TMI Blog2005 (9) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... against the Official Liquidator of M/s. Modella Textiles Industries Private Limited who was impleaded as respondent No. 1 and the appellant before us was impleaded as respondent No. 2 to the same. 3. By the company application the original applicant sought a declaration that the second respondent (appellant) who is in occupation of an office premises bearing No. 4C of 4th floor of Vulcan Insurance Building situate at Veer Nariman Road, Mumbai-400 020, is a trespasser, having no legal right to use and occupy these office premises and that a licence purported to have been created by the company in liquidation was patently illegal, fraudulent and void, ab initio. Prayer clause ( b ) of the company application sought a further declaration that a decree passed by the Court of Small Causes, Mumbai in RAD Suit No. 5937 of 1986 by which second respondent is held to be a deemed tenant, is a nullity and the same be set aside. By prayer clause ( c ) a direction was sought to the second respondent to vacate and hand over peaceful possession of the office premises to the first respondent Official Liquidator within a period of four weeks from the date of order passed on the company applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress. The case of the applicant is that the second respondent is also tenant of office premises bearing No. 5-C on the 5th floor of this building. It is the further case that second respondent and the company under liquidation are belonging to Modella Group and both companies are under the same arrangement. At least till the date of order of the winding up by this Court, the registered office of the company in liquidation was located in the office premises No. 4-C on the 4th floor (subject premises). It is contended that the office premises on the 4th floor was originally let out to the company in liquidation by the erstwhile Vulcan Insurance Company. It is the further case that prior to winding up of the company in liquidation, second respondent entered into fraudulent arrangement in respect of said premises and took possession thereof under the guise of a licence created in it s favour by the company in liquidation. The contention is that as per the records of the tenants of this building, the said premises admeasuring 2143 sq. ft. on the 4th floor was let out on monthly rent of Rs. 7,266 to the company in liquidation. 7. We are not concerned with the premises at the 5th floo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... papers need be forwarded to it for due consideration of the same. It is contended that after rejection of the oral request for change in tenancy rights as also refusal to accept cheques, that the papers and proceedings in the said suit came to be forwarded. It is contended that till February 1990 the applicant had no idea of any proceeding in the Court of Small Causes instituted by the company. The information about the decree was supplied orally and it is only in July 1990 that the applicant became aware of the proceedings in the Court of Small Causes. 10. A reference is thereafter made in the affidavit in support of this company application to the suit filed in the Court of Small Causes. It is contended that the suit was filed admittedly after the winding up petition was presented to this Court. It was pointed out that the winding up petition was presented in July 1986 whereas the suit in which the decree came to be passed is filed on 28-11-1986. On the same day, consent terms were tendered by the second respondent who is the original plaintiff in that suit and the company in liquidation which is the original defendant. By the consent terms, the parties recorded that since 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicants contended that the company in liquidation had admittedly defaulted in payment of rent and it was the second respondent who was paying rent on it s behalf but it s request for transfer of tenancy rights was expressly rejected. It was contended that for the Court of Small Causes to have jurisdiction to go into the plaint averments, it is necessary that the second respondent avers as well as proves that license fee or charge was paid in respect of subject premises and that there was a subsisting license as on 1-2-1973. Neither was any agreement of license produced nor any proof with regard to these material aspects placed before the Court of Small Causes. Therefore, the Court of Small Causes was completely misled into passing a decree by consent and conferring upon the second respondent deemed tenancy rights in respect of the subject premises. 13. It is for the aforesaid reasons that the applicant invoked powers of this Court conferred by sections 446 and 536(2) of the Companies Act, 1956 to declare that the second respondent is a trespasser and that the decree is vitiated by fraud, and therefore, a nullity. The applicants attempt is to retrieve the assets and proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remises, this Court cannot pass any order of eviction and delivery of possession, muchless issue a declaration that the second respondent is a trespasser. In short, the submission was that the Company Court had no jurisdiction to set aside the decree passed by the Court of Small Causes. 16. Raising the aforesaid pleas, the company application was argued and the learned Single Judge by the impugned order found that the decree is vitiated by fraud in the light of admitted factual position. Further, the premises being Public Premises and covered by Public Premises Eviction Act, there is no question of the Court of Small Causes passing any decree in respect thereof. Even on merits, the decree was vitiated inasmuch as the learned Judge found that the second respondent was in possession of the said premises purely as a licensee in gratis and thus not protected by section 15A of the Bombay Rent Act. The learned Judge held that the decree is completely collusive and fraudulent. It is further observed by him that on the strength of said decree the Official Liquidator cannot be prevented from taking possession of the subject premises which admittedly form valuable asset of the company in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that fraud vitiates everything and therefore the decree passed by a competent Court could have been ignored by the Company Court, is thus fallacious. He submits that creation of tenancy is not held to be fraudulent. So also mere filing of the suit in the Court of Small Causes cannot be said to be a fraudulent act. Thus, creation of right in favour of the appellant apprehending liquidation, according to the learned Judge, being a fraudulent act and not binding on the Official Liquidator, is not a conclusion which can be arrived at when the aforesaid aspects become clear. He submits that the company in liquidation is admittedly a tenant in respect of the subject premises. The appellants are claiming rights as sub-tenant. Their rights blossom into sub-tenancy on the basis that initial induction in the subject premises is as a licensee. That licence was subsisting on 1-2-1973 and therefore, the appellants are lawful sub-tenants. He submits that the Company Judge had no jurisdiction to go behind this declaration of a competent Court in company jurisdiction. He submits that the question whether the occupation by the appellant is as a Licensee or sub-tenant or can be termed as Trespa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a declaration to be claimed by way of suit, the period of limitation prescribed under article 59 is three years according to Mr. Madon. Even under article 137 of the Limitation Act which is a residuary provision, the company application was hopelessly time-barred. He submits that three years had admittedly lapsed from the date of knowledge of the decree which is some time in February 1990. Therefore, company application instituted on 11-8-1993 ought to have been dismissed as time-barred. 24. In support of the aforesaid contentions Mr. Madon places strong reliance upon decision of Supreme Court in case of Union of India v. Chaturbhai M. Patel Co. [1976] 1 SCC 747, Indian Bank v. Official Liquidator, Chemmeens Exports (P.) Ltd. [1998] 5 SCC 401 1 and Smt. Nirmala R. Bafna v. Khandesh Spg. Wvg. Mills Co. Ltd. [1992] 74 Comp. Cas. 1. 25. Appeal is contested principally by the original applicant. The Official Liquidator who is present before us states that all steps postulated by law for taking possession of the assets and properties of the company, have been initiated and the process is under way. He submits that he has taken possession of two cabins which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes our attention to the averments made in the company application with regard to negligence and inaction of the Official Liquidator and according to her, this has prompted the applicant to move the Company Court. She has also invited our attention to section 536 of the Companies Act and more particularly sub-section (2) thereof. She submits that when a fraud is apparent, every Court which has inherent power to do justice must pronounce that an order which is fraudulent and vitiated would not bind the parties. Precisely this has been done in the instant case by the Company Judge. Therefore, there is no substance in the contentions that the Company Judge was in error and the order passed by him is illegal or otherwise vitiated so as to be interfered with by us under clause 15 of the Letters Patent. 29. She has also invited our attention to the relevant provisions of the Public Premises Eviction Act. She submits that the authorities and rulings relied upon by Mr. Madon would not apply in the facts and circumstances of present case, once the landlord is a public sector corporation and the premises are public premises. In any event, there is no consent of the landlord so as to conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 issued since requirements stipulated by section 15A of the Bombay Rent Act namely subsistence of licence and payment of licence fee or charge as on the relevant date have not been satisfied in the present case. 33. It is pertinent to note that company application has not been instituted by the Official Liquidator. He does not claim any declaration of the nature claimed by the applicant much less any direction that the property be delivered to him. At the instance of the applicant who has a distinct right, title and interest in the premises based upon its character as public premises, it is extremely doubtful as to whether the learned Judge could have passed any orders on the company application. More so, when there is a further doubt as to whether the relationship of licensor and licensee which is claimed by the company in liquidation and the appellant before us, would be covered by the Public Premises Eviction Act, 1971. The forum, in this case, was elsewhere. Either it was the Court of exclusive jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 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 liquidator is appointed, the rights of the company vis- -vis its landlord and/or its tenants do not undergo any change." (p. 9) 35. The decision of Supreme Court in the case of Indian Bank ( supra ) is also apposite. There, interpreting section 446 in the context of a charge being created on the property of the company, the Hon ble Supreme Court has observed that : "10. Now, it will be necessary to read here section 446 of the Act. It deals with the effect of winding-up order on the suits and other proceedings pending or in the offing. Section 446 is in the following terms : 446. Suits stayed on winding-up order. (1) When a winding-up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, 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. (2) The Court which is winding up the company shall, notwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these provisions have no application to any proceeding pending in appeal before a High Court or the Supreme Court. From this what follows is when a suit is instituted in the Court of competent jurisdiction with the leave of the Court under sub-section (1) and a decree is passed by that court whether on the basis of mortgage or otherwise, it would be binding on the Official Liquidator and no plea inconsistent with the decree passed against the Official Liquidator can be raised while deciding the questions of priorities under clause ( d ) of sub-section (2). We wish to make it clear that under section 446, no power is conferred on the Company Court to declare a decree of the competent court void - a prayer which is made by the Official Liquidator in the application out of which this appeal arises - so to that extent the application filed by the Liquidator in the Company Court is not maintainable." 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 declare, in the present case, that the decree passed by the Court of Small Causes was null, void and not binding on the applicant. Admittedly, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as to the nature of the proof required to substantiate a plea of fraud as everything depends upon facts and circumstances of each case. 39. Similarly, once, the Company Court had no jurisdiction to take cognizance of the company application, strictly, it is not necessary to go into the issue of limitation raised by Mr. Madon. We have noted rival contentions only. There is no necessity to record any finding on the issue of limitation as the nature of proceeding under the Public Premises Eviction Act is distinct and separate. The company application was filed on 11-8-1993. It is the case of the applicant that prior thereto it had no knowledge of the nature of the decree passed by the Court of Small Causes at Mumbai. It was handicapped because relevant records and proceedings were not forwarded despite prolonged correspondence. The order of learned Judge being held to be without jurisdiction, it is not necessary to pronounce upon the issue as to whether the company application was time-barred. 40. In the light of the aforesaid, the appeal succeeds. The impugned order is set aside. However, there shall be no order as to costs. 41. We clarify that the observations made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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