TaxTMI 
TaxTMI 
1981 (6) TMI 134
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (In Liquidation), Johanes Co. Ltd. (In Liquidation), New India Electric Limited (In Liquidation) and Central Inland Water Transport Corporation Limited (In Liquidation) of which the Official Liquidator is in possession. 2. It is an admitted case and position in law that for beneficial winding-up, the Official Liquidator can continue to be in possession as a monthly tenant or the lessee. But the question is whether those can be assigned as a valuable asset of the company by the Official Liquidator who is under the control and supervision of the Court pursuant to an order of the Court and whether that amounts to involuntary transfer or voluntary transfer. In these cases, it has been argued that the Official Liquidator represents the company (In Liquidation) and he is bound by the contract of tenancy and also the statutory provisions particularly Section 14(1)(b) of the West Bengal Premises Tenancy Act, 1956, and as such, he cannot assign and/or sublet and/or sale the said monthly tenancy right. While dealing with the respective arguments, I will refer to the decisions cited and principles to be applied as contended by the respective Counsels; but it cannot be disputed or atleast ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terms of the tenancy or the lease. There are conflicting decisions as it appears to me from the various decisions cited by both the parties and this appears to me to be a matter of great public importance, where) the question is whether a very valuable asset Of the company should be returned or handed over to the landlord and/or lessor even if it is not onerous or burdensome in the facts and circumstances of all these cases. In fact, after the hearing of the Kailash Finance Company Pvt. Limited (In Liquidation), the landlord in respect of one of the premises has settled the matter by adjusting the arrears of rent and payment of lump sum to the Official Liquidator in respect of the said tenancy right which was directed to be disclaimed by the Official Liquidator on certain terms. Thereafter, I will record the arguments of respective parties on the question and also on behalf of the Official Liquidator as follows:-- 4. There are three types of cases which have come up before this Court in this series of applications. 1. Leasehold right under a Registered Deed of Lease with the usual clause of re-entry on the company being wound-up. 2. Monthly tenancy. 3.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t to a transfer and, therefore, a violation of the said provisions of Section 14(1)(b) of the West Bengal Premises Tenancy Act, 1956, and cannot be permitted. He referred to a decision of this Court in Sashi Bhusan Singha vs. Sankar Mahato 51 C.W.N. 936 at pages 937 and 940 which is a decision under the Bengal Tenancy. Act, where the meaning of the word 'transfer, under Section 26(5) of the Bengal Tenancy Act, was construed and interpreted. References were again made to the decision in Dhirendra Nath Neogi vs. Pro-nab Kumar Neogi & Ors. A.I.R. 1980 S.C. 1655 paragraphs 6 and 7 in support of the proposition that the company is bound by the Bengal Tenancy Act as the corporate existence continues through the Liquidator and all the contracts of tenancy and the statute applicable thereto make the said tenancy not transferable or saleable by the Liquidator. 7. In Escomb Equipment Limited (In Liquidation) Mr. S.B. Mukherjee submitted drawing my attention to an English decision in Re : Farrows Bank Limited 1921 (2) Ch. D./164 where a company which was wound-up compulsorily had a covenant in a lease which provided against assignment without the consent of the lessor held to be bindin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....necessary for the purpose of winding-up. It is quite true that the company does not choose him; but he is put there by the Court; but he is put there to do the acts which the Directors of the company did before the powers ceased with the restriction of Court that in all that he does, he must have regard to the interest of the creditors of the company. The question is whether an assignment by the Liquidator in these circumstances without the consent of the lessor is a breach of the covenant to which I have referred. The assignment to be made by the Liquidator on behalf of the company itself, and if makes without the consent of the lessor, it would, in my opinion, be as plain a breach of the covenant as could possibly be". 8. In that case, a distinction was made as to vesting of the company in bankruptcy or a society in the trustee and the Liquidator respectively and, therefore, the sale and assignment by the Liquidator of the unexpired portion of the leasehold right of the company without the written consent of the lessor was held to be invalid. In that case, there was a specific covenant not to assign without the written consent of the lessor and it was held that the Liquidator ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jee also referred to Section 535(5) and (6) of the Companies Act, 1956, and Palmers' Company Precedents, 17th Edition, Vol. II Form No. 264 at page 269 where a form of the order requiring parties interested in the disclaimed lease to apply for vesting order or to be executed thereof interests in the premises is set out and he submitted that it is quite clear that it is the Liquidator who represents the company and bound by the covenant. He also referred to another English decision in General Share & Trust Co. V. Wetley Brick & Pottery Co. 20 Ch.D. 260 at page 266 where a mine was demised to a company by a lease which contained a power of re-entry if the rents or any part thereof shall be in arrears for 30 days or if the Company 'should be wound-up voluntarily or by compulsion or otherwise under the provisions of any Act or Acts of the Parliament'. An action was brought against the company by a debenture holder and a Receiver was appointed. Rents being in arrear and the landlord took out a summons for leave to distress or re-enter. If the summons had been returnable, but before it was heard, an order was made for winding-up of the company. The summons were then amended b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o. 259 of 1961 (M/s. Filmstan Private Limited V. Pradip Kumar & Anr.), where in an application for execution of a decree passed in a suit, question was raised as to the attachment and sale of tenancy right of the judgment debtor, whether it can be done in view of the provisions of the West Bengal Premises Tenancy Act, as the tenancy right was not capable of being attached. After dealing with various decisions on that question, it was held that 'sale by the Receiver in all cases do not amount to sale by the Court. It is only where the Receivers' sale by the direction of the (Joint and not merely pursuant to mere authority given by the Court that the sale by the Receiver becomes a Sale by the Court. This distinction has been clearly brought in the very decision relied on by the Advocate General in the case of Ranibala lime & Ors. V. Hirendra Chandra Gupta, 52 C.W.N. 719. As there is no specific provision against transfer of tenancy right by operation of decree in West Bengal Premises Tenancy Act, 1956, I hold that such tenancy right is attachable and as such, if the decree is otherwise executable, the tenancy is attachable in execution of a decree. In support of this proposit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld under the West Bengal Premises Tenancy Act, 1956, Section 14(1)(b). 15. Mr. Jayanta Kumar Mitter and Mr. P.K. Mallick, Mr. Mitter first referred me to Section 456(2) of the Companies Act, 1956 which corresponds to Section 243 of the English Companies Act, 1948 and he rightly submitted that the English Act is different from the Indian Act as would appear from Section 231 of the English Act which corresponds to Section 446 of the Indian Companies Act, 1956. Mr. Mitter also referred to Section 2(d) of the Transfer of Property Act and 12 Allahabad 192 and Krishnadas Nandy V. Bidhan Chandra Roy A.I.R. 1959 Calcutta 181 paragraphs 6, 7, 12, 14, 34, 38-43 and he submitted that the English decision in 1921 (2) Ch.D. 164 at page 172 relied on by Mr. S.B. Mukherjee and others on behalf of the lessor or the landlords has no application in this case, as here the estate is directed to be held by an order of the Court and the provisions of Section 535 of the Companies Act read with Rules 263-269 of the Companies(Court) Rules, 1959, make it clear that it is not a voluntary act on the part of the Liquidator but he has to function under the control and supervision of the Court and the sale or....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... them to apply for relief from forfeiture. Furthermore, no inconvenience would be caused by making an order in the winding-up proceedings because any application for relief from forfeiture by the third parties would have to be by proceedings separate from the winding-up. On completion of the winding-up, the Registrar would not be required to keep open the file merely because the landlord might make an application to him for leave to issue a writ of possession and in that case, the principles laid down in 20 Ch.D. 260 were applied. 18. Mr. P.K. Mallick rightly submitted that the English Law of Property is quite different from the law in India. He referred to the Supreme Court decision in (Namdeo Lokman Lodhi V. Narmada Bai & Ors.) A.I.R. 1953 S.C. 228 at page 230 where law regarding determination of a lease by forfeiture as contained in Section 111(g) of the T.P. Act, was laid down by Mahajan, J, as follows:-- Under the provisions, a lease is determined by forfeiture in case the lease breaks an expressed condition which provides that on breach thereof the lessor may re-enter, or in case the lessee renounces its character as such by setting up a title in a third person or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y in favour of a company (in liquidation) when the provisions of Section 417 and 450(1)(2) apply and the nature of the company changes as would be clear from the provisions of Section 457(1)(2)(3) and also Section 158, 531, 531(A), 535(3)(5)(6), 536 and 537. He submitted" that all those sections read with the relevant Rules made thereunder it is clear, that, after winding-up order is made it is not the original company which continues but by legal fiction, the corporate existence continues and the entire supervision, control and custody comes into the hands of the Courts and the Liquidator as the Custodian who discharges his function of collecting the assets and paying liabilities under the direct supervision and control of the Court. Mr. Mitter also referred to Sections 2(d) and 105 of the Transfer of Property Act, and Sections 3 and 14 of the West Bengal Premises Tenancy Act, 1956. He submitted that under Section 14, the assignment by the Liquidator cannot be void. 22. Mr. P.K. Mallick rightly submitted that if the scope of Section 535 of the Companies Act, 1956, is carefully read and interpreted, the scope appears to be Wide enough to include all types of cases. 23. Mr. Ja....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quidation) to be dealt with by the Court, which is deemed to be in the custody of all the assets of the company under Section 456(3) of the Companies Act, 1956. The question is also when the assets are going to be sold which sometime includes a complete industrial unit consisting or machineries, plants, equipments, fixtures etc. on the leasehold land in order to obtain the best and highest price and for beneficial winding-up, it must be sold as a going concern as a complete unit without disintegrating it from the land on which it is situated. Therefore, the right to the land whether it is a monthly tenancy or a leasehold right becomes a very vital and integral part of the assets for consideration at the time and if not, in some cases, that is, the tenancy right or leasehold right of the company (in liquidation) are the company's only assets. It also appears in other cases that the land belongs to the Ex-Directors or their wives, relatives, friends or associates on which the company has built up its factory and carried on business until it was wound-up finally by the Court. Therefore, it will become impossible, if not absurd, to disintegrate the plants, machineries and other ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....leged to be represented by the Liquidator. If all the decisions cited on behalf of the landlords and the lessors relying on that principle and particularly, the decisions in Farrows Bank Limited 1921 (2) Ch.D. 164, General Share & Trust Company v. Watley Brick & Pottery Company 20 Ch.D. 260 and M/s. Parasram Harnand Rao v. M/s. Shanti Prasad Narindra Kumar Jain & Anr. A.I.R. 1980 S.C. 1655 are carefully read and interpreted, it will appear and in my view, that the principle sought to be enunciated on behalf of the landlords and the lessees cannot be sustained and the aspect in which the question is now being raised by the Official Liquidator was not considered or came up for consideration directly in any of those cases and was not considered in its proper perspective. In my view, the provisions of the Companies Act, 1956, makes it clear that it is the Court which directly controls and supervises the winding-up and the Official Liquidator is merely an Officer in the position of a Receiver who acts within the four corners of the Companies Act and the Rules made thereunder under the direct supervision and control of the Court. An argument was advanced that there is a difference betwee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gnment. The assignment by a Liquidator in a compulsory winding-up is invitum of the company and is made in discharge of the duty cast upon him by the Companies (Consolidation) Act, 1908, of realising the assets for the benefit of the creditors and therefore, is, in my opinion, indistinguishable in principle from an assignment by a Sheriff. In accordance, therefore, with the principle laid down in Doe v. Cartar, I hold that the covenant in the present case does not on its true construction extend to assignment which passed in invitum of lessee and compulsorily that the Liquidator is entitled to assign the property comprised in the lease with the consent of the lessor." I respectfully agree with the said view, although the same has been reversed in the appeal which is strongly relied on by Mr. S.B. Mukherjee, Mrs. U.B. Mukherjee, Mr. T.K. Basu and others who appeared on behalf of the lessors or landlords. 25. The next decision which requires serious and careful consideration is that of the Supreme Court decision in M/s. Parasram Harnand Rao v. M/s. Shanti Prasad Narindra Kumar Jain & Anr. A.I.R. 1930 S.C. 1655 which was a decision of a two Judges Bench and Justice Faza....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 181 where also the said English case relied on behalf of the Landlords and the lessees before me being that of In Re : Farrows Bank Limited 1921 (2) Ch.D. 164 has been discussed and finally it was observed by P.N. Mukherjee, J. as he then was, at page 188 paragraph 42 of A.I.R. 1959 as follows:-- "In essence, therefore, it is a transfer by the Court or by operation of law and looking into it in the character of this sale (which as we have said above, is really a sale in invitum) from a sale in execution or any other compulsory sale to which it is not disputed, the proviso will not apply." I respectfully agree with the said observation which is applicable to the cases before me for consideration and has been thoroughly argued by both the sides. It is also to be noted that Section 2(d) of the Transfer of Property Act makes it quite clear that any transfer by operation of law or in execution of, a decree or order of a Court of competent jurisdiction will not be affected by the provisions of the Transfer of Property Act. The sale or assignment of the monthly tenancy of a company (in liquidation) by the Liquidator pursuant to the power given to the Liquidator with the sanct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are of substance or credit so as not to affect the landlords' right in any way. The West Bengal Premises Tenancy Act, in case of monthly tenancy will become applicable after the sale is made pursuant to the order of the Court through the Official Liquidator. Thereafter, the tenancy right will vest in the purchaser or assignee pursuant to the order of the Court and he will be thereafter bound by the provision of the Act, vis-a-vis. the landlords. So also is the case of the lessees who are governed by the Transfer of Property Act after the sale and/or assignment is made in favour of the purchaser and/or assignee by an order of the Court by the Liquidator by public auction or otherwise. 27. Now the whole question in this application was the position of the Liquidator and the company and the power of the Court dealing with the assets of the company are involved particularly, the monthly tenancy and the leasehold right of the company (in liquidation) which undoubtedly in the present conditions and circumstances must be held to be one of the most valuable assets of the company (in liquidation). 28. As soon as the winding up order' is made by the Court under Section 444, tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....discharged by the Official Liquidator as an Officer of the Court subject to the control of the Court. Under Rule 233, the position of the Official Liquidator is made analogous to that of a Receiver for the purpose of acquiring and retaining possession of the properties of the company(in liquidation) and the Official Liquidator is also given power under Rule 234 to exercise the powers conferred by the Court under Section 468 of the Companies Act, 1956, asking for surrender to it all properties and assets of the company in the possession of any person mentioned in the said Rule after serving notice in Form No. 99 of the Companies(Court) Rules, 1959. Section 457(1)(c) makes it quite clear that the Official Liquidator with the sanction of the Court can sale the immovable property of the company by public auction or a private contract with power to transfer the whole thereof to any person or body corporate or to sale the same in parcel. The said section read with Rules 232 and 270-274 makes it quite clear that it is the Court through the Official Liquidator as an Officer of the Court sales or transfers the property of the company either with the previous sanction of the Court or must be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quidator is the custodian who is under the direct control and supervision of the Court, cannot be affected by any act of any other party without the sanction or leave of the Court which includes the notice of forfeiture of notice to quit by the lessees or the landlords as the case may be, because that effects the right of the company in the said property either as a monthly tenant under any Rent Act or the lessees under the Transfer of the Property Act. Under Section 537(1)(b), even a decree for possession or ejectment against the company (in liquidation) which remains unexecuted cannot be executed without the leave of the Court. Therefore, it is abundantly clear from the provisions of the Companies Act and Rules made thereunder that a monthly tenancy or a lease hold right of the company of which the Official Liquidator as the Custodian has taken possession can be dealt with by the Court as the Court thinks fit for the interest of the creditors and the contributories and forms part of the assets of the company and any order for sale or transfer or assignment by the Official Liquidator with the leave and sanction of the Court is involuntary sale or transfer or assignment and the Ren....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Code of Civil Procedure and as such, the application was barred. The decision, in my view, has not decided the question which is now before me in these series of cases regarding the question whether the monthly tenancy forms part of the assets of the company (in liquidation) and the Official Liquidator with the sanction and order of the Court can sale and assign and/or transfer the same and thereby realise very valuable assets of the company and the sale is an involuntary sale and is by operation of law. In this context the principle and the observation which has been made by the Supreme Court in Ramesh Himmatlal Shaw v. Harsukh Jadavjee Joshi A.I.R. 1975 S.C. 1470 where the question of attachment and sale of a flat in execution of a decree against' a member of a Partnership Society came up for consideration and it was held that the said flat was attachable and can be sold and the purchase will comply with the Rules of the Society and the sale is involuntary. In that context, it will be very pertinent to quote the observations of Goswami, J, in paragraph 19 which are as follows: "In absence of clear and unambiguous legal provisions to the contrary, it will not be i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ir legitimate dues will be benefited as in some cases, the Ex-Directors or their nominees or their wives and relations are the landlords or the lessors. It is also sometimes that on the property of the lessor, the company has built a very valuable asset being the factory building and installed plants, machineries etc. and therefore, the assets will be of scrap value only, which is detrimental to public interest and against the interest of the creditors and contributories of the company (in liquidation). 32. The provisions of the Companies Act, 1956, particularly Sections 447, 451, 456, 457, 458, 467(1), 468, 531(A), 535, 536 and 537 clearly show that it is the Court which controls and supervises the liquidation proceedings and directs by orders, sanctions and directions, the Liquidator to realise the assets of the company and pay the liabilities according to the provisions of the Companies Act, 1956, and Rules made thereunder. 33. Therefore, the entire object has to be looked into from that point of view and the interests of the creditors, contributories and also of the public and those must be safeguarded and it should be interpreted in such a way having regard to the changi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsfer of monthly tenancy and/or leasehold right is involuntary and the only safeguard the Court would look into is to give notice to the landlords and effect the sale, transfer or assignment in their presence on such terms as are not detrimental to the interests of the landlord in any way whatsoever and the landlords cannot object or withhold consent as it is not a voluntary sale or transfer or assignment. But after the transfer or assignment or sale is complete, the transferee or the assignee will be bound by the terms on which the companies were the tenants under the landlords or the lessees and the relevant Acts being the West Bengal Premises Tenancy Act or the Transfer of Property Act as the case may be will become applicable. It may also be noted that under the West Bengal Premises Tenancy Act, Sections 3 and 14 do not make the assignment or sale under the Tenancy Act void but in any event, it has no application to involuntary sale as in the case of the companies which have been wound up by the orders of the Court and the sale, transfer or assignment would be pursuant to an order of the Court and will be involuntary sale and Transfer of Property Act has no application in such ....