2015 (7) TMI 1338 - HC - Companies Law

Court rejects Official Liquidator's bid to cancel lease deed under Companies Act, 1956

Official Liquidator of the Mysore Kirloskar Limited, Bangalore Versus Kirloskar Institute of Advanced Management Studies

The court dismissed the Official Liquidator's application seeking cancellation of a lease deed under Section 531-A of the Companies Act, 1956. The lease ... Winding up petition - Cancellation of a lease deed - A lease deed was said to have been entered into between the parties on 22.1.2000, which is 1 month and 22 days before the presentation of the winding up petition and therefore in terms of Section 531A of the Act, it was clearly void and hence, the present application - HELD THAT:- The question whether the official liquidator is in a position to claim avoidance of a transfer on the ground that the transfer is void in terms of Section 531-A can also plead that the period of limitation in seeking such adjudication or seeking recovery of possession pursuant to that transfer of the property in question can plead exemption from the application of the law of limitation. This would necessarily have to be answered in the negative. Incidentally, it is on record that the applicant is receiving rent from the respondent in terms of the lease deed. Therefore, to characterize the lease deed as being void is akin to approbating and reprobating, which is not permissible. This is one other aspect that is ignored by the Official Liquidator in making the claim that the lease deed was void. Insofar as the contention of the learned Counsel for the Official Liquidator that this court has come down heavily on the respondent in observing that the lease deed is tainted with dishonesty and the lease deed is contrary to Section 531A of the Act and the transaction between the lessor and the lessee is tainted with dishonesty is concerned, that order having been challenged in appeal, the appellate bench has, insofar as the above said observations of the company judge are concerned, has observed that the learned Company Judge was not justified in making certain observations especially when the present application was pending and therefore any such observations cannot be held as precluding the respondent from contesting the claim of the Official Liquidator. Application dismissed. Issues:1. Validity of lease deed under Section 531-A of the Companies Act, 1956.2. Application for cancellation of lease deed by the Official Liquidator.3. Preliminary objection regarding limitation raised by the respondent.4. Interpretation of Section 531-A and applicability of the law of limitation.5. Possession rights of the respondent and legal implications of the lease deed being void.Analysis:1. The Official Liquidator filed an application seeking cancellation of a lease deed between the company in liquidation and a management institute, alleging it to be invalid under Section 531-A of the Companies Act, 1956. The lease agreement was deemed prejudicial to the interests of creditors, workers, and contributories due to its timing just before the winding-up petition was presented.2. The Official Liquidator argued that the lease deed was executed to defeat the winding-up process and keep assets out of reach. The respondent contested the application, claiming possession rights as a licensee before the lease deed. Evidence was tendered by both parties to support their claims.3. The respondent raised a preliminary objection on limitation, asserting that the application was time-barred. The Official Liquidator relied on a Madras High Court judgment to argue that the law of limitation should not apply to void transactions under Section 531-A.4. The debate centered on whether the application was within the limitation period despite the transaction being void ab initio. The Kerala High Court's interpretation of Section 531-A was discussed, emphasizing the need for appropriate measures to declare a transfer void and the applicability of the law of limitation.5. The court considered the respondent's possession rights and the Official Liquidator's claim for recovery of possession. The respondent's challenge to the lease deed's validity and the observations made by the Company Judge were addressed. Ultimately, the application was dismissed, citing issues of limitation and the respondent's right to contest the Official Liquidator's claims.This detailed analysis of the judgment highlights the key legal arguments, interpretations of relevant sections of the law, and the court's reasoning leading to the dismissal of the application.