TMI Blog2007 (10) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial liquidator. The official liquidator will be at liberty to apply to recover occupation charges from the respondent for the duration of its illegal occupation of the premises in question. The respondent will pay costs assessed at 6,000 GMs to the official liquidator. - C.P. NO. 217 OF 2001 - - - Dated:- 8-10-2007 - SANJIB BANERJEE, J. P.C. Sen, M.C. Ghosh and Mrs. M. Sen for the Official Liquidator. Pratap Chatterjee, Surojit Nath Mitra, Arup Bhattacharyya and Aryak Dutta for the Respondent. JUDGMENT 1. The official liquidator seeks eviction of a lessee at a property of the company in liquidation in Hyderabad. A letter for directions to such effect has been filed. The lessee has filed affidavits and has attempted to resist the order sought. 2. Prudential Capital Markets Ltd. (now in liquidation) was permitted by its memorandum to carry on investment business. In 1997 it applied under the Reserve Bank of India Act, 1934, for issuance of a certificate of registration as a non-banking financial company as defined by section 45-I( f ) of the 1934 Act. On 29-9-1997, the Reserve Bank prohibited the company from accepting any deposit from any person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidator not to take any further steps and requiring the company to deposit a sum of Rs. 40,000 with the official liquidator on account of the claim of the petitioning-creditor in C.P. No. 217 of 2001. Notices were also required to be issued to the secured creditors of the company. It is necessary that such order of 25-2-2002, be seen in its entirety : "Upon deposit of Rs. 40,000 with the official liquidator on amount (account) of the claim of the petitioning creditor, the company shall be at liberty to serve the secured creditors and the matter shall appear in the list as specially fixed matter one week hence. It is made clear that if the abovementioned sum is deposited by and on behalf of the company within the course of this week, only then the company shall be at liberty to serve notice or else this order shall stand recalled. In the meantime, the official liquidator shall not take any further steps in the matter. This order shall be valid till adjourned date." 5. It is of some significance that neither the winding up petition nor the order directing the company to be wound up was stayed. Only the official liquidator was required not to take any further steps in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not alienate any of its assets without the approval of the (Reserve Bank) except for the purpose of repayment of deposit obligations. These undertakings were given to the (Reserve Bank) in July, 1997, itself while the prohibitory order was issued on 29-9-1997. This action was taken by the company to contain its liability and concentrate its efforts in repaying the deposits. . . . The undertaking of the company not to alienate any of its assets without the approval of the (Reserve Bank) except for the purpose of repayment of deposit obligations continues till date. In terms of its undertaking as given to the (Reserve Bank) the company has in fact not done so. . . ." 8. The company thereafter proffered excuses as to why matured deposits remained unpaid and suggested that debtors of the company had failed to make timely payments following which the orders passed by the Company Law Board for paying the depositors could not be complied with. 9. On 11-7-2003, the company was directed to be wound up on the Reserve Bank s petition and the official liquidator was directed to take charge of the assets of the company forthwith. Thus, arose the anomalous situation. There was alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of 50 years. The respondent informed the official liquidator that it was not aware, prior to the visit of the official liquidator s representative in December, 2003, of the company having gone into liquidation and that the last payment tendered by the respondent to the company on account of rent was on or about 23-10-2003, when a cheque for Rs. 11,141 was forwarded to the company towards lease rent from 1-4-2003 to 30-9-2003, but the envelope bearing such cheque was returned undelivered. The respondent enquired of the official liquidator as to the manner in which such cheque and future lease rent may be paid in respect of the said premises. In the beginning of February, 2004, the respondent s Mumbai advocates again sought information from the official liquidator as to the manner in which the lease rent could be tendered by the respondent. It appears that the official liquidator did not respond to the queries in such regard following which the respondent s Mumbai advocates forwarded a demand draft favouring the official liquidator for a sum of Rs. 63,941 under cover of a letter of 8-9-2004. A further demand draft for Rs. 49,594 was received by the official liquidator from the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant time and were commensurate with the accommodation that the respondent obtained. According to the respondent, it was put into possession of the premises simultaneously with the execution of the lease of 24-11-1998, took steps for refurbishing the office and by 7-1-1999, it obtained permission from Reserve Bank of India to carry on its business from such premises. The respondent also obtained a certificate of registration from the Government of Andhra Pradesh and both the Reserve Bank licence and the State Government registration continue to be in force. The respondent relies on a payment by draft made on 8-3-1999, for the sum of Rs. 71,167 to the company prior to its liquidation on account of the interest-free security deposit of Rs. 50,000 and lease rents between 24-11-1998 and 31-3-1999. The respondent complains that the lessor failed to pay the maintenance and other charges in respect of the shop-rooms and did not tender the municipal rates and taxes therefor that it was obliged to under the agreement. The respondent claims to have made payments on account of maintenance to the relevant association from February, 1999, and has relied on receipts issued by such associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... save and except (if) the lessee fails to pay the lease rent for continuous period of more than twelve months. The lessor shall have given notice in writing for the payment of the same. 13. The lessor shall bear and pay the property taxes and other maintenance expenses in respect of the said premises, if however the lessor commits default in payment of the same, the lessee may at its option pay the same, and in such event shall be entitled to adjust and recover the same from the accruing lease rent becoming payable in respect of the said premises. 17. The grant of this lease has been approved by the board of directors of the lessor in its meeting held on 25-10-2001, and Shri Narasimhan Jayachandran, its deputy manager, has been authorised to execute these presents on behalf of the lessor." 15. The second agreement also records that the lessor had handed over to the lessee the possession of the said premises on 24-11-2001, to hold the same as lessee thereof (clause 2). The official liquidator insinuates that the second agreement cannot be a complete recording of what passed between the transferee and the company in liquidation or those in control thereof and suggests that a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers pertaining thereto after the commencement of its winding up. The relevant provisions may be set out for convenience : "446. Suits stayed on winding up order. (1)****** (2) The Court shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of ( a )any suit or proceeding by or against the company; ( b )any claim made by or against the company (including claims by or against any of its branches in India); ( c )any application made under section 391 by or in respect of the company; ( d )any question of priorities or any other question whatsoever, whether or law or fact, which may relate to or arise in course of the winding up of the company; whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960). 531. Fraudulent preference. (1) Any transfer of property, movable or immovable, delivery of goods, payment, execution or other act relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the winding up of a company by the Court is deemed to commence at the time of presentation of the petition for winding up. The creditor s petition was filed on 7-4-2001, on which the company was directed to be wound up. The embargo on the official liquidator against taking further steps by the order of 25-2-2002, was irrelevant in the matter of winding up as the order did not stay the winding up. Even if it be assumed that the order of winding up was stayed on 25-2-2002, it was not a permanent stay with the effect of completely obliterating the order of winding up. Even if a stay is read into the order of 25-2-2002, at the highest, it kept the order of winding up in abeyance or suspended animation but did not altogether wipe it off. Whether or not the management of the company again resumed control thereof upon the order of 25-2-2002, in law it makes no difference except that in the absence of a specific stay of the winding up order or the express leave to the management to resume control of the company, the company ought to have remained in limbo with its management not entitled to run it nor the liquidator entitled to take steps by reason of the order. In any event, the restra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. In response to the respondent questioning the company court s authority to delve into such matters, the official liquidator has placed a number of judgments recognising the company court s jurisdiction. Such authorities speak of the wide powers of the company court and it would be useful to notice them before the matter at hand is assessed. In the judgment of a Division Bench of this court Vidyadhar Upadhyay v. Sree Sree Madan Gopal Jew [1990] 67 Comp. Cas. 394 , the nature of authority under section 446(2) of the Act fell for consideration. An unreported Division Bench judgment of this Court rendered in Appeal No. 154 of 1976 dated 6-12-1976 [ Indramoni v. Shriram Jute Mills (P.) Ltd. ], was noticed and the following passage therefrom was quoted in Vidyadhar Upadhyay s case ( supra ) : "In our opinion, the language of sub-section (2) is clear, it was the intention of Learned Judge that all questions which come within the scope of sub-section (2) of the said section should be dealt with by the company court in order to avoid unnecessary delay and multiplicity of proceedings. In an application being made to that effect, leave is given to the liquidator or appropriate p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed by the company court is summary in nature but the law that has to be applied prior to ordering eviction of a trespasser is the same law that would have to be applied in any civil court ordinarily trying a suit against a trespasser. There cannot be any dispute as to such position in law. If the company court does not face any inconvenience in adjudicating upon such a matter that is covered by section 446(2) by a summary procedure, the company court need not require a regularly constituted suit to be filed in respect of such matter before a civil court. Indeed, section 446(2) does not restrict the procedure to be adopted by the company court and there is no principle by which a summary procedure has to be followed. The procedure to be adopted will depend on the gravity of the issues raised and one that the company court may determine to be the more appropriate in the circumstances. 24. The official liquidator has relied on a Gujarat High Court judgment in Official Liquidator of Piramal Financial Services Ltd. v. Reserve Bank of India [2004] 118 Comp. Cas. 27 , to establish that a second order of winding up may be passed in respect of the same company during the subsiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of 24-11-1998, if the respondent can rely on the Biswabani (P.) Ltd. s case ( supra ), principle to deflect attention from the second agreement. What needs to be assessed is whether the respondent s best arguable case that a tenancy was created in its favour on 24-11-1998, is good enough for it to resist the eviction sought by the official liquidator. 26. The official liquidator has also relied on a judgment in Kanchan Kumar Dhar, Official Liquidator v. Dr. L.M. Visarai [1986] 60 Comp. Cas. 746 (Bom.), as to the general authority of the company court in such matters and the relevance of the conduct of the official liquidator. In the Kanchan Kumar Dhar s case ( supra ), the petition was filed on 7-7-1978, upon which an order of winding up was made on 19-1-1979. The impugned agreement was entered into between the transferee and the company, prior to its liquidation, on 18-7-1978, after the commencement of the winding up proceedings. A defence was raised in that case that the official liquidator s application for annulling the agreement was barred by the laws of limitation and by estoppel on account of his having accepted rent from the transferee. The Bombay High Court c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preference to other creditors. The respondent relies on a Division Bench decision of the Kerala High Court in Jayanthi Bai v. Popular Bank Ltd. [1966] 36 Comp. Cas. 854 , for the proposition that a transaction can be hit by section 531 of the Act once it is seen that what was sought to be achieved by the transaction was the preferring of one creditor over others with a dominant intent so to do. It is in such context that the respondent relies on the other proposition found in the Kerala case that the onus is on the liquidator to establish such dominant intent. In that case entries made in the company s books adjusting payments due to a bank were ultimately required to be reversed. 29. The respondent refers to a Gujarat Division Bench decision in Bank of Maharashtra v. Official Liquidator, Navjivan Trading Finance (P.) Ltd. [1999] 96 Comp. Cas. 234 , to emphasise that for a transaction to be hit by section 531 of the Act, such transaction has per force to be entered into by the company, within the period covered by the section, with a creditor of the company. Upon construing section 54 of the Provincial Insolvency Act in that case, the Gujarat High Court was of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve arisen but is not either ascertained or admitted. Here again the amount due has not become a part of the obligor s things. The third stage is reached when the liability is both ascertained and admitted. Then it is property proper of the debtor in the creditor s hands. The law begins to recognise such property in insolvency, in dealing with it in fraud and creditors, fraudulent preference of one creditor against another, subrogation, equitable estoppel, stoppage intransitu, etc. A credit-debt is then a debt fully provable and which is fixed and absolutely owing. The last stage is when the debt becomes a judgment-debt by reason of a decree of a court ." (p. 71) 31. The respondent suggests that even if section 531 were to be applicable, it was incumbent on the official liquidator to make out a case of fraud or bad faith or lack of proper consideration and the letter for directions taken out by the official liquidator is singularly lacking in such aspect. Since the insolvency rules apply in the matter of adjudication of a transaction under section 531, the respondent relies on the judgment in N. Subramania Iyer v. Official Receiver, Quilon AIR 1958 SC 1, where it was held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion) v. New Quality Bobbin Works [1973] 43 Comp. Cas. 131 , where a Single Judge of the Gujarat High Court held that under section 537(1) read with section 446(2) the company court had authority to take up all questions relating to a company in liquidation without the liquidator having to institute an action before a Civil Court. The official liquidator also submits that a reading of section 536(2) of the Act would imply that the person setting up a transaction had to establish that it was bona fide as, by operation of law, such transaction would be void if it is entered into within the period covered by the sub-section. 34. The final argument of the respondent as to various provisions of the Companies Act which the official liquidator has applied in the alternative for obtaining the order sought, is that the word disposition used in section 536(2) of the Act is not to be equated with the word transfer . It is submitted that the word transfer appears in sections 531, 531A and 536(1) of the Act which are related provisions or provisions of like import, but the word disposition has been deliberately used in section 536(2) to make it distinct from transfer. Dispositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r renewal to be exercised by a notice two months before the expiry of the lease. It is equally undisputed that dying this period of 5 years the appellant-company was accepted as tenant of the demised premises and the company paid the rent reserved under the lease being Rs. 2,000 per month. The period reserved under the lease expired on 31-8-1953. But before the expiry of the period an application was made by the appellant for fixation of standard rent of the demised premises under the West Bengal Premises Rent Control (Temporary Provisions) Act, 1950. In October, 1953, respondent Nos. 1 and 2 as lessors commenced an ejectment action against the appellant and the third respondent on the ground that the period reserved under the lease has expired and the lessee has failed to exercise the option for renewal. During the pendency of the aforementioned actions the parties entered into a compromise and consent terms were filed in the suit instituted by respondent Nos. 1 and 2 lessors inviting the court to pass a decree in terms thereof, and a consent decree was passed which has been referred to in the evidence as solenama . It, inter alia , provides for a lease for a further period of 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years, the period sought to be reserved under the second lease and on the expiration of such period? If the appellant was put into possession for the first time under a void lease the appellant could have protected its possession under section 53A. But it must be made distinctly clear that the appellant was in possession on the date on which the second lease now found void was to commence. Would this attempt inchoate or stillborn of entering into a fresh contractual tenancy make any difference in the position of the appellant and the nature of his possession ? If the second lease is void or inchoate or ineffective or stillborn it is not at all effective. If it is not effective it does not impinge upon the nature of the appellant s possession which was that of a tenant. In other words, the appellant continued to remain in possession of the demised premises as tenant because there was no impact of the lease which is found to be void. It must be made distinctly clear that the appellant was not put in possession under the lease which turns out to be void. In such a situation even during the period of 5 years for which the second lease was to be created the appellant continued to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent will not be entitled to the protection accorded to an admitted tenant under that Act. 40. More than the provisions of the Companies Act, over the construction whereof there has been considerable debate in the course of hearing, it is the order passed by the Reserve Bank and the company s unequivocal assertion in the affidavit filed to oppose Reserve Bank s prayer for winding up that is crucial to the issue herein. It is the company s assertion in the affidavit affirmed on 30-1-2003, which is appended to the official liquidator s supplementary affidavit in these proceedings, that from July, 1997, there remained in force, an undertaking given by the company to the Reserve Bank that it would not alienate any of its properties without the sanction of the Reserve Bank for any purpose other than paying the matured deposits. Though the Reserve Bank order of May, 1998, ran its course a few days prior to 24-11-1998, the date of the first agreement, the company s undertaking to the Reserve Bank continued and such undertaking was given in order that the Reserve Bank grant the company the certificate of registration as a non-banking financial institution. It was the company s stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch undertaking was meaningless or could be flouted by the company would both undermine the authority of the Reserve Bank and be contrary to the interest of depositors that the provision seeks to preserve. 43. If such undertaking remained in force, as the company asserted, it could not have dealt with the property and whether or not such fact was kept concealed from the respondent-transferee is immaterial. Again, the time that the arrangement under the November 24, 1998, agreement ripened for renewal, the undertaking not to deal with any of its assets given by the company, on its own showing, remained in force and the renewal could not have been acceded to nor a fresh lease executed. The company could not have transferred the premises to the respondent in derogation of the undertaking that it gave to the Reserve Bank and the fact that it entered into the agreement of November 24, 1998, despite such undertaking demonstrates utmost bad faith and fraudulent conduct on its part. 44. The terms of the second agreement are shocking. Even if the valuation of the property obtained by the official liquidator is not taken into account, it is unbelievable that market rate of rent at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction that is relevant and such transaction must have been voluntarily entered into by the company without there being any compulsion on the company so to do. The onus is on the official liquidator to establish that the company as debtor deliberately singled out the creditor for the transfer ahead of other creditors who, upon the company ultimately be wound up, may not have enough for the entire dues to be discharged. But section 531 does not come into play in this case as the respondent was no creditor of the company as on the date of the second agreement. 46. Section 531A of the Act provides that any transfer of property or goods made by a company within one year before the presentation of a winding up petition against it will be void unless such transaction was in the ordinary course of business. In principle, the same tests as to intent as in section 531 apply to a transaction challenged under section 531A of the Act and the onus is on the official liquidator seeking to avoid the transaction to establish that the transfer was not made in the ordinary course of the company s business or that it was not made in good faith or for valuable consideration. As to whether the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company covered by the period. The test is the same. If the court were to consider ex post facto, the prudence and necessity of a disposition, it has to place itself in the position that it would have been in if prior leave was sought for the transaction. 50. It does not appear that the periods covered by section 531 and section 536(2) of the Act overlap, just as it cannot be said that the periods covered by section 531A and section 536(2) of the Act overlap. The period covered by section 531 ends at the commencement of the winding up proceedings. Similarly, the period covered by section 531A also ends at the commencement of the winding up proceedings. Disposition of its properties and effects made by a company after the commencement of winding up is covered by section 536(2) of the Act and, it is for such reason that the word "transfer" is used in sections 531 and 531A of the Act and the word "disposition", an expression of wider import, is used in section 536(2) of the Act. 51. After the hearing was concluded, a judgment in ICICI Ltd. v. Ahmedabad Mfg. Calico Printing Co. Ltd. [2005] 123 Comp. Cas. 132 (SC), was noticed which may throw some light as to the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... create securities in respect of these transactions only in 1990. The Division Bench was also correct that the grant of leave under section 536(2) would not be appropriate after this delay. Leave under section 536(2) may be granted for the benefit of the company in liquidation or the creditors of the company in general. It cannot be said that the securing of old debts due to one creditor of the respondent by creating of a mortgage ex post facto would in anyway either enure towards the preservation of the company s assets or its business or enure to the benefit of its other creditors. 5. However, we are of the view that the High Court erred in setting aside the learned Single Judge s order even in respect of the post July 10, 1986, loans on the simple ground that this was beyond the scope of the appellant s appeal. The appellant could not be in a worst position by having preferred the appeal from the order of the learned Single Judge. The appeal is accordingly partially allowed to the extent stated without any order as to costs." (p. 134) 53. It would be evident from such judgment that the transaction of creating security in favour of the appellant before the Supreme Court wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e intent of using a different expression becomes clearer. "Disposition" under section 536(2) would cover a wider range of transactions than "transfer" under section 531 or section 531A of the Act would cover. 56. In any event, even if disposition were to be given a more constricted meaning than transfer, as the respondent here suggests, it cannot take the second agreement out of the pale of section 536(2). First, it is the creditor s petition presented on 7-4-2001, on which the order of winding up was passed, though the official liquidator s hands were fettered by court by the order of 25-2-2002. Secondly, the nature of the transaction covered by the second agreement is as close to absolute transfer as it gets what, with the transferee having a right to sub-let the property without the transferor s consent, have the property for a period of 50 years renewable for further 50 years at the transferee s option, and not to speak of the consideration. It is conceivable that with increasing maintenance charges but with fixed rent as provided under the second agreement, the lessor would end up paying more on account of maintenance charges and taxes than it would receive by way of rent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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