PETITIONER: UNITED BANK OF INDIA Vs. RESPONDENT: OFFICIAL LIQUIDATOR DATE OF JUDGMENT06/10/1993 BENCH: BHARUCHA S.P. (J) BENCH: BHARUCHA S.P. (J) KULDIP SINGH (J) CITATION: 1994 SCC (1) 575 JT 1993 (6) 116 1993 SCALE (4)19 ACT: HEADNOTE: JUDGMENT:
The Judgment of the Court was delivered by
BHARUCHA, J.- The Naskarpara Jute Mills Co. Ltd. was wound
up under the orders of the High Court at Calcutta on July
28, 1981 and the Official Liquidator was appointed its
liquidator.
2.The company had taken on lease from Bharat Abhyudaya
Cotton Mills Ltd. about 7 bighas of land under a deed dated
July 2, 1931. The lease was for 99 years and permitted
renewal on the same terms for another 99 years. The rent
under the lease was Rs 1200 per annum. On September 25,
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1935 the lessor’s interest in the said land was purchased by
Brij Mohan Saraogi who settled the same upon a trust called
the Brij Mohan Saraogi Charitable Trust. The company
attorned to the Trust as its tenant in respect of the said
land. At the time when the winding-up petition was filed
the company had been in default of rent and consent terms
had been arrived at whereunder the company had undertaken to
pay the arrears.
3.On August 13, 198 1, the United Bank of India filed a
suit against the company in liquidation after having
obtained the leave of the court under Section 448 of the
Companies Act for a decree in the sum of Rs 1,81,07,623.64
with interest up to July 3 1, 1981. Upon the application of
the Bank the Official Liquidator was appointed Receiver of
the goods, stocks and assets hypothecated by the company in
liquidation to the Bank and all immovable property,
including the said land and the factory premises which stood
upon it, which had been mortgaged to the Bank.
4.On October 8, 1982 the High Court, in the winding-up
proceedings directed the sale of the property and assets of
the company in liquidation. The sale was to be effected by
the Official Liquidator as directed by the court. Public
advertisements were issued consequent upon such directions
and sealed offers received on December 3, 1982. The Trust
opposed the sale, so that consideration of the offers was
deferred. On January 25, 1982 the Trust wrote to the
Official Liquidator asking him to disclaim the said land and
surrender its possession to the Trust because it was
burdened with onerous covenants. On January 3 1, 1983 the
Trust took out a Judge’s Summons asking the High Court to
direct the Official Liquidator under Section 535 of the
Companies Act to disclaim the said land because it was
burdened with onerous covenants. The Bank opposed the
Judge’s Summons and pleaded that the said land was a
security for the loans that it had advanced to the company
in liquidation and that it should be available to the
secured and unsecured creditors; the covenants of the lease
were not onerous and there was a saleable interest in the
said land. On February 4, 1983 the Company Judge directed
the Official Liquidator to return the offers to the parties
who had made them. On July 7, 1983 the Company Judge made
the Judge’s Summons absolute and directed the Official
Liquidator to disclaim the said land and hand over
possession thereof to the Trust.
5.The Bank appealed against the order of the Company
Judge. The Division Bench which heard the appeal dismissed
it. It held, inter alia, that the lease of the said land
stood forfeited and/or terminated by reason of the Trust’s
notice dated January 25, 1983. It held that no notice in
writing to the company in liquidation for remedy of the
breach was necessary because the Trust did not want to file
a suit for ejectment. The Division Bench rejected the
contention based upon Section 114 of the Transfer of
Property Act because the Official Liquidator was not in a
positiot to apply for any relief against forfeiture by
tendering arrears of rent and interest. As the lease stood
forfeited, the said land ceased to be a part of the assets
of the company in liquidation and the company in liquidation
had from the date of the notice of termination no right or
interest therein. It could not therefore, be transferred
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or sold by the Official Liquidator. Inasmuch as, in spite
of forfeiture of the lease, the Official Liquidator was
continuing in possession of the said land, he was liable to
pay mesne profits for such wrongful possession or
occupation. Further, on account of arrears of rent a huge
amount was due to the Trust. Therefore, the said land was
onerous.
6.It may be mentioned that the Bank had desired to pay to
the Trust the arrears of rent but the Division Bench
declined to permit it to do so.
7.The Bank thereupon filed a special leave petition to
appeal against the judgment and order of the Division Bench.
8.There are several orders of this Court in the
proceedings which need to be referred to. Special leave to
appeal was granted on January 27, 1986 and the judgment
under appeal was stayed. On January 28, 1987 learned
counsel appearing for the various workers’ unions of the
company in liquidation said that the unions wanted to
explore the possibility of taking over the interest of the
Trust with the object of running the mills of the company in
liquidation. They stated that their clients would explore
the possibility of buying the interest of the Trust for
about Rs 30 lakhs. On April 30, 1987 the Court passed an
order which said, inter alia, this:
“We have heard this matter in part today. In
order to arrive at a proper adjustment of the
rights of the parties judicially we direct
that the land and assets of Naskarpara Jute
Mills Co. Ltd. (in liquidation) and as also
the leasehold land which is the subject-matter
of this appeal be sold by the Liquidator as a
going concern as quickly as possible by August
31, 1987. The Official Liquidator, High Court
Calcutta should take immediate steps to
implement this order and out of the sale
proceeds, after meeting the expenses of sale
which are financed by the appellant Bank, the
Liquidator will pay for the time being subject
to adjudication of all the rights of the
parties, a sum of Rs 7.5 lakhs to Brij Mohan
Saraogi Charitable Trust (Respondents 2 and 3
the Trustees of the said Trust) in respect of
their rights, claimed over the 7 bighas and 15
kattas of land. The said leasehold property
shall be sold free of leasehold rights along
with the other entire assets of the company
consisting of movables and immovables as a
going concern without dismantling any portion
and on ‘as is where is basis’. More than 9
lakhs is claimed to have been paid to the
Official Receiver by the Bank. Further amount
is to be given by the Bank to Official
Liquidator/Receiver for conducting the same.
These sums are to be paid to the Bank at the
first instance out of the sale proceeds.
After payment to the Bank the Liquidator will
pay for the time being a sum of Rs 7.5 lakhs
to the trustees of the said trust in respect
of their right claimed over the 7 bighas and
15 kattas of land and the balance sale
proceeds to be invested in Term Deposit with
United Bank of India till determination by
this Hon’ble Court.”
On May 9, 1988 the offer of one Shyam Sundar Agarwal to
purchase the assets and properties of the company in
liquidation was accepted. The Court said:
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“The consideration price will be Rs 2,60,00,000 out of which
Shyam Sundar Agarwal will pay Rs 30 lakhs within two weeks
from today with the United Bank of India in the name of the
Official Liquidator. The balance amount will be paid in 24
equal monthly instalments. Shyam Sundar Agarwal will
furnish bank guarantee for Rs Two crores and thirty lakhs to
the satisfaction of the Liquidator concerned within six
weeks from today. All the dues of the workers present and
past will be settled by Shyam Sunder Agarwal with the
workers who are represented by various unions by Mr A.K. Sen
and P.K. Banerjee appearing for unions and they agree to run
the mill in adjustment with him as a going concern. The
monthly instalments as aforesaid will be deposited with the
United Bank of India in the name of the Official Liquidator.
Shyam Sundar Agarwal will not be liable for
any past liability except in respect of the
workers’ dues. If the State of West Bengal
has any rights on land about which there is no
adjudication, this order will not prejudice
such rights, if any. The appropriate
authorities namely the Municipalities
concerned and other authorities will render
all assistance to the person concerned i.e.,
Shyam Sundar Agarwal for restoring all
electricity and water connections on payment
of such arrears and the Official Liquidator
will ensure that such payment is made. The
possession will be given to Shyam Sundar
Agarwal after depositing Rs 30 lakhs
forthwith. In default of making any of the
payments or in default of furnishing the bank
guarantee or in the default of payment of any
two instalments in the manner indicated above
or in not keeping the bank guarantee alive,
the Official Liquidator will take possession
and the amount deposited will stand forfeited.
In such a case or in case the mill is not
started within a period of eight weeks from
today the transaction will fall through and
the parties including Dr L.M. Singhvi’s
clients and Mr U.C. Law’s clients will be at
liberty to apply to this Court for appropriate
directions.”
An order was made on July 20, 1988, whereby extensions of
time were given to the said Agarwal for payment and for
furnishing bank guarantees. On September 20, 1988, some
more time was given to him to furnish bank guarantees. On
November 30, 1988, time to furnish a bank guarantee and to
make the payment of Rs 10 lakhs was again extended. The
said Agarwal not having made payments as directed, contempt
proceedings were initiated against him. On August 27, 1992,
bailable warrants were issued to secure his presence in
Court since he had not appeared. The Court stated:
“It is not disputed that out of the sale price
of Rs 2,60,00,000 (Rupees Two crores sixty
lakhs) a sum of Rs 62,00,000 (Rupees Sixtytwo
lakhs) has been paid before December 31, 1988.
The balance of Rs 1, 98,00,000 (Rupees One
crore ninety-eight lakhs) is yet to be paid.
By this order, we give option to the alleged
contemnors to deposit the said sum of Rs
1,98,00,000 (Rupees One crore ninety-eight
lakhs) with the Registry of this Court by
September 16, 1992. The question of
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interest on the said amount shall be decided
with the main case. The entitlement of the
Bank to receive the amount and the obligation
of the contemnors to pay the same shall also
be subject to the decision of this Court.”
It had transpired that the said Agarwal was acting on behalf
of Triputi Jute Industries (hereinafter referred to as
‘Triputi’) and contempt notices were issued to it and its
Directors. On October 20, 1992, the Court recorded that the
modalities of payment of Rs 1,98,00,000 and 15% interest had
been suggested by counsel appearing on behalf of Triputi
which it considered prima facie proper. Triputi was
permitted to deposit Rs 30,00,000 in Court by the next day.
On October 21, 1992, the Court recorded the undertaking
given by Triputi, thus:
“The purchaser Triputi Jute Industries Ltd.
through their Director namely Shri Ram Ratan
Choudhury (one of the contemnors) and their
Principal Officer namely Shri Pritam Kr.
Jhawar undertake to pay the amount of Rs
1,98,00,000 in the following manner:
(a)Rupees Fifteen lakhs have already been
deposited in the Registry of this Court today
i.e. October 21, 1992. A further sum of Rs
15,00,000 shall be deposited with the Registry
of this Court by 4.00 p.m. tomorrow i.e.
October 22, 1992;
(b)A further sum of Rs 70,00,000 (either by
way of demand draft or cash) to be deposited
with the Registry of this Court on or before
December 31, 1992. Balance amount of Rs
98,00,000 would be paid together with interest
due on the total amount Rs 1,98,00,000 @15%
p.a. with effect from January 1, 1989 in 12
equal monthly instalments. Each instalment
shall be deposited before the end of the month
i.e. the first instalment shall be paid on or
before January 31, 1993 and all subsequent
instalments in similar manner.
We accept the undertaking given to this Court
which we have reproduced above. We further
direct that the amount of Rs 1,98,00,000 with
interest shall be paid in terms of the above
undertaking within the time specified in the
undertaking. Simply because one of the
Directors (contemnors) has given the
undertaking it would not mean that the other
contemnors or the Directors have been
discharged from their liability. They shall
equally remain responsible personally as well
as in their capacity as the Directors of the
Company to discharge their liability of paying
the amount.”
On October 22, 1992, the Court noted the contention of
learned counsel for the Trust that he was entitled to claim
the price of the said land which had been sold to Triputi
and his submission that he should be given part payment in
respect thereof out of the amount which had been deposited
by Triputi. The Court said that it was of the view that the
rights of the Trust, as of all other creditors, had to be
determined either by the Court or by any other authority
under the directions of the Court and that it was not
inclined for the
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amount to go into the question. On September 8, 1993, the
Court noted that pursuant to its order dated August 27,
1992, the sum of Rs 1 crore 98 lakhs had been deposited in
Court by Triputi and that the various contentions raisedby
the parties were now ripe for final adjudication.
9.First, as to the appeal. We have heard Mr G.L. Sanghi
for the Bank and DrA.M. Singhvi for the Trust. Dr Singhvi
is, we think, right in saying that this Court’s order of
April 30, 1987, really makes the appeal infructuous because,
with a view to arriving at a proper adjustment of the rights
of the parties judicially, this Court, with the consent of
the Trust, directed the Official Liquidator to sell the
assets and properties of the company in liquidation,
including the said land, and it directed the Official
Liquidator to pay to the Trust the sum of Rs 7.5 lakhs,
subject to adjudication of all the rights of the parties, in
respect of Trust’s rights over the said land. The Court
made it clear that the said land was to be sold free of the
lease. The surviving issue, therefore, as Dr Singhvi
rightly pointed out, and which Mr Sanghi did not really
dispute, was that it was for the Court to assess what should
be paid by the Official Liquidator from out of the funds of
the company in liquidation to the Trust as and by way of
compensation for its rights in the land. As we have pointed
out, the said land, though of a substantial size, is subject
to a 99 year lease entered into in July 193 1, with a
renewal clause for a further 99 years at a rent of only Rs
1200 per annum. That the lease extends for another 37
years, that it is liable to renewal for a further 99 years,
and all at the meagre rental of Rs 1200 per annum must
substantially depress the value of the lessor’s interest in
the said land. In our view, therefore, the Trust would be
amply recompensed if it received as compensation for the
disposal of its rights in the said land and for arrears of
rent the sum of Rs 10 lakhs from the Official Liquidator out
of the funds of the’ company in liquidation. The Trust
having already received the amount of Rs 7.50 lakhs pursuant
to the order dated April 30, 1987, we shall now direct the
Official Liquidator to pay to the Trust the balance amount
of Rs 2.50 lakhs within 12 weeks from today in full and
final settlement of the Trust’s claim against the company in
liquidation of whatsoever nature in respect of the said
land.
10.While the aforesaid direction will dispose of the
appeal, we would like to say, having heard counsel on the
merits of the appeal, that we are not satisfied that the
Division Bench appreciated the purpose of the provisions of
Section 535 of the Companies Act. Thereunder 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
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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 with the
option of renewal for a further 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 in 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 matters 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 a running concern, as has been done upon
intervention of this Court, for the benefit of its
creditors.
12.We now consider the contempt proceedings on the one
hand and the application on behalf of Triputi on the other
for diminution of the sale price by reason of the fact that,
according to Triputi, the Official Liquidator had not been
able to hand over to Triputi possession of certain
properties that were sold by him to it, which, it is
alleged, the company in liquidation did not own. The amount
of Rs 1 crore 98 lakhs having been paid, what this really
boils down to is whether Triputi should be made liable to
pay interest at the rate of 15% per annum thereon.
13. In our view, the complete answer to Triputi’s
allegation in regard to the failure of the Official
Liquidator to hand over to it possession of certain
properties which were sold to it, which, according to it,
the company in liquidation did not even own, is contained in
clause 2 of the Terms and Conditions of Sale upon the basis
of which the property and assets of the company in
liquidation were sold by the Official Liquidator to Triputi
under the orders of this Court. Clause 2 reads thus:
“2. The sale will be as per inventory
list on ‘as is where is basis’ and subject to
the confirmation of the Hon’ble Supreme Court
of India. The Official Liquidator shall not
provide any guarantee and/or warranty in
respect of the immovable properties and as to
the quality, quantity or specification of the
movable assets. The intending purchaser must
satisfy themselves in all respect as regards
the movable and immovable assets, as to their
title, encumbrances, area, boundary,
description, quality, quantity, and
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volume etc. and the purchaser will be deemed
to offer with full knowledge as to the
description, area etc. of the properties and
defects thereof, if any. The purchaser shall
not be entitled to claim any compensation or
deduction in price on any account whatsoever
and shall be deemed to have purchased the
property subject to all encumbrances, liens
anti claims including those under the existing
legislation affecting labour, staff etc. The
Official Liquidator shall not entertain any
complaint in this regard after the sale is
over. Any mistake in the notice inviting
tender shall not vitiate the sale.”
(emphasis supplied)
14.When the Official Liquidator sells the property and
assets of a companyin liquidation under the orders of the
Court he cannot and does not hold out any guarantee or
warranty in respect thereof. This is because he must
proceed upon the basis of what the records of the company in
liquidation show. It is for the intending purchaser to
satisfy himself in all respects as to the title,
encumbrances and so forth of the immovable property that he
proposes to purchase. He cannot after having purchased the
property on such terms then claim diminution in the price on
the ground of defect in title or description of the
property. The case of the Official Liquidator selling the
property of a company in liquidation under the orders of the
Court is altogether different from the case of an individual
selling immovable property belonging to himself. There is,
therefore, no merit in the application made on behalf of
Triputi that there should be a diminution in price or that
it should not be made liable to pay interest on the sum of
Rs 1 crore 98 lakhs.
15.It is true, as was pointed out by Mr A.K. Sen, learned
counsel for Triputi, that on August 27, 1992, this Court had
said that the question of interest on the sum of Rs 1 crore
98 lakhs would be decided with the main case. What must
also be noted is the unequivocal undertaking given on
October 21, 1992 by Triputi to Court, which the Court
accepted, wherein it was stated, “Balance amount of Rs
98,00,000 would be paid together with interest due on the
total amount Rs 1,98,00,000 @ 15% p.a. with effect from
January 1, 1989 in 12 equal monthly instalments”. We have
already referred to the various orders of this Court which
indicate quite clearly with what reluctance and over what
span of time Triputi paid the sum of Rs 1 crore 98 lakhs;
that itself makes the payment of interest thereon
appropriate. Coupled therewith is the undertaking
aforementioned. We are, therefore, of the view that Triputi
must pay interest upon the amount of Rs 1 crore 98 lakhs at
the rate of 15% per anum from January 1, 1989 till payment.
Such payment shall be made within 12 weeks from today. We
make it clear that in the event that the amount of interest
as aforementioned is not paid within 12 weeks from today, it
shall be open to one or more of the aggrieved par-ties to
take appropriate proceedings against Triputi and its
Directors.
16. Civil Appeal No. 405 of 1986 is disposed of with the
following direction:The judgment and order under appeal
is set aside. The Official Liquidatorshall pay to the
Brij Mohan Saraogi Charitable Trust and the Trust shall
receive the sum of Rs 10 lakhs out of the funds of the
company in
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liquidation in full and final settlement of its claims
against the company in liquidation of whatsoever nature in
respect of the said land. The sum of Rs 7.50 lakhs having
already been received by the Trust pursuant to this Court’s
order dated April 30, 1987, the Official Liquidator is
directed to pay to the Trust the balance amount of Rs 2.50
lakhs within 12 weeks.
17.Upon Contempt Petition No. 53 of 1989 in the
aforementioned Civil Appeal No. 405 of 1986 the only order
is that Triputi Jute Industries shall pay to the Official
Liquidator interest on the sum of Rs 1 crore 98 lakhs at
the rate of 15 per cent per annum from January 1, 1989 till
payment within 12 weeks from today. In the event that such
payment is not made within 12 weeks from today, it shall be
open to one or more of the aggrieved parties to take
appropriate proceedings against Triputi and its Directors.
18.The amount of interest as aforesaid shall be paid into
the account of the Official Liquidator with the United Bank
of India, Calcutta. The amount of Rs 1 crore 98 lakhs and
of interest as aforesaid shall be disbursed and/or utilised
by the Official Liquidator under the orders of the Company
Judge. All further proceedings in liquidation shall be
under the directions of the Company Judge.
19.All other civil miscellaneous applications and interim
applications in Civil Appeal No. 405 of 1986 do not survive
and are dismissed.
20. There shall be no order as to costs.
586