Modi Rubber Ltd. alleging that
the kind of renovation that was desired by Modi Rubber Ltd. would cost
around Rs.50 lakh. The said Modi Stone Ltd. was not in a position to
take that additional burden as it was going through a recessionary phase.
It would not be possible for it to renovate the said flat at its cost. By the
said alleged letter, Modi Stone Ltd. had alleged to have made a
suggestion that if Modi Rubber Ltd. was agreeable to renovate the said
flat at its own cost, the parties can come to some mutual understanding
in respect of certain clauses in the lease deed. A perusal of the both
these letters does not show any acknowledgment on these letters by the
alleged recipient of the said alleged letter.
86. Modi Rubber Ltd. has placed reliance on the alleged letter
dated 12th October 1997 addressed by Modi Stone Ltd. suggesting that if
ppn 40 olr-136.15 in cp-166.02(j).doc
Modi Stone Ltd. wanted the Modi Rubber Ltd. to carry out renovation
at its cost, the lease had to be for a much longer period and therefore,
the Modi Rubber Ltd. would like to have the right for having two
more extensions beyond the stipulated period as contained in the lease
deed dated 30th September 1997. Modi Rubber Ltd. suggested that if
Modi Stone Ltd. was agreeable to the said condition, the addendum to
the lease may be prepared and sent the same to Modi Stone Ltd. for
signature. It was alleged in the said letter that only upon receiving all
such documents, the said Modi Rubber Ltd. would renovate the said flat
and incur heavy expenditure in excess of Rs.50 lakh. There is no
acknowledgment on the said letter also.
87. By an alleged letter dated 18th October 1997, from Modi
Stone Ltd. to Modi Rubber Ltd., the Modi Stone Ltd. has purported to
have agreed to confer upon Modi Rubber Ltd. a right to extend the lease
deed by having two more extensions for the same period of 10 years
each beyond stipulated period on the same terms and conditions as
contained in the said lease deed dated 30th September 1997. It was
alleged in the said letter that it was understood that upon exercising the
right, the lease period would automatically extend and there would be
no need for entering into a new agreement. It was further alleged that
the said lease deed dated 30th September 1997 shall be read along with
correspondence dated 1st October 1997, 7th October 1997, 12th October
1997 and the said letter dated 18th October 1997 whereby the Modi
Rubber Ltd. was alleged to have been clothed with the right to extend
the lease twice for similar period on the same terms and conditions as
provided in the lease deed dated 30th September 1997. There was no
ppn 41 olr-136.15 in cp-166.02(j).doc
acknowledgment of Modi Rubber Ltd. on these letters also.
88. Reliance is also placed on the alleged letter dated 11 th
February 1998 alleged to have been addressed by Modi Rubber Ltd. to
Modi Stone Ltd. purporting to inform that Modi Rubber Ltd. had
successfully carried out and completed renovation of highest standard
in the said flat. It was alleged that cost of renovation alleged to have
been incurred by the Modi Rubber Ltd. was in the sum of Rs.54.35 lakh.
The said letter also did not show any acknowledgment of Modi Stone
Ltd. By the alleged letter dated 1st March 1998, Modi Stone Ltd. has
acknowledged the receipt of the letter dated 11th February 1998 and
alleged to have appreciated the investment of Rs.54.35 lakh on the
renovation work alleged to have been made by Modi Rubber Ltd. as the
Modi Stone Ltd. was not financially in a position to undertake the said
work. There is no acknowledgment of Modi Rubber Ltd. on the said
letter.
89. By a Deed of Confirmation dated 20th May 1999 executed
between Modi Stone Ltd, now in liquidation and Modi Rubber Ltd., the
parties confirmed the lease deed dated 30th September 1997. A perusal
of the Deed of Confirmation indicates that there was no reference to any
of the alleged letters exchanged between the parties recording of the
alleged extensions of lease period for 20 years or for automatic renewal
of the lease deed. The said Deed of Confirmation was registered. Modi
Rubber Ltd. did not produce any proof even before this Court to show
that the delivery of various correspondence referred to the aforesaid
alleged to have been exchanged with the Modi Stone Ltd. or to show
that it had alleged to have incurred expenditure in the sum of Rs.54.35
lakh on the alleged renovation work. Modi Stone Ltd. has repeatedly
ppn 42 olr-136.15 in cp-166.02(j).doc
admitted that it was not financially in a position to undertake any work.
Modi Stone Ltd. had already made an application under Section 15(1)
of the SICA before BIFR for declaring the said company as Sick.
90. A perusal of the record further indicates that it is the case of
Modi Rubber Ltd. that on 4th May 2002 the said company had requested
Modi Stone Ltd. to grant permission in writing to grant the said premises
on sub-lease in favour of Bharat Marketing. The said alleged letter dated
16th April 2002 from Modi Rubber Ltd. to Modi Stone Ltd. indicates
that in the said letter, Modi Rubber Ltd. had invited the attention of
Modi Stone Ltd. to clause 11 of the said lease deed dated 30 th September
1997 that the premises could not be sub-let prior consent in writing of
Modi Stone Ltd. and accordingly, a request was alleged to have been
made to Modi Stone Ltd. for permission in writing to induct a sub-
tenant in the said premises subject to the approval of Modi Stone Ltd.
In the said alleged letter, it was mentioned that Bharat Marketing was
interested in taking up sub-tenancy in the said premises. There is no
acknowledgement of the said alleged letter by Modi Stone Ltd., now in
liquidation. Modi Stone Ltd. has alleged to have responded to the letter
dated 16th April 2002 by its letter dated 4th May 2002 and purported to
have granted consent to the execution of the sub-lease in favour of Bharat
Marketing subject to the condition that the said Bharat Marketing would
be made aware of and shall agree to be bound by the terms of the lease
deed dated 30th September 1997 read with the Deed of Confirmation
dated 20th May 1999.
91. It was alleged in the said letter that in the said sub-lease, it
ppn 43 olr-136.15 in cp-166.02(j).doc
shall also be stated that in the event of Modi Rubber Ltd. surrendering
the premises, Bharat Marketing would become the tenant of Modi Stone
Ltd. and the tenancy would be subject to the terms and conditions as
existing between Modi Stone Ltd. and Modi Rubber Ltd.
92. A perusal of these alleged letters dated 16 th April 2002 and
4th May 2002 alleged to have been exchanged between Modi Rubber
Ltd and Modi Stone Ltd. respectively indicates that there is no
reference to the recommendation dated 25th April 2001 made by the
BIFR recommending the winding up of Modi Stone Ltd and about
dismissal of the appeal before AAIFR which was filed by Modi Stone
Ltd. This Court had already registered a winding up petition based on
the recommendation made by BIFR dated 25th April 2001 on 24th January
2002. The said Modi Stone Ltd. was already declared as sick pursuant
to its application under Section 15(1) of the SICA on 15th April 1998.
93. On the date of the alleged permission sought by Modi
Rubber Ltd. on 16th April 2002, the winding up petition was pending
in this Court. The alleged permission for creating sub-lease was alleged
to have conveyed to the Deputy General Manager (Finance) of Modi
Stone Ltd. vide its alleged letter dated 4 th May 2002. Even in the said
alleged letter dated 4th May 2002, there was no reference to any alleged
renewal lease period for 20 years alleged to have been exchanged
between Modi Stone Ltd. and Modi Rubber Ltd.
94. A perusal of the alleged sub-lease dated 20th May 2002
entered into between Modi Rubber Ltd. and Bharat Marketing indicates
ppn 44 olr-136.15 in cp-166.02(j).doc
that there is no reference to any alleged extensions of lease period
between Modi Stone Ltd. and Modi Rubber Ltd. Monthly rent alleged to
have agreed upon between the parties in respect of the said premises
admeasuring about 3000 sq.ft. for commercial use was alleged to have
been agreed @ Rs.48,400/- per month upto 30th September 2003 and
thereafter, @ Rs.53,240/- per month. Admittedly, the said alleged sub-
lease is not registered.
95. A perusal of the said alleged lease deed indicates that the
alleged permission to grant the said premises on sub-lease by Modi
Stone Ltd. was granted on 4th May 2002 i.e. much after the
recommendation of the BIFR dated 25th April 2001 recommending
winding up of Modi Stone Ltd. and after registration of winding up
petition by this Court against the said Modi Stone Ltd. on 25 th January
2002.
96. The question that arises for consideration of this Court is
whether the alleged permission dated 4th May 2002 granted by Modi
Stone Ltd. for creation of sub-lease in favour of Bharat Marketing was
after commencement of winding up of Modi Stone Ltd under Section
441 of the Companies Act, 1956 and thus the execution of any agreement
for sub-lease in favour of Bharat Marketing on 20 th May 2002 without
obtaining permission of the Company Court is void or not.
97. Section 441 (2) of the Companies Act, 1956 clearly provides
that the winding up of the company by the Court shall be deemed to
commence at the time of the presentation of the petition for the winding
up in the cases other than the provision of Section 441(1) of the
ppn 45 olr-136.15 in cp-166.02(j).doc
Companies Act, 1956. In this case, Modi Stone Ltd. had not passed any
resolution for voluntary winding up and thus Section 441(2) of the
Companies Act, 1956 would be attracted and the commencement of
winding up of Modi Stone Ltd would be the date when the reference is
made by BIFR to this Court for winding up of Modi Stone Ltd.
98. Under Section 536 (2) of the Companies Act, 1956, any
disposition of the property of the company in case of winding up by the
Company Court made after the commencement of the winding up, shall,
unless the Court otherwise orders, be void. This Court thus will have to
consider whether the permission in writing alleged to have been granted
by Modi Stone Ltd. in favour of Modi Rubber Ltd. for grant of sub-
lease vide the alleged letter dated 4 th May 2002 and execution of the
alleged sub-lease dated 20th May 2002 amounted to disposition of the
property in question after commencement of the winding up. In this
case, it is not in dispute that the said Modi Stone Ltd was ordered to be
wound up by an order dated 25th July 2002 passed by this Court. The
official liquidator was appointed by this Court on 25th July 2002.
99. Supreme Court in the case of NGEF Ltd. Vs. Chandra
Developers Pvt. Ltd. (supra) has held that no formal application is
required to be filed for initiating a proceeding under Section 433 of the
Companies Act as the recommendations therefor are made by BIFR or
AAIFR, as the case may be, and, thus, the date on which such
recommendations are made, the Company Judge applies its mind to
initiate a proceeding relying on or on the basis thereof, the proceeding for
winding up would be deemed to have been started. The Supreme Court
in the said judgment has set aside the judgment of the Division Bench of
ppn 46 olr-136.15 in cp-166.02(j).doc
the Karnataka High Court having found as not correct in which it was
held by the Karnataka High Court that in the winding up proceeding in
relation to a matter arising out of the recommendations of BIFR shall
commence only on passing of an order of winding up of the company.
Admittedly in this case, BIFR had recommended the winding up of the
Modi Stone Ltd. on 25th April 2001 and thus the date of such
recommendation made by the BIFR has to be considered as the date of
commencement of the winding up of Modi Stone Ltd. and not the date
of 25th July 2002 which was the date of winding up of the said company
by this Court. It is thus clear beyond reasonable doubt that the sub-lease
alleged to have been executed between Modi Rubber Ltd. and Bharat
Marketing and the alleged permission granted by the Modi Stone Ltd.
for grant of sub-lease in respect of the property in question in favour of
the Bharat Marketing was after the date of commencement of the date of
Modi Stone Ltd. and thus such disposition of the property of the company
is ex facie void under Section 536 (2) of the Companies Act, 1956. The
judgment of the Supreme Court in the case of NGEF Ltd. Vs. Chandra
Developers Pvt. Ltd. (supra) squarely applies to the facts of this case. I
am respectfully bound by the said judgment.
100. Delhi High Court in the matter of Kapri International Pvt.
Ltd., reported in 2013 SCC OnLine Del 2176 has held that the
commencement of winding up would be the date on which the BIFR
formed its prima facie opinion that the company should be wound up.
The Delhi High Court has followed the judgment of the Supreme Court
in the case of NGEF Ltd. Vs. Chandra Developers Pvt. Ltd. (supra). I
am in agreement with the views expressed by the Delhi High Court in the
matter of Capri International Pvt. Ltd. (supra).
ppn 47 olr-136.15 in cp-166.02(j).doc
101. Gujarat High Court in the case of Indoco Remedies Ltd.
Vs. OL of M/s.Kay Packaging Pvt. Ltd., reported in (2009) 150 Comp
Cas 770 (Guj) has held that once the winding order is passed, it relates
back to the date of commencement of the proceedings whether such
commencement is on the basis of the petition filed by the creditor or it
is on the basis of the opinion forwarded by the Board for Industrial and
Financial Reconstruction. Once the petition is filed or the opinion is
forwarded and it is registered as a company petition, the winding up
proceedings commences. Gujarat High Court held in the said judgment
that since the winding up proceedings were said to have been commenced
in the year 1991 and the properties of the company were sold after
commencement of the winding up proceedings, such transaction was
certainly hit by Section 441 (2) read with Sections 530 and 531A of the
Companies Act, 1956 and accordingly declared as void. The views
expressed by the Gujarat High Court are applicable to this case. I am in
agreement with the views expressed by the Gujarat High Court in the said
judgment.
102. Division Bench of this Court in the case of Sunita Vasudeo
Warke Vs. Official Liquidator (supra) has construed the powers of the
Company Court under Section 536(2) of the Companies Act, 1956. It is
held by the Division Bench of this Court that in order to invoke Section
536(2) of Companies Act, by Court to "otherwise order", there had to be a
disposition of property of company; a disposition which had been made
after commencement of winding-up proceedings. This Court considered
the judgment of the Supreme Court in the case of J.K. (Bombay) Private
Limited Vs. M/s. New Kaiser-I-Hind Spinning and Weaving Co. Ltd.
ppn 48 olr-136.15 in cp-166.02(j).doc
and others, reported in AIR 1970 SC 1041 in which it has been held by
the Supreme Court that once a winding-up order is passed, the
undertaking and the assets of the company pass under the control of the
liquidator whose statutory duty is to realize them and to pay from out of
the sale proceeds its creditors. Such creditors acquire on such order being
passed the right to have the assets realized and distributed among them
pari passu. No new rights can thereafter be created and no uncompleted
rights can be completed and doing so would be contrary to the creditors'
right to have the proceeds of the assets distributed among them pari
passu.
103. This Court has also adverted to the another judgment of the
Division Bench of this Court in the case of Tulsidas Jasraj Parekh Vs.
Industrial Bank of Western India, reported in AIR 1931 BOMBAY 2 in
which it has been held by this Court that any bona fide transaction carried
out and completed in ordinary course of current business can be
sanctioned by the Court. On the other hand, it will not allow the assets to
be disposed of at the mere pleasure of the company, and because the
fundamental principle of equality amongst creditors cannot be violated.
This Court in the said judgment held that even if a disposition of the
property was before the order of winding-up, the Court has to come to
the conclusion that the transaction was in the best interest of the company
which has to be pleaded and proved. It is held that the property belonging
to a company does not lie at the pleasure of the company or its Board of
Directors. This Court found that there was neither any pleading nor any
proof on the record before the Company Judge that the transaction was
arrived at on the basis of the prevailing market value or that the same
was in the best interest of the company, this Court declared the said
ppn 49 olr-136.15 in cp-166.02(j).doc
transaction as void and refused to validate such transaction.
104. A perusal of the record clearly indicates that even in this
case, neither it is pleaded nor proved by Modi Rubber Ltd. or by Bharat
Marketing that the execution of alleged sub-lease by Bharat Marketing
in favour of Modi Rubber Ltd. or grant of alleged permission to the
sub-lease of the property in question by Modi Stone Ltd. in favour of
Bharat Marketing was in the best interest of the company or that the said
transaction granting sub-lease was in the ordinary course of business.
On the contrary, a perusal of the record clearly indicates that the said
Modi Stone Ltd. itself has applied for declaration of the said company as
sick under Section 15(1) of the SICA much prior to 15 th April 1998.
The said company was already declared as sick by the BIFR on 15 th
April 1998. The BIFR had already recommended the winding up of the
said company as far back as on 25 th April 2001. The appeal filed by
Modi Stone Ltd. was also dismissed by AAIFR on 8 th August 2001.
This Court had already registered the winding up petition on 25 th January
2002.
105. A perusal of the alleged correspondence exchanged
between Modi Stone Ltd. and Modi Rubber Ltd. for granting the alleged
extensions of lease period during the period between 1st October 1997
and 18th October 1997 also indicates that it was the case of Modi Stone
Ltd. itself that it was not in a position to spend any amount on renovation
of the said property in question. It is thus obvious that the alleged
permission for granting sub-lease by Modi Stone Ltd. on 4 th May 2002
in favour of Bharat Marketing was not in the interest of the company in
liquidation and such transaction could not be considered as a transaction
ppn 50 olr-136.15 in cp-166.02(j).doc
in the ordinary course of business. The company in liquidation cannot be
considered as beneficiary of the said alleged sub-lease in any manner
whatsoever.
106. Be that as it may, Modi Rubber Ltd. as well as Bharat
Marketing have failed to plead and prove that the said alleged sub-lease
in favour of Bharat Marketing was in the interest of the company in
liquidation or that the same was in the ordinary course of business. The
principles of law laid down by the Division bench of this Court in the
case of Sunita Vasudeo Warke Vs. Official Liquidator (supra) squarely
applies to this case. I am respectfully bound by the said judgment.
107. In so far as the submission of the learned senior counsel for
the Modi Rubber Ltd. that it is not necessary for a party to apply for
validation of the transaction before the Company Court under Section
536(2) of the Companies Act, 1956 in writing is concerned, this
proposition is not disputed by the learned counsel for the official
liquidator. Even if this Court considers an oral application made by Modi
Rubber Ltd. or Bharat Marketing for validation of the transaction of the
alleged sub-lease between them is considered by this Court, a perusal of
the record clearly indicates that none of these parties could demonstrate
before this Court that the said transaction was in the interest of the
company or was in the ordinary course of business of Modi Stone Ltd.
108. A perusal of the record, on the other hand, clearly indicates
that the said disposition of the property of the company in liquidation
was made with the ulterior motive and that also at the stage when
winding up petition was already registered by this Court pursuant to the
ppn 51 olr-136.15 in cp-166.02(j).doc
recommendation made by the BIFR. Neither Modi Rubber Ltd. nor
Bharat Marketing could produce any proof of delivery of the alleged
letters dated 16th April 2002 or 4th May 2002 alleged to have exchanged
between them. No such alleged letters are referred in the sub-lease
alleged to have been executed between Modi Rubber Ltd. and Bharat
Marketing.
109. In so far as the issue of extension of lease period as alleged
by Modi Rubber Ltd. in the favour of Modi Stone Ltd. is concerned, a
perusal of the record indicates that Modi Rubber Ltd. has placed reliance
on few letters alleged to have been exchanged between Modi Stone Ltd.
and Modi Rubber Ltd. during the period between 1 st October 1997 and
11th February 1998. It is the case of Modi Rubber Ltd. itself that the
lease deed was already executed on 30th September 1997. I am not
inclined to accept the submission of the learned senior counsel for the
Modi Rubber Ltd. that the extension was necessitated in view of the
alleged expenses of Rs.54.35 lakh alleged to have been incurred by
Modi Rubber Ltd. on renovation of the said flat.
110. There was no provision for extension of time in the lease
deed dated 30th September 1997. Copies of the alleged letters produced
on record by Modi Rubber Ltd. does not show any acknowledgment of
those letters. The said company also failed to produce any proof before
this Court about the mode of delivery of those letters upon Modi Stone
Ltd. In the Deed of Confirmation which was executed much later
between the said Modi Stone Ltd. and Modi Rubber Ltd., there is no
reference to any of these alleged letters exchanged between them
purporting to extend period of lease at all. Even in the said sub-lease
ppn 52 olr-136.15 in cp-166.02(j).doc
alleged to have been executed between Modi Rubber Ltd. and Bharat
Marketing, there is no reference to these alleged correspondence thereby
extending the period of lease for 20 years on the same terms and
conditions. This Court cannot overlook the fact that the lease deed was
executed on 30th September 1997 but that the Modi Rubber Ltd. noticed
the alleged requirement of renovation of the said premises to a large
extent which would require expenses of more than Rs.50 lakh later on.
The said Modi Stone Ltd. had already applied under Section 15(1) of
SICA before BIFR for declaration of the said company as sick around
the same time. In these circumstances, in my view, there is substance in
the submission made by the learned counsel for the official liquidator that
all these letters alleged to have been exchanged between the parties were
ante dated or were placed on record to defeat/ delay an action on the
part of the official liquidator to take steps to recover the possession of
the property in question from the said Modi Rubber Ltd. or its sub-
lessee.
111. A perusal of the record further indicates that though the
premises in question is admeasuring 3000 sq.ft. on Carmichael Road
which is a prime property in a posh locality and being used for
commercial purposes, the sub-lease was granted only on meagre sum of
Rs.50,000/- per month which ex facie shows that the said transaction is
fraudulent and is not at arms length.
112. In so far as the submission of Mr.Samdhani, learned senior
counsel for the Modi Rubber Ltd. that though upon an order of winding
up of the company, the official liquidator takes control of the assets of
the company in liquidation but the assets do not vest in him is concerned,
ppn 53 olr-136.15 in cp-166.02(j).doc
Section 456 (1) of the Companies Act, 1956 provides that where a
winding up order is made or where a provisional liquidator is appointed,
the liquidator or the provisional liquidator, as the case may be, shall take
into his custody or under his control, all the property, effects and
actionable claims to which the company is or appears to be entitled.
Section 456(1A) provides that for that purpose, the liquidator or the
provisional liquidator, as the case may be, may even apply by writing
before the Chief Presidency Magistrate or the District Magistrate to take
possession of various assets, books of account etc. of the company in
liquidation.
113. Section 456 (2) of the Companies Act, 1956 provides that all
the properties and effects of the company shall be deemed to be in the
custody of the court as from the date of the order for the winding up of
the company. Under Section 457 of the Companies Act, 1956, the
liquidator in a winding up by a Court shall have vast powers prescribed in
the said provision. Under Section 458 of the Companies Act, 1956, the
Company Court is empowered to pass an order after making up winding
up order require any contributory, any trustee, receiver, banker, agent of
the company, to pay, deliver, surrender or transfer forthwith, or within
such time as the Court directs to the liquidator, any money, property or
books and papers in his custody or under his control to which the
company is prima facie entitled. The official liquidator is entitled to take
physical possession of all the properties, books of account, effects etc. of
the company in liquidation as a custodian on behalf of all the creditors.
114. In so far as the submission of the learned senior counsel for
Modi Rubber Ltd. that the relationship between the lessor and lessee is
ppn 54 olr-136.15 in cp-166.02(j).doc
subject to the terms of the lease deed dated 30 th September 1997 and are
governed by the provisions of the Transfer of Property, 1882 is
concerned, once an order of winding up is passed against one of the
parties to such lease deed, those rights of the parties under the said lease
deed are to be controlled and exercised by the official liquidator under
the directions of the Company Court which powers are exercisable by the
official liquidator under the Companies Act, 1956.
115. In so far as the submission of the learned senior counsel for
the Modi Rubber Ltd. that the directions sought by the official liquidator
for recovery of possession from sub-lessee cannot be granted by this
Court in the report submitted by the official liquidator but can be
considered if at all in the company application on the ground that the
report submitted by the official liquidator is in the nature of an
administrative direction and not for adjudication of the dispute is
concerned, in my view, there is no merit in this submission of the
learned senior counsel. Under Section 455 of the Companies Act, 1956
read with Rule 135 and 137 of the Companies (Court) Rules, 1959, the
official liquidator is empowered to submit a report in a case where the
winding up order is made by the Company Court for appropriate
directions and reliefs. The official liquidator is not required to file any
suit for seeking any reliefs which can be granted by the Company Court
by exercising powers under Section 446(2) of the Companies Act, 1956.
All contentious issues can be decided by the Company Court by
exercising powers under Section 446(2) of the Companies Act, 1956
including any claims by or against the company in liquidation (including
any claims by or against any of its branches in India.
ppn 55 olr-136.15 in cp-166.02(j).doc
116. Under Section 446(2)(d) of the Companies Act, 1956, the
Company Court is also empowered to entertain or dispose of any question
whatsoever, whether of law or fact, which may relate to or arise in course
of the winding up of the company. In my view, there is no substance in
the submission of the learned senior counsel for Modi Rubber Ltd. that
only an administrative direction can be granted by the Company Court in
the report submitted by the official liquidator or that the evidence can be
recorded only in the company application and not in the report submitted
by the official liquidator. The powers exercised by the Company Court
by issuing such directions and/or orders under various provisions of the
Companies Act, 1956 whether passed in company applications or in the
official liquidator's report, as the case may be, are the judicial orders
and have equal force of law. The official liquidator is not required to file
a company application for seeking directions and/or reliefs before the
Company Court for recovery of possession, assets and other things from
the Ex-directors of the company in liquidation or from any third party. In
my view, whatever may be the nomenclature of the proceedings i.e.
whether by way of the official liquidator's report or by way of company
application for seeking various directions including the relief for recovery
of possession, powers of the Company Court are the same.
117. This Court has passed large number of such orders for
recovery of possession applied for by the official liquidator against the
Ex-directors of the company in liquidation and third parties on such
reports filed by the official liquidator before the Company Court. This
Court in an unreported judgment of this Court in the case of Board of
ppn 56 olr-136.15 in cp-166.02(j).doc
Industrial and Financial Reconstruction in the matter of M/s.Jaipur
Golden Transport Co. Ltd. (supra) has granted relief in favour of the
official liquidator directing him to take physical possession of the
property of the company in liquidation for the benefit of the creditors
and workers of the company in liquidation. The said order was passed
in the report submitted by the official liquidator not only seeking
permission to take possession of the property of the company in
liquidation but also seeking declaration that the sale of the property to a
third party was null and void.
118. Division Bench of this Court in the case of Sunita Vasudeo
Warke Vs. Official Liquidator (supra) had passed the said order in
appeal arising out of the official liquidator's report seeking a declaration
that the sale of the immovable property of the company in liquidation
was null and void and seeking a direction for permitting the official
liquidator to take possession of the property of the company in
liquidation.
119. Calcutta High Court in the matter of Prudential Capital
Markets Ltd. (in liquidation) (supra) has passed an order of eviction
of a lessee in respect of the property of the company in liquidation on a
letter for direction to such effect filed by the official liquidator. Calcutta
High Court after considering several judgment of the Supreme Court
and various other Courts decided various rival issues raised even by a
third party and declared the lease as void by holding that the lessee was
not entitled to any protection to remain in possession of the property
and also was not entitled to any protection under the Andhra Pradesh
ppn 57 olr-136.15 in cp-166.02(j).doc
Rent Control Act. In this case, the official liquidator has rightly filed a
report for seeking various directions under the provisions of the
Companies Act, 1956 read with Companies (Court) Rules. In my view,
all such issues can be decided by the Company Court including the
contentious issues raised by the third party and the official liquidator in a
report submitted by the official liquidator before a Company Court.
120. In so far as the submission of the learned senior counsel for
Modi Rubber Ltd. that under clause 11 of the lease deed dated 30 th
September 1997 entered into between the company in liquidation and
Modi Rubber Ltd., the Modi Rubber Ltd. was entitled to give such
property on sub-lease upon obtaining permission of the lessor in
writing which could not have been withheld unreasonably by the lessor
and thus based on such permission granted in the lease deed itself, the
Modi Rubber Ltd. could have created sub-lease in favour of Bharat
Marketing and the same could not be considered as in violation of clause
11 of the lease deed is concerned, it is not in dispute that the said Modi
Rubber Ltd. did not apply for any such permission in writing from the
company in liquidation prior to the date of commencement of the
winding up. Even if the alleged application/letter dated 16 th April 2002
is considered as an application under clause 11 of the lease deed dated
30th September 1997, the fact remains that the said alleged application
was made after commencement of the winding up of the company in
liquidation. There is no substance in the submission of the learned senior
counsel for Modi Rubber Ltd. that the said application dated 16 th April
2002 was only an empty formality on the ground that the permission for
granting property on sub-lease was already granted in the lease deed
ppn 58 olr-136.15 in cp-166.02(j).doc
dated 30th September 1997 itself. There was no automatic permission
granted under the said lease deed for creating sub-lease as canvassed by
the learned senior counsel for Modi Rubber Ltd. This submission is ex
facie untenable and is rejected.
121. A perusal of the said alleged application/letter dated 16 th
April 2002 from Modi Rubber Ltd. to Modi Stone Ltd. also indicates
that the said permission was applied by invoking Indenture of Lease
dated 30th September 1997. In the said alleged letter, it was specifically
mentioned that under clause 11 of the said lease deed, the said premises
could not be sub-let without the prior consent in writing of Modi Stone
Ltd. and thus a request was made for written permission of Modi Stone
Ltd. in favour of Modi Rubber Ltd. to induct a sub tenant in the said
premises subject to the consent and approval of Modi Stone Ltd. It was
admittedly not provided in the lease deed dated 30th September 1997 that
at that point of time, if Modi Rubber Ltd. would propose to grant any
sub-tenancy in favour of the Bharat Marketing or any third party, such
permission was already granted in anticipation of creating such sub-
tenancy in favour of the Bharat Marketing or any other party in the said
lease deed dated 30th September 1997 itself. The submission of the
learned senior counsel for Modi Rubber Ltd that in the lease deed dated
30th September 1997 itself, such permission was granted or deemed to
have been granted is contrary to the said alleged letter dated 16 th April
2002 and also contrary to clause 11 of the lease deed dated 30 th
September 1997.
122. By that as it may, a perusal of clause 11 of the lease deed
dated 30th September 1997 clearly prohibits subletting of the demised
ppn 59 olr-136.15 in cp-166.02(j).doc
premises or any part thereof or to be used on leave and license or
caretaker or any other basis without the previous consent in writing of
Modi Stone Ltd. The said clause does not indicate that even if no such
application in writing is made before creating sub-tenancy as provided
in the said clause, the said clause itself can be construed as deemed
permission even without making any such application for seeking
permission. Modi Rubber Ltd. could not produce any other application
for seeking permission for creating sub-tenancy before commencement
of winding up of the company in liquidation. Reliance placed by the
learned senior counsel on the judgment of the Supreme Court in the case
of Kamala Ranjan Roy Vs. Baijnath Bajoria (supra) would not assist
the case of Modi Rubber Ltd.
123. In so far as the submission of the learned senior counsel that
this Court cannot render any finding by adjudicating upon the allegations
made in the report submitted by the official liquidator that the letters
placed on record by Modi Rubber Ltd. and Bharat Marketing are ante
dated or are fabricated is concerned, in my view, under Section 536(2)
of the Companies Act, 1956, powers of the Company Court to declare
any disposition of the property including actionable claims after
commencement of the winding up as void are very wide. In this case,
even according to the Modi Rubber Ltd. and Bharat Marketing, the
permission was sought by Modi Rubber Ltd. for creation of sub-lease
in favour of Bharat Marketing in writing only on 16 th April 2002 and
was alleged to have been granted by Modi Stone Ltd. only on 4 th May
2002 which was much after commencement of the winding up against
the company in liquidation i.e. 25th April 2001. Admittedly no permission
ppn 60 olr-136.15 in cp-166.02(j).doc
of the Company Court was obtained by the Company in liquidation for
creating any sub-lease in favour of Bharat Marketing and thus the said
transaction was ex facie contrary to the provisions of Section 536 and
other provisions of the Companies Act, 1956 and is ex facie void.
124. Mr.Samdhani, learned senior counsel for Modi Rubber Ltd.
could not explain as to why such alleged letter dated 16 th April 2002 for
seeking permission in writing under clause 11 of the lease deed was
sought if according to his client, the permission for creating sub-lease
was deemed to have been granted in clause 11 of the lease deed dated
30th September 1997 itself.
125. Be that as it may, the alleged documents produced by Modi
Rubber Ltd. and Bharat Marketing itself would defeat their case and
would ex facie indicate that the same are back dated and the case of sub-
lease in favour of Bharat Marketing is ex facie false and untenable.
126. Insofar as the judgment of the Supreme Court in case of
Nirmala R. Bafna (supra) relied upon by learned senior counsel for Modi
Rubber Limited is concerned, the Supreme Court held that merely
because the company goes into liquidation and the Official Liquidator is
appointed, the rights of the company vis-a-vis its landlord and/or its
tenants do not undergo any change. The Supreme Court in the said
judgment considered an admitted position by the Official Liquidator that
the Board of Directors of the company had passed a special resolution
affirming the agreement of sub-tenancy in favour of the appellant therein,
who had raised a plea of sub-tenancy in her favour. The Supreme Court
ppn 61 olr-136.15 in cp-166.02(j).doc
prima-facie rendered a finding that the claim of the appellant therein for
protection of Bombay Rent Control Act should not be rejected. There was
a consent of the landlord to the sub-tenancy in favour of the appellant in
that case.
127. In this case, the alleged consent of the company in
liquidation for creation of sub-tenancy was alleged to have been granted
much after the commencement of the winding up proceedings, which
was not the case before the Supreme Court in case of Nirmala R. Bafna
(supra). In this case, the company in liquidation itself was the owner of
the property in question and not the tenant. The Supreme Court had
observed that the tenancy rights of the company had in the said flat may
not be an asset for the purpose of liquidation proceedings. The facts
before the Supreme Court in the said judgment were totally different and
are clearly distinguishable. The said judgment, in my view, would not
assist the case of Modi Rubber Limited. It is not the case of the Official
Liquidator that he has become super landlord in view of the company in
liquidation being the owner of the said property is ordered to be wound
up. Be that as it may, the company in liquidation being the owner of the
said property has been ordered to be wound up and thus all the assets of
the company in liquidation, including the suit property are deemed to be
in the custody of the Official Liquidator.
128. Insofar as the judgment of the Gujarat High Court in case of
Kanubhai H. Prajapati & Ors. (supra) relied upon by Mr.Samdhani,
learned senior counsel for Modi Rubber Limited is concerned, the
Gujarat High Court in the said judgment has held that the rights and
ppn 62 olr-136.15 in cp-166.02(j).doc
obligations arising under the rent laws as landlord and tenant subsists
between the owner and the company in liquidation after the order of
winding up is made until the company is dissolved. It is held by the
Gujarat High Court that even if the company has closed its business and
the premises are not required for the purpose of carrying on business, still
the Official Liquidator is entitled to retain the possession if it is required
by him during the course of winding up for the purpose of company's
affairs. The leasehold tenancy rights under a lease are the assets of the
company which may be dealt with and transferred if the Official
Liquidator is required to transfer the assets of the company as a going
concern subject of course, to law permitting the same. It is not the case of
the Official Liquidator that the tenancy granted in favour of Modi
Rubber Limited by the company in liquidation has come to an end upon
the Modistone Limited, the owner of the property having been wound up.
Reliance placed on the judgment of the Gujarat High Court in case of
Kanubhai H. Prajapati & Ors. (supra) by the learned senior counsel for
Modi Rubber Limited is misplaced.
129. In my view, there is no substance in the submission of the
learned senior counsel for Modi Rubber Limited that even if any
breaches are committed by Modi Rubber Limited or by the company in
liquidation, there is no consequence of any such alleged breach in view of
the fact that there is no right of re-entry provided in the lease deed. A
perusal of the lease deed executed between the company in liquidation
and Modi Rubber Limited and more particularly clause IV on page 7 of
the said agreement clearly indicates that the company in liquidation being
lessor was granted right of re-entry upon the demise premises or any part
ppn 63 olr-136.15 in cp-166.02(j).doc
thereof upon the lessee committing any breach or in view of the non-
performance or non-observation of any of the covenant conditions,
stipulation or objections contained in the said lease deed. The said power
of re-entry was however subject to proviso that the said power was not to
be exercised unless and until the lessor would have given a notice in
writing to the lessee to make good breach of covenant in respect of re-
entry was intended and if the lessee would have failed to do so within a
reasonable time but not less than 30 days after the receipt of the said
notice. In my view the entire argument of the learned senior counsel is
thus fallacious and contrary to the provisions of the Lease Deed as
indicated aforesaid providing for the right of re-entry vested in the lessor.
The judgment of this Court in case of Madarsa's Heb & Ors. (supra) and
the judgment of this Court in case of John Nadjarian (supra) would not
assist the case of Modi Rubber Limited and are clearly distinguishable in
the facts of this case.
130. Insofar as the judgment of this Court in case of Monark
Enterprises (supra) relied upon by Mr.Samdhani, learned senior counsel
for Modi Rubber Limited is concerned, in that case, the contract was
already arrived at between the parties much before presentation of the
petition for winding up and it was merely completed during the pendency
of the winding up petition in as much as necessary sanction of the
Collector was received during that period. Prior to the presentation of the
winding up petition, a third party was already put in possession of the
property and the said purchaser had already parted with substantial
amount in pursuance of the contract already concluded. In these
circumstances this Court held that the impugned transaction was not
ppn 64 olr-136.15 in cp-166.02(j).doc
affected by the provisions contained in section 536(2) of the Companies
Act, 1956. The company had already exercised its disposing power prior
to presentation of the petition for winding up and thus that case would not
be considered as a case of disposition of the property effected after
presentation of the winding up petition merely because the permission or
sanction of the Collector was received subsequently.
131. In my view, the said judgment of this Court in case of
Monark Enterprises (supra) will not assist the case of Modi Rubber
Limited at all and is clearly distinguishable in the facts and circumstances
of this case. In this case, admittedly Bharat Marketing, who claims to be
the sub-lessee was put in possession much after the commencement of the
winding up proceedings against the respondent company in liquidation.
Even the so called permission to create sub-lease in favour of Bharat
Marketing was also alleged to have been granted by the company in
liquidation much after the commencement of the winding up proceedings.
The execution of sub-lease was not concluded before commencement of
the winding up proceedings in this case. In my view, the said judgment
thus would not assist the case of Modi Rubber Limited or Bharat
Marketing in any manner whatsoever.
132. Insofar as the judgment of this Court in case of Pavlova
Estates Private Limited (supra) relied upon by the learned senior counsel
for Modi Rubber Limited in support of the submission that the Company
Court has an ample power to consider the transaction carried out by the
company in liquidation in good faith and with honest intention and such
transaction if being just and fair while passing an order of validation of
ppn 65 olr-136.15 in cp-166.02(j).doc
the transaction is concerned can be validated is concerned, there is no
dispute about this proposition of law. This Court in the said judgment
held that the expression "unless the Court otherwise orders" under section
536(2) of the Companies Act, 1956 imposes a duty on the Court, that it
must deal with each case on its own facts, and have regard to questions of
good faith and honest intention, to do what is just and fair. The company
in liquidation in that judgment had exercised disposition power and such
sale was already completed before presentation of the suo-moto BIFR
recommended company petition before this Court and nothing remained
to be done. The disposition was complete in that matter and thus this
Court validated such transaction between the company in liquidation and
a bonafide purchaser.
133. In my view, the said judgment of this Court in case of
Pavlova (supra) is clearly distinguishable in the facts of this case. In this
case, the transaction of sub-lease was not even commenced before
commencement of the winding up proceedings against the company in
liquidation and thus in this situation, such transaction cannot be validated
by this Court by exercising the powers under section 536(2) of the
Companies Act, 1956.
134. Insofar as the judgment of the Supreme Court in case of
State of U.P. & Ors. vs. Lalji Tandan (supra) relied upon by
Mr.Samdhani, learned senior counsel for Modi Rubber Limited in support
of the submission that the conditions required for renewal of a lease were
not applicable in case of extension of lease in view of the fact that the
right of extension was granted to the lessee by lessor in view of the lessor
ppn 66 olr-136.15 in cp-166.02(j).doc
having incurred heavy expenditure for renovation of the lease property is
concerned, in my view, the said judgment of the Supreme Court would
not assist the case of Modi Rubber Limited. On perusal of the alleged
documents and correspondence brought on record by Modi Rubber
Limited which were alleged to have been exchanged between the
company in liquidation and Modi Rubber Limited, this Court is clearly
of the view that those letters are anti dated and were not even referred in
the subsequent documents entered into between the parties.
135. In my view, there is no substance in the submission made by
the learned senior counsel for Modi Rubber Limited that even if it is
considered that the lease granted by the company in liquidation to the
lessee and the sub-lease granted by the lessee in favour of the sub-lessee
are not renewed for any reason whatsoever, it will amount to month to
month tenancy. No such case is either pleaded or made out by Modi
Rubber Limited. The sub-lease created in favour of Bharat Marketing is
after commencement of winding up proceedings and is created without
the leave of this Court and thus is void. The question of there being any
month to month tenancy therefore, did not arise.
136. Insofar as the submission of the learned senior counsel for
Modi Rubber Limited and the submission of Mr.Balsara for Bharat
Marketing that Bharat Marketing has been paying the rent directly to the
Official Liquidator which indicates the existence of the tenancy rights in
favour of Bharat Marketing is concerned, a perusal of the record clearly
indicates that the Official Liquidator has been permitted by this Court to
accept the rent directly from Bharat Marketing without prejudice to the
ppn 67 olr-136.15 in cp-166.02(j).doc
rights and contentions of the Official Liquidator and thus the receipt of
such rent by the Official Liquidator would not create any right, title or
interest of any nature in favour of Bharat Marketing as canvassed by the
learned counsel appearing for Modi Rubber Limited and Bharat
Marketing.
137. Insofar as the judgment of the Supreme Court in case of
Anthony (supra) relied upon by Mr.Samdhani, learned senior counsel for
Modi Rubber Limited is concerned, in my view, the said judgment would
not assist the case of Modi Rubber Limited in view of the fact that the
alleged sub-lease itself was created after the date of commencement of
the winding up proceedings. The said transaction is thus ex-facie void.
138. Insofar as the judgment of the Supreme Court in case of
Biswabani Private Limited (supra) relied upon by the learned senior
counsel for Modi Rubber Limited is concerned, it is held by the
Supreme Court that notwithstanding the non-exercise of the option on the
date of expiry of the lease, the contractual tenancy having come to an
end, the tenant would be a tenant holding over if requirements of section
116 of the Transfer of Property Act are satisfied. In my view, this
judgment of the Supreme Court will not assist the case of Modi Rubber
Limited or of Bharat Marketing in view of the fact that the said
transaction of the alleged sub-lease itself is void and secondly on the
ground that it is not the case of Bharat Marketing that it was claiming the
right as tenant holding over or tenant at sufferance.
139. Insofar as the judgment of the Supreme Court in case of
Vilas M. Kalsaria (supra) relied upon by Mr.Samdhani, learned senior
ppn 68 olr-136.15 in cp-166.02(j).doc
counsel for Modi Rubber Limited is concerned, it is held by the Supreme
Court that section 106 of the Transfer of Property Act, 1882 does provide
for registration of leases which are created on a year to year basis.
According to section 106 of the Transfer of Property Act, 1882, monthly
tenancy shall be deemed to be a tenancy from month to month and must
be registered if it is reduced into writing. The Supreme Court held that if
two parties are executing their rights and liabilities in the nature of
landlord - tenant relationship and if regular rent is being paid and
accepted, then the mere factum of non-registration of deal will not make
the lease itself nugatory. If no written lease deed exists, then such tenants
are required to prove that they have been in occupation of the premises as
tenants by producing such evidence in the proceedings under section 14
of the SARFAESI Act before the learned Magistrate. In the said
judgment, the Supreme Court held that once the tenancy is created, a
tenant can be evicted only after following due process of law as
prescribed under the provisions of the Rent Control Act and cannot be
arbitrarily evicted by using the provisions of SARFAESI Act.
140. In the facts and circumstances of this case, it is not the case
of Modi Rubber Limited or Bharat Marketing that Bharat Marketing is
claiming any tenancy rights based on an oral agreement of tenancy but
has placed reliance on the alleged sub-lease deed. The judgment of the
Supreme Court in case of Vilas N. Kalsaria (supra) thus would assist the
case of the Official Liquidator and not of Modi Rubber Limited or Bharat
Marketing. In this case since the alleged rights in favour of Bharat
Marketing itself are void, the Official Liquidator is not required to file
any suit for eviction of the alleged sub-tenancy. This Court has ample
ppn 69 olr-136.15 in cp-166.02(j).doc
power to consider the alleged rights of Bharat Marketing while
considering an issue whether the said transaction of the alleged sub-lease
which is entered into after commencement of the winding up proceedings
is void or not.
141. Insofar as the submission of Mr.Balsara, leaned counsel for
Bharat Marketing that the complicated issues raised by his client cannot
be adjudicated upon in the report filed by the Official Liquidator is
concerned, in my view there is no merit in this submission of the learned
counsel. Under section 536(2) of the Companies Act, 1956, the Company
Court has to decide whether the transaction in question were entered into
after commencement of the winding up proceedings or not. Admittedly
in this case, Modi Rubber Limited had applied for permission to create
sub-lease in favour of Bharat much after commencement of the winding
up proceedings. In view of such facts at hand, there is no merit in the
submission of the learned counsel for Bharat Marketing that there are any
complicated issues raised by his client in these proceedings. Be that as it
may, the powers of the Company Court under section 536 are very wide
and validity of all the transfers in respect of the properties of the company
in liquidation claim not only by company in liquidation but also by a third
party in the properties of the company in liquidation made after
commencement of winding up can be decided by the Company Court
under section 536(2) in a report submitted by the Official Liquidator.
While considering as to whether the transaction is void or not, this Court
can certainly look into the material placed on record by the parties in
respect of their rival claims made in such properties.
ppn 70 olr-136.15 in cp-166.02(j).doc
142. Insofar as the submission of the learned counsel for Bharat
Marketing that in view of section 41 of the Bombay Presidency Small
Causes Court, only the Small Causes Court has exclusive jurisdiction to
adjudicate upon the issues involved in this report are concerned, there is
no merit in this submission of the learned counsel. Under section 446 (2)
of the Companies Act, 1956, notwithstanding anything contained in any
other law for the time being in force, the Court has jurisdiction to
entertain, or dispose of any suit or proceeding by or against the company,
any claim made by or against the company and is also empowered to
decide any question of priorities or any other question whatsoever, where
of law or fact which may relate to or rise any course of winding up of the
company whether such suit or proceeding has been instituted or such
claim or question has arisen or arise or such application has been made
before or after the order for winding up of the company.
143. It is thus clear that the Company Court can decide any claim
by the company or against the company and any questions whether of law
or fact which may relate to or rise in course of winding up of the
company. I am thus not inclined to accept the submission of Mr.Balsara,
learned counsel for Bharat Marketing that the complicated finding of fact
cannot be rendered by this Court by exercising powers under section 446
or under section 536(2) of the Companies Act, 1956. In my view, the
Small Causes Court under section 41 of the Bombay Presidency Small
Causes Court Act cannot decide the issue as to whether disposal of the
property of the company by the company in liquidation or by a third party
was after the commencement of the winding up or was otherwise and can
declare such transaction as void or validate such transaction by exercising
ppn 71 olr-136.15 in cp-166.02(j).doc
powers under section 536(2) read with section 446(2) of the Companies
Act, 1956.
144. In view of non-obstante provision under section 446 read
with section 536 of the Companies Act, 1956, such powers can be
exercised only by the Company Court and not by the Small Causes Court.
In my view, there is thus no substance in the submission of Mr.Balsara
that though this Court can declare a transaction as void under section
536(2), the same cannot be done unless the suit filed by Bharat Marketing
before the Small Causes Court is transferred to this Court itself. There is
also no merit in the submission of the learned counsel for Bharat
Marketing that since the suit was filed by Bharat Marketing before the
Small Causes Court for declaration of the alleged sub-tenancy after
obtaining leave under section 446(1) of the Companies Act, 1956, this
Court cannot decide the issues raised in the said suit by Bharat
Marketing. In my view merely because this Court has granted leave to
file a suit under section 446(1), this Court is not precluded from deciding
the issue whether the transaction between the company in liquidation and
a third party or by Modi Rubber Limited in this case, who was claiming
to be a tenant in favour of Bharat Marketing are post commencement of
the winding up proceedings and are thus void or not.
145. In my view under the provisions of the Companies Act,
1956, the Official Liquidator is a trustee of the secured or unsecured
creditors, the workers and contributories. The rights of the company in
liquidation are subordinate to the powers of the Official Liquidator under
the provisions of the Companies Act, 1956. It is the duty of the Official
ppn 72 olr-136.15 in cp-166.02(j).doc
Liquidator to gather all the assets of the company in liquidation for the
purpose of distribution of those assets, amongst secured or unsecured
creditors, workers, contributories and others prescribed under the
provisions of the Companies Act, 1956. In my view, the rights of the
lessee, if any, under section 108(j) of the Transfer of Property Act are
subordinate to the said provisions under the Companies Act, 1956. The
transaction between Modi Rubber Limited and Bharat Marketing was not
a transaction carried out at arms length and was not bonafide or in the
interest of the respondent company in liquidation at all.
146. The onus was on Modi Rubber Limited as well as Bharat
Marketing to plead and prove that the said alleged sub-lease in favour of
Bharat Marketing by Modi Rubber Limited was not only a bonafide
transaction but was in the interest of the company in liquidation and also
that the said transaction was carried out in ordinary course of business by
the company in liquidation. It is not in dispute that it was not the business
of the company in liquidation to grant property of the company on lease
or sub-lease. Modi Rubber Limited as well as Bharat Marketing have
failed to plead and prove that the transaction was a bonafide transaction
and was in the interest of the company, for the benefit of the company in
liquidation and was carried out in ordinary course of business.
147. On the contrary, the record clearly indicates that the
transaction between Modi Rubber Limited and Bharat Marketing was in
collusion with the company in liquidation by giving the so called
permission to create the sub-lease after commencement of the winding up
proceedings and that also at the meagre sum of Rs.50,000/- per month
ppn 73 olr-136.15 in cp-166.02(j).doc
rent in respect of 3,000 sq. ft. carpet area in posh locality situated at
Carmichael Road used for commercial purposes, is ex-facie fraudulent
and could never be considered as bonafide and in the interest of and for
the benefit of the company in liquidation. The question of validating such
fraudulent transaction by exercising the powers of this Court under
section 536(2) in these circumstances in favour of Modi Rubber Limited
or in favour of Bharat Marketing does not arise. Modi Rubber Limited
has not disputed the case of the Official Liquidator that the company in
liquidation and Modi Rubber Limited belonging to the same group. In my
view, under section 536(2) of the Companies Act, 1956, the Company
Court can declare a transaction carried out not only by the company in
liquidation in respect of its property but also in respect of a third party
void. All such issues can be decided only by the Company court under
the provisions of the Companies Act, 1956.
148. The Supreme Court in case of Pankaj Mehra & Anr. (supra)
has held that the word "void" in section 536(2) of the Companies Act,
1956 need not automatically indicate that any disposition should be void-
ab-initio since the Court has power to order otherwise. The Supreme
Court has quoted the English authority which was referred by the Gujarat
High Court in (1986) 59 Company Cases, 201 (Gujarat) with approval in
which it was held that any bonafide transaction carried out and completed
in ordinary course of current business can be sanctioned by the Court and
on the contrary it will not allow the assets to be disposed of at the mere
pleasure of the company and would cause fundamental principles of
equity amongst the creditors to be violated. The Supreme Court has
quoted the judgment of Court of Appeal in Gray's Inn Construction
ppn 74 olr-136.15 in cp-166.02(j).doc
Company Limited (1980) 1 ALL ER 814 (CA) with approval in which it
was held that the Court would be very circumspect in the matter of
validating the payments and interest of the creditors as well as the
company would be kept uppermost in consideration.
149. This Court in case of Member of Industrial & Financial
Reconstruction vs. M/s.Hindustan Transmission Products Limited
(supra) and M/s.Intec Polymee Limited (supra) has held that while
validating a transaction, the Court has to consider that the transfer must
be for the best interest of the company. Neither Modi Rubber Limited nor
Bharat Marketing have made out any case for holding that the alleged
sub-lease in favour of Bharat Marketing by Modi Rubber Limited in
respect of the property in question of the company in liquidation was in
the best interest of the company in liquidation. In my view, the said
transaction thus cannot validated by this Court. An oral application made
by Modi Rubber Limited and Bharat Marketing for validation of the
transaction is thus rejected.
150. This Court in case of Superintendent of Stamps and Chief
Controlling Revenue Authority, Bombay vs. Govind Parmeshwar Nair
(1997) Mh.L.J. 641 has held that the expression "disposition" is of much
wider connotation than the word "transfer". The transaction may amount
to disposition of the property though it may not amount to transfer of the
property. The dictionary meaning of expression "disposition" as per
Black's Law Dictionary, means an act of disposing, transferring to the
care or possession of another, parting with, alienation of, or giving up
property. The meaning of "disposition" as per Words and Phrases is 'in
ppn 75 olr-136.15 in cp-166.02(j).doc
relation to any freehold or leasehold estate, means any disposition of that
estate inter vivos, and includes both the grant and the assignment of a
lease or underlease'. In my view, reliance placed by Mr.Jagtiani, learned
counsel on the definition of "disposition" referred to aforesaid would
assist the case of the Official Liquidator in support of his plea that even
the said so called sub-lease by Modi Rubber Limited in favour of Bharat
Marketing amounts to disposition within the meaning of section 536(2) of
the Companies Act, 1956 and thus the said provision would be attracted
in the facts and circumstances of this case.
151. The Calcutta High Court in case of Prudential Capital
Markets Limited (in liquidation) has considered the similar facts and has
held that section 536(2) of the Companies Act, 1956 provides for
preservation of all the assets of a company upon commencement of the
winding up proceedings, for ultimate distribution thereof amongst the
creditors following winding up. It is held that the disposition of its
properties and the effects made by a company after commencement of the
winding up is covered by section 536(2) of the Companies Act, 1956. The
Calcutta High Court declared the lease as void and held that the
respondent was not entitled to any protection to remain in possession of
the shops in question and was also not entitled to any protection under
Andhra Pradesh Rent Control Act. The Company Court accordingly,
directed the respondent to deliver vacant possession of the shops to the
Official Liquidator. In my view, the facts in the Calcutta High Court and
this Court are almost identical and thus the said judgment would assist
the case of the Official Liquidator. I am in agreement with the views
expressed by the Calcutta High Court.
ppn 76 olr-136.15 in cp-166.02(j).doc
152. For the aforesaid reasons, the sub-lease executed by Modi
Rubber Limited on 20th May, 2002 in favour of Bharat Marketing is thus
declared as void. The oral application made by Modi Rubber Limited and
Bharat Marketing for validating the said sub-lease is rejected. The
Official Liquidator has made out a case for an order and direction against
Bharat Marketing to hand over vacant and peaceful possession of the
property of the company in liquidation as prayed in prayer clause (b) of
the Official Liquidator's Report.
153. I therefore pass the following order :-
a) Bharat Marketing & Advertising Company Private Limited is
directed to hand over possession of the property of the company in
liquidation situated at Flat No.2, Ground Floor, along with garage
in the basement of the building known as Normandie Co-Operative
Housing Society, Carmichael Road, Mumbai - 400 026, to the
Official Liquidator or his duly authorized representative within six
weeks from today.
b) Bharat Marketing & Advertising Company Private Limited shall
not part with possession in respect of the said property in favour of
any person other than the Official Liquidator till it hands over
possession of the same to the Official Liquidator.
c) Bharat Marketing & Advertising Company Private Limited is
directed to pay costs of Rs.1,00,000/- to the Official Liquidator
within six weeks from today.
d) Official Liquidator's Report No.136 of 2015/LIQUIDATION - IV
is disposed of in aforesaid terms.
R.D. DHANUKA, J.
