PETITIONER:
THE OFFICIAL LIQUIDATORS,U. P. UNION BANK LTD.
Vs.
RESPONDENT:
SHRI RAMESHWAR NATH AGGARWAL
DATE OF JUDGMENT:
10/11/1959
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
GAJENDRAGADKAR, P.B.
SUBBARAO, K.
CITATION:
1960 AIR 332 1960 SCR (2) 189
ACT:
Company Law-Winding up of Bank-Landlord’s claim for rent of
bank premises after order of winding up -Official
Liquidators calling upon Landlord to take possession of the
premises and not using the same for the purposes of winding
up-Landlord refusing to take possession-Whether Official
Liquidators liable- Indian Companies Act, 1913 (VII of
1913), ss. 193, 230, 230(3)-Company Rules framed by the
Allahabad High Court r. 97 (Proviso).
HEADNOTE:
The U. P. Union Bank was in occupation of a building
belonging to the respondent as a tenant. After the passing
of the winding up order of the bank the Official Liquidators
removed the offices of the bank from the premises and called
upon the respondent landlord to take possession thereof.
The respondent refused to do so as part of the premises was
occupied by some trespassers. Thereafter the Official
Liquidators did not do any business in the building in
connection with the winding up of the bank. The respondent
claimed the entire rent from the date of the winding up
order up to the date on which the Official Liquidators would
give him vacant possession of the premises. The High Court
held that in view of the proviso to r. 97 of the Rules
framed by the High Court under the Companies Act the
respondent was entitled to recover the entire rent claimed
by him and not pro-rata with the other creditors of the
bank.
The proviso to r. 97 of the Company Rules runs thus:
” Provided that where the official liquidator remains in
occupation of premises demised to a company which is being
wound up, nothing herein contained shall prejudice or affect
the rights of the landlord of such premises to claim payment
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by the Company or the Official Liquidator of rent during the
period of the company’s or the Official Liquidator’s
occupation.”
On appeal by the Official Liquidators by a certificate of
the High Court:
Held, that the landlord respondent was not entitled to claim
priority in respect of payment of rent because the proviso
to r. 97 of the Company Rules framed by the High Court
affirms the right of the landlord to claim payment of rent
accruing due since the date of winding up but does not deal
with the question of priority in payment thereof, and
further because the building in question did not remain in
the possession of the liquidators for the purpose of
liquidation.
In re Oak Pits Colliery Company, 1882 Ch. D. 321, followed.
Held, further, that s. 230 of the Companies Act, 1913, which
specifies categories to which priority in payment should be
given, does not give priority to rent due to landlord and it
is not within the competence of the High Court to give
priority by its rules to a category which is not included in
that section.
Under s. 193 the Court has power to order payment of the
costs and expenses of winding in such priority as it thinks
fit in cases where the assets are insufficient to discharge
the liabilities, and S. 230(3) empowers the Court to direct
the company to retain such sums as may be necessary for the
costs and expenses of winding up even before discharging the
debts for which priority is given by s. 230.
If a debt can reasonably be described as costs and expenses
of winding up the court may direct preferential payment
thereof, otherwise only pro-rata payment with the other
ordinary creditors can be claimed out of the assets of the
company.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No.28 of 1958.
Appeal from the judgment and order dated April 17, 1956, of
the Allahabad High Court, in Special Appeal No. 20 of 1954,
arising out of the judgment and order dated February 10,
1954, of the said High Court (Company Jurisdiction), in
Application No. 29 of 1953/Company case No. 24 of 1949.
1959. October 30. H. N. Sanyal, Additional Solicitor-
General of India, and N. C. Sen, for the appellant. Rule 97
of the High Court Company Rules merely gives the landlord
the right to claim payment of rent and nothing more. It
does not give any priority to him. The question of priority
is dealt with in s. 230 which gives no priority to the
landlord.
[Shah, J.–Top priority is given to costs and expenses of
winding up under ss. 193 and 203(3).
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We offered possession to the landlord and we never used the
premises for the purpose of liquidation after the winding up
order. Therefore the rent claimed by the landlord cannot he
treated to have been incurred as costs and expenses of
winding up.
The real question for decision is whether we used the
premises for the purpose of liquidation. It has been found
by the High Court that we did not do so. There is a rule
under the English Companies Act which is identical to our r.
97 but none of the English cases have gone so far as to make
the liquidators liable for the rent claimed by the landlord
even if the premises were not used for the purpose of
liquidation.
In re Silkstone and Dodworth Coal and Iron Company, 17 Ch.
D. 158, In re Oak Pits Colliery Company, (1882) Ch. D. 21
and In re Levy and Company, 1919 Ch. D. 416, cited.
The Oak Pits case definitely holds that the landlord is not
entitled to full rent accruing since the commencement of the
winding up if the liquidator has done nothing except abstain
from trying to get rid of the property. This principle
should be applied in this case and r. 97 should not be so
interpreted as to give any priority to the landlord.
A. V. Viswanatha Sastri, Mrs. E. Udayaratnam and S. S.
Shukla, for the respondent. By a previous order Mootham,
J., who was then dealing with company matters in the High
Court, passed an order to the effect that the landlord was
entitled to recover rent from the bank from the date of
winding up to the date when the liquidators would give him
possession and thus terminate the tenancy. This order was
virtually passed under S. 45B of the Banking Companies Act
and the respondent was entitled to payment according to the
tenor of the order which is that he should be paid in full.
[Shah, I.-How can a decree drawn up as a result of that
order be executed ? The amount has to be proved.]
H. N. Sanyal, Additional Solicitor-General of India, and
N. C. Sen, in reply. Mootham, J’s order simply purports
to declare the liability of the liquidators but does not
decide the question of priority.
1959. November 10. The Judgment of the Court was delivered
by
SHAH J.-The U. P. Union Bank Ltd. (which will ‘hereinafter
be referred to as the Bank) was in occupation as a tenant of
a building in Agra town belonging to the respondent. at a
monthly rental of Rs. 325 and Rs. 10 as municipal taxes.
The Bank made default in paying the rent accruing due and
the respondent filed suit No. 810 of 1949 in the court of
the Munsiff
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at Agra for a decree for rent for three months and obtained
an order of attachment before judgment on the movable
property of the Bank. The Munsiff by his decree dated
December 2, 1949, decreed the suit, and confirmed the order
of attachment before judgment. In the meanwhile, on a
petition dated September 13, 1949, the Bank was ordered to
be wound up by the High Court of Judicature at
Allahabad and the appellants were appointed liquidators of
the Bank. The employees of the Bank had vacated the
premises on September 10, 1949, but the property of the Bank
which was attached was with the consent of the respondent
stored by the Commissioner appointed by the Munsiff’s court
in the Banking hall which was sealed by that officer. A
part of the premises was, it appears, occupied by some
trespassers. The Official Liquidators called upon the
respondent to take possession of the premises, but the
latter declined to do so unless vacant possession of the
entire premises was given to him. On November 30,1950, the
respondent applied to the High Court for permission to file
a suit for ejectment and for arrears of rent due since
September 30, 1949. Mr. Justice Mootham, who heard the
application declined to grant permission holding that the
claim which the respondent intended to put forward against
the Official Liquidators in the course of the proposed suit
may be adjudicated upon in the winding up proceeding, and
with the consent of parties, the learned Judge proceeded to
decide that claim. By order dated August 30, 1951, Mr.
Justice Mootham
I hold that the petitioner is entitled to recover rent from
the Bank at the rate of Rs. 325 per mensem from 1st October,
1949, upto the date on which the Official Liquidators give
the petitioner (the landlord) such possession of the
premises as will, in law, terminate the Bank’s tenancy.”
Against this order, the Official Liquidators preferred an
appeal being special appeal No. 17 of 1952, to a Division
Bench of the High Court.
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On April 23, 1953, the respondent applied to the Joint
Registrar of the High Court to issue a certificate of non-
satisfaction and to transfer the order to the court of the
Civil Judge of Allahabad for execution. The Joint Registrar
issued a certificate of non-satisfaction of the order and
directed that the same be transmitted to the District Judge,
Allahabad, for execution. The respondent filed an
application for execution in the court of the Civil Judge,
Allahabad, and obtained an order for attachment of an amount
of Rs. 12,000 lying to the credit of the Official Liquid-
ators in the Allahabad Bank. The Official Liquidators
thereupon applied to the High Court praying that the
execution proceedings pending in the court of the Civil
Judge, Allahabad, be declared void and the order of
attachment of the fund in the account of the Official
Liquidators passed by the Civil Judge be quashed. Mr.
Justice Brij Mohan Lall, who heard the application held that
the proceeding commenced against the Official Liquidators,
without the sanction of the court under ss. 171 and 232, cl.
I of the Indian Companies Act, 1913, and the attachment
ordered thereunder were void and directed that the
certificate of non-satisfaction be recalled. Against this
order. the respondent preferred a special appeal to the High
Court being appeal No. 20 of 1954. Appeals Nos. 17 of 1952
and 20 of 1954 were then heard. Appeal No. 17 of 1952 was
dismissed and by an order passed on April 17, 1956, the High
Court partially modified the order of Mr. Justice Brij Mohan
Lall, and directed the Official Liquidators to pay to the
respondent in full the amount that had fallen due to him
after October 1, 1949.
The High Court was of the view that the Official Liquidators
having retained the Bank’s premises in their occupation, by
virtue of the proviso to r. 97 framed by the High Court, the
respondent was entitled to receive the rent due to him in
full and was not liable to share the assets of the Bank pro
rata with the other ordinary creditors. Against the order
passed by the High Court, this appeal has been preferred
with the certificate of the High Court.
25
194
By his order Mr. Justice Mootham, merely declared the
liability of the Bank to pay-the rent accrued due
since October 1, 1949: there is no direction for payment of
the amount, and it is not necessary to consider the plea
raised by counsel for the respondent that the order
being virtually one under s. 45-B of the Banking Companies
Act, the respondent was entitled to payment according to
the tenor of the order. The order in terms declares the
liability and does not decide any question of priority
between the respondent and other creditors of the Bank.
By s. 647 of the Companies Act No. 1 of 1957, the winding up
of the Bank having commenced before that Act was enacted,
the provisions with respect to the winding up contained in
the Indian Companies Act No. VII of 1913, continue to apply
to the Bank in the same manner and in the same circumstances
as if Act 1 of 1957 had not been passed. By s. 230 of the
Indian Companies Act, 1913, provision is made for payment of
specified categories of debts in the winding up in priority
to all other debts; but rent due to the landlord is not one
of such debts to which priority is given by s. 230. The
High Court held that in as much as by r. 97 of the Company
Rules, it was provided,
” When any rent or other payment falls due at stated
periods, and the order or resolution to wind up is made at
any time other than one of such periods the persons entitled
to the rent or payment may prove for a proportionate part
thereof up to the date of the winding up order or resolution
as if the rent or payment grew due from day to day:
Provided that where the Official Liquidator remains in
occupation of premises demised to a company which is being
wound up, nothing herein contained shall prejudice or affect
the right of the landlord of such premises to claim payment
by the company, or the Official Liquidator of rent during
the period of the company’s or the Official Liquidator’s
occupation; ”
for the rent accruing due in respect of the premises which
remained in the occupation of the Official
195
Liquidators, the respondent was entitled to preferential
payment. The operative part of the rule 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 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 the 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 insuffiicient 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 costs 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.
In the winding up of the company, it is open to the
liquidators to 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
196
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 requirng 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.
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 Companys (1).
” 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.”
Evidently a distinction is made between property which
remains in the occupation of the liquidator
(1) 1882 Ch. D- 321, 331.
197
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 got
rid of the same and It does not appear or is not -shown that
the property was used for the purpose of winding up.
The High Court held on the fact 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 tip 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 cannot be claimed in priority -over other ordinary
debts.
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. On the view taken by us, the appeal
will be allowed, the order passed by the High Court set
aside and the order passed by Mr. Justice Brij Mohan Lall
restored with costs in this Court and in the High Court.
Appeal allowed.
198