Case Laws Companies Act Smt Nirmala Bafna Vs Khandesh Spinning and Weaving

Case Laws Companies Act

Smt Nirmala Bafna Vs Khandesh Spinning and Weaving

PETITIONER:
SMT. NIRMALA R. BAFNA/KERSHI SHIVAX CAMBATTA ANDORS.

Vs.

RESPONDENT:
KHANDESH SPINNING AND WEAVING MILLS CO. LTD. ANDANR./OFFICIA

DATE OF JUDGMENT25/02/1992

BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
VENKATACHALLIAH, M.N. (J)
AHMADI, A.M. (J)

CITATION:
1993 AIR 1380 1992 SCR (1) 985
1992 SCC (2) 322 JT 1992 (4) 245
1992 SCALE (1)485
ACT:
Landlord and Tenant :
Tenant-Company under liquidation-Official Liquidator
took possession of premises-Suit by appellant claiming sub-
tenancy pending-In appeal arising out of an application
under s. 446 of Companies Act, appellant allowed to be in
occupation as agent of official liquidator-Directions of
High Court-Whether amounted to dispossession and altered
status of appellant; Whether warranted at interlocutory
stage.

 

HEADNOTE:
The respondent company was the tenant of the flat in
dispute. Consequent upon a winding up order in respect of
the Company in Company Petition No. 59 of 1984 the official
liquidator took possession of the flat and sealed it. The
appellant in C.A.No. 886/92 before this Court, who is the
sister of one of the Directors of the Company claimed on the
basis of an agreement dated 15.7.79 said to have been
entered into between her and the Company, to be the sub-
tenant of the flat except a small portion thereof and that
with the consent of the landlord she was in possession of
the premises since the date of the agreement. The official
liquidator delivered the possession of the premises to her,
but later he threatened to dispossess her, whereupon the
appellant filed a suit against the company in the court of
Small Causes for injunction and for a declaration that she
was the lawful tenant and/or a protected sub-tenant of the
flat in dispute (excluding the portion reserved for the
Company).
On an objection raised by the Official liquidator the
appellant applied under s. 446 of the Companies Act to the
High Court for grant of leave to proceed with the suit. The
Company Judge rejected the application holding the suit a
collusive.
986
On appeal, the Division Bench transferred the suit to
the High Court granting leave with the conditions that the
official liquidator would take possession of the entire
premises and would allow the appellant to occupy the area
in the premises, which at the relevant time was in her
possession, as an agent of the official liquidator pending
the disposal of the suit, on payment of a monthly
compensation of Rs. 7,500 besides depositing Rs. 15,000.
Aggrieved the appellant preferred the appeal by special
leave to this Court.
The landlord-Trust filed a company application in
Company Petition No. 59 of 1984 for possession of the flat
including symbolic possession of the premises in occupation
of the appellant on the ground that the Company no more
required the portion in their possession. The Single Judge
dismissed the application holding that the liquidator
required the said portion for storing the company records at
Bombay. Dismissing the consequent appeal the Division Bench
of the High Court held that a proposal from Rashtriya Girni
Kamgar Sangh for revival the Company was under
consideration. The said order is the subject matter of
C.A.No. 887 of 1992.
It was contended on behalf of the appellant that the
tenancy interest of the company in the flat was not an asset
of the Company in liquidation and th liquidator could not
trade in the said right; that the appellant had a right to
be in possession of the premises in her own right as a sub-
tenant; and in view of the Bombay Rent Act, the High Court
erred in converting the appellant into an agent of the
official liquidator and in imposing the conditions and
enhancing the rent.
The official liquidator contended that the landlord
Trust acted beyond th authority in consenting, if at all, to
the said sub-tenancy.
Counsel for the landlord-trust accepted the fact of
oral consent to the sub-tenancy.
Against an order dated 9.8.1989 passed by the Company
Judge, the landlord Trust -filed S.L.P. No. 16368 of 1990
before this Court as also an appeal before the Division
Bench of the High Court. Since the appeal had been
dismissed by the High Court, this court dismissed the
special leave petition as infructuous.
Disposing of the appellant’s appeal (C.A.No. 886/92)
and dismissing
987
the appeal of the landlord – Trust (C.A.No. 887/92), this
Court,
HELD : 1. Merely because a company goes in liquidation
and a liquidator/official liquidator is appointed, the
rights of the company viz a-viz its landlord and/or its
tenant do not undergo any change. [p. 994C-D]
2. The tenancy rights the company had in the flat in
dispute may not be an asset for the purpose of liquidation
proceedings. [p. 994B-C]
3. Having regard to the facts – the admission of
official liquidator of a special resolution passed by the
Board of Directors of the Company affirming the sub-tenancy,
and the consent of the landlord-Trust to the said sub-tenancy
(a fact not present before the High Court) and appellant’s
possession over a major portion of the said flat on the
date of appointment of the official liquidator on a monthly
rent of Rs. 600 payable by the appellant to the Company as
against the monthly rent of Rs. 900 payable by the Company
– the appellant’s plea of sub-tenancy is, preima facie,
established; and in the circumstances, prima facie speaking,
her claim of protection of Bombay Rent Control Act cannot
be rejected.
[pp.993 C-D; GH; 994A-B]
4. The rights of the appellant and the questions
whether the sub-tenancy is true, whether it is valid in law
and whether the consent of the landlord is true and valid
would be decided in the suit. [9. 993E-F]
5.1 The directions made by the Division Bench of the
High Court have the effect of dispossessing the appellant
from the premises in dispute and were not warranted at the
interlocutory stage when the rights of the appellant are yet
to be adjudicated upon. The character of her possession has
also wrongly been altered as she is permitted to be in
occupation of a portion of the flat as an agent of the
liquidator. [p. 994D-F]
5.2 Having regard to the particular facts and
circumstances of the case and with a view to safeguard the
rights of the company in the event of dismissal of the suit,
the appellant should furnish security in a sum of rupees
five lakh by way of bank guarantee to the satisfaction of
the Company Judge. The amount already deposited shall
continue to lie in Court. The instant arrangement is an
interim one pending the suit and shall not reflect upon the
merits of the the suit. [pp. 994 G-H; 995A-B]
6. The official liquidator’s requirement of the
portion of the flat (which is in his actual possession) for
storing the company books, and
988
the proposal of the Rashtriya Girni Kamgar Sangh who are
said to have formed an action committee of the Khandesh Mill
Employees Industrial Production Co-operative Society for
revival of the said company are relevant factors; and the
High Court rightly dismissed the application and the appeal
filed by the landlord Trust. [p. 996B-E]
Ravindra Ishwardas Sethna & Anr. v. Official
Liquidator, High Court, Bombay & Anr., [1983] 4
SCC 269, cited.

 

JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 886-
887 of 1992.
From the Judgements and Orders dated 2.9.1986 &
12.11.1990 of the Bombay High Court in Appeal Nos. 777/86
and 1038 of 1990.
With
Special Leave Petition (C) No. 16368 of 1990.
B. A. Masodkar, B.K. Mehta, G.L. Sanghi, A.M.
Khanwilkar, Vimal Dave, V.D. Khanna, R.F. Nariman, R.N.
Karanjawala, Ms. Manik Karanjawala and Sanjay Singh for the
appearing parties.
Nitin Thakkar for the intervenor.
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY, J. In S.L.P. No. 12199 of 1986
1. Leave granted.
2. The appeal is directed against the Judgement of a
Division Bench of the Bombay High Court in Appeal No. 777 of
1986 disposing of the appeal preferred by the appellant with
certain directions.
3. Khandesh Spinning and Weaving Mills Pvt. Ltd. Went
into liquidation at the instance of a creditor. The order
of winding up was passed on September 19, 1984 in company
petition No. 59 of 1984. The official liquidator was
appointed as the liquidator for the company.
4. The company was the tenant of a flat situated at
Church-gate, Bombay. It is fairly big flat having an area
of 3500 sq. ft. The company had its registered office in
the said flat until it was shifted to Jalgoan
989
sometime prior to July, 1979.
5. The appellant is the sister of one of the directors
of the company. Her Husband was the Manager of the company.
According to her, she entered into an agreement with the
company on July 15, 1979 whereunder a sub-tenancy was
created in her favour in respect of he said flat except for
a small are of 150 sq. ft. which was retained by the
company. According to her, the landlord had orally
consented to the creation of sub-tenancy in her favour. The
rent of the flat payable to the landlord was Rs. 900 per
month. Under the said agreement, the appellant was to pay
Rs. 600 every month to the company. She says further that
she was put in possession of the said portion on the date of
agreement and has continued in possession ever since.
6. The liquidator appointed by court for the company
took possession of the entire flat in October, 1984. He
sealed it. Against the order of winding up dated September
19, 1984, an appeal was preferred and the operation of the
order including the appointment of the liquidator stayed on
October 29, 1984. Soon thereupon, the appellant wrote to
the official liquidator (on October 30, 1984) calling-upon
him to allow her to use the premises in her occupation
without any hindrance or disturbance from him. In this
letter, she referred to the agreement of sub-tenancy arrived
at with the company in or about March, 1979 and stated that
the agreement is lying in the said premises sealed by
official liquidator and that the exact portion given to her
is delineated in the plan annexed to the agreement. She
asserted that since the date of agreement, she has been in
possession of the premises, paying the agreed rent to the
company without any default. The premises were sealed, she
said, during her absence and that she discovered the same
only on her return from Indore on October 29, 1984.
7. The official liquidator delivered possession of the
premises to the appellant.
8. In the appeal preferred against the order of
winding up, a Division Bench of the Bombay High Court, by
its order dated January 31, 1985, appointed a provisional
liquidator. The appeal was dismissed later on September 9,
1985.
9. In November, 1984 the appellant filed a suit, being
suit No. 4873 of 1984, in the court of Small Causes for a
declaration that she is the lawful
990
tenant and/or protected sub-tenant of the said flat
(excluding the portion reserved for the company) and for an
injunction restraining the defendant from interfering with
her possession and enjoyment. The sole defendant to the
suit was “Khandesh Spinning and Weaving Mills Pvt. Ltd.
having its registered office at Station Road, Jalgaon
(Maharashtra State)”. The appellant also applied for and
obtained a temporary injunction against the defendant-
company. Sometime in October, 1985, the official liquidator
appeared in the suit on behalf of the defendant and raised
an objection that without the leave of the company-court,
the suit cannot proceed. Evidently to meet this objection
the appellant applied to the company Judge (High Court of
Bombay) on March 12, 1986 for grant of leave to proceed with
the suit under section 446 of the Companies Act. The
application was registered as Company Application No. 38 of
1986. The official liquidator filed an application under
Sub-section (3) of Section 446 for transfer of the said
suit to the High Court to be tried by the Company-Judge,
which application was registered as Company Application No.
141 of 1986. Both these applications came up before the
Company Judge on August 20, 1986. In a short order the
learned Judge dismissed the Company Application No. 38 of
1986 observing that :
“the suit instituted by the applicant after the
winding up order is collusive and claim is
dishonest. The appellant is a sister of one of the
directors and claims to have tenancy right in
respect of a portion of a company’s office. I am
not satisfied that a claim even required an
investigation. P.C. Judges summons dismissed.”
10. No orders were passed on Company Application No.
141 of 1986, presumably because Company Application No. 38
of 1986 was dismissed.
11. On August 22, 1986, the official liquidator called
upon the appellant to deliver possession of the premises in
her possession. Upon the appellant’s failure to comply with
the said demand, the official liquidator obtained an order
from the Company-Court, on August 27, 1986, empowering him
to take possession of the said premises. The appellant says
that in pursuance of the said order the official liquidator
again put a seal on the said premises.
12. On August 28, 1986 the appellant filed an appeal
against the
991
order of the Company Judge dated 20th August, 1986, which
was disposed of on September 1, 1986. At this stage, it
would be appropriate to notice the reasoning of, and the
directions given in the said Judgment (impugned herein).
After referring to the appellant’s plea of Sub-tenancy and
oral consent of the landlord thereto, the Bench observed,
“It is extremely difficult to believe that such consent
would be given by the landlord looking into the conditions
relating to availability of premises prevailing in Bombay.”
The Bench observed that for a similar premises, the rent
would not be less than Rs. 20,000 per month and that the
alleged agreement of sub-tenancy “appears to be bogus and/or
at any rate of extremely doubtful legal validity.” The
Bench then opined: “however, bogus or fraudulent the
agreement between the company and the appellant may appear
to be, the claim of the appellant will have to be adjusted
(adjudicated?) upon “and that, therefore, leave is to be
granted. Accordingly, it granted leave and transferred it,
with the consent of both the parties, to High Court. The
Bench took notice of the fact that there are several
liabilities outstanding against the company including the
claim of workers for salary and provident fund amounts and
further that the official liquidator requires a portion of
the said flat for storing the books of the company. Having
regard to all the said circumstances, grant of leave was
made subjected to certain conditions which conditions alone
constitute the subject matter of this appeal. They run as
follows:
“Further the official liquidator is directed to
take possession of the said entire premises in
which the company’s office was originally situated,
including the portion of the premises in the
occupation of the appellant. The official
liquidator, however, will allow the appellant to
occupy the area in the said premises which is at
present in her possession, save and except for room
No. 2 as marked in Exhibit `A’, as shown in the
plan which is put on record by consent of parties
…. She will however, remain in occupation as
agent of the official liquidator pending the
disposal of the suit which is transferred to this
court, on payment of a monthly compensation of Rs.
7500 per month. She will also deposit a sum Rs.
15,000 with the official liquidator as security
deposit. She will pay the monthly amounts on or
before date 10th day of each month, starting from
10th September, 1986. She will deposit the sum of
Rs. 15,000 on or before 10th October 1986. In the
event of her committing any
992
default in the payment of the security amount or
any two monthly amounts, the official liquidator to
take possession of the premises in her occupation
forthwith”.
13. It was made clear that “this order is without
prejudice to the rights and contentions of the parties in
the said suit and is subject to the result of the said suit.
It will also be open to the learned Judge hearing the said
suit to vary this order in the event of any change of
circumstances or to pass any other appropriate interim
orders, as may be required.”
14. Sri Masodkar, learned counsel for the appellant
submitted that the Division Bench was in error in rejecting,
on a mere presumption, the appellant’s case that the
landlord had consented to the sub-tenancy in her favour.
The landlord himself has come forward with certain
applications of his own wherein he has affirmed his oral
consent to the sub-tenancy in favour of the appellant.
Counsel submitted that the conditions imposed by the
Division Bench are contrary to law inasmuch as the
protection of Bombay Rent Control Act. Act available to the
appellant cannot be ignored or undone merely because the
company has gone into liquidation. He submitted that the
appellant can be evicted only by an authority under the Rent
Control Act on the grounds specified in the Act. The
enhancement of rent from Rs. 600 to Rs. 7,500 is equally
incompetent for the same reason. He submitted further that
the tenancy interest the company had in the said flat is not
an asset of the company in liquidation and that, at any
rate, the liquidator cannot trade in the said right. He
complained that the appellant had a right to be in
possession of the said premises in her own right as a sub-
tenant, and that the Division Bench acted illegally in
converting the appellant into an agent of the official
liquidator. The company court had no jurisdiction to
direct the official liquidator to take possession of the
entire flat including the portion in possession of the
appellant, he submitted.
15. Sir Mehta, learned counsel for the official
liquidator supported the reasoning and directions given by
the Division Bench. He submitted that the story of sub-
tenancy is untrue besides being invalid. The story of
consent of landlord to the alleged sub-tenancy agreement is
equally untrue. The trustee (representing the landlord-
trust) acted beyond the authority in consenting to the said
sub-tenancy, assuming that there was such a consent. Having
regard to the close relationship of the appellant with one
of the
993
directors of the company (and the Manager of the company),
and in all the facts and circumstances of the case, the
directions made by the Division Bench are perfectly just and
that this court ought not to interfere with the same. He
submitted that the directions made by the Division Bench are
discretionary in nature and have been made without prejudice
to the rights and contentions of the parties in the said
suit. The Bench has further empowered the company Judge to
vary the said directions at any time he thinks proper.
Having regard to the prevailing rents in Bombay, the
location of the flat and all the circumstances of the case,
the monthly compensation fixed by the Division Bench is in
fact on the lower side, submitted the counsel.
16. At this stage, we must refer to the stand taken by
the counsel for the landlord-trust. The two SLPs filed by
the landlord trust were posted and heard alongwith this SLP.
Sri G.L. Sanghi, learned counsel for the landlord trust
stated before us that the trustees have indeed consented
orally to the sub-tenancy agreement between the company and
the appellants. We must say that this circumstance was not
present before the Division Bench and evidently for this
reason that the Bench appears to have rejected the theory of
consent of the landlord. We cannot however refuse to take
notice of the said statement of the counsel. We do so for
the limited purpose of this appeal.
17. From the facts narrated above, it would be evident
that the rights of the appellant have to be adjudicated in
the suit filed by her which is now transferred to the High
Court with the consent of both the parties. Whether the
sub-tenancy is true, whether it is valid in law and whether
the consent of the landlord is true and valid, are all
questions which arise for decision in the suit. We cannot
pronounce upon them at this stage. The only question for
our consideration is whether the directions given by the
Division Bench, extracted hereinabove, are justified in the
circumstances of the case and in law?
18. It is admitted by the Official liquidator that the
Board of directors of the company had indeed passed a
special resolution affirming the agreement of sub-tenancy
in favour of the appellant. (In her plaint in Suit No.
4873 of 1984 the appellant has referred to the said special
resolution of the Board of directors.) This fact coupled
with the statement of the learned counsel for the landlord-
trust establishes, prima facie, the
994
appellant’s plea of sub-tenancy. That she was in possession
of a major portion of the said flat on the date of
appointment of liquidator is also not in dispute. According
to the sub-tenancy agreement, the rent payable by the
appellant is Rs. 600 per month as against Rs. 900 per month
payable by the company to the landlord for the entire flat.
In the above circumstances, we cannot reject, prima facie
speaking, the appellant’s claim of protection of Bombay Rent
Control Act. In addition to this factual situation, there
are two other circumstances which must be taken into
consideration, viz.,
a. The tenancy rights the company had in the
said flat may not be an asset for the
purpose of liquidation proceedings and
b. merely because a company goes in
liquidation and a liquidator/official
liquidator is appointed, the rights of the
company viz-a-viz its landlord and/or its
tenants do not undergo any change.
19. In view of the above facts and circumstance, we
are of the opinion that the directions made by the Division
Bench were not really warranted at this stage. The said
directions have the effect of dispossessing the appellant
from the said premises at an interlocutory stage. The
character of her possession has also been altered-she is now
permitted to be in occupation of a portion of the flat as
the agent of the liquidator. These directions, in our
opinion, were not really warranted, at any rate, at this
stage of the proceedings. When the rights of the appellant
are yet to be adjudicated upon. One important circumstance,
which was not present before the Division Bench and which
has been brought to our notice is the consent of the
landlord to the sub-tenancy in her favour. In the light of
all the circumstances, we are of the opinion that the
directions extracted hereinbefore in para were really not
called for, at the interlocutory stage. However, having
regard to the particular facts and circumstances of this
case, and with a view to safeguard the rights of the Company
in the event of dismissal of the aforesaid suit, we direct
the appellant to furnish security in a sum of Rupees 5 lakhs
by way of a Bank guarantee to the satisfaction of the
learned company Judge of the Bombay High Court, within two
months from today. The amount already deposited by the
appellant in pursuance of the order under appeal shall
continue to lie in court. The
995
said amount and the security furnished by her in pursuance
of this order shall be subject to the decision in the
appellant’s suit, now transferred to the Bombay High Court.
20. We make it clear that this is only an interim
arrangement pending the suit and shall not reflect upon or
affect the merits of the suit or any of the rights and
contentions of the parties. In case the appellant fails to
furnish the security as directed herein, within the time
prescribed, the directions of the Division Bench will revive
and come into operation forthwith.
21. The Appeal is disposed of accordingly.
S.L.P.(C) NOS. 15678 of 1990 and 16368 of 1990
S.L.P. No 16368 of 1990 is directed against the order
dated 9.8.1990 passed by a learned Single Judge of the
Bombay High Court in Company Application No. 43 of 1989 in
Company Petition No. 59 of 1984. Pending the said S.L.P.,
the appeal preferred by the petitioner-appellant against the
aforsaid order of the learned Single Judge was dismissed by
a Division Bench on 12.11.1990 (Appeal No. 1028 of 1990).
S.L.P. No. 15678 of 1990 is preferred against the order of
the Division Bench. For this reason, S.L.P. No. 16368 of
1990 has become infructuous and is, accordingly, dismissed.
Leave granted in the S.L.P. No. 15678 of 1990.
The appellant- petitioner is a Trust which owns the
flat in question. On 22.12.1988, the appellant filed an
application (Company Application No. 48 of 1989) in Company
Petition No. 59 of 1984 for a direction to the official
liquidator to surrender possession of the said flat to the
appellant including symbolic possession of the portion in
possession of Smt. Nirmala R. Bafna. According to the
appellant, the sub-tenancy in favour of Smt. Nirmala R.
Bafna was created with their consent. The ground on which
vacant possession of the remaining portion was asked for was
that the official liquidator, or the Company, does no more
require the said portion for their purpose. Reliance was
placed upon the decision of this Court in Ravindra Ishwardas
Sethna & Anr. v. Official Liquidator, High Court, Bombay and
Anr., [1983] 4 S.C.C. 269. The official liquidator opposed
the application. The learned Single Judge dismissed the
application by his
996
order dated 9.8.1989. The learned Judge was of the opinion
that the decision in Sethna has no application to the facts
herein and that more-over the liquidator requires the said
portion (of the flat in his possession) for storing the
company records at Bombay. The Appeal Court, while
affirming the relevance of the reason given by the learned
Single Judge, gave an additional reason in support of their
order viz., that a proposal received from the Rashtriya
Girni Kamgar Sangh for revival of the said Company is under
consideration. The order of the Division Bench is
challenged herein.
That the official liquidator requires the portion of
the flat (now in his actual possession) for storing the
company books, is certainly a relevant consideration. Mr.
Sanghi, learned counsel for the appellant, argued that the
official liquidator does not require the said premises for
storing the books and that he can store the books in his
office or anywhere else. May be, the liquidator can do so,
but we cannot force him to do so, so long as the reason
given by him for continuing in possession is a relevant one.
Secondly, the fact that the proposal of th Rashtriya Girni
Kamgar Sangh who are said to have formed an action
Committee of the Khandesh Mill Employees Industrial
Production Co-operative Society, for revival of the said
Company was an equally relevant factor. Mr. Sanghi states
that the said proposal has come to nought. We do not know.
suffice it to say that the reasons for which the application
filed by th appellant-landlord (and his appeal) have been
dismissed cannot said to be irrelevant. We cannot,
therefore, interfere with the said orders. The appeal is ,
accordingly dismissed. No costs.
It is, however, made clear that if there is any change
in the circumstances, it is always open to the landlord-
appellant to approach the Company Court for such directions
as they think appropriate in the circumstances of the case.
R.P. CA No. 886/92 disposed of and
CA No. 887/92 dismissed.
997

 

 

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