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OJA/66/2006 39 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
O.J.APPEAL
No. 66 of 2006
In
COMPANY
APPLICATION No. 34 of 2004
In
COMPANY
PETITION No. 21 of 1994
With
O.J.APPEAL
No. 65 of 2006
In
COMPANY
APPLICATION No. 33 of 2004
With
O.J.APPEAL
No. 67 of 2006
In
COMPANY APPLICATION
No. 462 of 1999
For
Approval and Signature:
HON'BLE
MR. JUSTICE MOHIT .S.SHAH
AND
HON'BLE
MR. JUSTICE K.A.PUJ
=================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
Yes
2
To
be referred to the Reporter or not ? Yes
3
Whether
their Lordships wish to see the fair copy of the judgment ?
No
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ? No
5
Whether
it is to be circulated to the civil judge ? No
=================================================
JABAL
C. LASHKARI – Appellant(s)
Versus
O.L.OF
PRASAD MILLS LIMITED & 3 – Opponent(s)
=================================================
Appearance :
MR
DV PARIKH for Appellant(s) : 1,
OFFICIAL LIQUIDATOR for
Opponent(s) : 1,
MR RM DESAI for Opponent(s) : 1,
NOTICE SERVED
BY DS for Opponent(s) : 2,
MR RM DESAI for Opponent(s) : 3,
MR
AS VAKIL for Opponent(s) :
4,
=================================================
CORAM
:
HONOURABLE
MR JUSTICE MOHIT S.SHAH
and
HONOURABLE
MR.JUSTICE K.A.PUJ
Date
: 17 / 10 /2008
CAV JUDGMENT
(Per
: HON’BLE MR JUSTICE MOHIT S.SHAH)
These
appeals are directed against the judgment and order dated 13.10.2004
passed by the learned Company Judge as common order in Company
Application Nos.462 of 1999 and 33 and 34 of 2004.
2. The
appellants claim to be the heirs of the owner of the land in question
admeasuring 35,772 sq.mtrs. in Ahmedabad, who had leased out the land
on long term basis for the period of 199 years as per the lease deed
executed on 10.12.1916 in favour of Bechardas Spinning and Weaving
Mills Ltd. which subsequently came to be known as Prasad Mills Ltd.
After the Prasad Mills Ltd. was ordered to be wound up by judgment
dated 5.5.1989 in Company Application No.21 of 1984, the appellants
filed the above-numbered company applications in 1999 and thereafter
for a direction to the Official Liquidator to return the land in
question to the appellants mainly on the ground that the lease stood
determined on winding up order being made by the Company Court. It
was also contended that the rights and liabilities of the parties to
a lease deed subsist even when the Company is in liquidation and
hence provisions of the Bombay Rent Act, 1947 would apply so as to
enable the applicants to get back possession of the land in question
under the provisions of the Rent Act.
3. The
learned Company Judge hearing the above-numbered company applications
had an occasion to consider similar questions in Company Application
No.47 of 1993 and connected matters. After considering the relevant
provisions of the Companies Act including Sections 457, 535, 529A
and also the provisions of Transfer of Property Act, 1882 and the
provisions of the Bombay Rent Act, in his judgment dated 30.7.2002,
(Legal heirs of deceased Fakirchand Ambaram Patel vs. OL of Ambica
Mills Ltd. & ors. reported in (2003) 116 Comp. Cases 588 = 2002
(3) GLH 367), the learned Company Judge laid down the following
principles :-
[a]
Leasehold interest is an intangible asset, which is valuable in
nature though the valuation may differ from case to case
depending upon the unexpired period of lease.
b] Such an asset is transferable subject to the same terms and conditions as may be stipulated in the lease deed.
c] Once there is a contract which has not been determined, the relationship of the parties to the contract continues to subsist till the period for which the contract is in existence subject to an express condition to the contrary.
[d] There is a distinction between the point of time when an order of winding up is made and at the point of time when an order of dissolution is made, the company continues to exist between the two termini.
[e] A condition in the lease deed permitting a lessee to give back the possession as and when the lessee chooses to do so cannot be converted into an obligation entitling the lessor to seek possession.
[f] A condition in the lease deed by way of requirement to pay rent, per se, does not create an onerous covenant, once readiness and willingness is shown by the lessee, or on its behalf, to discharge such obligation.
4. Since the above
reported judgment dated 30.7.2002 has also been challenged in other
OJ Appeals, all the connected matters numbering about 31 appeals
raising common and similar questions of law, but involving
interpretation of separate lease deeds were heard together initially
and also when rehearing took place on 28th April 2008.
Since the learned advocate for the appellants herein argued the
matter at length, the present appeals have been treated as the lead
appeals and are being disposed of by this judgment.
RIVAL
SUBMISSIONS BEFORE LEARNED COMPANY JUDGE
5. The
appellants’ case before the learned Company Judge was as under :-
5.1 One
Shri Bechardas started Bechardas Spinning and Weaving Mills some
time in 1860. The land, building, machinery, etc. were owned by
said Bechardas. On death of said Bechardas the said properties
were inherited by Shambhuprasad, on whose death the properties
were inherited by late Durgaprasad Shambhuprasad Laskari.
During life time of late Durgaprasad Laskari, Bechardas
Spinning and Weaving Mills Company Limited was formed in 1914 to
take over the said business of Bechardas Spinning and Weaving Mills
Company. Shares of the said Limited Company were issued in
favour of late Durgaprasad Shambhuprasad Laskari towards
consideration. It was averred in the supporting affidavit
that land bearing Survey Nos.4823 to 4832, 4844 to 4895, 4899,
4901 to 4911, 5002 to 5011 and 5049 of Village Ward Raikhad,
Ahmedabad admeasuring 35722.41 sq. mtrs. (hereinafter
referred to as ‘the demised land’) was leased out to Bechardas
Spinning and Weaving Mills Company Limited by late Durgaprasad
Shambhuprasad Laskari. It was further averred that “It may be
appreciated that the said land was of ownership of Durgaprasad
Laskari and was leased out to the company as the company was taking
over the mill owned by Durgaprasad Laskari”. Accordingly,
the Lease Deed came to be executed on 10-12-1916 by said
Durgaprasad Laskari.
5.2 Durgaprasad
Shambhuprasad Laskari, who was at the relevant time Managing Director
and had controlling interest in Bechardas Spinning and Weaving Mills
Company Limited (now Prasad Mills Ltd.), passed away on 7.7.1962 and
on his death his properties came to be inherited by the appellants
along with other heirs (who have not joined the appellants) under the
provisions of the Hindu Succession Act.
5.3 The basis for preferring Company Application No.34 of 2004, according to the applicant, was that the demised land was never leased out to the Company (in liquidation), but was leased out to the Managing Agent of the Mill Company, and hence, the Company (in liquidation) was in illegal possession and occupation of the demised land. However, the facts averred in the supporting affidavit of Company Application No.462 of 1999 do not support this stand of the applicant of Company Application No.34 of 2004.
5.4 Mr. Devan Parikh, learned advocate appearing for the applicants in all the three applications, submitted that the Lease Deed was entered into with Managing Agent of Bechardas Spinning and Weaving Mills Company Limited and not with the Company (in liquidation);
In support of this contention, Mr. Parikh sought to place reliance upon Memorandum of Association and Articles of Association, a copy of which was tendered during the course of hearing before the learned Company Judge. On being pointed out that neither the Memorandum nor the Articles appeared to bear the signatures of the subscribers /promoters of the Company, Mr. Parikh sought time. After the hearing was over before the learned Company Judge and the matter was kept for orders, an additional affidavit dated 28.9.2004 was placed on record along with copy of the same documents viz. unregistered Memorandum of Articles with Annexures and in the additional affidavit it was submitted that Bechardas Spinning and Weaving Mills Company Limited was registered on 03-09-1914 at Sr.No.41 before the Registrar of Companies, Bombay. That the applicants made inquiry with the Office of Registrar but as the Memorandum of Association and Articles of Association were very old they were not available with the Registrar. That this was the only document which was available with the applicants and hence the same was being endorsed by the applicants to verify that the same was a copy of the Memorandum of Association as in 1914 and as found with the applicants.
5.5 Alternatively even on the basis of Lease Deed being in favour of the Company (in liquidation), it was contended that by virtue of provisions of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 (the Rent Act) the applicants were entitled to be put in possession; that the lease stood determined on winding up order being made by the Court; that rights and liabilities of the parties to a Lease Deed subsisted even when the Company was in liquidation and hence provisions of the Rent Act would apply.
Mr. Parikh invited attention to Section 15(1) of the Rent Act as well as Section 13(1)(a) read with Section 13(1)(k) of the Rent Act to contend that provisions of the Rent Act were applicable overriding any other law and that eviction under Section 13 of the Act was de hors the Lease Deed. That the purpose of the Lease was solely to run the mill and once the premises were not used for the purpose for which the premises were let the lessor becomes entitled to seek eviction.
5.6 Alternatively, it was not open to the Official Liquidator to assign rights under the Lease Deed and hence he could not sell them, as only subletting was permissible. It was submitted that there was difference between subletting and assignment.
6. On the other hand,
the stand of the Official Liquidator, the secured creditors and the
workmen represented by the Textile Labour Association was as under :-
6.1 the
provisions of the Rent Act cannot come to the aid of the
appellants because in 1916 when the Lease Deed was executed and
registered, no Rent Act was in force. That even otherwise,
once there was a subsisting contract between the parties, if any
forfeiture or eviction was intended by any of the parties to the
contract, they were governed by the terms of the subsisting
contract because tenancy had not been determined.
6.2
there was no breach of provisions of Section 108(o) of the
Transfer of Property Act, nor was there any notice of forfeiture
issued and served. The secured creditors are ready and willing
to pay rent if so directed, but in absence of any claim
there was no occasion to make any such direction to make any
such payment. That if deemed fit a direction may be given.
6.3 the
appellants have themselves stated that they are some of the
heirs of deceased Durgaprasad and, therefore, they shall have to
establish before they can make any claim, that they are legal heirs
of the deceased lessor, and that the other heirs have relinquished
their interest in the properties in question.
6.4 the
appellants had placed on record a copy of plaint Civil Suit No.3960
of 1986 at Annexure-B wherein defendant No.1 was shown as the
Company (in liquidation). Inviting attention to Paragraph No.2
of the plaint it was submitted that there was a categorical
averment that the Company (in liquidation) was formerly known as
Bechardas Spinning and Weaving Mills Company Limited; that the
erstwhile Bechardas Mills is now known as Prasad Mills Limited.
Hence it was now not open to the appellants to raise the
contention that the Company (in liquidation) was in illegal
possession and occupation of the demised land de hors the Lease
Deed, but considering the aforesaid averments in the plaint of the
aforesaid civil suit as well as the document showing the
mortgage in favour of respondent No.2 – State Bank of India, the
said contention did not merit acceptance.
6.5 the
entire Lease Deed not only did not specify the purpose of Lease, but
as per terms of the Lease Deed it was not open to the lessor,
assuming that the present applicants could represent the
lessor, to claim back possession of the land.
FINDINGS GIVEN BY LEARNED COMPANY JUDGE
7. After considering
the rival submissions, the learned Company Judge gave the following
findings :-
7.1
the Lease Deed (Annexure-A) executed and registered on
10-12-1916 is for a period of 199 years (Clause 2), Therefore, there
is a subsisting contract and the parties would be governed by the
terms of the contract. The contractual tenancy, therefore,
would subsist as governed by the provisions of the Transfer of
Property Act and there cannot be any eviction from such tenancy. It
is also settled position in law that merely because a company
goes into liquidation and the Official Liquidator takes charge of
the properties of the Company on his appointment, the rights of the
Company (in liquidation) vis-a-vis the landlord do not undergo any
change and they continue to be governed by the subsisting contract.
7.2 After
referring to all the clauses of the lease deed, the learned Company
Judge gave the following findings :-
(i) The Lease
Deed is executed between Sheth Durgaprasad Shambhuprasad
Laskari, described as party of the First Part and the party of
the Second Part is the Secretary, Treasurers and Agent
M/s.Durgaprasad Shambhuprasad Laskari & Company of the Bechardas
Spinning and Weaving Mills Company Limited (the Company) and
directors Bhulabhai Bulakhidas and Patel Jagjivandas Amthasa of the
Company.
(ii) Under clause 7 of
the lease deed, the lessee is entitled to assign its rights in favour
of a third party.
(iii) The lessee is
entitled to build any superstructure after obtaining necessary
permission from the appropriate authority or the land may be used as
land or the same may be let out on rent or leased out and the lessor
shall not be entitled to raise any objection or dispute in this
regard till the period of 199 years and only on completion of 199
years, the lessor is entitled to obtain possession of the land
(clauses 7 & 9).
(iv) The landlord does
not have any right to seek possession of the demised land except as
stipulated in clause (1) read with clause (8) which provided that in
case the lessee fails to pay the annual rent from year to year, the
lessor shall be entitled to give a registered notice and if during
the notice period, the payment is not made, the lessor would be
entitled to initiate action to claim back possession. (clauses 5, 7,
9 and 10).
(v) Clause 10 of the
lease deed also stipulates that in the aforesaid lease deed whatever
terms and conditions have been written, they are acceptable and
binding on the lessor and the lessee as well as their heirs,
advocates, administrators, assignees and executors.
7.3 The
learned Company Judge rejected the contention urged on behalf of the
appellants that a lease deed was executed in favour of the Managing
Agent of the company which is now in liquidation and not in favour of
the company in liquidation itself. The learned Company Judge held
that on a plain reading of the opening portion of the preamble in the
part where the lease deed is executed and witnessed, the party of the
second part was not only the Managing Agent of the company, but also
two Directors of the company (Bhulabhai Bulakhidas and Patel
Jagjivandas Amthasa ) were specified as party of the second part.
Durgaprasad Shambhuprasad Laskari not only signed the lease deed on
his own behalf as party of the first part (lessor) but also as
Secretary, Proprietor and Agent of the company. Thus on behalf of the
lessee, the lease deed was signed by the Secretary, Proprietor and
Agent of the Company and also by its two Directors. Hence, the
contention raised on behalf of the appellants was misconceived. In
support of the above conclusion, the learned Company Judge also
referred to the averments made in the plaint in Civil Suit No.3960 of
1986 which also proceeded on the basis that the company in
liquidation was in possession of the land in question and the
construction made thereon under registered lease deed dated
14.12.1916. Reference was also made to Article No.111 of the Articles
of Association which provided that every deed or other instrument to
which the seal is required to be affixed may be signed by two
Directors and the Agents only except where the instrument is in
favour of the agent when it shall be signed by two Directors. The
learned Company Judge noted that the lease deed was signed by two
Directors and the agents and, therefore, the lease deed was signed
for and on behalf of the company in liquidation. The learned Company
Judge also noted that although the company was ordered to be wound up
on 5.5.1989, the first amongst present applications for taking back
possession was filed on 8.12.1999 without any explanation for the
delay of more than a decade.
7.4 While
considering the question whether the lessee had committed any act
contrary to Section 108(o) of the Transfer of Property Act, in other
words, whether the lessee had used or permitted another to use the
property for a purpose other than for which it was leased, the
learned Company Judge answered the question in the negative after
noting that in the lease deed no specific purpose was provided. On
the contrary, a conjoint reading of various clauses of the lease deed
indicated that it was open to the lessee either to construct
superstructure or building on the land or to use it as open land or
to sublet it to anyone and the lessor would not be entitled to raise
any objection. Thus the appellants’ case did not fall under Section
108(o) of the Transfer of Property Act.
7.5 As
regards the contention that the appellants’ case was governed by
Section 13(1)(a) or Section 13(1)(k) of the Bombay Rent Act, the
learned Company Judge held that the appellants had failed to bring
their case within the above provisions.
APPELLANTS’
CONTENTIONS
8. Assailing
the above judgment of the learned Company Judge, Mr Deven Parikh,
learned advocate for the appellants raised the following contentions
:-
(i) The decision of
the seven Judge Bench of the Apex Court in Dhanapal Chettiyar’s case,
AIR 1979 SC 1745 = (1979) 4 SCC 214 has done away with the
distinction of statutory tenancy and contractual tenancy. Hence, the
provisions of the Bombay Rent Act including all the provisions of
sub-section (1) of Section 13 thereof providing for various grounds
of eviction are available to lessors to evict lessees, irrespective
of the fact whether the lease is a short-term or a long-term lease or
lease in perpetuity or whether it is contractual tenancy or
statutory tenancy.
Reliance is also
placed on the decisions of the Apex Court in Parasram Harnand Rao vs.
Shanti Parsad Narinder Kumar Jain, AIR 1980 SC 1655, K.K. Krishnan
vs. M.K. Vijaya Raghavan, AIR 1980 SC 1756, Ravindra Ishwardas Sethna
vs. Official Liquidator, H.C. Bombay, AIR 1983 SC 1061, Nirmala R.
Bafna vs. Khandesh Spinning & Weaving Mills Co. Ltd., AIR 1993 SC
1380 and also on the decision of Deshpande, J in Canara Bank vs.
Yusuf, AIR 2000 Bom. 71.
(ii) There are various
clauses of the Rent Act which neither the landlord nor the tenant can
contract out of. Hence irrespective of the terms and conditions of
the contract, the prohibitions contained in the provisions of the
Bombay Rent Act are applicable to all categories of lease. The Rent
Act is a unifying Act for all lessees.
Section 15 of the
Bombay Rent Act prohibits the tenant from transferring or sub-letting
the lease premises and the said prohibition is applicable to all
lessees, irrespective of the fact whether the lease is a short-term
lease or a long-term lease or whether it is contractual tenancy or
statutory tenancy.
Section 18 of the
Bombay Rent Act prohibits lessee from taking lumpsum consideration
for the purpose of surrendering the leasehold interest or
transferring the leasehold interest and such prohibition applies to
all lessees irrespective of the fact whether the lease is a
short-term lease or a long-term lease or whether it is contractual
tenancy or statutory tenancy.
(iii) Clause 5 of the
lease deed is a forfeiture clause and the appellant lessors are
entitled to invoke the said clause.
(iv) Clause 7 of the
lease deed on page 8 granting lease for 199 years permits only
sub-letting but does not permit transfer of leasehold interest.
(v) The land was to be
used for running a textile mill. While the lease deed did not
prohibit construction of additional building over and above the
factory premises already constructed, the land of the Company in
liquidation cannot be permitted to be used for any other purpose.
Relying on the decisions of this Court in 2002 (1) GLR 140 (para 4)
(given for wood business, used for scrap business), AIR 2002 SC 1822,
AIR 1993 SC 2646, it is submitted that change of user is also a
ground justifying the eviction of the tenant and if it can be a
ground for eviction, the Company Court cannot permit the land of the
Company in liquidation or even the leasehold interest therein to be
sold.
Reliance is also
placed on the decision in Canara Bank vs. Yusuf, AIR 2000 Bom. 71
(Paras 2, 7, 8 and 11) and in 1969 (2) Company Law Journal 253.
(vi) Relying on the
decisions of the Apex Court in AIR 1980 SC 1655, AIR 1983 SC 1061 and
AIR 1988 SC 145, it is submitted that during the course of winding-up
proceedings, the Official Liquidator can only carry on the business
of the Company in winding-up for the limited purpose of winding up
and not for the purpose of profit.
(vii) Any sale of
leased land by the OL in absence of notice to the lessors will be
illegal and void-ab-initio.
(viii) On facts, Mr
Parikh has also reiterated the submissions made by the appellants
before the learned Company Judge that lessee of the land was
Durgaprasad Lashkari and not the company in liquidation.
SUBMISSIONS ON
BEHALF OF OFFICIAL LIQUIDATOR, SECURED CREDITORS AND WORKERS
9. Mr RM Desai,
learned counsel for the Official Liquidator and also for secured
creditor, State Bank of India has opposed the appeals and supported
the judgment of the learned Company Judge.
9.1 The Deputy
Official Liquidator has submitted Official Liquidator’s further
report dated 25.07.2007 stating that the details of the claims as on
the date of the winding up order (5.5.1989) as filed by the creditors
and workers in the office of Official Liquidator are as under :-
1
Claim
lodged by IDBI
14,81,000
2
Claim
lodged by SBI
3,53,28,000
3
Ahmedabad
Municipal Corporation (July 2002)
3,03,21,951
4
Workers
of the Company (As per CA report)
7,83,65,193
It was also brought
to our notice at the hearing of the appeals that as per the statement
of affairs, the claims of unsecured creditors were to to tune of
Rs.3,19,76,000/- and that the unsecured claim of secured creditors
were to the tune of Rs.92,95,942/-
9.2 Mr
Desai has also submitted that the Transfer of Property Act does not
provide for termination of lease upon winding up order and that the
Bombay Rent Act is not applicable in case of long term lease. It is
also submitted that the lease deed does not provide that upon the
order of winding up being passed against the lessee company, the
lease will come to an end. None of the provisions of the Companies
Act, 1956 also provides for determination of the lease on the ground
of winding-up of the Company.
9.3 In
support of the above submission, Mr Desai has placed strong reliance
on the decisions in 2001 (7) SCC 409 (paras 15 and 19), 1994 (2) SCC
671, AIR 1980 SC 571 (para 7), AIR 1993 Karnataka 90 (FB) and AIR
1986 Bom. 284 (FB).
9.4 The
secured creditor SBI has always been, and is, ready and willing to
pay the rent as per the lease deed and all the arrears thereof till
the leasehold rights are assigned to another party after public
auction.
9.5 When
the sale is through a sale committee appointed by the Company Court
with representatives of the secured creditors and workers, the
mortgagee also sells its own interest in the property. Therefore,
there is nothing illegal about the sale of the leasehold interest of
the Company in winding up. In support of this submission, reliance is
placed on 2002 (10) SCC 682.
9.6 The
application before the learned Company Judge for possession of the
land in question was filed by seven heirs of the lessor, the OJ
Appeal was also filed by seven heirs. However, when the appeal was
dismissed and the Division Bench of this Court refused to restore
the appeal, SLP was filed by only four heirs. Hence the matter being
restored upon the order in the SLP, is an appeal by only four heirs.
10. On behalf of the
Textile Labour Association, Mr DS Vasavada has submitted written
submissions mainly contending that –
10.1 Mr
Vasavada for the Textile Labour Association has further submitted
that since the winding-up order was passed on 5.5.1989, it is high
time that the land of the Company in liquidation is put to sale. All
the Mills and Textile Industries in Ahmedabad were installed on
leasehold land. The lease was either perpetual or permanent or for a
term of 199 years (as in the Prasad Mills Ltd.) or 99 years with
option with the lessee to renew the lease and obligation of the
lessor to renew the lease subject to increase in the amount of rent.
Winding up orders have been passed in almost all the cases about more
than 15 years ago and the assets of the Company (in liquidation),
except lands have been sold in a phased manner. Each Mill had
employed thousands of workers as per the following statement, out of
which hundreds of workers have expired without getting their dues
from the Company in liquidation.
Sr.
No.
OJ
Appeal No.
Name
of Unit
Nature
of Lease
No.
of workmen
No.
of workmen expired
1
65,66,67/
2006
Prasad
Mills
-do-
1429
402
2
60/2003
Amruta
Mills
Permanent/
perpetual
3471
273
3
46/2003,
81/2006
Aryodaya
Spinning
-do-
3288
394
upto
2002
4
31/2003
Omex
-do-
1874
396
upto
2002
5
1/2003,
3/2003
A’bad
Jubilee Mills
-do-
3786
687
upto
2004
6
47/2003
Kalol
Calico
-do-
2000
400
7
—
Navjivan
Mills
(delay
condonation application pending)
-do-
2086
400
10.2 It is also
pointed out on behalf of the Textile Labour Association that in many
cases, the lessors had prayed for getting back possession of the
lands and after dismissal of their claims, the lessors have also
filed OJ Appeals against the judgment dated 13.07.2002. However,
some of them did not pray for any interim stay of the order of the
learned Single Judge during pendency of the OJ Appeals and therefore,
leasehold lands have been sold by the Sale Committee consisting of
the Official Liquidator and representatives of the secured creditors
and the Textile Labour Association. The details of the said Mills
are as under :-
Sr.
No.
Name
of Mill
OJ
Appeal
Remarks
1
Vijay
Mills
50/2003
—
2
Aruna
Mills
72/2002
Another
OJ Appeal is pending.
3
Aryodaya
Ginning Mills
—
The
land owned by lessor admeasuring 58000 sq. mtrs. has been sold
vide OLR No.101/2007 dt. 11.09.2007.
4
Continental
Textile Mills
—
Winding
up petition is pending in Delhi High Court, the leasehold land
admeasuring approx. 1,22,000 sq. mtrs. is sold and the sale is
confirmed by the Delhi High Court and the highest bid was 41 Cr.
The mill is located in Naroda area of Ahmedabad.
5
Arbuda
Mills
50/2005
—
6
Vivekanand
Mills
64/2002
—
7
Ambica,
Unit No.1
Com.
Appl. No. 287/2005
Referred
to Division Bench and majority part of the land was also
leasehold land and sale was confirmed in 2003 by the learned
Single Judge as per the information, no OJ Appeal is preferred.
It is further stated
by Mr Vasavada that as per the information available with the Textile
Labour Association even conveyance deeds have been executed in favour
of the purchasers and the Official Liquidator has already handed over
the possession of the properties to the purchasers. Thus, title and
possession having been passed on to the purchasers, it is not open to
the lessors to contend that the sale was illegal. In fact, the
Official Liquidator has become functus officio in such cases.
10.3 It is submitted
by Mr Vasavada for the Textile Labour Association that there were in
all 74,659 workmen of 35 Textile Mills. So far those workmen have
received on an average only about 23.40% of their dues from the
assets of the companies in liquidation. In cases where the leasehold
lands or freehold lands of the Company in liquidation have been sold,
the workmen have received compensation in the range between 30% to
50% of their dues, but in 8 cases where the leasehold lands belonging
to the companies in liquidation have not been sold on account of
interim stay obtained by the lessors during pendency of the OJ
Appeals. In most of the cases, the workmen have received on an
average only about 10% to 15% of their dues. The Textile Labour
Association has even invoked the provisions of Article 21 of the
Constitution for contending that the workman have been denied their
terminal benefits after long years of service and that these terminal
benefits are their only source of livelihood and that if such
terminal benefits are to be denied to the workmen, there will be
breach of their fundamental right under Article 21 of the
Constitution. That the machineries and buildings of the Companies in
liquidation have not fetched any substantial amounts as they have
deteriorated in value with passage of time and only lands have
appreciated in value and therefore, the consideration which the
Official Liquidator will receive upon sale of the leasehold rights of
the companies in liquidation is going to be the only real source of
generating funds for paying dues of workmen. Even upon sale of such
leasehold rights, the appellants will continue to be in a position to
exercise their rights as lessors.
10.4 So long as the
secured creditors and workers are ready to offer rent, the lessors
have no right of re-entry. Reliance is placed on the following
decisions :-
6 GLR 512 (513)
1996 (1) GLH 203
1996 (85) Comp. Cases
603 (Bombay)
2004 (3) GLH 416
(419, Para 8)
10.5 Absence of
notice to lessor does not render the sale void. In support of the
submission, reliance is placed on the decisions in –
2003 (10) SCC 482
2007 AIR SCW 4080
(4086, para 11)
1995 (1) GLH 12 (19)
INTERVENTION
BY THIRD PARTY
11. Mr AS Vakil
appears for Shaan Jhaveri who had made the highest offer of Rs.7.75
crores along with a Demand Draft of Rs.1 crore towards EMD on
04.05.2006 for purchasing the lands leased out to Prasad Mills Ltd.
This offer was made in response to the advertisement dated
07.04.2006. The Sale Committee found that the other offer was made
without any EMD and, therefore, rejected. The Official Liquidator
filed OL Report No.45 of 2006 recommending acceptance of the above
offer of Shaan Jhaveri and seeking directions of the Company Court.
The said OL Report is still pending before the learned Company Judge.
Till the above OL Report was filed on 18.05.2006, the lessors of the
land in relation to Prasad Mills Ltd. had not obtained any interim
orders in OJ Appeals which were filed in January 2005 but which were
never circulated for any urgent orders. For the first time, three OJ
Appeals in relation to the lands leased out to Prasad Mills were
circulated for admission hearing on 27.06.2006. The Textile Labour
Association and the secured creditor, SBI, who were parties before
the learned Company Judge, were not initially impleaded as
respondents in three OJ Appeals. At the admission hearing also, the
appellants did not bring it to the notice of the Court that the
process of sale of the leasehold lands of Prasad Mills Ltd. had
already commenced and that the highest valid offer of Rs.7.75 crores
was also made by Shaan Jhaveri. Hence, the appeals were admitted and
ex-parte ad-interim injunction was granted by the Division Bench on
27.06.2006 resulting into stay of the process of sale of leasehold
interest and lands. Hence, Shaan Jhaveri filed Application No.272 of
2006 for being impleaded as respondent in OJ Appeal No.67 of 2006.
The above application was granted on 23.08.2006.
Shaan Jhaveri has
preferred OJ Misc. Civil Application No.96 of 2007 contending that
the Company Court be permitted to consider the offer of Rs.7.75
crores made by Shan Jhaveri in response to the advertisement dated
07.04.2006.
12. Mr
Devan Parikh for the appellant-lessors has opposed the above
application and submitted that Shaan Jhaveri – auction purchaser has
no locus-standi to oppose the appeal. It is contended on the basis of
th decisions in 1972 (2) SCC 36 and 1991 Supp. (1) SCC 214 that the
highest bidder acquires no right in the property in question. Merely
because the auction purchaser is ready to purchase the property
cannot come in the way of lessor getting back possession of the
property upon winding up of the lessee company. In Ravindra
Ishwardas Sethna, AIR 1983 SC 1061, the Apex Court interfered even
after the property of the Company in liquidation was sold and the
purchaser was put into possession.
DISCUSSION
13. Though
the contentions on behalf of the appellants, were more or less those
canvassed before the learned Company Judge and though the learned
advocate for the appellants cited more than 50 (fifty) decisions for
the purpose of buttressing his legal submissions, in spite of the
repeated queries from the Court as to whether, in the matter of
applicability of Rent Act, there was any distinction between a fixed
term or long term lease and a short term lease, the learned advocate
for the appellants went on asserting that there was no such decision.
It
was the learned counsel for the respondents who invited our attention
to the direct decision of a three Judge Bench of the Apex Court in
Laxmidas Bapudas Darbar vs. Rudravva 2001 (7) SCC 409 = AIR 2001 SC
3738. Since it is a direct decision of a three Judge Bench on the
above distinction, it is necessary to note the facts giving rise to
the decision in Laxmidas Bapudas (supra), and the reasoning which
appealed to the Court.
14.
A non-agricultural land was leased for a period of 99 years to
establish a factory. Before expiry of the contractual lease period,
the lessor filed an application under the relevant provisions of the
Karnataka Rent Control Act (the Karnataka Rent Act) enabling the
landlord to evict a tenant on the ground of reasonable and bonafide
requirement of the landlord. The High Court held that the provisions
of the Karnataka Rent Act were applicable dehors the contract of
lease and that the lessors were entitled to move a petition for the
eviction of the lessee on the ground of reasonable and bonafide
requirement of the lessor, even before expiry of the fixed term of 99
years. In taking the above view, the High Court relied on its Full
Bench decision which in turn had followed the decision of the Apex
Court in Shri Lakshmi Venkateshwara Enterprises case, 1994 (2) SCC
671.
15. After
considering the previous decisions including the one in Sri Laxmi
Venkateshwara Enterprises, (supra) rendered by a two Judge Bench and
also the decision of the seven Judge Bench in Dhanapal Chettiar vs.
Yesodai Ammal, (1979) 4 SCC 214, the three Judge Bench in Laxmidas
Bapudas Darbar vs. Rudravva, 2001 (7) SCC 409 in terms held that Sri
Laxmi Venkateshwara Enterprises (P) Ltd. case (supra) is no longer
good law. The Apex Court set aside the judgment of the High Court,
allowed the lessee’s appeal and held that rights of lessees under
fixed term leases (like 99 years lease) are not curtailed by the
provisions of the Rent Act, before expiry of the term.
16. The
provisions of Section 21 of the Karnataka Rent Act, which were under
consideration, read as under :-
21. Protection
of tenants against eviction Notwithstanding anything to
the contrary contained in any other law or contract, no order or
decree for the recovery of possession of any premises shal be made by
any court or other authority in favour of the landlord against the
tenant;
Provided
that the court may on an application made to it, make an order for
the recovery of the possession of a premises on one or more of the
following grounds only, namely –
… … …
(emphasis
supplied)
17. In
Laxmidas Bapudas case (supra), the three Judge Bench of Apex Court
held as under in para 17 of the judgment :-
17. It
may have to be scrutinized as to what extent the provisions of
Section 21 of the Karnataka Rent shall have an overriding effect over
any other law or a contract. The Rent Acts have primarily been
made, if not wholly, to protect the interest of tenants, to restrict
charging of excessive rent and their rampant eviction at will. In
that view of the matter, Section 21 of the Karnataka Rent Act
provides that notwithstanding anything to the contrary contained in
any contract, no order for eviction of a tenant shall be made by the
court or any other authority. Undoubtedly, it is a provision
providing statutory protection to the tenants as it is also
evident from the heading of Section 21 of the Act. This prohibition
is however relaxed under the proviso saying that an order for
recovery of possession of the premises can be made on an application
made on that behalf only on the grounds as enumerated in clauses (a)
to (p) to the proviso. The non obstante clause contained under
Section 21 of the Act, will override any condition in any contract
which may provide a ground for eviction other than those enumerated
in clauses (a) to (p) of sub-section (1) of Section 21. Such an
additional ground in a contract shall be rendered ineffective. The
use of the word only in the proviso is significant to emphasise
that it relates to grounds alone which cannot be added over and above
as provided. The whole contract or other conditions not related to
eviction of grounds of eviction shall not be affected. So far as a
fixed-term lease is concerned, it shall be affected only to the
extent that even after expiry of period of the lease the possession
cannot be obtained by the lessor unless one or more of the grounds
contained in Section 21 of the Act are available for eviction of the
tenant. There is nothing to indicate nor has it been held in
any case that in view of Section 21 of the Karnataka Rent Act a
contract of fixed-term tenancy stands obliterated in totality.
As indicated in the earlier part of this judgment in the case of
Dhanapal Chettiar it has been observed in para 5 that none of the
State Rent Acts have abrogated or affected the provisions of Section
107 of the Transfer of Property Act which provides for lease of
immovable property from year to year or for a term more than a year
or reserving a yearly rent. As indicated earlier, the proviso to
sub-section (1) of Section 21 of the Karnataka Rent Act limits the
grounds on which a landlord can seek eviction of tenant. Nothing
has been indicated by reasons of which it can be concluded that a
contract of tenancy loses significance on coming into force of the
Karnataka Rent Act. The effect of non obstante clause, in our
view has been rightly explained in the Full Bench decision in the
cases of Sri Ramakrishna Theatres Ltd. vs. General Investments and
Commercial Corpn. Ltd.. In one of the decisions of this Court
reported in Modern Hotel vs. K Radhakrishnaiah it has been held that
period of a subsisting lease for fixed term could not be curtailed in
the absence of a forfeiture clause in the lease.
(emphasis
supplied)
18. Thereafter in
paras 18 and 19 of the judgment, the three Judge Bench laid down the
following principles :-
18. The
effect of the non obstante clause contained under section 21 of the
Karnataka Rent Act on the fixed-term contractual lease may be
explained as follows;
(i) On
expiry of period of the fixed term lease, the tenant would be
liable for eviction only on the grounds as enumerated in clauses (a)
to (p) of sub-section (1) of Section 21 of the Act.
(ii) Any
ground contained in the agreement of lease other than or in addition
to the grounds enumerated in clauses (a) to (p) of sub-section (1) of
Section 21 of the Act shall remain inoperative.
(iii) Proceedings
for eviction of a tenant under a fixed term contractual lease can be
initiated during subsistence or currency of the lease only on a
ground as may be enumerated in clauses (a) to (p) of sub-section (1)
of Section 21 of the Act,if and only it is also provided as one of
the grounds of forfeiture of the lease rights in the lease deed, not
otherwise.
(iv) The
period of fixed-term lease is ensured and remains protected except in
the cases indicated in the preceding paragraph.
19. With
great respect therefore, in our view, the decision in the case of
Dhanapal Chettiar has not been correctly construed in the case of
Shri Lakshmi Venkateshwara Enterprises (p) Ltd. and it no more
holds good nor the Full Bench decision following it, in the case of
Bombay Tyres International Ltd. The earlier judgment of the Full
Bench of the High court in the case of Sri Ramakrishna Theatres Ltd.
lays down the law correctly.
(emphasis
supplied)
It
is unfortunate that the aforesaid direct decision of a Three Judge
Bench of the Apex Court squarely covering the controversy and
holding that the provisions of the Rent Act do not curtail the
contract period was not brought by the learned counsel for the
parties to the notice of the learned Company Judge either in Company
Application No.47 of 1993 which was decided on 30.7.2002 (reported as
2002 (3) GLH 367) nor was it brought to the notice of the same
learned Company Judge when the judgment under appeal was rendered on
13.10.2004. It is all the more unfortunate that this decision was not
brought to our notice by the learned advocate for the appellants in
spite of repeated queries.
19. Mr
Parikh also relied upon the decision of the Apex Court in Gain Devi
vs. Jeevan Kumar, AIR 1985 SC 796 in support of his contention that
there is no distinction between a contractual tenant enjoying
protection under the Transfer of Property Act and a statutory tenant
enjoying protection under the Rent Act.
We
fail to see how this decision takes the appellants’ case any further.
Gain Devi’s case merely dealt with the question whether the heirs of
a deceased tenant inherit the tenancy rights in respect of commercial
premises, although the amendment to the Delhi Rent Control Act gave
personal protection and personal right of continuing in possession to
the heirs of the deceased statutory tenant in respect of residential
premises only.
The
Apex Court held that as in the Delhi Rent Control Act there is no
provision regulating the rights of such heirs, tenancy right which is
heritable devolved on the heirs under the ordinary law of succession.
The Court held that in view of the definition of tenancy in the Act
the termination of the contractual tenancy does not bring about any
change in the status and legal position of the tenant, unless there
are contrary provisions in the Act. The contractual tenancy,
therefore, does enjoy an estate or interest in the tenanted premises
and that interest is heritable. This decision, therefore, only
buttresses the case of the respondents that enactment of the Rent Act
was not intended to restrict or curtail the rights of the tenant
under the Transfer of Property Act or under the ordinary law relating
to lease of inheritance.
20. Mr
Parikh for the appellants also relied on the decision in Waman
Shriniwas vs. Ratilal Bhagwandas & Co., AIR 1959 SC 689 in
support of the contention that sub-letting or assignment of leasehold
rights is prohibited by Section 15 of the Rent Act and that it would
also be contrary to public policy.
That
decision was not at all concerned with a long term or a fixed term
lease, unlike the three Judge Bench decision in Laxmidas Bapudas
case, 2001 (7) SCC 409.
21. Mr Parikh for the
appellant-landlords, however, heavily relied on the following
observations made by the Seven Judge Bench of the Apex Court in V.
Dhanapal Chettiar vs. Yesodai Ammal, 1979 (4) SCC 214 :-
“Section
108 deals with the rights and liabilities of lessors and lessees.
Many State Rent Acts have brought about considerable changes in the
rights and liabilities of a lessor and a lessee, largely in favour of
the latter, although not wholly. The topic of Transfer of Property
other than agricultural land is covered by Entry 6 of List III in the
Seventh Schedule to the Constitution. The subject being in the
concurrent list, many State Rent Acts have by necessary implication
and many of them by starting certain provisions with a non obstante
clause have done away with the law engrafted in S. 108 of the
Transfer of Property Act except in regard to any matter which is not
provided for in the State Act either expressly or by necessary
implication.”
“But
when under the various State Rent Acts, either in one language or the
other, it has been provided that a tenant can be evicted on the
grounds mentioned in certain sections of the said Acts, then how does
the question of determination of a tenancy by notice arise? If the
State Rent Act requires the giving of a particular type of notice in
order to get a particular kind of relief, such a notice will have to
be given. Or, it may be, that a landlord will be well advised by way
of abundant precaution and in order to lend additional support to his
case, to give a notice to his tenant intimating that he intended to
file a suit against him for his eviction on the ground mentioned in
the notice. But that is not to say that such a notice is compulsory
or obligatory or that it must fulfil all the technical requirements
of Section 106 of the Transfer of Property Act.”
22. Mr Parikh for the
appellants also placed strong reliance on the judgment of two Judge
Bench in KK Krishnan vs. MK Vijaya Raghavan, AIR 1980 SC 1756 in
support of the contention that the subletting of premises without
consent of the landlord or in absence of right to do so under the
lease deed is sufficient to evict the tenant and that in such action
the rights under Section 108 of the Transfer of Property Act is no
defence. Mr Parikh particularly relied on the following observations
made by the Apex Court in the concluding para of the above decision
and submitted that this is how the Apex Court had spelt out the ratio
of the seven Judge Bench of the Apex Court in V. Dhanapal Chettiar
vs. Yesodai Ammal, (supra):-
“8. it
is clear from what has been said that not all the rights conferred on
landlord and tenant by S. 108 and other provisions of the Transfer of
Property Act have been left intact by the various State Rent Acts and
that if a State Rent Act makes provision for eviction on certain
specified grounds, eviction cannot be resisted on the basis of rights
conferred by the Transfer of Property Act. Section 108 (j) of the
Transfer of Property Act stands displaced by S. 11 (4)(i) of the
Kerala Buildings (Lease and Rent Control) Act and is no defence to an
action for eviction based on S. 11(4)(i).
23. Although the
above observations taken by themselves may prima facie support the
contention of the appellant landlords, it is required to be seen
that the lease in that case was not a long term lease. Besides, in
paras 12 and 13 of Laxmidas Bapudas Darbar vs. Rudravva, (2001) 7 SCC
409 = AIR 2001 SC 3738, a Three Judge Bench of the Apex Court
explained the proposition of law laid down in Dhanapal Chettiar’s
case in the following words :-
The
facts (in Dhanapal Chettiar’s case) being that the landlady moved an
application for eviction of her tenant under the provisions of the
Tamil Nadu Rent Act on the ground of her personal need. The petition
was dismissed. On appeal, though her case of bona fide requirement
was upheld but eviction was refused due to lack of notice to quit in
accordance with law. The High Court dealing with the matter in
revision, held that notice to quit under Section 106 of the Transfer
of Property Act was not necessary for seeking an eviction of a tenant
under the provisions of the Rent Act. The question therefore, as was
under consideration before this Court is mentioned in para 1 of the
judgment itself which is quoted below :
….
as to whether in order to get a decree or order for eviction against
a tenant under any State Rent Control Act it is necessary to give a
notice under Section 106 of the Transfer of Property Act.
13. It
has been held that the purpose of giving a notice under Section 106
of the Transfer of Property Act is only to terminate the contract of
tenancy but it would not be necessary if the tenant incurs the
liability of eviction under the provisions of the statute. IN such a
case the notice under Section 106 of the Transfer of Property Act
would only be a formality and a surplusage and it need not be given
by way of any double protection to the tenant. It has been further
observed that even though tenancy may be terminated by giving a
notice under Section 106 of the Transfer of Property Act yet the
landlord will not be in a position to initiate the proceedings for
eviction in the absence of any liability incurred by the tenant as
provided in the statute. Therefore, notice under Section 106 of the
Transfer of Property Act loses significance.
24. Dhanapal
Chettiar’s case was thus confined to the question about necessity or
otherwise of giving notice under Section 106 of the Transfer of
Property Act before filing an eviction suit under the Rent Act,
where the Rent Act was applicable in the first place. In view of the
above direct decision of the Three Judge Bench of the Apex Court
which has not only considered and interpreted the decision of the
Seven Judge Bench in Dhanapal Chettiar’s case, but which has also
specifically overruled the decision of the Two Judge Bench in Lakshmi
Venkateshwar Enterprises, (1994) 2 SCC 671, there can be no manner of
doubt that the provisions of the Rent Act, which are primarily made
to protect the interest of tenants, to restrict charging of excessive
rent and their rampant eviction at will, will not enable the lessor
to move for eviction of the lessee only during subsistence of the
term prescribed in the lease deed, unless identical grounds of
eviction are provided for in the lease deed.
25. The relevant
provisions of the Transfer of Property Act, read as under:-
108. Rights
and liabilities of lessor and lessee, – In the absence of a
contract or local usage to the contrary, the lessor and the lessee of
immovable property, as against one another, respectively, possess the
rights and are subject to the liabilities mentioned in the rules next
following, or such of them as are applicable to the property leased
:-
A.
– Rights and Liabilities of the Lessor
(c) the
lessor shall be deemed to contract with the lessee that, if the
latter pays the rent reserved by the lease and performs the contract
binding on the lessee, he may hold the property during the time
limited by the lease without interruption.
The
benefit of such contract shall be annexed to and go with the lessee’s
interest as such, and may be enforced by every person in whom that
interest is for the whole or any part thereof from time to time
vested.
B.
– Rights and Liabilities of the Lessee
(j) the
lessee may transfer absolutely or by way of mortgage or sub-lease the
whole or any part of his interest in the property, and any transferee
of such interest or part may again transfer it. The lessee shall
not, by reason only of such transfer, cease to be subject to any of
the liabilities attaching to the lease:
(o) the
lessee may use the property and its products (if any) as the person
or ordinary prudence would use them if they were his own; but he
must not use, or permit another to use, the property for a purpose
other than that for which it was leased, or fell or sell timber,
pull down or damage buildings belonging to the lessor, or work mines
or quarries not open when the lease was granted, or commit any other
act which is destructive or permanently injurious thereto:
(q) on
the determination of the lease, the lessee is bound to put the lessor
into possession of the property.
111. A
lease of immovable property determines –
(a) by
efflux of time limited thereby
114. Where
a lease of immovable property has determined by forfeiture for
non-payment of rent, and the lessor sues to eject the lessee, if, at
the hearing of the suit, the lessee pays or tenders to the lessor the
rent in arrears, together with interest thereon and his full costs of
the suit, or gives such security as the Court thinks sufficient for
making such payment within fifteen days, the Court may, in lieu of
making a decree for ejectment, pass an order relieving the lessee
against the forfeiture; and thereupon the lessee shall hold the
property leased as if the forfeiture had not occurred.
26. The
relevant provisions of the Bombay Rent Act, read as under :-
13. When
landlord may recover possession, – (1) Notwithstanding anything
contained in this Act but subject to the provisions of Section 15, as
landlord shall be entitled to recover possession of any premises if
the Court is satisfied –
(a) that,
the tenant has committed any act contrary to the provisions of clause
(o) of section 108 of the Transfer of Property Act, 1882; or
(k) that
the premises have not been used without reasonable cause for the
purpose for which they were let for a continuous period of six months
immediately preceding the date of the suit.
15(1) Notwithstanding
anything contained in any law, but subject to any contract to the
contrary, it shall not be lawful after the coming into operation of
this Act for any tenant to sub-let the whole or any part of the
premises let to him or to assign or transfer in any other manner his
interest therein;
Provided
that the State Government may, by notification in the Official
Gazette, permit in any area the transfer of interest in premises held
under such leases or class of leases and to such extent as may be
specified in the notification.
19.(1) Save
in cases provided for under the proviso to section 15, it shall not
be lawful for the tenant or any person acting or purporting to act on
behalf of the tenant to claim or receive any sum, or any
consideration as a condition of the relinquishment transfer or
assignment of his tenancy of any premises.
(2) Any
tenant or person who in contravention of the provisions of
sub-section (1) receives any sum or consideration shall, on
conviction, be punished with imprisonment for a term which may extend
to six months and shall also be punished with fine which shall not be
less than the sum of the value of the consideration received by him.
27. A perusal of the
aforesaid provisions, particularly sub-section (1) of Section 13 of
the Bombay Rent Act makes it clear that the non-obstante clause with
which sub-section (1) of Section 13 (providing for various grounds of
eviction) commences gives sub-section (1) overriding effect only over
other provisions of the Bombay Rent Act (but makes it subject to the
provisions of Section 15 of the Bombay Rent Act) and the non-obstante
clause does not give any overriding effect over any other law or
contract , unlike the non-obstante clause in Section 21 of the
Karnataka Rent Act quoted in para 16 hereinabove. In other words,
the contention urged by the lessor in the State of Karnataka that
Section 21 of the Karnataka Rent Act (providing for similar grounds
of eviction as contained in Section 13(1) of the Bombay Rent Act) is
given overriding effect even over the Transfer of Property Act and
the terms of the fixed long term lease (which contention was
negatived by a three Judge Bench of the Apex Court in Laxmidas
Bapudas case, 2001 (7) SCC 409) is not even available to a similarly
placed lessor in the State of Gujarat, that is to say, the ratio of
the decision of the three Judge Bench of the Apex Court in Laxmidas
Bapudas case (supra) would apply with much greater force for the
benefit of the lessee under a fixed long term lease in the State of
Gujarat.
28. Following
the aforesaid judgment in Laxmidas Bapudas Darbar vs. Rudravva, 2001
(7) SCC 409 , we hold that –
(i) it is only on
expiry of the period of fixed term lease that the lessors can pray
for eviction of the company in liquidation or its successor in
interest on the grounds which may be available under the Rent Act
which may be in operation at the relevant time.
(ii) Any ground
contained in the agreement of lease other than or in addition to the
grounds enumerated in sub-section (1) of Section 13 of the Bombay
Rent Act shall remain inoperative during subsistence of the lease and
even after expiry of the lease term.
(iii) The proceedings
for eviction of a tenant under the fixed term contractual lease can
be initiated during subsistence or currency of the lease only on a
ground as may be enumerated in sub-section (1) of Section 13 of the
Bombay Rent Act provided it is also enumerated as one of the
grounds for forfeiture of the lease rights in the lease deed, but not
otherwise.
(iv) The period of
fixed term lease of 199 years is ensured and remains protected
except in the cases indicated in (iii) hereinabove, and during
this period, the rights of the lessee under the lease deed and the
Transfer of Property Act are not curtailed by the provisions of the
Bombay Rent Act.
29. It
is in light of the above legal principles that we may examine the
other contentions raised by the learned advocate for the appellants.
In
the facts of the instant case also, the term of the lease is 199
years from 10.12.1916. Hence, the lease is still subsisting till
9.12.2115. In this set of facts, the question of invoking the
provisions of the Rent Act cannot arise unless the lease deed also
provides, for eviction before expiry of the term, a ground mentioned
in Section 13(1) of the Bombay Rent Act. There is no such ground in
the lease deed which gives the lessor the right of re-entry except in
case of failure to pay rent for which protection is given to the
lessee both by the provisions of Section 114 of the Transfer of
Property Act and Section 12(3) of the Bombay Rent Act. Since the
order of winding up was passed on 5.5.1989 and since the secured
creditors and workers have always shown readiness and willingness to
pay rent and arrears thereof, the lessors are not entitled to claim
or get possession of the land leased to the company presently in
winding up.
30. The appellants’
contention about liability of the lessee to be evicted for change of
user is also without any basis. Apart from the lease deed not
providing for any such ground, the lease deed itself does not
indicate any particular use to be made by the lessee (para 7.4
hereinabove).
31. In view of the
above finding, all the arguments made by Mr Parikh, learned advocate
for the appellant- landlords fall to the ground and, therefore, it is
not necessary to deal with a number of authorities cited by him which
are inconsistent with the law laid down by the Three Judge Bench in
Laxmidas Darbar’s case (which judgment was rendered after considering
the Seven Judge Bench decision in Dhanapal Chettiar’s case). This
discussion is also sufficient to hold that when rights of the lessee
under the lease deed cannot be curtailed by the provisions of the
Bombay Rent Act during subsistence of the lease period, the other
arguments about applicability of Sections 15, 18 and 19 can also not
be accepted.
32. Mr Parikh also
strongly relied on the decision of the Apex Court in Parasram Harnand
Rao vs. Shanti Prasad Narinder Kumar Jain, AIR 1980 SC 1655 in
support of the contention that assignment or subletting for the
purpose of evicting the tenant, would include not only voluntary
sale, but also include an involuntary sale and that sale of the
property of the Company in liquidation by the Official Liquidator
would also be included in such assignment.
33. The observations
made by the Apex Court in Parasram’s case (supra) indicate that the
Official Liquidator had merely stepped into the shoes of the Company
in winding up and even if the Official Liquidator had transferred the
tenancy interest to the third party under the orders of the Court, it
was a voluntary sale falling within Section 14(1)(b) of the Delhi
Rent Control Act and that assuming that the sale by the Official
Liquidator was an involuntary sale, then also it became as assignment
as provided for by section 14(1)(b) of the Rent Act. But all these
observations were made in the case where the lease was a short
term lease for a period of three years. The lease was granted
in the year 1942 for three years and the suit was filed in the year
1948 for eviction for non-payment of rent and conversion of the
user of the premises. The suit for possession was dismissed and a
decree for arrears of rent was passed and thereafter the tenant
company was ordered to be wound up and the Official Liquidator was
appointed who sold the tenancy rights. Thereafter the landlord
appellant filed eviction proceedings against the tenant. The decree
for eviction was passed in favour of the appellant landlord.
Thus, it is clear that the observations made in context of a short
term lease cannot apply to a case where the lease is a long term
lease like the present one. Moreover in view of Clause 7 of the lease
deed there is no prohibition against subletting or assignment of
leasehold rights in favour of a third party.
34. Reliance placed
by the appellants on the decision in Ravindra I Sethna vs. OL, 1983
(4) SCC 269 is also misconceived as it was a case of short term lease
which had already expired when the Company Court directed the OL to
give the premises of the Company in winding up to get compensation
from a caretaker.
35. So also the
decision in Nirmala Bafna’s case, 1992 (2) SCC 322 does not carry the
appellants’ case any further. On the contrary, the Apex Court in
terms laid down therein the legal principle that merely because a
company goes in liquidation and a liquidator/ Official Liquidator is
appointed, the rights of the company vis-a-vis its landlord (and/or
its tenants) do not undergo any change . Hence the fixed term of
199 years in the lease deed at hand is not curtailed by the order of
winding up passed in the year 1989. The other observation that the
tenancy rights the company had in the said flat may not be an asset
for the purpose of liquidation proceedings were not made in the
context of a long fixed term lease.
36. The case nearer
to the one at hand is United Bank of India vs. Official Liquidator,
(1994) 1 SCC 575. The Apex Court noted the facts of the case that
the lease of 7 bighas of land in favour of the company in winding up
was for a period of 99 years with the option of renewal for further
99 years for the meagre rent of Rs.1200 per annum. The Apex Court
set aside the direction given by the Company Court to the Official
Liquidator to surrender the land to the lessors for avoiding the
onerous covenant of paying the rent of Rs.1200 p.a.. In the
process, the Apex Court made the following observations :-
Under
Section 535, the High Court may give leave to the Official Liquidator
to disclaim land of any tenure which is part of the property of the
company in liquidation if it is burdened with onerous covenants. The
intention of Section 535 is to protect the creditors of the company
in liquidation and not mulct them by reason of onerous covenants.
The power under Section 535 is not to be lightly exercised. Due
care and circumspection have to be bestowed. It must be remembered
that an order permitting disclaimer, while it frees the company in
liquidation of the obligation to comply with covenants, puts the
party in whose favour the covenants are, to serious disadvantage.
The Court must therefore, be fully satisfied that there are onerous
covenants, covenants which impose a heavy burden upon the Company in
liquidation, before giving leave to disclaim them.
11. We
are of the view that the High Court ought to have appreciated that it
was rather unlikely that the party who had the benefit of onerous
covenants would apply for disclaimer and ought to have viewed the
Official Liquidator’s application to disclaim made pursuant to the
Trust’s letter to him in that behalf, in that light. We find it
difficult to see how such a large area of land leased to the
company in liquidation for 99 years for the meagre rent of Rs.1200
per annum can be said to be land burdened with onerous covenants.
We do not think that the High Court was justified ind debating and
holding in proceedings under Section 535 that the lease of the said
land had been validly terminated so that the Official Liquidator
became liable to pay mesne profits to the Trust, and that this
coupled with arrears of rent, in five figures made the lease onerous.
We are also of the view that the Bank’s offer to pay the arrears
of rent to the Trust should have been accepted by the High Court.
The Bank to protect and keep alive its security, had put Official
Liquidator in funds in regard to other mattes and was eager to meet
this liability. Had this been done valuable property of the
company in liquidation could have been retained so that its
undertaking, which stood on the said land, could have been sold
as running concern, as has been done upon intervention of this Court,
for the benefit of its creditors.
(emphasis
supplied)
In the facts of that
case, the Apex Court set aside the High Court’s direction to the
Official Liquidator to disclaim the land and hand over possession
thereof to the landlord trust. It directed the Official Liquidator
to sell the assets and properties of the company in liquidation,
including the land in question and the Apex Court also directed the
Official Liquidator to pay the landlord trust a sum of Rs.10 lacs in
full and final settlement of the landlord’s claim against the company
in liquidation of whatever nature in respect of the said land. The
Apex Court held that the landlord trust would be amply recompensed if
it received as compensation for the disposal of its right in the
said land and for arrears of rent the sum of Rs.10 lacs from the
Official Liquidator out of the funds of the Company in liquidation.
37. We may now deal
with the last contention urged on behalf of the appellants as an
alternative contention that the lease deed permits only subletting
and not assignment of leasehold rights of the lessee. The argument is
misconceived because the rights available to a lessee are not merely
the rights under the lease deed but also the right under clause (j)
of Section 108 of the Transfer of Property Act, the relevant portion
of which reads as under :-
108. Rights
and liabilities of lessor and lessee, – In the absence of a
contract or local usage to the contrary, the lessor and the lessee of
immovable property, as against one another, respectively, possess the
rights and are subject to the liabilities mentioned in the rules next
following, or such of them as are applicable to the property leased
:-
B.
– Rights and Liabilities of the Lessee
(j) the
lessee may transfer absolutely or by way of mortgage or sub-lease
the whole or any part of his interest in the property, and any
transferee of such interest or part may again transfer it. The
lessee shall not, by reason only of such transfer, cease to be
subject to any of the liabilities attaching to the lease:
(emphasis
supplied)
Merely because
Clause 7 of the lease deed confers upon the lessee the right to
sublet the demised land and the superstructure thereon, it does not
take away the right conferred upon the lessee by the above-quoted
clause in Section 108 of the Transfer of Property Act, which right is
available to the lessee in absence of a contract or local usage to
the contrary. There is nothing in the lease deed to take away the
said right of the lessee nor has any local usage to the contrary ever
been pleaded.
38. In view of the
above discussion, we do not see any merit in any of the legal
contentions against assignability of leasehold rights of a Company
in winding up urged on behalf of the appellants.
39. As
regards the contention that assignment of leasehold rights of the
Company in winding up would be invalid in absence of any prior notice
to the lessor, the question does not yet arise as the leasehold
rights of the Company in winding up over the land in question are not
yet assigned to any party.
In
any view of the matter, the decisions relied upon by the appellants
being Smt Jatan Kumar Colcha vs. Golcha Properties (P) Ltd., 1970 (3)
SCC 573, and in East India Company vs. Official Liquidator, (1969) II
Comp.LJ 253 (Guj.) dealt with the cases where the grievance was made
by the petitioning creditor who was not given any notice before the
Company Court gave directions on the Official Liquidator Report for
sale of properties of the Company in winding up. We fail to see how
these decisions can be of any assistance to the appellants. In those
cases reliance was placed on Rule 139 of the Companies (Court) Rules,
1959 which provides that if the Official Liquidator wants to sell any
property of the Company in liquidation in exercise of the power under
Section 457, sub-section (1) clause (c), he must take out a summons
for directions and notice of the summons must be given to the
petitioner on whose petition the winding up order is made.
Rule 109 invoked on
behalf of the appellant in the written submissions is also
irrelevant. On the contrary Rule 33, inter-alia, provides that no
proceedings under the Act or these rules shall be invalidated by
reason of any formal defect or irregularity; unless the Judge before
whom the objection is taken is of the opinion that substantial
injustice has been caused by such defect or irregularity and that the
injustice cannot be remedied by an order of Court.
40. Coming to the
contention that the lease deed was not executed in favour of the
company but its managing agent Durgaprasad Lashkari, for the
elaborate reasons already given by the learned Company Judge,
(indicated in para 7.3 hereinabove) with which we fully concur, we do
not see any force in this contention either.
41. As the appeals
are being dismissed for the foregoing reasons and separate orders are
being passed on Misc. Civil Application No.96 of 2007, it is not
necessary to deal with the submissions of Mr AS Vakil for Shaan
Jhaveri in this judgment.
42. It is clarified
that dismissal of the appeals does not preclude the lessors from
assigning their own rights in the lands in question in favour of the
assignee of the leasehold rights.
OPERATIVE
ORDER
43. In view of the
statement of Mr RM Desai, learned counsel for the secured creditor
that the arrears of rent, if any, remaining unpaid by the company in
liquidation shall be paid by the secured creditor, we direct that
within one month from today, the Official Liquidator shall supply to
the secured creditor the particulars of the rent for the demised land
for the period upto 31st October 2008, remaining unpaid
so far, and the secured creditor -State Bank of India shall deposit
the amount with the Official Liquidator within one month thereafter.
It will be open to the lessors to withdraw such amount.
44. In the result,
subject to the above directions and subject to further directions,
which are being given separately regarding the advertisement for
assignment of leasehold rights of the company in liquidation, the
appeals are dismissed. The interim stay granted during pendency of
the appeals against transfer or assignment of leasehold rights of the
company in liquidation is hereby vacated.
(M.S. SHAH, J.)
(K.A. PUJ, J.)
At this stage, Mr
Devan Parikh, learned counsel for the appellants prays that the
interim stay which was operating during pendency of the appeals may
be continued for some time to enable the appellants to have further
recourse in accordance with law.
The learned counsel
for the respondents oppose the request.
In the facts and
circumstances of the case, the interim stay operating during pendency
of the appeals shall continue for a period of one month from today
i.e. upto 17th November, 2008 with a clarification that in
the meantime, it will be open to the Official Liquidator to take all
the preliminary steps required to be taken before publishing the
advertisement.
(M.S. SHAH,
J.) (K.A. PUJ, J.)
zgs/-
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