Company court jurisdiction over liquidation possession disputes upheld, but clarificatory orders need hearing and undertakings to vacate remain enforceable

A company court may examine possession disputes arising during liquidation under section 446(2) of the Companies Act, 1956 even after the winding-up order is stayed, but interference with occupation depends on the occupants' position and any express undertaking to vacate. An order clarifying an earlier judicial direction cannot validly affect substantive rights without notice and hearing to the affected parties, and a clarification made without hearing was set aside for breach of natural justice. Occupants who had given an undertaking tied to the company regaining possession were bound to vacate and hand over vacant possession.

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Issues: (i) Whether the company court could, after stay of the winding-up order, decide the occupants' right to remain in possession of property of the company and direct removal of some occupants. (ii) Whether the order clarifying the earlier direction, passed without hearing the appellants, was sustainable.

Issue (i): Whether the company court could, after stay of the winding-up order, decide the occupants' right to remain in possession of property of the company and direct removal of some occupants.

Analysis: The occupiers entered into possession during the period when the company was under liquidation, and the alleged tenancy or sub-tenancy was found to have been created in circumstances that attracted the winding-up regime. The power under section 446(2) of the Companies Act, 1956 was treated as an enabling jurisdiction to resolve disputes arising in the course of liquidation, and the subsequent stay of winding up did not, by itself, erase the court's ability to examine the legality of such possession. At the same time, the court distinguished between occupants whose possession was not to be interfered with in the exercise of discretion and those who had given an express undertaking to vacate on the company's regaining possession.

Conclusion: The company court had jurisdiction to examine the occupants' claims under section 446(2), but interference was warranted only in respect of the occupants bound by their undertaking; the others were not evicted.

Issue (ii): Whether the order clarifying the earlier direction, passed without hearing the appellants, was sustainable.

Analysis: The earlier order setting aside the winding-up direction had been passed at the instance of the appellants, and any later clarification or modification affecting that order required notice to them. The subsequent hearing was not a mere administrative clarification but one affecting substantive rights, so denial of hearing offended natural justice. The remand by the Division Bench did not cure the defect, because the appellants were still entitled to be heard before any effective clarification or modification of the earlier order.

Conclusion: The clarification order passed without hearing the appellants could not stand and was set aside.

Issue (iii): Whether the occupants who had given an undertaking could retain possession after the company regained possession.

Analysis: The undertaking given by those occupants was not merely conditional upon participation in the sale; it was an independent promise tied to the divestment of the official liquidator's possession. Once the company resumed control through its authorised representative, the undertaking became enforceable and the occupants were bound to vacate. Continued possession in the face of that undertaking would undermine the sanctity of court proceedings.

Conclusion: The occupants who had furnished the undertaking were required to vacate and hand over vacant possession.

Final Conclusion: The appeals were partly allowed: the clarificatory order was set aside for breach of hearing, the company court's jurisdiction to examine possession disputes was upheld, and only those occupants bound by undertaking were directed to vacate.

Ratio Decidendi: A company court may examine disputes over possession arising during liquidation under section 446(2) of the Companies Act, 1956 even after stay of winding up, but any later order affecting rights under an earlier judicial order must be made after notice and hearing to the affected parties; an express undertaking to vacate upon transfer of possession is enforceable according to its terms.

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