TMI Blog1981 (4) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... 1978, and the winding-up proceedings are pending in this court. The company was admittedly a tenant of the premises at 8, Darya Ganj, Delhi. The said premises also admittedly belong to the LIC. The 1971 Act defines "Public premises" and it is the common case of the parties that the premises in dispute are covered by the definition of section 2( e ) of the 1971 Act. The case of the LIC is that because of the various unlawful acts done by the company its possession was unauthorised and it was entitled to seek possession of the premises in dispute and that also these premises were required for its own use. It asked for possession of the premises from the official liquidator. The LIC also claims that the company is in unauthorised occupation since March 31, 1976, and it is, therefore, liable to pay damages to the applicant/LIC. Apparently the official liquidator, to whom request was made to vacate the premises, advised the LIC to seek the leave of the company judge under section 446 of the Companies Act for initiating the proceedings under the 1971 Act. Hence an application under section 446(1) was filed by the LIC. As the leave application was opposed by the official liquidator, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Punjab, AIR 1967 SC 1581, held the Act unconstitutional inasmuch as it conferred an additional remedy over and above the usual remedy by way of suit, and leaving it to the unguided discretion of the Collector to resort to one or the other of the procedures. In order to remove this discrimination and arbitrariness, the 1971 Act was brought into force and s 15 provides a bar of jurisdiction of civil courts to entertain any suit in respect of eviction of any person who is in unauthorised occupation of any public premises, or recovery of rent or damages thereof. Thus, under the 1971 Act there is only one procedure available for eviction of a person in unauthorised occupation of public premises and that procedure is to be found in the 1971 Act. The other courts have no jurisdiction in these matters vide Hart Singh v. Military Estate Officer, Delhi, KIR 1972 SC 2205. It will be immediately clear that the 1971 Act deals with a very limited objective. It only means that if the Act of 1971 was not there, the LIC would have to file a civil suit or go before the Rent Controller for recovery of possession of premises or recovery of rent/damages. What is important to be emphasised is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to see that its assets are not wasted in frivolous and unnecessary litigation. Balkrishna Mahadeo Vartak v. Indian Association Chemical Industries Ltd. [1958] 28 Comp. Cas. 179 (Bom.). This view of the Bombay High Court was followed in Star Engineering Works Ltd. v. Official Liquidator of the Krishnakumar Mills Company Ltd. [1977] 47 Comp. Cas. 30 (Guj.). Dealing with winding-up provisions of the English Companies Act, 1862, the object was stated to put all unsecured creditors upon an equality, and to pay them part passu. A landlord who has not put in a distress before the commencement of the winding-up is an unsecured creditor. He can prove against the company under section 158 for all rent in arrears at the time of his proof, but his right to distrain is taken away by section 163, unless circumstances exist which, in the opinion of the court, require it to give him leave to distrain under section 87. Vide In re Oak Pits Colliery Co. [1882] 21 Ch D 322 (CA) at 329. It is thus well established that once a winding-up order is passed the undertaking and the assets of the company pass under the control of the liquidator whose statutory duty is to realise them and to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trust Co. v. Wetley Brick and Pottery Co. [1881] 20 Ch D 260 (CA), the owner of a mine which had leased the same to the company and against which an order of winding-up had been moved, applied for leave to distrain or to re-enter. The Vice-Chancellor refused leave and held that he could not be allowed to re-enter without establishing his right by an action. The Court of Appeal disapproved of such an approach and while allowing the appeal, Jessel M.R. observed as follows (p. 267): "I have often said both here and at the Rolls, that when in a winding-up a landlord comes to the court asking for the possession of property which is under the control of the court, and the claim is one against which the liquidator would have no defence, the right course is to order the liquidator to give up possession. It would be a cruel hardship to put the applicant to the expense of bringing an action when the court can see that there is nothing to be tried". Thus, it was clearly recognised that during winding-up proceedings the winding-up court can in a fit case order the delivery of possession back to the landlord. This authority highlights that the matter even of recovery of possession can i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve of the winding-up court. The learned judge further held that this was a case where leave should be applied for (emphasis supplied) and, secondly, a fit case where leave to proceed with the legal proceedings should be granted. No doubt the learned judge observed that proceedings for a fair rent under the Madras Buildings (Lease and Rent Control) Act are within the exclusive jurisdiction of the Rent Controller, and no such order could be passed by the winding-up court, but he nevertheless held the legal proceedings before the Rent Controller to be within the meaning of section 171 of the Indian Companies Act, 1913. It is important to make a difference between the proceedings for recovery of possession or recovery of damages which are normally within the purview of ordinary civil courts but are now by a special Act included within the purview of rent legislation and the right to have a standard rent fixed which is a right created only because of the rent laws and is not a right available under ordinary laws available to the tenant. It is because the right to have a fair rent determined is a special right created by a statute that it has to be held that these are not proceedings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up order. The plea of the LIC being that the Act of 1971 is an exclusive code to deal with the proceedings with regard to the public premises and it is also urged that they are not legal proceedings in the sense in which they should be understood under section 446(1) and, therefore, the said section was inapplicable. The meaning to be given to "legal proceedings" in section 171 of the Indian Companies Act, 1913, came up for consideration before the Federal Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. [1946] 16 Comp. Cas. 71; 14 ITR 248 (FC), where it was sought to be argued that the word "legal proceedings" should be confined to "original proceedings in a court of first instance, analogous to a suit initiated by means of a petition similar to a plaint". This was summarily rejected by the Federal Court and it was held that no narrow construction should be placed upon the words "or other legal proceedings" under section 171 and that the words can and should be held to cover distress and execution proceedings in the ordinary courts and that such proceedings are other legal proceedings against the company, as contrasted with ordinary suits against the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union of India v. India Fisheries ( P. ) Ltd. [1965] 35 Comp. Cas. 669; 57 ITR 331 (SC), the action of the income-tax department in seeking to set off the amount to be refunded to the company which was under winding up against the tax which was still outstanding to be paid by the company by invoking section 49E of the Act which permitted that where a refund is found due to any person the ITO may in lieu of the payment set off the amount to be refunded against the tax, if any, payable by the person was challenged. The Supreme Court held that though on the face of the provision there is no doubt that the section ( i.e. , section 49E) is not subject to any other provision of law but it will be surprising if this power can be exercised in such a way as to defeat the provisions of sections 228 and 229 of the Indian Companies Act, which provide that an unsecured creditor must prove his debts and all unsecured debts are to be paid pari passu. The court resolved the problem by holding that section 49E is a general provision applicable to all assessees and in all circumstances while sections 228 and 229 deal with the proof of debts and their payment in liquidation. Same is the posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and the legal proceedings in sub-section (2) of section 446 convey the same sense and proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding up court, the question to be asked in each case is whether the proceedings are such which could be dealt with appropriately by the winding up court. Now here is the matter dealing with recovery of premises or for recovery of arrears of damages. If thus the answer is that the proceedings are of such a nature which can normally and appropriately be dealt with by the winding up court then leave has to be obtained; of course, if the proceedings are of a nature which are not normally to be dealt with by the civil courts then leave may not be necessary, like the proceeding for initiating assessment under the I.T. Act as in Colaba's case [1972] 42 Comp. Cas. 168; 83 ITR 685 ( SC ). To give an analogy borrowing from the Colaba's case we can understand that if proceedings are taking place under the Excise Act or the Customs Act or the Foreign Exchange Regulation Act before the authorities constituted under those statutes then they would be proceedings which could not appropriately be dealt with by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as section 15 of the Act of 1971 laid down that no court shall have jurisdiction to entertain any suit or proceeding in respect of the eviction of any person who is in unauthorised occupation of any public premises or for recovery of rent or for damages, the said Act of 1971 conferred exclusive jurisdiction on the authorities under the said Act to deal with matters of public premises and, therefore, section 446 of the Companies Act, being a general Act, could not control those proceedings. Now it is no doubt true that the Act of 1971 deals with the eviction of unauthorised occupants from public premises but that by itself does not mean that the Act of 1971 should be considered to be a special legislation when the company involved is one which is under winding up. The Act of 1971 deals generally with public premises. This only means that if there is dispute regarding eviction or recovery of rent proceedings with regard to the public premises, it is a special Act so far as companies other than winding up are concerned, but will be general, if the company is under winding up where the Special Act would be the Companies Act, on the analogy of Union of India v. India Fisheries P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the court the custodian of the companies which are being wound up. The Legislature is wanting that all matters concerning them should be dealt with by the winding up courts under its supervision and by its leave so that the distribution of assets and liabilities are dealt with equitably and to the satisfaction of all concerned including company, creditors and members. The only way to reconcile the two provisions would be to read down the power of the authorities under the Act of 1971 to deal with the matter of public premises when they are occupied by companies in winding up except by leave of the court. This was the course adopted in Union of India v. India Fisheries P. Ltd. [1965] 35 Comp. Cas. 669; 57 ITR 331 ( SC ) and which we respectfully follow. We must however, also notice Damji Valji Shah v. LIC of India [1965] 35 Comp. Cas. 755 ( SC ). In that case on the nationalisation of the life insurance business, section 15 provided for claims to be made before a tribunal constituted under the Nationalisation Act. Section 41 of the LIC Act provided that no civil court shall have jurisdiction upon a matter on which a tribunal was empowered to Act. The insurance company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. We cannot agree. Section 537(1) provides that where any company is being wound up any attachment, execution or any sale held after the commencement of winding up without leave of the court, will be void. Under section 441 of the Companies Act, the winding up is deemed to commence at the time of presentation of the petition of winding up, even though the winding up order is passed subsequently. Section 537(1), however, makes it clear that if any execution or sale takes place after the commencement of a winding-up petition without the leave of court the same shall be void. Sub-section (2), which was brought into force in 1960, excludes the rigour of section 537(1) to those proceedings only which are for recovery of any tax or dues payable to the government. All that it means is that if assuming that before the winding-up order has been passed any sale had taken place without the leave of the court for recovery of any tax the same will not be deemed to be void. But the moment a winding up order is passed, section 446 of the Companies Act will become applicable, and no proceedings shall be continued or commenced except by leave of the court. The only effect of sub-section (2) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance have to be decided by the authorities under the special Acts. As the said matters cannot be determined in the first instance by the winding-up court, it is self evident that there is no need to obtain prior leave to proceed before the said authorities. However, when the time comes for realisation of dues from the company in liquidation the court dealing with the winding-up comes into the picture and prior leave will have to be obtained for starting proceedings for recovery. The test, therefore, according to us is whether the proceedings are such which can normally and appropriately be the subject matter of decision of ordinary courts. If they are not, leave need not be obtained excepting of course, when recovery is to be made against the funds of the company. However, in matters in which proceeding even though before a different forum than the ordinary courts, are contemplated like under the Act of 1971 or even under the Rent Control Act, these proceedings, which are for recovery of possession or for recovery of damages, are normally and appropriately such which can be determined by the winding up courts. It is evident that but for the creation of a separate forum the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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