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of <h1>Rent accrued post-winding-up not part of winding-up costs. Landlord to prove debt in winding-up.</h1> <h3>SS. Chawla & Co. Versus Globe Motors Ltd. (In Liquidation)</h3> The court held that the rent accrued for the godown after the winding-up order could not be treated as part of the 'costs and expenses of the winding-up.' ... Winding up - Preferential payments Issues Involved:1. Whether the landlord is entitled to payment of arrears of rent accrued after the winding-up order in full or must prove the debt in the winding-up and be paid pari passu with the other creditors.2. Interpretation and application of relevant provisions of the Companies Act, 1956, and the Companies (Court) Rules, 1959.3. The significance of the official liquidator's actions concerning the retention of the leased property.Detailed Analysis:1. Entitlement to Payment of Arrears of Rent:The primary issue was whether the landlord is entitled to full payment of arrears of rent accrued after the winding-up order or must prove the debt in the winding-up and be paid pari passu with other creditors. The court examined the relevant provisions of the Companies Act, 1956, particularly section 528, which states that all debts and claims against the company shall be admissible to proof in the winding-up. The general principle, as explained in Oak Pits Colliery Co., In re [1882] 21 Ch D 322, is to put all unsecured creditors on an equal footing and pay them pari passu. The landlord needed to show a specific provision under the Companies Act that entitled him to full payment, failing which his application would not succeed.2. Interpretation of Relevant Provisions:The court analyzed section 530 of the Companies Act, which deals with preferential payments. Sub-section (6) of section 530 states that 'the costs and expenses of the winding-up' take precedence over other debts. The landlord contended that the arrears of rent should be considered part of these costs and expenses. The court referred to Palmer's Company Law, which states that if the liquidator retains possession of the property for the convenience of the liquidation or for better realization of the assets, the rent is payable as an expense of the liquidation. The court also examined relevant case law, including Oak Pits Colliery Co., In re [1882] 21 Ch D 322, and ABC Coupler and Engineering Co. Ltd. (No. 3), In re [1970] 1 All ER 650 (Ch D), to determine whether the retention of the property was for the benefit of the liquidation.3. Actions of the Official Liquidator:The court found that the official liquidator did not retain the godown for the convenience or benefit of the winding-up. The landlord's application did not contain any averment suggesting that the godown was retained for the purpose of the liquidation. The official liquidator merely left the goods pledged with the bank in the godown, and the bank, as a secured creditor, was outside the winding-up process. Therefore, the retention of the godown was not necessary for the purpose of winding up the company, and the rent accruing after the commencement of the winding-up could not be considered an expense of the liquidation.Interpretation of Rule 157 of the Companies (Court) Rules, 1959:The landlord's counsel argued that under rule 157, the landlord is entitled to full payment of rent if the liquidator remains in occupation of the premises. However, the Supreme Court's judgment in Official Liquidators, U.P. Union Bank Ltd. (In Liquidation) v. Rameshwar Nath Agarwal [1960] 30 Comp. Cas. 114, clarified that the proviso to rule 157 does not deal with priority in payment of debts but merely affirms the landlord's right to claim rent accruing due after the winding-up order. The Supreme Court emphasized that the rent accruing after the winding-up order cannot be claimed in priority unless it is shown to be part of the costs and expenses of liquidation.Conclusion:The court held that the rent accrued for the godown after the winding-up order could not be treated as part of the 'costs and expenses of the winding-up.' The landlord must prove his debt in the winding-up and be paid pari passu with other creditors. The application was dismissed, and no order as to costs was made. The further question of whether the company or the bank was liable to pay the arrears of rent was left for consideration at a later stage.
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