Case: M/S. Modella Woollens Limited Vs. The Official Liquidator &amp; Others

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 bearingof 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,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 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 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 its 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 nationalized vide Nationalization Act passed in this behalf in 1973. Pursuant to the scheme framed by the Central Government for taking over General Insurance business carried on by private insurance companies prior to passing of the Nationalization 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 its 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 bearingon 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 premiseson 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 theVulcan 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 its 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 its 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 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 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 its 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 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 atwhich 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.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 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 its behalf but its 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 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 theis 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 Unauthorized Occupants) Act, 1971 (hereinafter referred to as "the Public Premises Eviction Act). On and from the date of nationalization 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, 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 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 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 inThe 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 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 Liquidators 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.

Court's reasoning:
32. In the present case the undisputed fact is that post nationalization of the Insurance business the subject premises stood vested in the applicant and therefore, according to them, assumed character of "public premises". The submission proceeded on the basis that the Public Premises Eviction Act applies to the premises in question. By virtue of its character as public premises and the Public Premises Eviction Act prevailing over the Bombay Rent Act, the Court of Small Causes had no jurisdiction, authority and power to pass any decree in respect thereof. The further basis upon which the learned Judge proceeded is that the premises in question would be an asset and property of the company in liquidation and therefore, the Official Liquidator was bound in law to take possession thereof. The third assumption on the part of the learned Judge is that the Court of Small Causes passed a decree in a collusive suit inasmuch as without 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. Moreso, 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 jurisdiction or the Civil Court which ordinarily has such authority. Consequent upon termination of rights of the persons in occupation of public premises the Authority (Estate Officer) is empowered to issue appropriate directions including order of eviction. At the instance of the applicant who is the owner of the entire building and the subject premises, the learned Judge could not have gone into these aspects and proceed to quash and set aside the decree of the Court of Small Causes.34. True it is that conduct of the appellant as well as the company in liquidation is reprehensible and deserves to be strongly deprecated. However, such conduct alone would not clothe the Company Court with the necessary jurisdiction, power and authority in law. The Company Court was exercising jurisdiction within four corners of the Companies Act, 1956. It had before it the company petition for winding up upon which an order came to be passed of appointment of Provisional Liquidator and thereafter Official Liquidator. It has wound up the company. It may be that during the course of winding up the Liquidator has powers to take charge of all assets and properties and therefore, whenever he acts in furtherance of such powers those will be subject to directions that may be issued in that behalf by the Company Court. However, the question remains as to whether any directions could have been sought by him in respect of subject premises. That aspect is also not free from doubt inasmuch as tenancy rights of the company in liquidation may be "property" in law but for the purposes of winding up, they have been held to be not constituting an "Asset". Admittedly, the company in liquidation is not the owner of the premises. It is claiming tenancy rights in respect thereof. Therefore, whether such tenancy rights could have been taken over by the Liquidator is also not clear from the order of learned Single Judge. In fact, reliance placed by Mr.Madon in this behalf on the decision of Supreme Court in the case of Smt.Nirmala R. Bafna Vs. Khandesh Spinning and Weaving Mills Co. Ltd. and another is appropriate. The Honble Supreme Court was considering some what similar controversy in that case. That matter was carried from an order passed by this very Court.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 applicant had not instituted any proceedings against the company in Liquidation. It had also no claim against the applicant which could be continued against the Official Liquidator. Nor was a prayer made to transfer any pending proceeding by or against the company in liquidation. Additionally, as noted above, it is the applicant which has approached the Company Court. It has claimed reliefs principally against the appellant before us which is not a company in liquidation. Ultimately, the declaration as claimed affects the appellant before us. As to how at the instance of the applicant the Company Court could have nullified the decree passed in favour of the appellant before us in its limited jurisdiction, is not clear to us at all. Impleading the company in liquidation through Official Liquidator is also of no assistance in this case once the nature of the rights of the company in liquidation in the subject premises is appreciated. Unless and until the Company Court was of the view that the tenancy rights constitute asset for the purposes of liquidation proceedings, it could not have taken cognizance of the company application. In indirect and oblique manner, the Company Court could not have recorded any finding on the nature of rights of the company in liquidation. The Company Court could not have in such process pronounced upon rights of the appellant before us. Once there is a doubt expressed about right, title and interest of the company inin respect of subject premises, there was no occasion for the Company Court to have gone into the legality and validity of the decree passed by Court of Small Causes. Merely because the premises are public premises, according to the applicant, is also not of any relevance once these basic and fundamental aspects of the matter are appreciated and taken into consideration.37. In our view, in the light of the clear pronouncement of law, the Company Court had no jurisdiction to take cognizance of the company application and pass any orders and directions in favour of the applicant before it. Since the Company Court had no jurisdiction in law to pass the impugned order, the appeal must succeed on this short ground alone.38. In the light of the above conclusion, it is not necessary for us to go into the other contentions raised by Mr.Madon. It would not be proper to give any final and definite conclusion 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 11th August 1993. It is the case of the applicant that prior thereto it had no knowledge of the nature of 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.