2019 (12) TMI 15 - HC - Companies Law

Court allows Official Liquidator to seize assets, declares tenancy claims fraudulent, orders prompt surrender.

In re: J.B. Diamonds Ltd.,

The Court permitted the Official Liquidator to take physical possession of the Company's assets, including breaking open locks if necessary, to safeguard ... Winding up petition - Official Liquidator's Report has been filed on the basis that the ex-directors of the Company in Liquidation have colluded with the partners/directors of the alleged tenants - Appointment of liquidator of company - physical possession of property - HELD THAT:- The record reveals gross collusion between the ex-directors of the Company in liquidation and the directors/partners of the tenants. All the suits referred to above have been filed by the tenants in the year 2011, which is the same year in which the Company Petition was filed against the Company under Sections 433 and 434 of the Companies Act. It is during that time, the tenants, claiming a right in the assets of the Company (in liquidation), approached the Courts in Mumbai and in Surat, where the various assets of the Company are situated and obtained orders/decrees from the Courts, which forms the underlying basis on which the tenants are claiming protection and have obstructed the Official Liquidator from taking possession of the assets of the Company in liquidation. It is an admitted fact that the properties are the assets of the Company in liquidation. Hence, under the scheme and the provisions of the Companies Act, 1956, this Court is required to protect the assets of the Company in order to not defeat the rights of the workers and the creditors of the Company. The record reveals a shocking state of affairs, which supports the stand of the Official Liquidator of the collusion and fraud on part of the ex-directors of the Company and the tenants. The relationship between the ex-directors of the Company and the directors/partners of the tenants is not in dispute. It is also not in dispute that the orders/decrees passed by the Courts are passed after the order of winding up was passed - In view of the record and facts extensively dealt by me above, it can be hardly contended by the tenants that the orders/decrees were not collusive and/or that no fraud was played by the tenants and the ex-directors of the Company on the Courts in Mumbai and Surat. The orders/decrees passed by the Courts in favour of tenants declaring them to be tenants are a nullity in the eyes of law and are declared illegal and void, as being coram non judice and hence not binding on the Official Liquidator of the Company (in liquidation) - tenants are directed to handover physical possession of the properties set out in paragraphs 7 and 8 above within a period of one (1) week from the date of uploading this Order - application disposed off. Issues Involved:1. Whether the Official Liquidator should be permitted to break open the lock and take physical possession of the assets of the Company.2. Validity of the tenancy rights claimed by the tenants.3. Allegations of fraud and collusion between the ex-directors of the Company and the tenants.4. Jurisdiction of the Courts to pass decrees without obtaining leave under Section 446 of the Companies Act, 1956.5. Whether the decrees obtained by the tenants are null and void.Detailed Analysis:1. Permission for the Official Liquidator to Take Possession:The Official Liquidator sought permission to break open the lock and take physical possession of the Company’s assets at Bharat Diamond Bourse, Office Space No.8120, Bandra Kurla Complex, Mumbai, and other properties, with police assistance if necessary. The Court allowed this request, citing the need to protect the assets of the Company for the benefit of its workers and creditors.2. Validity of Tenancy Rights:The tenants claimed tenancy rights over several properties based on various agreements and decrees. However, the Court found these claims to be fraudulent and collusive. The tenants failed to produce valid agreements or rent receipts to substantiate their claims. The Court noted that the ex-directors of the Company were also partners or directors in the tenant firms, indicating a conflict of interest and collusion.3. Fraud and Collusion:The Court found substantial evidence of fraud and collusion between the ex-directors of the Company and the tenants. The ex-directors led evidence on behalf of the tenants in various suits, and the Company did not contest these suits, leading to favorable decrees for the tenants. The Court concluded that these actions were part of a scheme to obstruct the Official Liquidator from taking possession of the Company’s assets.4. Jurisdiction and Section 446 of the Companies Act, 1956:The Court held that the decrees obtained by the tenants were passed without jurisdiction as the Courts did not have the requisite leave under Section 446 of the Companies Act, 1956. The Court emphasized that any decree passed without such leave is a nullity and coram non judice. The tenants did not seek leave under Section 446, which would have allowed the Court to examine the reasons for prosecuting suits against the Company in liquidation.5. Nullity of Decrees:The Court declared the decrees obtained by the tenants as null and void, stating that they were obtained by fraud and collusion. The Court relied on precedents such as Forbes and Company v. Coromandel Garments Ltd. and S.P. Chengalvaraya Naidu v. Jagannath, which establish that decrees obtained by fraud are non-est in law and can be challenged in any court, even in collateral proceedings.Conclusion:The Court allowed the Official Liquidator's report, directing the tenants to hand over physical possession of the properties within one week and permitting the Official Liquidator to break open the lock and take necessary police assistance if required. The Court emphasized the need to protect the assets of the Company in liquidation for the benefit of its workers and creditors, and condemned the fraudulent actions of the ex-directors and tenants.