IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY APPLICATION NO 47 OF 1993 IN COMPANY PETITION NO 72 OF 1991 WITH COMPANY APPLICATION NO 316 OF 1998 IN COMPANY PETITION NO 189 OF 1987 WITH COMPANY APPLICATION NO 376 OF 1998 IN COMPANY PETITION NO 157 OF 1995 WITH COMPANY APPLICATION NO 5 OF 1999 IN COMPANY APPLICATION NO 204 OF 1996 WITH COMPANY APPLICATION NO 16 OF 1999 IN COMPANY PETITION NO 139 OF 1988 WITH COMPANY APPLICATION NO 350 OF 2000 IN COMPANY PETITION NO 37 OF 1987 WITH COMPANY APPLICATION NO 353 OF 2000 IN COMPANY PETITION NO 37 OF 1987 WITH COMPANY APPLICATION NO 193 OF 2001 IN COMPANY PETITION NO 205 OF 1996 WITH COMPANY APPLICATION NO 189 OF 2001 WITH COMPANY APPLICATION NO 251 OF 2001 IN COMPANY PETITION NO 28 OF 1987 WITH COMPANY APPLICATION NO 46 OF 2002 IN COMPANY PETITION NO 79 OF 1989 WITH COMPANY APPLICATION NO 288 OF 1999 IN COMPANY PETITION NO 156 OF 1989 WITH COMPANY APPLICATION NO 254 OF 2000 IN COMPANY PETITION NO 156 OF 1989 WITH COMPANY APPLICATION NO 208 OF 1997 IN COMPANY PETITION NO 205 OF 1996 For Approval and Signature: Hon'ble MR.JUSTICE D.A.MEHTA Sd/- ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : -------------------------------------------------------------- LEGAL HEIRS OF DECEASED FAKIR-CHAND AMBARAM PATEL Versus O. L. OF AMRUTA MILLS LTD. -------------------------------------------------------------- Appearance: Mr.M.J.Thakore, Mr.S.N.Soparkar, Senior Counsel,Mr.A.L.Shah, Mr.A.C.Gandhi, Mr.M.B.Gandhi, Mr.A.S.Vakil,Mr.Mukesh A.Patel, Mr.Umesh D.Shukla, Mr.P.A.Mehta for Nanavati Associates, Mr.Mafatlal V.Shah, Ms.Mega Jani, Mr.D.S.Vasavada, Mr.Yatin Soni for petitioners. Mr.S.B.Vakil, Senior Counsel with Sandeep Singhi for M/s.Singhi & Co., Mr.H.V.Chhatrapati, Mr.R.M.Desai for O.L. Mr.D.S.Vasavada for TLA, Mr.Pranav G.Desai, Ms.P.B.Sheth, Mr.A.D.Oza, Govt.Pleader , for respondents. -------------------------------------------------------------- CORAM : MR.JUSTICE D.A.MEHTA Date of decision: 30/07/2002 CAV. JUDGEMENT 1 In this group of Company Applications, the controversy revolves around the rights that the lessors or persons claiming to be heirs of the lessors have in different parcels of lands given on lease in distant past to various Companies, which are now in liquidation (the Company); they are claiming back the possession of the said lands on various grounds that have been stated in the applications and urged during the course of hearing. 2 Before adverting to submissions made on behalf of various contesting parties a brief recapitulation of historical facts is necessary. 3 On 7/10/1994 this Court (Coram :Mr.Justice M.S.Parikh), had passed a common order in Company Application No. 47 of 1993 with Company Application No. 48 of 1993 with Company Application No. 49 of 1993 in Company Petition No. 72 of 1991. The said applications filed by the heirs and legal representatives of deceased lessor of respective properties being land as particularly described in the applications were for directions to return the land to the said applicants. The Court came to the conclusion that the lease deeds in question were non determinable, fully transferable and assignable permanent lease deeds, and hence, even if a notice to determine such lease had been given such notice was not valid on correct construction of the lease deed in question. As a consequence, the Court held that the Company in liquidation represented by the Official Liquidator was not a statutory tenant; accordingly, it was not possible to direct the Official Liquidator to hand over possession of the lands in question. However, the Court directed payment of rent of the leasehold lands from the date of winding up directly to the lessors. 4 The matter was carried in appeal and the respective appeals were registered as O.J.Appeal Nos. 48, 49, 50 of 1998. The said appeals came to be heard along with two other appeals being O.J.Appeal No.68 of 1998 in Company Application No.207 of 1994 with O.J.Appeal No.70 of 1998. All the appeals were taken up for hearing together by Division Bench of this Court (Coram : Mr.Justice B.C.Patel [as he then was] and Mr.Justice K.M.Mehta), which were disposed off by a common judgment dated 16/12/1999. The Division Bench (speaking through Mr.Justice B.C.Patel) remanded the matter for giving further opportunity of hearing and to decide the matter afresh, because according to the Division Bench it was necessary to have on record the details as to whether the applicants were only heirs, as to what would be the rights of the so called lessors in light of there being secured creditors having mortgage over the leasehold interest, and as to what would be the effect of such mortgage. Thus, the Court found that necessary material facts and findings on these and related questions were not available on record which would enable the Division Bench to decide the question. The Court further observed - " The question which is raised before us goes to the root of the matter but unfortunately the attention of the learned Single Judge was not drawn on certain relevant aspects by the Advocates appearing in the matter". In this context, the matter was remanded leaving it open to the Company Court to decide the matter afresh on the material that may be placed before the Court. 5 Thereafter, it appears that the aforesaid Company Applications which were remanded by the Division Bench and various other applications which came to be filed subsequently were taken up for hearing from time to time, but could not be proceeded with for various reasons. Ultimately on 14/2/2002,the Court (Coram: Mr.Justice M.S.Shah), after hearing the Advocates of various lessors as well as Advocates of different financial institutions and banks along with the Advocates for the Official Liquidator and the Textile Labour Association made a suggestion to the parties as to whether it was possible for the lessors to agree to transfer their freehold rights also, in the lands in question, so that a purchaser may pay higher price for getting entire bundle of rights in the lands in question. As the learned Counsel for the lessors made a proposal as stated in para 4 of the order dated 14/2/2002, the learned Counsel appearing for various secured creditors sought time to seek instructions from their respective clients as this was a policy matter and accordingly, the following order was made : "6. In view of the above, the hearing of this group of matters is adjourned to 5th March,2002 subject to the following :- [i] Those of the applicants who are agreeable to give up all their rights in the lands in question including their freehold rights, if any, shall submit a without prejudice proposal through their respective advocates to the respective advocates for the secured creditors and to the advocate for the Textile Labour Association with a copy endorsed to the Official Liquidator. This shall be done within one week from today i.e. by 21st February,2002. Where the State of Gujarat and/or ONGC are also parties to any litigation, their advocates shall also be served with a copy of the proposal. [ii] Upon receiving such proposals, the advocates for the secured creditors, the Textile Labour Association, State Government and ONGC shall forward such proposals to their respective clients and get the response and/or without prejudice counter proposal latest by 4th March,2002. [iii] If the secured creditors want to put up a united front for negotiating a settlement with the lessors' camp or if, they agree in principle to settle the matters, the competent authority at the higher level may take a broad policy decision leaving it to the local officers to negotiate and work out a detailed settlement". 6 However, it transpires that ultimately financial institutions and the banks were not agreeable to the course of action suggested and inspite of the matters being adjourned from time to time, it was found that there was no likelihood of any settlement as a whole i.e. by way of a policy, hence, the matters were taken up for hearing by this Court on a day to day basis. On behalf of the lessors various Advocates appeared but the lead was taken by Shri M.J.Thakor, Senior Advocate with Shri S.N.Soparkar, Senior Advocate supported by learned Advocates Shri Ashok L.Shah, Shri M.B.Gandhi, Shri A.C.Gandhi, and others. Similarly on the side of the Financial Institutions and Banks Shri S.B.Vakil, Senior Counsel instructed by Singhi & Co. appeared for ICICI and he was supplemented by learned Advocates Shri A.H.Mehta, Shri J.T.Trivedi, and others. Shri Roshan Desai, learned Advocate appeared on behalf of the Official Liquidator while Shri D.S.Vasavada, learned Advocate appeared on behalf of Textile Labour Association. In view of the fact that the contentions raised by different Counsels were overlapping to certain extent, it has become necessary to consider the contentions together: on the one side on behalf of the applicant lessors, on the other side on behalf of the financial institutions and banks, on the third side on behalf of the Official Liquidator and on behalf of the Textile Labour Association. Hence, it is not thought fit to reproduce the contentions as advanced by a particular Counsel but all contentions raised on behalf of various contesting parties have been taken into consideration. 7 The various applications broadly claim the following reliefs : [a] The Company is in arrears of rent and on non payment of the same the lease stands terminated entitling the lessors to claim back the possession. [b] The Company having been ordered to be wound up, the land is not required for the purpose of the affairs of the Company, hence, the possession of the land be returned to the lessors. [c] The Official Liquidator is only a statutory tenant which would not entitle him to sell the leasehold interest of the Company and thus the liquidator remaining in possession would be required to keep on paying the rent which would be onerous, and hence, the liquidator be directed to disclaim the property and hand over the possession to the lessor applicants. [d] That till the rent was being regularly paid there was no right of eviction available with the lessors but at the same time the lessee had only a limited right of subletting and permissive user and did not have any right of assignment. That the lessee Company could not have created any charge over the demised premises as the lease deed or rent note did not permit such course of action. [e] That the leasehold interest was not a property which could be treated as an asset of the Company and hence could not be dealt with. In other words, it was a mere right of possession and nothing more than that. [f] That the nature of tenancy could be permanent/in perpetuity or for a life time or for a fixed period, but in no case could such a tenancy survive the Company. That, once an order of winding up was made, the Company, for all intents and purposes, ceased to exist leading to termination of the tenancy. [g] Elaborating on the scope of right to mortgage the lease hold interest, it was submitted that though the Financial Institutions/Banks may have created a general charge over the properties of the Company, the leasehold interest not being a property of the Company, no charge could have been created. That the mortgagees i.e. financial institutions/banks should be directed to place on record the details of mortgage under which they were claiming such rights. [h] An additional contention was raised, which according to the learned Advocates was fundamental in nature, that Financial Institutions/Banks had been joined as parties only at the behest of the Official Liquidator and as ordered by the Court. That otherwise they had no locus in relation to the dispute which was primarily between the contracting parties viz. lessors and the lessees. [i] That the land in question was for a specific purpose as narrated in the lease deed and hence when it was not possible to fulfill the said purpose the lease came to an end entitling the lessors to resume the land. [j] A supplemental contention was also raised to the effect that the land was leased for the purpose of the affairs of the Company and once superstructure viz.plant and/or building put up on such land had been sold off there was no going concern or running business which would entitle the lessee to remain in possession of the land in question. [k] Relying upon the provisions of The Bombay Rent (Hotel and Lodging House Rates Control) Act,1947 (for short 'the Rent Act), it was submitted that the Company was only a statutory tenant and hence it had only a right which was not alienable/transferable. A statutory tenant may have a heritable right, however, a limited company has no heir, and hence, that limited right available under the Rent Act, was not available to the Official Liquidator. [l] That on dissolution of the Company the demised land had to be returned to the lessor or had to revert back to the lessor and there was no bona vacantia or escheat as no interest remained or survived. [m] That the provisions of the Rent Act would prevail over the provisions of the Transfer of Property Act,1882 (T.P.Act) and the Contract Act,1872 (Contract Act), as the Rent Act was a special statute as against the general law laid down in the other two enactments. In this connection, it was also contended that a lessee/tenant was not entitled to double protection i.e. under the T.P. Act and the Rent Act, and thus also only provisions of the Rent Act would apply. [n] That even if the Court directed payment of arrears of rent, a statutory tenancy which had come into being by operation of law could not be converted back into contractual tenancy and the lessor was entitled to forfeit lease and the Court could not relieve the lessee from such forfeiture. [o] That the lessors had reversionary interest and the same was never lost. That the rights conferred on the lessee Company could not be exercised by the Official Liquidator as the liquidator would only come into the picture when an order of winding up was made. Thus, the reversionary interest which remained with the lessor could not be snatched away by the Official Liquidator. [p] In some of the matters upon reading of the lease deeds it was submitted that the terms of the deed provided an option to the lessor to terminate lease and hence it was a pointer to show that the lease was not permanent in nature. [q] That there was no privity of contract or privity of estate betweeen the lessor and the third party viz. mortgagee and the contract actually existed between lessor and the lessee on the one hand while there was a different contract between the lessee and the third party i.e. mortgagee. Therefore, if the lessee did not have any right to retain possession it would not be open to the third party viz. the mortgagee to seek such right. [r] That the Official Liquidator did not require the land for the purpose of liquidation as he was not entitled to sell the land in question, that there was no sub-letting and the Official Liquidator was also not entitled to sublet and thus there was no reason to keep on paying rent, hence even a statutory tenant could be evicted for non user of the premises. 8. As against this, on behalf of the Financial Institutions/mortgagees it was submitted that the lessors must show that they have an absolute right in preasenti before seeking direction against the Official Liquidator to hand over possession of the leased property : [a]. That such a right should not be qualified or defeasible right. The lessor can claim such right provided he has forfeited the term of the lease pursuant to right of re-entry as provided in the lease deed, or in the alternative, give notice to the Company for termination of the tenancy. [b]. That even in such cases there is no absolute right and in case of claim of forfeiture on the ground of arrears of rent, such a right would be subject to provisions of Section 114 of the T.P.Act whereby a Court can relieve a Company against forfeiture as provided in the said section. [c]. Even assuming for the sake of argument that the Company has become a statutory tenant, the right to recover possession would be subject to the protection laid down in provisions of Section 12 of the Rent Act, and till the point of time, a decree for eviction of the tenant is made by a competent Court there would be no absolute right in praesenti available to the lessor. [d]. That the lessor does not have right to claim possession on the ground of arrears of rent in all cases. [e]. That in case of lease of permanent nature or lease for fixed long periods which have not been determined by efflux of time the contractual lease would continue to operate. [f]. That life time lease would be co-terminus with the life of company and till date no Company has been directed to be dissolved. [g]. That the order of winding up and order of dissolution are two distinct situations/stages and the order of winding up cannot be treated as being equivalent to an order of dissolution. [h]. That the right to disclaim an onerous property is available with the Official Liquidator and it is not open to the lessors to seek direction against the Official Liquidator to disclaim the property. [i]. That Section 535(1) of the Companies Act,1956 ('the Act) specifies four types of properties and if the property does not fall within any of the four clauses, the Official Liquidator has no right to disclaim. That the leasehold rights would not fall within sub-clause (b) or sub-clause (d) of Section 535(1) of the Act. That apparently, though clause (a) might seem to apply, it will be necessary for the lessor to show that the land in question is burdened with onerous covenant. [j]. That liability to pay rent is not per se onerous covenant; once the financial insitutions/mortgagees undertake such liability the same would cease to operate as being onerous, even if it is presumed to be onerous. [k]. Unexpired period of contractual lease is transferable under Section 108(j) of the T.P.Act in absence of contract or legal usage to the contrary. [l] That the decision of the Supreme Court in case of Damadilal lays down that even rights of statutory tenants are transferable. [m] That even if the Court thinks it just to direct the Official Liquidator to disclaim the leasehold interest it is open to the Court to impose such terms as conditions for granting leave to disclaim, whereunder the rights of the mortgagee shall continue to operate on the leased property, notwithstanding the merger of the leasehold rights with the lessor's ownership rights. [n] That even otherwise the provisions of Section 535 of the Act, envisage that a mortgagee can apply to the Court to make an order of vesting of property or delivery of the property to whom it may seem just by way of compensation, and mortgagee is a person who has such interest in the leasehold properties and therefore, upon the terms specified the Court may make such an order. [o] That provisions of T.P.Act and Contract Act being Central legislations would claim precedence over the state legislation viz. Rent Act, and hence the rights under the general law would not be affected. Therefore, relief against forfeiture by virtue of Section 114 of the T.P. Act can be granted by the Court. [p] That the protection under Section 114 of the T.P. Act is different than the protection under Section 12 of the Rent Act, because Section 12 of the Rent Act, does not enable the landlord but only disables i.e. protects a tenant while Section 13 of the Rent Act dilutes the disablement under Section 12 of the Act. [q] That the notice of forfeiture or notice for arrears are different from a notice for termination of a lease and the latter does not follow as a consequence. [r] That unless provided by the contract, right of re-entry is not available in lease which is permanent/in perpetuity/for life time or a fixed period. [s] That once the property is under a charge/mortgage, the Official Liquidator who has stepped into the shoes of a lessee should not be permitted to join hands with the lessor so as to defeat the rights of the secured creditors. [t] That the terms and conditions of individual mortgages may be taken into consideration only at the point of time when secured creditors insist and the Court permits sale of the property and it is not necessary to deal with such individual mortgages at this stage. [u] That the provisions of the Rent Act are not intended to apply dehors the contract and other laws as contended by the lessors. 9 Mr.R.M.Desai, appearing on behalf of the Official Liquidator contended that the lease deed had been entered into at a given point of time and for deciding whether the lessors are entitled to resume, the terms of a particular deed will have to be read and interpreted; that it was now settled rule of construction that deed as a whole had to be read for this purpose. Further more, it was submitted that the intention of the lessor at the time when the deed was entered into shall have to be taken into consideration while appreciating the contentions raised on behalf of the legal heirs. [a] That as directed by the Division Bench of this Court, the applicants will have to establish not only that they are legal heirs of the lessor but also that there are no other heirs or, the other existing heirs have no interest in the property in question. [b] That the lessors and/or their heirs/representatives cannot be heard to challenge joining of the mortgaees i.e. financial institutions as party respondents, because the Official Liquidator was merely abiding by the direction given by the Division Bench of this Court. [c] That as could be seen from the judgement of the Division Bench of this Court the matters were specifically remanded to take into consideration the rights of the mortgagees and lessors cannot contend that they were third party. [d] That the Official Liquidator cannot make payment of rent on his own unless directed by the Court and the lessors instead of applying to the Court for such direction cannot come forward and seek eviction on the basis of non payment of rent. [e] That the position in law was well settled that the rights of the lessor and the lessee as stipulated by the contract continue till the Company was dissolved and as the Company has not yet been dissolved all the rights under the lease deed are available to the Official Liquidator. [f] Responding to the contention that the purpose for which the lease had been granted having come to an end the Official Liquidator must return the possession of the property, it was submitted that the terms of the lease deed would have to be seen individually and whether any such right was available to the lessor will have to be determined. [g] It was contended that the Official Liquidator was not a statutory tenant and there was no onerous covenant incorporated in the lease deed. [h] That the payment of rent could not be equated with onerous covenant because an onerous covenant was one which had to form part of the terms of the deed. [i] That even otherwise the Official Liquidator was ready and willing to pay the rent if so directed by the Court,