Onerous contract disclaimer under company liquidation law upheld where indirect interest was insufficient and time-extension letters did not bar the liquidator.

Under section 535 of the Companies Act, 1956, a party is a person interested in disclaimer proceedings only if directly and substantially affected; a mere commercial or indirect interest is insufficient, so the corporation was not a necessary party. Requests for time to pay were treated as extensions, not a written application requiring a disclaimer decision, and section 535(4) was not attracted; the liquidator was therefore not barred from seeking disclaimer. The share allotment contract was found onerous because it yielded no benefit, involved unquoted shares, and exposed the estate to future liability. Leave to disclaim was accordingly justified to protect creditors and facilitate winding up.

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Issues: (i) whether the Madras Industrial Investment Corporation was a necessary party or a person interested within the meaning of section 535(3) of the Companies Act, 1956; (ii) whether the liquidator was precluded from seeking disclaimer by reason of the letters requesting time for payment and the operation of section 535(4); (iii) whether the share allotment contract was onerous and liable to be disclaimed under section 535(1).

Issue (i): whether the Madras Industrial Investment Corporation was a necessary party or a person interested within the meaning of section 535(3) of the Companies Act, 1956.

Analysis: The material placed before the Court did not show that any loan application or representation had been made on behalf of the company in liquidation so as to make the Corporation directly and substantially interested in the disclaimer proceedings. A mere commercial or indirect interest was held insufficient, and the respondents failed to substantiate their plea by any supporting document.

Conclusion: The Corporation was not a necessary party or a person interested under section 535(3).

Issue (ii): whether the liquidator was precluded from seeking disclaimer by reason of the letters requesting time for payment and the operation of section 535(4).

Analysis: The writings relied on by the respondents were treated as requests for extension of time and not as an application in writing requiring the liquidator to decide whether he would disclaim. The statutory fiction of deemed adoption under section 535(4) was therefore not attracted, and in any event section 535(1) was held to permit an application for disclaimer where leave of the Court could still be sought notwithstanding earlier conduct in pursuance of the contract.

Conclusion: The liquidator was not barred from applying for disclaimer and the application remained maintainable.

Issue (iii): whether the share allotment contract was onerous and liable to be disclaimed under section 535(1).

Analysis: The investment was found to yield no benefit to the company, the shares were unquoted, the respondents' financial position was unsatisfactory, and the liquidator's evidence showed that future liability would burden the estate and prejudice creditors. Disclaimer was treated as a mechanism to rid the company in liquidation of a liability rather than an asset and to facilitate winding up.

Conclusion: The contract was onerous and leave to disclaim was justified.

Final Conclusion: Leave to disclaim the share allotment contract was granted, enabling the liquidator to avoid an onerous liability in the course of winding up.

Ratio Decidendi: Under section 535 of the Companies Act, 1956, an onerous contract may be disclaimed with leave of court even if the liquidator has done something in pursuance of it, and a party is a person interested only if directly and substantially affected by the disclaimer proceedings.

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