TaxTMI 
TaxTMI 
2019 (11) TMI 732
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....d, the Company (In Liquidation) ("the Company") on the premises namely Bharat Diamond Bourse, Office Space No.8120, Bandra Kurla Complex, Bandra (E), Mumbai-400 051; and (ii) take physical possession of the assets of the Company, of which symbolic possession has already been taken by the Official Liquidator, and if necessary, with the assistance of the Police Authorities, by directing the tenants (tenancy rights whereof are disputed by the Official Liquidator) to vacate the premises. The Official Liquidator is also seeking other consequential directions including, inter alia, to suggest and recommend the name of a panel valuer to conduct valuation of Office Space No.8120 at Bharat Diamond Bourse and to permit the Official Liquidator to pay the professional fees of the panel valuer as per the norms fixed by this Court. 2. The 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 namely M/s. Bhavik Gems ('Bhavik Gems'), J.B. Jewellery Pvt. Ltd. ('J.B. Jewellery), Riya Diamond Pvt. Ltd. ('Riya Diamond') and M/s. Meer Gems ('Meer Gems....
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....20 along with 2 Car parking situated at Bandra Kurla Complex, Bandra (E), Mumbai-400 051. 5. Pursuant to the Order dated 6th June, 2018, the Official Liquidator had deputed its representative to take possession of the abovementioned properties between 21st June, 2018 to 23rd June, 2018. Accordingly, on 22nd June, 2018, the representative of the Official Liquidator took physical possession of Office Space No. 8120, Bharat Diamond House, Bandra Kurla Complex, by affixing a paper seal on the existing lock, in presence of the representatives of the Kotak Mahindra Bank (secured creditor). As regards the remaining properties, the Official Liquidator was able to only take symbolic possession thereof, since the tenants in possession of their respective premises (set out in paragraphs 4(a) to (h)) refused to handover possession on the ground that they have obtained orders/decrees from the Small Causes Courts restraining the Company from disturbing their possession. 6. The details of the decrees passed by the Courts are briefly set out as under: a. Order dated 2nd September, 2013, passed by the Court of Small Causes at Mumbai in R.A.D. Suit No.1417 of 2011 in the case of Bhavi....
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....k symbolic possession of the following properties situated in Mumbai: a. Office Premises at 6-B Unity House, 3rd floor, Prasad Chambers, Opera House, Mumbai-400 004, which was in possession of Bhavik Gems; b. Office Premises at Unit No. 406, 4th floor, Prasad Chambers, Opera House, Mumbai-400 004, which was in possession of Bhavik Gems; c. Office Premises at Unit No. 418, 4th floor, Prasad Chambers, Opera House, Mumbai-400 004, which was in possession of J.B. Jewellery; and d. Part physical possession of approximately 50 sq. ft. of the Office Premises at Unit No. 405, 4th floor, Prasad Chambers, Tata Road No.1, Swadeshi Mills Compound, Opera House, Mumbai-400 004, was taken on 24th July, 2012 and remaining 193 sq. ft. was merged into Unit No. 406 at Prasad Chambers, Opera House. 8. The tenants on 23rd June, 2018, refused to handover possession of the properties belonging to the Company (In Liquidation), and accordingly, the Official Liquidator took symbolic possession of the following properties belonging to the Company (In Liquidation) situated at Surat: a. FP No. 12, Patel Nagar, Ashwanikumar Road, TP Scheme No.4, Surat, which was i....
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....resh Kukadiya and Mr. Bhagwanbhai Kukadiya. In order to safeguard the assets of the Company, the undertakings of Mr. Suresh Kukadiya and Mr. Bhagwanbhai Kukadiya were also recorded in the Order dated 19th December, 2018, to the effect that they shall not transfer their tenancy rights in favour of any party until further orders of this Court. 12. Thereafter, on 21st December, 2018, Mr. Deepak Kukadiya, Director of Riya Diamonds and Mr. Miral V. Surani, Partner of Meer Gems, were present before this Court. This Court accordingly recorded the statements of Mr. Deepak Kukadiya, Director of Riya Diamonds and Mr. Miral V. Surani, Partner of Meer Gems and also their respective undertakings to the effect that they shall not transfer their tenancy rights in favour of any party until further orders of this Court. 13. By Orders dated 19th December, 2018 and 21st December, 2018, the tenants had also given an undertaking to produce (i) income tax returns from the year which they claim to be a tenant in respect of the premises, (ii) all statutory records where address of the premises is shown, of which they allegedly claim to be in possession and (iii) the rent receipts issued by the said ....
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....2016, the Court of Small Causes at Bombay had protected the possession of Bhavik Gems. 16. Moreover, the same Advocate Ms. Y.Y. Naik had appeared for the Company (In Liquidation) before the Court of Small Causes at Bombay in R.A.D. Suit Nos. 1417 of 2011 and 1416 of 2011, her appearance whereof is recorded in the Orders dated 2nd September, 2013, passed by the Court of Small Causes at Bombay. These circumstances establishing fraud and collusion do not end here. In the Suits filed by Bhavik Gems and J.B. Jewellery, before the Court of Small Causes at Bombay, Mr. Suresh Kukadiya, the ex-director of the Company had led evidence on behalf of the tenants and on the other hand, the Company chose not to raise any substantial defence/lead any evidence/produce any documents to controvert the case of the tenants. This is evident from a bare perusal of the Orders dated 2nd September, 2013, and 25th January, 2016 passed by the Court of Small Causes at Mumbai. 17. Before the Courts at Surat, the right of the Company (In Liquidation) to file a reply were closed by the Courts. In fact on 2nd September, 2012, when an application for interim reliefs filed on behalf of one of the tenant, was k....
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....clearly establishes that Bhavik Gems as late as 23rd April, 2014, after nearly two (2) years from the date when the Company was ordered to be wound up, entered into the agreements with the Company. Such dispositions of properties of the Company (In Liquidation) are void and being after the final winding up order are not even capable of validation. c. Further, Bhavik Gems has produced some receipts for Unit Nos. 405/406 Prasad Chambers, Opera House. Pertinently, Unit Nos. 405/406, is the registered office of the Company in liquidation, and Mr. Suresh Kukadiya is the ex-director of the Company (In Liquidation), who is now representing Bhavik Gems before this Court. Bhavik Gems has not produced any rent receipts for Office Premises at 6B, Unit House, Opera House and/or for the factory premises at Surat. In paragraph 13 of the Affidavit, a statement has been made that a sum of Rs. 6,00,000/- and Rs. 4,00,000/- has been paid by Bhavik Gems to the Company in advance for use of the factory premises at Surat for 30 years. However, no proof of payment has been produced by Bhavik Gems before this Court. d. Bhavik Gems has produced IT Returns from AYs. 1995-96 till 2010-11 w....
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...., Patel Nagar at Surat. i. Riya Diamond has placed reliance on three agreements dated 14th February 2007, 15th October 2008 and 1st April 2010, to establish creation of tenancy rights in its favour. In view of the collusion between the directors of Riya Diamond and the ex- directors of the Company, these agreements are disputed by the Official Liquidator. In any event, even assuming that these agreements are in existence, as per Riya Diamond's own case, the agreement dated 1st April, 2010, was only up to 13th August, 2014. There is no Explanation as to how Riya Diamond is in possession of the premises after the expiry of the agreement dated 1st April, 2010. j. Even otherwise, the agreements contradict the case of Riya Diamond. The Affidavit discloses that Riya Diamond was carrying on its business from the premises since the year 2007. This is because Riya Diamond has produced income tax returns for AYs. 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14, 2014-15, 2015-16, 2016-17, 2017-18. Apart from not having produced the Income Tax Returns for AY- 2007-2008; it is Riya Diamond's own case in the Affidavit that the agreement dated 1st April, 2010, was v....
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....on basis of a consent decree, relied on the judgments of the Supreme Court of India in (i) S.P. Chengalvaraya Naidu v. Jagannath [1994] 1 SCC 1; (ii) Sudarsan Chits (I) Ltd. v. O. Sukumaran Pillai [1984] 4 SCC 657 and (iii) of a learned Single Judge of this Court in Modi Stone Ltd. (in liquidation), In re [2017] 202 Company Cases 551, and came to the conclusion that a decree which has been obtained by fraud can be declared illegal and void by the Company Court and such decrees which are obtained by fraud can be set aside at any stage and in any proceedings, even in collateral one. In fact, in Forbes and Company (supra), this Court had declared the consent decree as illegal and void as a fraudulent preference. b. This Court in the case of Forbes and Company (supra) in paragraphs 26(d) and 26(f) has held as under: "(d) The Consent Decree in question, which has been procured by fraud can be set aside at any stage including in an application for leave to execute it or in an Official Liquidator's Report challenging it...." "(f) In fact the judgment of the Division Bench of this Hon'ble Court in The Official Liquidator, High C....
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....iction over the subject matter i.e., the Company-in-liquidation, by reason of the limitation imposed under Section 446 of the Companies Act, 1956. Admittedly, all the decrees have been passed by the Courts after the winding up order dated 19th June 2012 and therefore, the Courts did not have jurisdiction to pass over the final decrees against the Company (in liquidation) in absence of leave under Section 446 of the Companies Act, 1956; that any decree passed by a court without jurisdiction, is 'coram non judice'. h. Therefore, the decrees passed by the Courts are a nullity and have been passed without jurisdiction; and the Courts could not have taken up the cause or the matter in respect of the Company-in-liquidation in absence of leave under Section 446 of the Companies Act, 1956 and hence, any order passed by a Court having no jurisdiction over the subject matter, is a nullity. i. The above position in law is supported by the judgment of the Supreme Court of India in the case of Chief Engineer, Hydel Project v. Ravinder Nath [2008] 2 SCC 350. The Supreme Court in Hydel Project (supra) had relied upon its judgment in Harshad Chiman Lal Modi v. DLF Univers....
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....uthority which a Court has to decide matters that are litigated before it or to take cognizance of matters presented in a formal way for its decision. An examination of the cases in the books discloses numerous attempts to define the term "jurisdiction," which has been stated to be "the power to hear and determine issues of law and fact," "the authority by which judicial officers take cognizance of and decide causes," "the authority to hear and decide a legal controversy"; "the power to hear and determine the subject-matter in controversy between parties to a suit and to adjudicate or exercise any judicial power over them;" "the power to hear, determine and pronounce judgment on the issues before the Court, " ''the power or authority which is conferred upon a Court by the Legislature to hear and determine causes between parties and to carry the judgments into effect", "the power to enquire into the facts, to apply the law, to pronounce the judgment and to carry it into execution", Reference may in this connection be made to the discussion of the nature of jurisdiction in the judgments of this Court in Ashutosh Sikdar v. Behari Lal MANU/WB/0158/1907 : 11 CW.N. 1011 : 6 CL.J.....
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....were without jurisdiction and hence coram non judice. n. To substitute his argument, Mr. Jagtiani gave the example of a case where the court exercises its jurisdiction in a suit to pass a decree, fled in a representative capacity, without following the procedure under Order I Rule 8 of the Code of Civil Procedure, 1908, the proceedings itself would be invalidated by virtue of the mandate prescribed under Order I Rule 8. Resultantly, the decree passed by the court in that suit would be a decree in nullity Similarly, in case where a suit is fled on two causes of action namely one for infringement and another one for passing of before the Court, and no leave under Clause XIV of the Letters Patent is obtained by the Plaintiff for joinder of several causes of action, any order/decree passed by the court in that suit would be a nullity and therefore invalid. o. In the event the purported tenants would have applied for leave under Section 446 of the Companies Act, 1956, this Court would have had the opportunity to examine the reason for seeking such a leave to prosecute suits against the Company (in liquidation) and this Court would have dealt with the collusion and frau....
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....o issue appropriate directions to safeguard the interests of the workers and other creditors of the Company. In the absence of any response from the Official Liquidator, Shashi Gopal as the subrogee was duty-bound to move this Court for appropriate directions in the matter of sale of the hypothecated securities. He certainly was not entitled to assume that he was free to deal with the securities in any manner that he pleased." 21. Per Contra, Mr. Sarathy, learned Advocate appearing for the tenants contended that: a. The absence of leave under Section 446 does not render the decree a nullity and that the same is not fatal to the decree obtained by the tenants from the various Courts. b. The Company Court has no jurisdiction to declare a decree passed by the small causes court as null, void and not binding, in view of the law laid down by a Division Bench of this Court in the case of Modella Woollens Ltd. v. Official Liquidator [2007] 79 SCL 172, and more particularly paragraph 36 thereof, which reads as under: "36. In the light of the clear principle of law laid down in this decision we are of the view that the Company Court had no jurisdiction to decla....
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....ther than the Official Liquidator. He further submitted that there was no plea raised by either party that the Small Causes Court (in facts of that case) did not have jurisdiction over the subject matter of the company in liquidation (due to the failure to obtain leave under Section 446 of the Act) and that any decree/order passed by the Small Causes Court would be coram non judice. He further submitted that in paragraphs 12 and 14 of the said judgment, the submission as regards jurisdiction have been recorded and the same are substantially different than the arguments canvassed by the Official Liquidator before this Court. 23. Mr. Jagtiani argued that the contentions raised on behalf of the Applicant in Modella Woollens (supra) was that (i) for the Small Causes Court to have jurisdiction to go into the Plaint, it was necessary that the second respondent (in that case) proves that license fees or a charge was paid in respect of the subject premises and that there was a subsisting license and (ii) by virtue of Section 15 of the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, the Small Causes Court had no jurisdiction and competence and therefore the decree was in ....
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....t defeat the rights of the workers and the creditors of the Company. As noted above, 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 by this Court on 19th June, 2012. 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. 28. The orders/decrees, referred to above, clearly show that the ex-director of the Company in liquidation Mr. Suresh Kukadia led evidence on behalf of the tenants before the Small Causes Court at Mumbai in the Suits filed by the tenants against the Company (in liquidation). It is relevant to refer to the observations made by the Small Causes Court at Mumbai in its judgment and ord....
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....dence on behalf of the tenant. In respect of the orders/decrees passed by the Courts at Surat, as noted above, the right to file a response/pleadings of the Company was closed by the Courts and accordingly the orders were passed since the same was not contested by the Company. 30. In light of the collusion and fraud, both of which are writ large, there is merit in the Official Liquidator's reliance on the judgment of Forbes and Company (supra), more particularly paragraphs 26(d) and 26(f). I am in agreement with the view taken by the learned Single Judge of this Court in Forbes and Company (supra). As held by the Supreme Court of India in S.P. Chengalvaraya Naidu (supra), a judgment or decree obtained by playing fraud on the court is a nullity and non-est in the eyes of law and that such a judgment/decree, "passed by the first court or the highest court', has to be treated as a nullity "by every court, whether superior or inferior". Such judgments/decrees can be challenged in any court even in collateral proceedings. This position of law has been reiterated by this Court in Forbes and Company (supra). 31. Mr. Jagtiani for the Official Liquidator has contended that the....
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....he Division Bench in paragraphs 32, 33 and 34 in Modella Woollens (supra): "32. In the present case the undisputed fact is that post-nationalisation of the Insurance business the subject premises stood vested in the applicant and therefore, according to them, assumed character of "public premises". The submission proceeded on the basis that the Public Premises Eviction Act applies to the premises in question. By virtue of its character as public premises and the Public Premises Eviction Act prevailing over the Bombay Rent Act, the Court of Small Causes had no jurisdiction, authority and power to pass any decree in respect thereof. The further basis upon which the learned Judge proceeded is that the premises in question would be an asset and property of the company in liquidation and therefore, the Official Liquidator was bound in law to take possession thereof The third assumption on the part of the learned Judge is that the Court of Small Causes passed a decree in a collusive suit inasmuch as without any evidence of relationship of licensor and licensee and any threat of eviction a declaration of deemed tenancy came to be issued by it. This declaration could not have been....
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....r any directions could have been sought by him in respect of subject premises. That aspect is also not free from doubt inasmuch as tenancy rights of the company in liquidation maybe property" in law but for the purposes of winding up, they have been held to be not constituting an "Asset". Admittedly, the company in liquidation is not the owner of the premises. It is claiming tenancy rights in respect thereof. Therefore, whether such tenancy rights could have been taken over by the Liquidator is also not clear from the order of learned Single Judge. In fact, reliance placed by Mr. Madon in this behalf on the decision of Supreme Court in the case of Smt. Nirmala R. Bafna v. Khandesh Spinning and Weaving Mills Co. Ltd. is appropriate. The Hon'ble Supreme Court was considering somewhat similar controversy in that case. That matter was carried from an order passed by this very Court. The Hon'ble Supreme Court after noticing rival contentions has observed that:- a. The tenancy rights the company had in the said flat may not be an asset for the purpose of liquidation proceedings, and b. merely because a company goes in liquidation and a liquidator/official liquid....
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....mmenced or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Court and subject to such terms as the Court may impose...." 37. In view of the above, the contention of the tenants cannot be accepted, since the same is contrary to the language and purport of Section 446(1) of the Act. In the event the tenants would have applied for leave under Section 446 of the Companies Act, 1956, this Court would have had the opportunity to examine the reason for seeking such a leave to prosecute suits against the Company in liquidation. The powers of a Company Court under Section 446 of the Act are not in dispute and are well settled and have been broadly construed by the Supreme Court in the case of Sundarsan Chits (I) Ltd. (supra). Since the suits filed by the tenants would constitute a claim filed against the Company in liquidation, under Section 446(2) of the Companies Act, this Court would have considered hearing the suits in order to advance the object of Section 446 of Companies Act. 38. Since I have already come to the conclusion that the orders/decrees obtained by the tenants from the Courts are collusive and fraudul....
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.... and thereafter passed an order under Section 14 of the said Act. 12. In our view, the ratio of the judgment in the case of Harshad Govardhan Sondagar (supra), more particularly law laid down, in paragraph 36 is binding on this Court. Therefore, the learned Magistrate, in our view, has rightly passed order under Section 14 of the said Act. We are informed that the total amount due is more than Rs. 200 crore. Amount due to the consortium banks is Rs. 1,000 crore, out of which 60% amount maybe adjusted, according to the Petitioners. Be that as it may, we are of the view that no case is made out for interference with the impugned order. All the writ petitions are, therefore, dismissed. Learned counsel submitted that proposal for payment of 60% amount was given under the OTS scheme. 12. At this stage, learned counsel appearing for the Petitioners seeks four weeks time to approach the Apex Court for the purpose of clarification of the order passed in the case of Harshad Govardhan Sondagar (supra). Taking into consideration the fact that Petitioners are the Directors, guarantors and also signatory to the loan documents, we are not inclined to continue the interim order.....