West Bengal Small Industries Development Corporation Limited Vs. Official Liquidator - Court Judgment

Bhaskar Bhattacharya, J.

1. This is an application for review of the order dated 25th November, 2004 passed by a Division Bench of this Court in A.C.O. No. 73 of 2004 arising out of A.P.O.T. No. 249 of 2004 thereby setting aside an order passed by the Company Court (rejecting an application under Section 535 of the Companies Act) and allowing the Official Liquidator to occupy the disputed leasehold interest of the company in liquidation on paying out of the sale proceeds received by him a sum of Rs. 30,000/- a month to the appellant until the Energy Trading Company Ltd., the subsequent purchaser, succeeds in obtaining negotiated terms with the appellant or the land is cleared and the possession thereof is given back to the appellant fully.

2. The facts giving rise to filing of the present application may be summed up thus:

(a) By an indenture of lease dated 14th February, 1969 between the Governor of the State of West Bengal and the company in liquidation, a 99 years lease commencing from 1st September, 1968 was executed with an option to the lessee to renew the lease for another 99 years. By another indenture of lease dated 19th February, 1991 the State of West Bengal demised to the company in liquidation an area of 260 sq. ft. at a monthly rental of Rs. 26.72 which would to be reduced to Rs. 8.6(3 per year after the expiry of 30 years.

(b) The said company, viz. Wellman Incandescent Limited had been wound up by an order dated 24th September, 2002 passed by a learned Single Judge in BJFR Case No. 55 of 1998 and the Official Liquidator, High Court had been appointed the Liquidator of the said company.

(c) After the order of winding up was passed, the West Bengal Small Industries Development Corporation [hereinafter referred to as (WBSIDC)] filed an application under Section 535 of the Companies Act, 1956 thereby praying for a direction upon the Official Liquidator to hand over vacant possession of the leasehold interest and alternatively, for a direction upon the Official Liquidator to disclaim possession of the said leasehold interest. The applicant further prayed for direction upon the Official Liquidator to pay off the outstanding dues of Rs. 12,650.65 paise to the WBSIDC.

(d) The learned Company Judge rejected such application with the observation that the leasehold interest of the company was an asset of the company and the same had to be taken into account by the Official Liquidator at the time of sale of assets of the company and that the Court had already fixed sale of the entire assets of the Company.

(e) Being dissatisfied, the WBSIDC filed an appeal before the Division Bench of this Court and by the order sought to be reviewed, the said Court set aside the order passed by the learned Company Court thereby holding, inter alia, as follows:

There are two courses now open. The first course is the hardline course whereby we would be compelled to ask the Official Liquidator formally to disclaim the tenancy and summarily put the appellant back in possession of the land by removal of all sheds and machinery lying thereon. The other course, a milder one and we hope a reasonable one, which we propose to adopt, would give the parties a little more time to negotiate on a reasonable basis.

As such, we allow the Official Liquidator may occupy the premises under the supervision of the Company Court until further orders, but for such occupation from the month of July, 2004 (sale being completed and money paid in or about mid June, 2004) the Official Liquidator will go on paying out of the sale proceeds received by them a sum of Rs. 30,000/- per month to the appellant. This will be paid as expenses in liquidation, which take priority over everything else.

This arrangement will continue until N.R.G: Trading order succeeds in obtaining negotiated terms with the appellant or the land is cleared and possession thereof is given back to the appellant fully.

The appeal is disposed of on these terms.

3. Being dissatisfied, the applicant, namely, Stressed Assets Stabilization Fund has come up with the present application for review of the said order passed by the Division Bench.

4. The contentions of the present applicant may be summed up thus:

(i) The applicant has been constituted by the Government of India for administering and managing the Stressed Assets of Industrial Development Bank of India (IDBI) with a view to recovering the amount due thereunder and by a deed of assignment dated 30th September, 2004 executed by IDBI, the said IDBI unconditionally and irrevocably sold, assigned, transferred and released to the applicant all the loans granted by IDBI including the principal, interest and other dues payable by the defaulters to IDBI.

(ii) The IDBI had granted loans to the company in liquidation against the security of mortgage and hypothecation of all the assets of the company in liquidation and thus, the IDBI and the applicant, viz. SASF is the secured creditor of the company in liquidation and they are entitled to enforce the securities by sale of all the assets and properties of the company in liquidation.

(iii) In the lease deed executed by the State of West Bengal in favour of the company in liquidation, there was specific provision enabling the lessee to mortgage, charge and hypothecate or otherwise encumber the leasehold interest in the demised premises, namely, land, sheds, fittings, fixtures and structures etc. to the Life Insurance Corporation of India and any Bank or Financial Corporation for raising and/or securing any loan and overdraft and other financial accommodations in connection with the business of the lessee carried on from the said premises and pursuant to such enabling clause in the lease deed, the IDBI granted to the company in liquidation total amount of Rs. 13 crores by creating equitable mortgage and the total amount payable to the applicant as on the date of winding up was Rs. 42,36,68,780/-.

(iv) The applicant being the secured creditor, the order sought to be reviewed has prejudicially affected the interest of the applicant and as such, the same should be recalled as before passing the order impugned, the applicant was not given any opportunity of making out its case.

5. The present application is opposed by the appellant thereby disputing the authority of the present applicant to oppose the claim. According to the appellant, the company in liquidation having committed breach of the terms of the lease, they have right of immediate possession and accordingly, they approached the Company Court for passing an order for directing the Official Liquidator to surrender the lease in their favour. According to the appellant, there is no error apparent on the order sought to be reviewed justifying interference.

6. Before entering into the merit of the application for review we make it clear that we are quite conscious of the position of law that we are not acting as a superior Court hearing an appeal against the order passed by the Division Bench and we should strictly confine ourselves to ascertain whether there is an error apparent on the face of record.

7. After going through the order sought to be reviewed it appears that the Division Bench proceeded on the ground that the appellant gave lease of the land to the company in liquidation at a very nominal rent and the lease-deed contained an automatic forfeited clause in case of non-payment of rent and for not running of the factory. The Division Bench further recorded that 'the assets of the company have been sold excepting for the lands or the leasehold thereof, provided any term is left unfortified at all, and such sale has fetched Rs. 13.25 crore from N.R.G Trading, who are the purchasers' and that the N.R.G. Trading was negotiating for a long term lease afresh with the appellant.

8. After recording such statement, the Division Bench allowed the Official Liquidator to occupy the property on payment of Rs. 30,000/- a month to the appellant till negotiation with N.R.G Trading Limited was completed or the land was acquired and possessed thereof was given back to the appellant fully as the Division Bench was of the view that the same was the correct approach in the given situation.

9. In our view, the leasehold interest of the company in liquidation being an asset of the company in liquidation, the same can only be disclaimed under Section 535 of the Companies Act if the conditions mentioned in the said section are complied with and it appears to the Company Court that the terms of the lease are onerous. As pointed out by the Division Bench itself, the leasehold interest was created at a very nominal rent and thus, it cannot be said that the terms of the lease was onerous. Therefore, strictly speaking, on the basis of the finding of the Division Bench, the appellant could not get any relief in terms of Section 535 of the Act.

10. Mr. Chowdhury, the learned Senior Advocate appearing on behalf of the appellant, however, strenuously contended before us that the application should be read as a whole and the sole object of his client was to approach the Company Court for getting back the land because of the fact that the company in liquidation committed breach of the terms of lease and as such, his client was entitled to get immediate possession of the land and structure even according to the terms of the lease. Mr. Chowdhury further contends that his client is entitled to get the benefit of the Government Grant Act, 1895, and as such, for the purpose of getting possession of the land on account of forfeiture of the lease, his client is not required to approach a Civil Court in terms of the provisions of Transfer of Property Act. Mr. Chowdhury further tried to impress upon us that for 18 months before the presentation of the application, the company in liquidation was not functioning whereas according to the terms of lease if the industrial unit does not function for continuous six months, such fact will give rise to a ground for determining the lease and taking possession. Mr. Chowdhury further tried to convince us that huge amount of money is due and on that ground also his client is entitled to get immediate possession.

11. Mr. Dhandhaniya, the learned Advocate appearing on behalf of the applicant for review, however, disputed the aforesaid allegations and submitted that his client being a mortgagee and such mortgage having been created with the consent of the lessor, his client is entitled to have its dues from the sale of assets which includes leasehold interest and that in this case there is no breach of agreement of the terms of the lease as alleged.

12. After hearing the learned Counsel for the parties and after going through the materials on record we find that although Section 535 of the Companies Act has no application because the terms of the lease were not at all onerous, at the same time, the lessor is entitled to approach the Court for releasing the land in its favour if it can satisfy the Company Court that it had determined the lease for the alleged violation and had consequently, taken step for getting possession of the land in accordance with law. It is now a settled law that even if an application has been made under wrong caption by describing incorrect statutory provision, if the Court has jurisdiction to grant relief sought for on the basis of the averments made in the application, it can grant such relief notwithstanding wrong description of the application.

13. In the case before us, the property being in possession of Court through Official Liquidator, the lessor of the land was entitled to approach the Court for release of the land provided it could show that it had the right to get back immediate possession for the wrongful act on the part of the company in liquidation before passing of order of winding up. It appears from the record that the Division Bench did not take into consideration this aspect at all.

14. Although, Mr. Chowdhury tried to impress us that the tenancy of the company in liquidation is governed by the provisions contained in West Bengal Government Premises (Tenancy Regulation) Act, 1976 and as such, the terms of the lease have become inconsequential, we are not at all impressed by such submission because the grant in favour of the company was made prior to coming into operation of that Act and there is specific time limit for 99 years with further option of renewal. By subsequent enactment of the said Act the right created in favour of the company in liquidation has not been taken away as there is no indication in the said Act of 1976 providing abolition of the existing right in favour of a grantee. We however do not dispute that if the lessor wants to determine the existing lease for violation of any of the terms thereof, the same must be done in accordance with the provisions contained in the 1976 Act.

15. We, therefore, find that there is error apparent in the face of the order of the Division Bench by directing the Official Liquidator to pay to the appellant a sum of Rs. 30,000/- a month even before it is established that there was any breach of the terms of tenancy at the instance of the company in liquidation before it was wound up. The Division Bench did not record its satisfaction in the order sought to be reviewed that the tenancy in question had at all been determined in accordance with law after giving an opportunity to the company before liquidation or the Official Liquidator enabling the lessor to get back possession. Even the period of non-functioning mentioned in the application before the Company Court did not indicate that there was continuous non-functioning of the company before the order of winding up for more than six months in terms of the lease-deed.

16. We now propose to deal with the decisions cited by Mr. Ahin Chowdhury.

17. In the case of State of West Bengal and Anr. v. Banalata Investment Pvt. Ltd. and Anr. reported in : [2001]3SCR241 the question was if a property is purchased by the Government from the previous owner whether the tenancy of the tenant under the previous owners will be guided by the West Bengal Government Premises (Tenancy Regulation) Act, 1976. It was held that such tenancy will be governed by the said Act. In our view, the said decision cannot help Mr. Ahin Chowdhury's client in any way. The West Bengal Premises Tenancy Act has no application to a property owned by the Government as it appears from the provisions of the Act itself, and therefore, even if a tenancy is governed by the West Bengal Premises Tenancy Act, the moment the Government will purchase the property from the previous landlord, the tenanted premises would become a Government premises and the tenancy would be governed by the West Bengal Government Premises (Tenancy Regulation) Act, 1976.

18. In the case before us the property being in possession of Court, it is for the lessor to convince the Court that by virtue of the conduct of the tenant a right to eject such tenant has accrued in favour of lessor in terms of the lease-deed and in such a case if the Company Court is satisfied, it can allow the landlord to take recourse of appropriate proceeding under the Act thereby giving permission to the Official Liquidator to contest the proceeding; if it is satisfied that such determination has already been made in accordance with the provisions of law it can simply direct the Official Liquidator to hand over possession to the lessor, but no question of surrender of tenancy suo motu arises unless the terms of the tenancy is onerous as pointed out by the Apex Court in case of United Bank of India v. Official Liquidator and Ors. reported in : (1994)1SCC575

19. As regards the other unreported decision in case of Lal Mohan Nandy v. Executive Director, West Bengal Small Scale Industries Development Corporation Limited and Ors., a Division Bench of this Court held that West Bengal Government Premises (Tenancy Regulation) Act, 1976 applies also to non-residential premises. We have already pointed out that the tenancy of the company in liquidation with the Government having been entered into prior to coming into operation of the said Act, the provisions of the said Act cannot take away any of the rights of the lessee created by the lessor and the said Act will guide the provisions of determination of the tenancy and the mode of taking possession but that too only on violation of the terms of the lease after giving opportunity to the lessee or its executors or administrators to defend the allegations in accordance with the provisions of law. We have already pointed out that in this case there has been no adjudication of such dispute and it is for the landlord-lessor to show that there has been violation of the terms of the lease for which the lessor had already determined the tenancy or that it is entitled to get immediate possession for such violation. We, thus, find that the decisions cited by Mr. Chowdhury are of no assistance to his client.

20. We, therefore, review the order passed by the Division Bench by recalling the same and sending the matter back to the learned Trial Judge for considering whether on the date of winding up, there was any violation of the terms of the lease at the instance of the lessee and also for deciding whether the mortgage was really created in favour of the present applicant in terms of the indenture of lease by taking consent of the lessor. The learned Trial Judge will adjudicate those questions and will pass necessary order if it is satisfied that the applicant lessor really determined the lease for violation of terms therein, that such determination was in accordance with law and at the same time will also protect the interest of the mortgagee if the mortgage is created with the consent of lessor in accordance with the tenor of the grant.

21. We make it clear that we have not gone into those questions; the Company Court will give opportunity to the parties to lead evidence on the aforesaid questions. We, thus, recall the order of the Division Bench dated 25th November, 2004 and also set aside the order passed by the learned Single Judge and remand the matter back to the learned Single Judge for fresh decision in the light of our observations.

22. In the facts and circumstances, there will be, however, no order as to costs.

Arun Kumar Mitra, J.

23. I agree.