((-1-)) IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.519 OF 1995 IN COMPANY APPLICATION NO.482 OF 1993 IN COMPANY PETITION NO.404 OF 1986 M/s.Modella Woollens Ltd. Appellants versus The Official Liquidator & others Respondents Mr.D.D.Madon, Sr.Counsel i/by M/s.Malvi Ranchoddas & Co. for appellant. Mrs.Chitra Phadke for respondent no.3. Mr.P.G.Rao, Deputy Official Liquidator. CORAM : DR.S.RADHAKRISHNAN AND S.C.DHARMADHIKARI, JJ. DATE : 29th September 2005 ORAL JUDGEMENT (PER S.C.DHARMADHIKARI, J.) :- ORAL JUDGEMENT (PER S.C.DHARMADHIKARI, J.) :- ORAL JUDGEMENT (PER S.C.DHARMADHIKARI, J.) :- 1. This appeal under clause 15 of the Letters Patent is directed against an order passed by a learned Single Judge of this Court on the above Company Application. By the order dated 13th April 1995 the learned Single Judge was pleased to make the company application absolute in terms ((-2-)) of prayer clauses3 (a), (b) and (c). The learned Judge was also pleased to direct the Official Liquidator to make a report within eight weeks from the date of his order and thereafter the company application was to be placed on board for considering prayer clauses (d) and (e) thereof. 2. The company application was moved by Respondent no.3 before us which is the original Applicant. The company application was directed 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.4-C 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 ((-3-)) 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 application and in default, the first respondent Official Liquidator be directed to take forcible possession thereof. Prayer clauses (d) and (e) sought directions to the Official Liquidator firstly to take possession from the second respondent and hand it over to the applicant and thereafter inquiry be commenced to determine compensation/damages at prevailing market rate up to the date of handing over possession and make payment thereof. 4. The parties before us shall be referred to as described in the Company Application. 5. The undisputed facts are that Modella Textiles Industries Pvt. Ltd. is a company incorporated and registered under the Companies ((-4-)) Act, 1956. Company Petition No.404 of 1986 was filed by one Rajesh Nathalal Sheth carrying on business in the name and style of M/s.Giriraj Print Plast as it’s sole proprietor for winding up of Modella Textile Industries Pvt. Ltd. The company petition was filed invoking provisions of Sections 433 and 434 of the Indian Companies Act, 1956. The said company petition was filed on 31st July 1986. The said company petition being accepted by this Court, came to be subsequently admitted on 11th December 1986. This Court while admitting the company petition was pleased to direct the Official Liquidator to act as Provisional Liquidator for the company in liquidation. On 11th June 1987 the company was wound up by this Court and the order passed in that behalf directed the Official Liquidator to take charge of the assets of the company in liquidation. 6. The case of the applicant before learned Single Judge was that it is a Government Company and one of the subsidiaries of General Insurance Corporation of India. The General Insurance business came to be nationalised vide Nationalisation Act passed in this behalf in 1973. Pursuant to the scheme framed by the ((-5-)) Central Government for taking over General Insurance business carried on by private insurance companies prior to passing of the Nationalisation Act, subsidiary companies and corporations were set up and the applicant before us is one such subsidiary. The applicant took over the business of Vulcan Insurance Company Limited which was conducting insurance business privately. The company was taken over by the applicant with all it’s assets and liabilities. By virtue of the take over, the applicant became owner of the Vulcan Insurance Building situate at the above mentioned address. 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 erst-while Vulcan Insurance Company. It is the further case ((-6-)) 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 floor of this building but it was contended that even those premises were let out. The same were let out to the second respondent. It is contended that after the insurance business was taken over, it is the applicant who has been issuing Rent Bills in respect of said premises. The applicant is collecting rent from the tenants as per the Rent Bills and crediting the amount in it’s Books of Accounts maintained in the normal and ordinary course of business. 8. It is contended that the company in liquidation was paying the rent regularly till December 1985. Thereafter, the payment was irregular. In June 1986 a common Director of ((-7-)) Modella Textile Industries Pvt. Ltd. and second respondent approached the applicant and requested for an accommodation in the payment of monthly rent in respect of said premises. The request was that the payment of rent would be made by the second respondent for and on behalf of the company in liquidation, as the company in liquidation was facing financial problems and difficulties. It is contended that this accommodation was sought in order to avoid forfeiture of tenancy rights of the company in liquidation on the ground of non payment of rent in respect of the subject premises. This request was accepted as a special case by the applicant. Normally, the policy is not to accept third party cheques but since the companies are under common group, the facility as aforesaid was extended. 9. It is the case of the applicant that in February 1990 second respondent approached it for transfer of tenancy in respect of the office premises that is subject premises on the ground that it has become a deemed tenant. This ground was put forward on the basis of a decree passed by the Court of Small Causes, Mumbai in RAD Suit No.5937 of 1986. It is contended that the applicant was shocked and surprised by this ((-8-)) demand. They refused to make any changes in respect of tenancy of the said premises. They stopped accepting rent in respect of said premises which was tendered by the second respondent. Since a reference was made to a decree passed by the Court of Small Causes, Mumbai in the aforesaid suit, the applicant called upon the second respondent to furnish papers and proceedings in the said suit. It was pointed out by the applicant that a decision on the request made by the second respondent would have to be taken by it’s Head office and therefore, all 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 ((-9-)) 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 28th November 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 1961 second respondent is in exclusive use, occupation and possession of the subject premises which are described in Red Wash at Exhibit-A which was annexed to the plaint. The parties recorded that compensation of Rs.1,000/- per month has been agreed to be paid for said use and occupation. It was further admitted and agreed that leave and licence agreement in favour of the second respondent was subsisting prior to 1st February 1973 as well as on that date. It is in the light of this that parties agreed that the second respondent becomes deemed tenant in respect of the subject premises. ((-10-)) 11. It is further material to note that by these consent terms the common passage was to be used jointly by parties to the suit and cabin numbers 4 and 9 which were also described in Blue Wash to the plaint were to be used by the company in liquidation. In the light of this agreement the suit was decreed in terms of prayer clause (a) of the plaint. These consent terms were taken on record by the Court of Small Causes on the very day of the institution of the suit and it issued a declaration of deemed tenancy in favour of the second respondent. 12. In the light of the above, the contention raised on behalf of the applicant was that the decree is vitiated by fraud perpetrated on the Court of Small Causes by the second respondent and company in liquidation acting in collusion. It was contended that knowing fully well that a company petition is presented to this Court and is likely to result in appointment of Official Liquidator with further authority and power to take charge of the assets, that the plaintiff i.e. the second respondent and the defendant i.e. the company in liquidation filed this collusive suit and obtained a decree on the basis that the rights of second respondent are ((-11-)) subsisting as licensee on the relevant date i.e. 1st February 1973. According to the applicants, this date assumes significance because all such licenses which were subsisting as on this date, were protected by the amendment made to Bombay Rent, Hotels and Lodging Houses Rates Control Act, 1947 (hereinafter referred to as Bombay Rent Act). The applicants contend that not a single document evidencing payment of compensation prior to the relevant date, was either annexed or produced before the Court of Small Causes. The same was not produced during the course of hearing of the company application also. The 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 1st February 1973. Neither was any agreement of license produced nor any proof with regard to these material aspects placed before ((-12-)) 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 properties of the company in liquidation which according to them was the duty of the Official Liquidator but he having failed to do so, the applicants are entitled to present an application claiming the aforesaid reliefs. 14. The other aspect which was placed before the learned Single Judge and also set out in the affidavit-in-support is that being a Government Company incorporated under section 617 of the Companies Act, 1956, the applicants as well as their properties get covered by Public Premises (Eviction of Unauthorised Occupants) Act, 1971 (hereinafter referred to as "the Public Premises ((-13-)) Eviction Act). On and from the date of nationalisation of the insurance companies and take over, subject premises assume character of public premises, as envisaged by the Public Premises Eviction Act. In the light of this development, the Court of Small Causes could not have passed any decree in the suit instituted by the second respondent. It was contended that the Act applies to the premises and not to any relationship. Therefore, the basis of the suit in the Court of Small Causes of relationship of licensor and licensee between the company in liquidation and second respondent is not of any relevance once the property itself is "public premises". By virtue of Section 15 of the said Act the Court of Small Causes had no jurisdiction and competence, and therefore, on this ground also the decree is a nullity being not binding upon the applicant. 15. This company application is filed on 11th August 1993. Upon being served with the papers and proceedings, both, the Official Liquidator as well as the second respondent filed their affidavits. The second respondent principally contended that the issue as to whether the decree is vitiated by fraud and therefore a nullity, ((-14-)) cannot be gone into in proceedings under the Companies Act, 1956. Moreso, at the instance of the applicant who is neither the original petitioner nor in any way a party before the Company Court. It was contended that the company in liquidation had specifically entered into an arrangement with the second respondent, which has not been denied by it or by the Official Liquidator. The Official Liquidator has not come forward with the plea that the decree is not binding on him or the company in liquidation in any manner. Therefore, at the instance of the applicant who has a distinct right, title and interest in the premises, 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 ((-15-)) 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 the Official Liquidator cannot be the Official Liquidator cannot be prevented from taking possession of the subject prevented from taking possession of the subject prevented from taking possession of the subject premises which admittedly form valuable asset of premises which admittedly form valuable asset of premises which admittedly form valuable asset of the company in liquidation. the company in liquidation. the company in liquidation. The learned Judge has referred to the Constitution Bench Decision in the case of Ashoka Marketing Ltd. and another Vs. Punjab National Bank and others reported in AIR-1991-SC-855. The learned Judge has held that Section 446(2) of the Companies Act confers ample powers on the Company Court to entertain and dispose of any claim by or against the company and determine other questions whether of law or fact which may relate to or arise in course of winding up of the company. Learned Judge also refers to Section 536(2) of the Companies Act and relying upon it further holds that the Company Court has jurisdiction to take cognizance of the ((-16-)) company application and pass appropriate orders thereon. 17. The applicants contention that the decree passed by the Court of Small Causes is a result of systematic conspiracy by the erstwhile management of the company in liquidation in order to get control over the premises lawfully belonging to it and defeat the Official Liquidator’s right to take over the subject premises is thus accepted by the learned Single Judge. 18. Consistent with the aforesaid observations and findings, the learned Single Judge made the company application absolute as above. 19. Mr.Madon, learned Senior Counsel for the appellant contends that the Company Court has no jurisdiction to go into the question as to whether a decree passed by a competent Court is a nullity or vitiated by fraud. He submits that far from issuing a declaration in favour of the applicant that the appellant is a trespasser, the Company Court has no power, authority or jurisdiction in law to decide the rights of parties who are not before it. In other words, ((-17-)) he submits that the company in liquidation and the appellant are two distinct legal entities. By assuming that they belong to the same group and are therefore, sister concerns, neither the applicant nor the learned Company Judge could have set aside the decree passed by the Court of Small Causes. He submits that the applicant is also not before the Company Court in any manner in the company proceedings. 20. Submissions of Mr.Madon proceed on the footing that assuming without admitting that the decree is fraudulent and therefore a nullity, the Company Court had no jurisdiction to either set it aside or hold it to be vitiated as such. He submits that the very basis of the order of learned Single Judge is thus erroneous. The assumption 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 ((-18-)) 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 1st February 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 Licencee or sub-tenant or can be termed as Trespass, are matters which are within exclusive domain of the Court of Small Causes. In this behalf, he relies upon Section 28 of Bombay Rent Act, 1947. 21. According to Mr.Madon the conduct of the appellant may be fraudulent but the Company Court could not have granted any relief in the company application as it lacked jurisdiction to take cognizance of the same. He submits that assuming that the Public Premises Eviction Act applies to ((-19-)) the subject premises, as to whether it governs the relationship of the appellant and the company in liquidation, is something which the learned Judge could not have gone into and decided in the limited jurisdiction conferred upon him by the Companies Act. He submits that it was always open for the applicant to invoke provisions of Public Premises Eviction Act and take appropriate steps and measures not only against the company in liquidation but present appellant as well. That admittedly not being done, the applicant could not have been assisted by the learned Company Judge in the manner done in the present case. 22. The second submission of Mr.Madon is that assuming that the Court had jurisdiction to take cognizance of the company application, a finding of fraud and nullity could not have been rendered by it unless evidence was recorded in the company application. In a summary manner, the learned Judge has concluded that the decree is vitiated by fraud. He submits that mere suspicion is not enough in such cases. The circumstances may be suspicious and doubtful. However, when a finding of fraud has to be recorded, there must be cogent, satisfactory evidence and material before ((-20-)) a Court of Law. In the present case, the learned Judge has proceeded on affidavits and the impugned order, therefore, is unsustainable on this ground as well. 23. The last contention of Mr.Madon is that the company application was barred by limitation. He submits that after the amendment to the Code of Civil Procedure in 1976 the remedy of parties in such cases is to file an application under Order XXIII, Rule 3A if the decree is vitiated by fraud. However, assuming that such remedy is available to the parties before the Court of Small Causes, in this case, as far as applicant is concerned, they could have gone to a competent Court and sought a declaration that the consent decree was vitiated by fraud and therefore, not binding on them. For such 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