Case: The Official Liquidators,U. P. Union Bank Ltd Vs. Shri Rameshwar Nath Aggarwal

rules deals with the rent or other payment in arrears till the date of winding up. By the proviso, it is declared that the right of the landlord to claim payment by the company of the rent accruing due thereafter is not to be prejudiced. The proviso merely affirms the right of the landlord to claim payment of rent accruing due since the date of winding up. It does not deal with any question of priority in payment of debts. By S. 246 of the Indian Companies act, 1913, power is conferred upon the High Court to make rules consistent with the Act and the Code of Civil Procedure concerning the mode of proceedings to be had for winding up of t he company and certain other matters. The Legislature has by S. 230 prescribed that certain specified categories of debts shall rank for priority over other debts due by the company and it is not within the competence of the High Court to prescribe by rule a category for priority in payment which is not included in that section. By S. 193 of the Act, the court has, in the event of the assets being insufficient to satisfy the liabilities, indisputably power to make an order for payment out of the assets, of the costs, charges and expenses incurred in the winding up in such order of priority as the court thinks fit, and in exercise of the power conferred by S. 230, sub-cl. 3, the court may direct the company to retain such sums as may be necessary for the cost and expenses of the winding up of the company before discharging even the debts in respect of which priority is prescribed by S. 230. If, therefore, there is a debt which may reasonably fall within the description of costs and expenses of winding up of the company, the court may provide for priority in payment of that debt as it thinks just. 6. In the winding up of the company, it is open to the liquidators of disclaim land burdened with onerous covenants, of shares or stock in companies, of unprofitable contracts or of any other property that is unsaleable or not readily saleable. The disclaimer operates to determine as from the date of disclaimer the rights, interests and liabilities of the company and the property of the company, in or in respect of the property disclaimed. By S. 230-A, cl. 4, liberty is reserved to persons interested in the property requiring the liquidator to decide whether he will or will not disclaim. It is also open to the court under sub-s. 5 of S. 230-A on the application of any person entitled to the benefit or subject to the burden of a contract made with the company to make an order rescinding the contract on such terms as to payment of damages for non-performance of contracts. It is evident that on the winding up outstanding contracts of the company do not become ipso facto inoperative. The contracts remain binding until disclaimed or rescinded in the manner provided by S. 230-A; but the liability incurred under these contracts is merely an ordinary debt which ranks for claim to payment pro rata along with other creditors. If the debt be regarded reasonably as falling within the description of costs and expenses of winding up of the company, it is open to the court to direct that preferential payment in respect thereof be made; otherwise the debt will be claimable out of the assets of the company pro rata with other ordinary creditors. 7. Distinction has been made by the courts in England where the relevant provisions of the Companies Act are substantially the same that if the liquidator continues in possession of leaseholds for the purpose of the better realization of assets, the lessor will be entitled to payment of the rent in full, as part of the expenses properly incurred by the liquidator, but as observed by Lord Justice Lindley, In re Oak Pits Colliery Co., (1882) 21 Ch D 322 at p. 331.""No authority has yet gone the length of deciding that a landlord is entitled to distrain for or be paid in full rent accruing since the commencement of the winding-up, where the liquidator has done nothing except abstain from trying to get rid of the property which the company holds as lessee." 8. Evidently a distinction is made between property which remains in the occupation of the liquidator after the winding up when the occupation is shown to be for the purpose of liquidation and property which merely remain with the liquidator, he having abstained from trying to get rid of the same and it does not appear or is not shown that the property was used for the purpose of winding up. 9. The High Court held on the facts that the liquidators had remained in occupation of the premises not for the purpose of winding up but "because they could not think of any suitable method of getting rid of the premises in spite of all their desire to do so". It was pointed out that the Bank had closed its business and the liquidators were not carrying on any business after the winding up and the properties were not used by the liquidators for the purpose of liquidation.This conclusion of the High Court on the evidence has not been challenged. The property not having remained with the liquidators for the purpose of liquidation, unless the court passes an order holding that the debt incurred was part of the costs and expenses of liquidation, the rent accruing due since the date of the winding up cannot be claimed in priority over other ordinary debts. 10. We are therefore unable to agree with the High Court that under R. 97 of the Company Rules, if the premises remained in the occupation of the liquidators, not for the purpose of winding up, the landlord is entitled to priority in respect of payment of rent.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It is evident that on the winding up outstanding contracts of the company do not become ipso facto inoperative. The contracts remain binding until disclaimed or rescinded in the manner provided by S. 230-A; but the liability incurred under these contracts is merely an ordinary debt which ranks for claim to payment pro rata along with other creditors. If the debt be regarded reasonably as falling within the description of costs and expenses of winding up of the company, it is open to the court to direct that preferential payment in respect thereof be made; otherwise the debt will be claimable out of the assets of the company pro rata with other ordinary creditors9. The High Court held on the facts that the liquidators had remained in occupation of the premises not for the purpose of winding up but "because they could not think of any suitable method of getting rid of the premises in spite of all their desire to do so". It was pointed out that the Bank had closed its business and the liquidators were not carrying on any business after the winding up and the properties were not used by the liquidators for the purpose of liquidation.This conclusion of the High Court on the evidence has not been challenged. The property not having remained with the liquidators for the purpose of liquidation, unless the court passes an order holding that the debt incurred was part of the costs and expenses of liquidation, the rent accruing due since the date of the winding up cannot be claimed in priority over other ordinary debts10. We are therefore unable to agree with the High Court that under R. 97 of the Company Rules, if the premises remained in the occupation of the liquidators, not for the purpose of winding up, the landlord is entitled to priority in respect of payment of rent.