PETITIONER:
NARENDRA BAHADUR TANDON
Vs.
RESPONDENT:
SHANKERLAL (SINCE DECEASED) BY LRS. AND ANR.
DATE OF JUDGMENT25/01/1980
BENCH:
REDDY, O. CHINNAPPA (J)
BENCH:
REDDY, O. CHINNAPPA (J)
UNTWALIA, N.L.
CITATION:
1980 AIR 575 1980 SCR (2) 821
1980 SCC (2) 253
ACT:
Lease-Land leased to a company-Company went into
voluntary liquidation-Land transferred to one of the
Creditors, a Bank-Bank went into liquidation-Official
liquidator of Bank found no deed of transfer executed-
Voluntary liquidator executed deed of transfer-If competent
to do so-Property if passed to state by escheat-Lessor's
interest transferred to plaintiffs-Official liquidator sold
land to defendant-Defendant raised structures on land-
Plaintiffs never objected to raising of structures-
Plaintiffs, if estopped from contending that defendant had
no right in land.
HEADNOTE:
The original owners of the land in dispute granted a
permanent lease of the land to a company. The lessee could
use the land for any purpose and could also transfer the
leasehold interest. Though a permanent lease the lessor
could forfeit the lease if the lessee failed to pay rent for
three consecutive years. The lessors interest changed hands
twice and by virtue of a decree in a suit for pre-emption
filed by the respondents they became entitled to such
interest.
In the meanwhile the company went into voluntary
liquidation and the liquidator executed an agreement of sale
of all its assets including the leasehold interest in favour
of a Bank which was the biggest creditor of the Company.
Immediately thereafter the Bank itself went into
liquidation. Sometime later the official liquidator of the
Bank found that no deed of transfer was executed by the
voluntary liquidator in favour of the Bank, the erstwhile
voluntary liquidator therefore executed a deed of sale in
favour of the Bank. Thereafter the official liquidator of
the Bank transferred the lease-hold interest in the land to
the defendant-appellant.
Before the company went into liquidation the first
transferee of the land accepted rent from the voluntary
liquidator. After the transfer of the leasehold interest to
the Bank the second transferee demanded from the official
liquidator arrears of rent for four years and claimed that
the lease was forfeited by reason of the Bank's failure to
pay rent for a continuous period of three years in terms of
the lease. The official liquidator denied the right to
forfeit the lease. He, however, paid rent which was accepted
by the lessors. Even subsequently rent was accepted by the
lessors.
The respondent sued to recover possession of the suit
land on the ground that the lease-hold interest was not
validly transferred by the voluntary liquidator and that
therefore neither the Bank nor the defendant acquired any
right in the land. The defendants contended that the
voluntary liquidator had the authority in law to execute the
deed of sale and formally complete a transaction which had
already taken place, that the predecessors in interest of
the plaintiff having accepted rent from the official
liquidator were estopped
822
from contending that the transfer in favour of the Bank was
not valid and that the lease-hold interest in the land had
escheated to the Government on the dissolution of the
company.
The suit was dismissed by the Trial Court and the
Appellate Court. On second appeal, the High Court decreed
the suit holding that the voluntary liquidator had no
authority to execute the deed of sale after the dissolution
of the company and that there was neither estopped nor
escheat.
Allowing the appeal,
^
HELD: 1. The High Court was right in holding that the
liquidator had no jurisdiction to execute the deed of sale
after the company had been dissolved. Once the company was
dissolved in accordance with the procedure laid down in the
Indian Companies Act, 1913 it ceased to exist and therefore
the voluntary liquidator could not represent a non-existent
company. If the liquidator was to discharge any duty or
perform any function on behalf of the dissolved company he
should have express statutory authority to do so, which he
did not have under the Act. [826 D, 825 G]
2. If the company had a subsisting interest in the
lease on the date of dissolution, such interest must
necessarily vest in the Government by escheat or bona
vacantia. It is well settled that the property of an
intestate dying without leaving lawful heirs and the
property of a dissolved corporation passes to the Government
by escheat or bona vacantia. If the lease-hold interest of
company became vested in the Government on its dissolution,
a suit at the instance of the plaintiffs was not
maintainable. [826 E, 827 G]
3. The successors in interest of the original lessors
accepted rent from the official liquidator indicating that
they accepted the position that the Bank had succeeded to
the rights of the company in the lease-hold interest. The
official liquidator sold the land to the defendant with the
permission of the Company Judge only when he failed to get
the highest bid in public auction. At no point of time did
the predecessors in interest of the plaintiffs raise an
objection to the sale of the lease-hold interest. When the
defendant obtained permission of the Municipal Board and
raised constructions on the land, the plaintiffs who resided
near-about the land did not raise any objection to the
constructions. In the circumstances the plaintiffs were
estopped from contending that the defendant had no right in
the land. Their only right is to receive rent. [827 F-828 B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 575 of
1970.
From the Judgment and Decree dated 17-2-1966 of the
Allahabad High Court in Special Appeal No. 92 of 1960.
S. S. Javali and B. R. Aggarwal for the Appellant.
R. K. Garg and V. J. Francis for the Respondent.
The Judgment of the Court was delivered by
CHINNAPPA REDDY, J. Hulas Chand and Bilas Chand,
original owners of a certain plot of land in Saharanpur,
granted a permanent lease of the land to Patel Mills Ltd.,
in May, 1930. The annual rent
823
was Rs. 75/-. The lease was empowered to use the land for
any purpose whatsoever. The rights of the lessee were
expressly made transferable. Though the lease was permanent,
there was a condition that the lessor could forfeit the
lease if the lessee failed to pay rent for three consecutive
years. On November 1, 1932 Hulas Chand and Bilas Chand
transferred their interest to Budh Singh and Jialal. Jugal
Kishore, became entitled to the rights of Budh Singh and
Jialal by purchase under sale deeds dated April 17, 1943 and
May 11, 1943. But, Shankerlal and Piareylal (present
plaintiff) filed a suit for presumption against the vendors
and Jugal Kishore and as a result of the decree passed in
the suit, they became entitled to the lessor’s interest in
the suit plot of land on August 13, 1945.
Meanwhile the lessee Patel Mills went into liquidation
and Mehra was appointed voluntary liquidator of the company
on May 11, 1937 by a special resolution at a meeting of the
creditors of the company. Benaras Bank Ltd., was the biggest
creditor of the Company. So the liquidator negotiated the
sale of all the assets of the Company to the Benaras Bank
Ltd., for a sum of Rs. 70,000/- and on February 23, 1939
executed an agreement of sale after receiving the
consideration. The lease-hold interest in the suit plot was
also included as one of the assets in the agreement of sale.
As a meeting held on May 4, 1939 the creditors accepted the
final report of the voluntary liquidator. The report was
sent to the Registrar of Joint Stock Companies, and
registered on September 9, 1939. The company thus stood
dissolved with effect from December 9, 1939. Subsequently on
March 1, 1940 the Benaras Bank Ltd, itself went into
liquidation. The Official Liquidator of the Benaras Bank
Ltd. found that there was no duly executed deed of transfer
executed by the voluntary liquidator of the company in
favour of the Benaras Bank Ltd. in respect of the lease-hold
interest in the suit plot of land. At the instance of the
official liquidator of the bank, Shri Mehra the erstwhile
voluntary liquidator of the company executed a deed of sale
on January 28, 1941 and had it duly registered. On March 9,
1943 the official liquidator transferred the lease-hold
interest in the suit plot of land to the defendant-
appellant.
We have mentioned that Patel Mills Ltd., stood
dissolved with effect from December 9, 1939. Budh Singh and
Jialal had earlier, i.e. on April 12, 1939, accepted rent
from the voluntary liquidator of the company. After the
dissolution of the company and the transfer of the lease
hold interest by the voluntary liquidator to the Benaras
Bank Ltd. Budh Singh and Jialal sent a notice dated January
11, 1941 to the liquidator of the Benaras Bank Ltd. through
their lawyer demanding payment of arrears of rent for four
years and asserting that the 15-91SCI/80
824
lease was forfeited consequent on the lessee’s failure to
pay rent for a continuous period of three years. The
liquidator denied the claim of right of the lessor to
forfeit the lease but admitted the claim for rent. Rent was
accordingly paid and was accepted by Budh Singh and Jialal.
Later, on March 21, 1946, Jugal Kishore who had purchased
the rights of Budh Singh and Jialal also accepted rent from
the official liquidator of the Benaras Bank Ltd.
Shankerlal and Piarey Lal who became entitled to the
lessor’s interest in the suit plot of land as a result of
the decree from pre-emption which they obtained against
Jugal Kishore and his vendors, filed the suit out of which
the appeal arises to recover possession of the land. Their
case was that the lease hold interest in the land was not
validly transferred by the voluntary liquidator and
therefore, the defendant acquired no right in the land.
Several defences were raised. It was claimed that the
voluntary liquidator had the authority in law to execute the
deed of sale and formally complete a transaction which had
already taken place. It was also claimed that the
predecessors in the interest of the plaintiffs having
accepted rent from the official liquidator of the bank, the
plaintiffs were estopped from contending that the transfer
in favour of the bank was not valid. Section 53A Transfer of
Property Act was also invoked as a defence to the action of
the plaintiffs. It was lastly pleaded that the plaintiffs
had no right to sue for possession as the lease-hold
interest in the land had escheated to the Government on the
dissolution of the Company. The suit was dismissed by the
Trial Court. The judgment and decree of the Trial Court were
affirmed by the 1st Appellate Court and a learned single
Judge of the High Court in second appeal. The learned Single
Judge found in favour of the defendant on the question of
estopped, escheat and authority of the voluntary liquidator
to execute the sale deed but found against the defendant on
the applicability of s. 53A of the Transfer of Property Act.
On appeal by the plaintiffs under clause 10 of the Letters
Patent a Division Bench of the High Court reversed the
judgment and decree of the Subordinate Courts and decreed
the suit. The Division Bench held that the voluntary
liquidator had no authority to execute the deed of sale
after the dissolution of the company and that there was
neither estopped nor escheat. The Division Bench also held
that s. 53A of the Transfer of Property Act did not protect
the defendant. The defendant has preferred this appeal after
obtaining a certificate from the High Court under Art.
133(1)(b) of the Constitution.
The submissions of Shri Javali learned counsel for the
appellant on the question of applicability of s. 53A of the
Transfer of Property
825
Act and the authority of the voluntary liquidator after the
dissolution of the company to execute the deed of sale may
be easily disposed of. We do not think that s. 53A of the
Transfer of Property Act is attracted to the facts of the
present case. The right under s. 53A is available against
the transferor (effecting the incomplete transfer) and any
person claiming under him. It is difficult to understand how
the successor-in-interest of a lessor can ever be said to a
person claiming under a lessee making an incomplete transfer
of the lease-hold interest. Nor do we find force in the
submission of the learned counsel that the voluntary
liquidator had legal authority, after dissolution of the
company to execute the deed of sale so as to formally
complete the transaction which had already been entered
into. Reliance was placed by the learned counsel for the
appellant on the decision of Farwell, J., in Pulsford v.
Demanish(1). In that case a liquidator was guilty of gross
dereliction of duty. In the words of Farwell J., “A more
gross dereliction of duty by a liquidator I have seldom
heard of”. Though in possession of sufficient assets of the
liquidating company to pay all its debts in full the
liquidator took no steps to ascertain the creditors of the
liquidating company or to see that they were paid. Instead
he sold the business and assets of the company to a
purchasing company who covenanted to pay all the debts and
liabilities of the liquidating company. The purchasing
company did not pay the debts. The liquidating company was
dissolved. The creditors had no remedy by which they could
recover their debts. A creditor of the liquidating company
sued the liquidator for recovery of damages. It was held
that the liquidator was guilty of negligence in the
discharge of his statutory duty and was liable in damages to
the unpaid creditors of the liquidating company. What was
decided in the case was not that a liquidator could
represent the erstwhile company after it was dissolved but
that a liquidator could be sued in damages for breach of a
statutory duty which he had failed to perform while
functioning as liquidator. We do not think that this case is
of any assistance to the appellant. We are unable to
appreciate how after the company was dissolved the
liquidator could still claim to represent the company and
execute a registered deed of sale. Once the company was
dissolved it ceased to exist and the liquidator could not
represent a non-existing company. If the liquidator was to
discharge any duty or perform any function on behalf of the
dissolved company he should have express statutory
authority. The Companies Act 1913 contained no provision
enabling the liquidator to do any act on behalf of a
dissolved company. S. 209(H) of the Companies Act, 1913
enjoined the liquidator as soon as the affairs of the
company were wound up to make up an account of the winding
up and to call a gene-
826
ral meeting of the company and a meeting of the creditors
for the purpose of laying the accounts before the meetings.
The liquidator was then required to send to the Registrar a
copy of the account and to make a return to him of the
holding of the meetings. The Registrar on receiving the
accounts and the returns was required to register them an on
the expiration of three months of registration the company
was to be deemed as dissolved. The only duty cast upon the
liquidator thereafter was that under s. 244(B). It was that
the liquidator should on the dissolution of the company pay
into the Reserve Bank of India, to the credit of the Central
Government in an account called the Companies Liquidation
Account any money representing unclaimed dividend or any
undistributed assets in his hands on the day of dissolution.
No other duty was stipulated to be performed by the
liquidator under the provisions of the Companies Act, 1913,
after the dissolution of the company. We are, therefore,
unable to agree with the submission of the learned counsel
that the liquidator had the jurisdiction to execute the deed
of sale dated January 28, 1941 after the company had been
dissolved.
The next question which we must consider is what was
the effect of the dissolution of the company on the lease-
hold interest which the company had in the land. No term of
the lease has been brought to our notice by which the lease
would stand extinguished on the dissolution of the company.
If the company had a subsisting interest in the lease on the
date of dissolution such interest must necessarily vest in
the Government by escheat or as bona vacantia. In India the
law is well settled that the property of an intestate dying
without leaving lawful heirs and the property of a dissolved
Corporation passes to the Government by escheat or as bona
vacantia. Of course such property will be subject to trusts
and charges, if any, previously effecting its vide M/s.
Pierce Leslie & Co. Ltd., v. Violat Ouchterlong Wapshare &
Ors.(1). It is also to be noticed here that s. 244(B) of the
Companies Act 1913, as well as s. 555(2) of the Companies
Act 1956 expressly enjoin a duty on the liquidator to
deposit, on the dissolution of the company, into an account
in the Reserve Bank of India known as the Companies
Liquidation Account any money representing unpaid dividend
or undisputed assets lying in his hands at the time of
dissolution. The learned counsel for the appellant relied
upon the decisions of the Allahabad High Court in Tulshi Ram
Sahu & Anr. v. Gur Dayal Singh & Anr.(2) and Mussamat Ramman
Bibi v. Mathura Prasad & Anr.(3). Both were cases of fixed
rate tenancies. As pointed out
827
by the Full Bench in Tulsi Ram Sahu & Anr. v. Gur Dayal
Singh & Anr.,(1) one of the incidents of a fixed rate
tenancy was that provided by s. 18 of the Agra Tenancy Act
1901 which prescribed that a right of occupancy would stand
extinguished when a fixed-rate tenant died leaving no heir
entitled under the Act to inherit the right of occupancy. It
followed therefrom that the land had to revert to the
landlord and could not go to the Government by escheat. On
the other hand in Sonet Kooer v. Himmat Bahadur & ors.(2).
The Privy Council held that on the failure of heirs to a
tenant holding land under Mukerrori Tenure there was nothing
in the nature of the tenure which prevented the Crown from
taking the Mukerrori by escheat, subject to the payment of
rent to the Zamindar. If the lease-hold interest of the
company in the land became vested in the government on the
dissolution of the company it must follow that the suit at
the instance of the plaintiffs was not maintainable.
The next question for consideration is whether the
plaintiffs were estopped from denying the validity of the
sale in favour of the Benaras Bank Ltd., and the character
of the possession of the Benaras Bank. Ltd., and its
successors in interest. As already mentioned by us Budhsingh
and Jialal sent a notice dated January 11, 1941, through
their lawyer demanding of the liquidator of the Benaras Bank
Ltd., payment of arrears of rent for four years and
asserting that the lease was forfeited consequent on the
lessee’s failure to pay rent for a continuous period of
three years. The liquidator denied the claim of right of the
lessor to forfeit the lease but admitted the claim for rent.
The liquidator paid the rent and it was accepted by Budh
Singh and Jialal. Later also the evidence shows that Jugal
Kishore the purchaser from Budh Singh and Jialal also
accepted rent from the official liquidator of the Benaras
Bank Ltd. This course of conduct of Budh Singh and Jialal
and their successor Jugal Kishore clearly indicates the
acceptance, by them, of the position that the Benaras Bank
Ltd. had succeeded to the rights of the company in the
lease-hold interest. Further, the official liquidator of the
Benaras Bank Ltd. said first tried to sell the lease-hold
interest by public auction. When that sale did not fructify
because of the failure of the highest bidder to deposit the
sale price, the lease-hold interest was sold to the
defendant with the sanction of the Company Judge. At no
point of time did the predecessors-in-interest of the
plaintiffs raise the slightest objection to the sale of the
leas-hold interest. It was thereafter that the defendant
obtained the permission
828
of the Municipal Board, Saharanpur, and raised construction
on the land. The plaintiffs themselves admittedly reside
near about the land in dispute. They did not raise any
objection to the raising of the constructions. The
plaintiffs as well as the defendants appeared to proceed on
the common understanding that the defendants had succeeded
to the interest of Patel Mills Ltd., in the lease-hold
interest. We are, therefore, of the view that the plaintiffs
were estopped from contending that the defendant had no
interest in land. The amount only right of the plaintiffs
was to receive the rent. The result of our discussion is
that the appeal is allowed and the suit is dismissed with
costs throughout. It is, however, made clear that the
plaintiffs have the right to receive rent from the
defendants.
P.B.R. Appeal allowed.
829