2008 (10) TMI 683 - HC - Indian Laws

Court upholds long-term lease post-winding-up, protects lessee rights under Transfer of Property Act

The court held that the lease did not terminate upon the winding-up order, emphasizing the validity of the long-term lease until its expiration. The ... - Issues Involved:1. Determination of lease on winding up order.2. Applicability of the Bombay Rent Act, 1947.3. Rights of the lessors and lessees under the Transfer of Property Act, 1882.4. Validity of assignment of leasehold rights by the Official Liquidator.5. Requirement of notice to lessors before assignment of leasehold rights.Detailed Analysis:1. Determination of Lease on Winding Up Order:The appellants contended that the lease stood determined upon the winding-up order of Prasad Mills Ltd. However, the court held that the lease did not terminate upon the winding-up order. The contractual tenancy subsists as governed by the provisions of the Transfer of Property Act, and the rights of the company in liquidation vis-a-vis the landlord do not undergo any change. The court emphasized that the lease deed executed on 10.12.1916 for 199 years remains valid, and the relationship between the parties continues until the lease period expires.2. Applicability of the Bombay Rent Act, 1947:The appellants argued that the provisions of the Bombay Rent Act applied, enabling them to reclaim possession of the land. The court, however, rejected this argument, referring to the judgment in Laxmidas Bapudas Darbar vs. Rudravva, which clarified that the provisions of the Rent Act do not curtail the contract period of a fixed-term lease. The court concluded that the Rent Act primarily protects tenants and does not provide grounds for eviction during the subsistence of a long-term lease unless such grounds are specified in the lease deed.3. Rights of the Lessors and Lessees under the Transfer of Property Act, 1882:The court examined the provisions of the Transfer of Property Act, particularly Section 108, which outlines the rights and liabilities of lessors and lessees. The court noted that the lessee has the right to transfer, mortgage, or sub-lease the leased property unless there is a contract or local usage to the contrary. The lease deed in question did not prohibit such transfers, and therefore, the lessee's rights under Section 108 remained intact.4. Validity of Assignment of Leasehold Rights by the Official Liquidator:The appellants contended that the Official Liquidator could not assign the leasehold rights. The court, however, held that the lease deed permitted the lessee to assign its rights, and there was no prohibition against such assignment. The court referred to the case of United Bank of India vs. Official Liquidator, where it was held that the Official Liquidator could sell the assets and properties of the company in liquidation, including leasehold interests, to benefit the creditors.5. Requirement of Notice to Lessors Before Assignment of Leasehold Rights:The appellants argued that any assignment of leasehold rights without prior notice to the lessors would be invalid. The court dismissed this argument, stating that the question did not arise as the leasehold rights had not yet been assigned. The court also noted that the decisions relied upon by the appellants pertained to cases where petitioning creditors were not given notice, which was not applicable in the present case.Conclusion:The court dismissed the appeals, upheld the validity of the long-term lease, and confirmed that the provisions of the Bombay Rent Act did not apply to curtail the lease period. The court allowed the Official Liquidator to proceed with the assignment of leasehold rights, subject to the payment of any outstanding rent by the secured creditor. The interim stay was extended for one month to allow the appellants to seek further legal recourse.