OJA/66/2006 1 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No. 66 of 2006 In COMPANY APPLICATION No. 34 of 2004 In COMPANY PETITION No. 21 of 1994 With O.J.APPEAL No. 65 of 2006 In COMPANY APPLICATION No. 33 of 2004 With O.J.APPEAL No. 67 of 2006 In COMPANY APPLICATION No. 462 of 1999 For Approval and Signature: HON'BLE MR. JUSTICE MOHIT .S.SHAH AND HON'BLE MR. JUSTICE K.A.PUJ ================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ================================================= JABAL C. LASHKARI - Appellant(s) Versus O.L.OF PRASAD MILLS LIMITED & 3 - Opponent(s) ================================================= Appearance : MR DV PARIKH for Appellant(s) : 1, OFFICIAL LIQUIDATOR for Opponent(s) : 1, MR RM DESAI for Opponent(s) : 1, NOTICE SERVED BY DS for Opponent(s) : 2, MR RM DESAI for Opponent(s) : 3, MR AS VAKIL for Opponent(s) : 4, ================================================= CORAM : HONOURABLE MR JUSTICE MOHIT S.SHAH and HONOURABLE MR.JUSTICE K.A.PUJ OJA/66/2006 2 JUDGMENT Date : 17 / 10 /2008 CAV JUDGMENT (Per : HON'BLE MR JUSTICE MOHIT S.SHAH) These appeals are directed against the judgment and order dated 13.10.2004 passed by the learned Company Judge as common order in Company Application Nos.462 of 1999 and 33 and 34 of 2004. 2. The appellants claim to be the heirs of the owner of the land in question admeasuring 35,772 sq.mtrs. in Ahmedabad, who had leased out the land on long term basis for the period of 199 years as per the lease deed executed on 10.12.1916 in favour of Bechardas Spinning and Weaving Mills Ltd. which subsequently came to be known as Prasad Mills Ltd. After the Prasad Mills Ltd. was ordered to be wound up by judgment dated 5.5.1989 in Company Application No.21 of 1984, the appellants filed the above- numbered company applications in 1999 and thereafter for a direction to the Official Liquidator to return the land in question to the appellants mainly on the ground that the lease stood determined on winding up order being made by the Company Court. It was also contended that the rights and liabilities of the parties to a lease deed subsist even when the Company is in liquidation and hence provisions of the Bombay Rent Act, 1947 would apply so as to enable the applicants to get back possession of the land in question under the provisions of the Rent Act. 3. The learned Company Judge hearing the above- numbered company applications had an occasion to consider similar questions in Company Application No.47 of 1993 and connected matters. After considering the relevant provisions of the Companies Act including Sections 457, 535, 529A and also the provisions of Transfer of Property Act, 1882 and the provisions of the Bombay Rent Act, in his judgment dated 30.7.2002, (Legal heirs of deceased Fakirchand Ambaram Patel vs. OL of Ambica OJA/66/2006 3 JUDGMENT Mills Ltd. & ors. reported in (2003) 116 Comp. Cases 588 = 2002 (3) GLH 367), the learned Company Judge laid down the following principles :- [a] Leasehold interest is an intangible asset, which is valuable in nature though the valuation may differ from case to case depending upon the unexpired period of lease. b] Such an asset is transferable subject to the same terms and conditions as may be stipulated in the lease deed. c] Once there is a contract which has not been determined, the relationship of the parties to the contract continues to subsist till the period for which the contract is in existence subject to an express condition to the contrary. [d] There is a distinction between the point of time when an order of winding up is made and at the point of time when an order of dissolution is made, the company continues to exist between the two termini. [e] A condition in the lease deed permitting a lessee to give back the possession as and when the lessee chooses to do so cannot be converted into an obligation entitling the lessor to seek possession. [f] A condition in the lease deed by way of requirement to pay rent, per se, does not create an onerous covenant, once readiness and willingness is shown by the lessee, or on its behalf, to discharge such obligation. 4. Since the above reported judgment dated 30.7.2002 has also been challenged in other OJ Appeals, all the connected matters numbering about 31 appeals raising common and similar questions of law, but involving interpretation of separate lease deeds were heard together initially and also when rehearing took place on 28th April 2008. Since the learned advocate for the appellants herein OJA/66/2006 4 JUDGMENT argued the matter at length, the present appeals have been treated as the lead appeals and are being disposed of by this judgment. RIVAL SUBMISSIONS BEFORE LEARNED COMPANY JUDGE 5. The appellants' case before the learned Company Judge was as under :- 5.1 One Shri Bechardas started Bechardas Spinning and Weaving Mills some time in 1860. The land, building, machinery, etc. were owned by said Bechardas. On death of said Bechardas the said properties were inherited by Shambhuprasad, on whose death the properties were inherited by late Durgaprasad Shambhuprasad Laskari. During life time of late Durgaprasad Laskari, Bechardas Spinning and Weaving Mills Company Limited was formed in 1914 to take over the said business of Bechardas Spinning and Weaving Mills Company. Shares of the said Limited Company were issued in favour of late Durgaprasad Shambhuprasad Laskari towards consideration. It was averred in the supporting affidavit that land bearing Survey Nos.4823 to 4832, 4844 to 4895, 4899, 4901 to 4911, 5002 to 5011 and 5049 of Village Ward Raikhad, Ahmedabad admeasuring 35722.41 sq. mtrs. (hereinafter referred to as 'the demised land') was leased out to Bechardas Spinning and Weaving Mills Company Limited by late Durgaprasad Shambhuprasad Laskari. It was further averred that "It may be appreciated that the said land was of ownership of Durgaprasad Laskari and was leased out to the company as the company was taking over the mill owned by Durgaprasad Laskari". Accordingly, the Lease Deed came to be executed on 10-12-1916 by said Durgaprasad Laskari. OJA/66/2006 5 JUDGMENT 5.2 Durgaprasad Shambhuprasad Laskari, who was at the relevant time Managing Director and had controlling interest in Bechardas Spinning and Weaving Mills Company Limited (now Prasad Mills Ltd.), passed away on 7.7.1962 and on his death his properties came to be inherited by the appellants along with other heirs (who have not joined the appellants) under the provisions of the Hindu Succession Act. 5.3 The basis for preferring Company Application No.34 of 2004, according to the applicant, was that the demised land was never leased out to the Company (in liquidation), but was leased out to the Managing Agent of the Mill Company, and hence, the Company (in liquidation) was in illegal possession and occupation of the demised land. However, the facts averred in the supporting affidavit of Company Application No.462 of 1999 do not support this stand of the applicant of Company Application No.34 of 2004. 5.4 Mr. Devan Parikh, learned advocate appearing for the applicants in all the three applications, submitted that the Lease Deed was entered into with Managing Agent of Bechardas Spinning and Weaving Mills Company Limited and not with the Company (in liquidation); In support of this contention, Mr. Parikh sought to place reliance upon Memorandum of Association and Articles of Association, a copy of which was tendered during the course of hearing before the learned Company Judge. On being pointed out that neither the Memorandum nor the Articles appeared to bear the signatures of the subscribers /promoters of the Company, Mr. Parikh sought time. After the hearing was over before the learned Company Judge and the matter was kept for orders, an additional affidavit dated 28.9.2004 was placed on record along OJA/66/2006 6 JUDGMENT with copy of the same documents viz. unregistered Memorandum of Articles with Annexures and in the additional affidavit it was submitted that Bechardas Spinning and Weaving Mills Company Limited was registered on 03-09-1914 at Sr.No.41 before the Registrar of Companies, Bombay. That the applicants made inquiry with the Office of Registrar but as the Memorandum of Association and Articles of Association were very old they were not available with the Registrar. That this was the only document which was available with the applicants and hence the same was being endorsed by the applicants to verify that the same was a copy of the Memorandum of Association as in 1914 and as found with the applicants. 5.5 Alternatively even on the basis of Lease Deed being in favour of the Company (in liquidation), it was contended that by virtue of provisions of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 (the Rent Act) the applicants were entitled to be put in possession; that the lease stood determined on winding up order being made by the Court; that rights and liabilities of the parties to a Lease Deed subsisted even when the Company was in liquidation and hence provisions of the Rent Act would apply. Mr. Parikh invited attention to Section 15(1) of the Rent Act as well as Section 13(1)(a) read with Section 13(1)(k) of the Rent Act to contend that provisions of the Rent Act were applicable overriding any other law and that eviction under Section 13 of the Act was de hors the Lease Deed. That the purpose of the Lease was solely to run the mill and once the premises were not used for the purpose for which the premises were let the lessor becomes entitled to seek eviction. 5.6 Alternatively, it was not open to the Official OJA/66/2006 7 JUDGMENT Liquidator to assign rights under the Lease Deed and hence he could not sell them, as only subletting was permissible. It was submitted that there was difference between subletting and assignment. 6. On the other hand, the stand of the Official Liquidator, the secured creditors and the workmen represented by the Textile Labour Association was as under :- 6.1 the provisions of the Rent Act cannot come to the aid of the appellants because in 1916 when the Lease Deed was executed and registered, no Rent Act was in force. That even otherwise, once there was a subsisting contract between the parties, if any forfeiture or eviction was intended by any of the parties to the contract, they were governed by the terms of the subsisting contract because tenancy had not been determined. 6.2 there was no breach of provisions of Section 108(o) of the Transfer of Property Act, nor was there any notice of forfeiture issued and served. The secured creditors are ready and willing to pay rent if so directed, but in absence of any claim there was no occasion to make any such direction to make any such payment. That if deemed fit a direction may be given. 6.3 the appellants have themselves stated that they are some of the heirs of deceased Durgaprasad and, therefore, they shall have to establish before they can make any claim, that they are legal heirs of the deceased lessor, and that the other heirs have relinquished their interest in the properties in question. 6.4 the appellants had placed on record a copy of plaint Civil Suit No.3960 of 1986 at Annexure-B wherein defendant No.1 OJA/66/2006 8 JUDGMENT was shown as the Company (in liquidation). Inviting attention to Paragraph No.2 of the plaint it was submitted that there was a categorical averment that the Company (in liquidation) was formerly known as Bechardas Spinning and Weaving Mills Company Limited; that the erstwhile Bechardas Mills is now known as Prasad Mills Limited. Hence it was now not open to the appellants to raise the contention that the Company (in liquidation) was in illegal possession and occupation of the demised land de hors the Lease Deed, but considering the aforesaid averments in the plaint of the aforesaid civil suit as well as the document showing the mortgage in favour of respondent No.2 - State Bank of India, the said contention did not merit acceptance. 6.5 the entire Lease Deed not only did not specify the purpose of Lease, but as per terms of the Lease Deed it was not open to the lessor, assuming that the present applicants could represent the lessor, to claim back possession of the land. FINDINGS GIVEN BY LEARNED COMPANY JUDGE 7. After considering the rival submissions, the learned Company Judge gave the following findings :- 7.1 the Lease Deed (Annexure-A) executed and registered on 10-12-1916 is for a period of 199 years (Clause 2), Therefore, there is a subsisting contract and the parties would be governed by the terms of the contract. The contractual tenancy, therefore, would subsist as governed by the provisions of the Transfer of Property Act and there cannot be any eviction from such tenancy. It is also settled position in law that merely because a company goes into liquidation and the Official Liquidator takes charge of the properties of the Company on his OJA/66/2006 9 JUDGMENT appointment, the rights of the Company (in liquidation) vis-a-vis the landlord do not undergo any change and they continue to be governed by the subsisting contract. 7.2 After referring to all the clauses of the lease deed, the learned Company Judge gave the following findings :- (i) The Lease Deed is executed between Sheth Durgaprasad Shambhuprasad Laskari, described as party of the First Part and the party of the Second Part is the Secretary, Treasurers and Agent M/s.Durgaprasad Shambhuprasad Laskari & Company of the Bechardas Spinning and Weaving Mills Company Limited (the Company) and directors Bhulabhai Bulakhidas and Patel Jagjivandas Amthasa of the Company. (ii) Under clause 7 of the lease deed, the lessee is entitled to assign its rights in favour of a third party. (iii) The lessee is entitled to build any superstructure after obtaining necessary permission from the appropriate authority or the land may be used as land or the same may be let out on rent or leased out and the lessor shall not be entitled to raise any objection or dispute in this regard till the period of 199 years and only on completion of 199 years, the lessor is entitled to obtain possession of the land (clauses 7 & 9). (iv) The landlord does not have any right to seek possession of the demised land except as stipulated in clause (1) read with clause (8) which provided that in case the lessee fails to pay the annual rent from year to year, the lessor shall be entitled to give a registered notice and if during the notice period, the OJA/66/2006 10 JUDGMENT payment is not made, the lessor would be entitled to initiate action to claim back possession. (clauses 5, 7, 9 and 10). (v) Clause 10 of the lease deed also stipulates that in the aforesaid lease deed whatever terms and conditions have been written, they are acceptable and binding on the lessor and the lessee as well as their heirs, advocates, administrators, assignees and executors. 7.3 The learned Company Judge rejected the contention urged on behalf of the appellants that a lease deed was executed in favour of the Managing Agent of the company which is now in liquidation and not in favour of the company in liquidation itself. The learned Company Judge held that on a plain reading of the opening portion of the preamble in the part where the lease deed is executed and witnessed, the party of the second part was not only the Managing Agent of the company, but also two Directors of the company (Bhulabhai Bulakhidas and Patel Jagjivandas Amthasa ) were specified as party of the second part. Durgaprasad Shambhuprasad Laskari not only signed the lease deed on his own behalf as party of the first part (lessor) but also as Secretary, Proprietor and Agent of the company. Thus on behalf of the lessee, the lease deed was signed by the Secretary, Proprietor and Agent of the Company and also by its two Directors. Hence, the contention raised on behalf of the appellants was misconceived. In support of the above conclusion, the learned Company Judge also referred to the averments made in the plaint in Civil Suit No.3960 of 1986 which also proceeded on the basis that the company in liquidation was in possession of the land in question and the construction made thereon under registered lease deed dated 14.12.1916. Reference was also made to Article No.111 of the Articles of Association which provided that every deed or other instrument to which the seal is required to be affixed may be signed OJA/66/2006 11 JUDGMENT by two Directors and the Agents only except where the instrument is in favour of the agent when it shall be signed by two Directors. The learned Company Judge noted that the lease deed was signed by two Directors and the agents and, therefore, the lease deed was signed for and on behalf of the company in liquidation. The learned Company Judge also noted that although the company was ordered to be wound up on 5.5.1989, the first amongst present applications for taking back possession was filed on 8.12.1999 without any explanation for the delay of more than a decade. 7.4 While considering the question whether the lessee had committed any act contrary to Section 108(o) of the Transfer of Property Act, in other words, whether the lessee had used or permitted another to use the property for a purpose other than for which it was leased, the learned Company Judge answered the question in the negative after noting that in the lease deed no specific purpose was provided. On the contrary, a conjoint reading of various clauses of the lease deed indicated that it was open to the lessee either to construct superstructure or building on the land or to use it as open land or to sublet it to anyone and the lessor would not be entitled to raise any objection. Thus the appellants' case did not fall under Section 108(o) of the Transfer of Property Act. 7.5 As regards the contention that the appellants' case was governed by Section 13(1)(a) or Section 13(1)(k) of the Bombay Rent Act, the learned Company Judge held that the appellants had failed to bring their case within the above provisions. APPELLANTS' CONTENTIONS 8. Assailing the above judgment of the learned Company Judge, Mr Deven Parikh, learned advocate for the appellants raised the following contentions :- OJA/66/2006 12 JUDGMENT (i) The decision of the seven Judge Bench of the Apex Court in Dhanapal Chettiyar's case, AIR 1979 SC 1745 = (1979) 4 SCC 214 has done away with the distinction of statutory tenancy and contractual tenancy. Hence, the provisions of the Bombay Rent Act including all the provisions of sub-section (1) of Section 13 thereof providing for various grounds of eviction are available to lessors to evict lessees, irrespective of the fact whether the lease is a short-term or a long-term lease or lease in perpetuity or whether it is contractual tenancy or statutory tenancy. Reliance is also placed on the decisions of the Apex Court in Parasram Harnand Rao vs. Shanti Parsad Narinder Kumar Jain, AIR 1980 SC 1655, K.K. Krishnan vs. M.K. Vijaya Raghavan, AIR 1980 SC 1756, Ravindra Ishwardas Sethna vs. Official Liquidator, H.C. Bombay, AIR 1983 SC 1061, Nirmala R. Bafna vs. Khandesh Spinning & Weaving Mills Co. Ltd., AIR 1993 SC 1380 and also on the decision of Deshpande, J in Canara Bank vs. Yusuf, AIR 2000 Bom. 71. (ii) There are various clauses of the Rent Act which neither the landlord nor the tenant can contract out of. Hence irrespective of the terms and conditions of the contract, the prohibitions contained in the provisions of the Bombay Rent Act are applicable to all categories of lease. The Rent Act is a unifying Act for all lessees. Section 15 of the Bombay Rent Act prohibits the tenant from transferring or sub-letting the lease premises and the said prohibition is applicable to all lessees, irrespective of the fact whether the lease is a short-term lease or a long-term lease or whether it is contractual tenancy or statutory tenancy. OJA/66/2006 13 JUDGMENT Section 18 of the Bombay Rent Act prohibits lessee from taking lumpsum consideration for the purpose of surrendering the leasehold interest or transferring the leasehold interest and such prohibition applies to all lessees irrespective of the fact whether the lease is a short-term lease or a long-term lease or whether it is contractual tenancy or statutory tenancy. (iii) Clause 5 of the lease deed is a forfeiture clause and the appellant – lessors are entitled to invoke the said clause. (iv) Clause 7 of the lease deed on page 8 granting lease for 199 years permits only sub-letting but does not permit transfer of leasehold interest. (v) The land was to be used for running a textile mill. While the lease deed did not prohibit construction of additional building over and above the factory premises already constructed, the land of the Company in liquidation cannot be permitted to be used for any other purpose. Relying on the decisions of this Court in 2002 (1) GLR 140 (para 4) (given for wood business, used for scrap business), AIR 2002 SC 1822, AIR 1993 SC 2646, it is submitted that change of user is also a ground justifying the eviction of the tenant and if it can be a ground for eviction, the Company Court cannot permit the land of the Company in liquidation or even the leasehold interest therein to be sold. Reliance is also placed on the decision in Canara Bank vs. Yusuf, AIR 2000 Bom. 71 (Paras 2, 7, 8 and 11) and in 1969 (2) Company Law Journal 253. OJA/66/2006 14 JUDGMENT (vi) Relying on the decisions of the Apex Court in AIR 1980 SC 1655, AIR 1983 SC 1061 and AIR 1988 SC 145, it is submitted that during the course of winding-up proceedings, the Official Liquidator can only carry on the business of the Company in winding-up for the limited purpose of winding up and not for the purpose of profit. (vii) Any sale of leased land by the OL in absence of notice to the lessors will be illegal and void-ab-initio. (viii) On facts, Mr Parikh has also reiterated the submissions made by the appellants before the learned Company Judge that lessee of the land was Durgaprasad Lashkari and not the company in liquidation. SUBMISSIONS ON BEHALF OF OFFICIAL LIQUIDATOR, SECURED CREDITORS AND WORKERS 9. Mr RM Desai, learned counsel for the Official Liquidator and also for secured creditor, State Bank of India has opposed the appeals and supported the judgment of the learned Company Judge. 9.1 The Deputy Official Liquidator has submitted Official Liquidator's further report dated 25.07.2007 stating that the details of the claims as on the date of the winding up order (5.5.1989) as filed by the creditors and workers in the office of Official Liquidator are as under :- 1 Claim lodged by IDBI 14,81,000 2 Claim lodged by SBI 3,53,28,000 3 Ahmedabad Municipal Corporation (July 2002) 3,03,21,951 4 Workers of the Company (As per CA report) 7,83,65,193 It was also brought to our notice at the hearing of the appeals that as per the statement of affairs, the claims of unsecured creditors were to to tune of Rs.3,19,76,000/- and that the unsecured claim of secured creditors were to the tune of Rs.92,95,942/- OJA/66/2006 15 JUDGMENT 9.2 Mr Desai has also submitted that the Transfer of Property Act does not provide for termination of lease upon winding up order and that the Bombay Rent Act is not