http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

CASE NO.: Appeal (civil)  2528 of 2006

PETITIONER: Board of the Trustees, Port of Kolkata

RESPONDENT: Efclon Tie-up Pvt. Ltd. & Ors.

DATE OF JUDGMENT: 08/05/2006

BENCH: H.K. Sema & Dr. AR. Lakshmanan

JUDGMENT: J U D G M E N T (Arising out of S.L.P. (Civil) No. 571/2005)

Dr. AR. Lakshmanan, J.

       Leave granted. This appeal was directed against the final judgment and  Order dated 01.12.2004 passed by the Division Bench of the  High Court at Calcutta in ACO No. 87 of 2003 in APOT No. 318 of  1998 whereby the High Court allowed the claim of the  respondents herein.  

The brief facts of the case are as follows:-

An indenture of lease was entered into by Das  Reprographics (in short ’the Company’) and the Kolkata Port  Trust (in short ’Port Trust’) in respect of premises at P-10,  Taratola Road, Kolkata. The lease deed stipulated that, the lease  is for a period of 29 years, 1 month and 25 days, w.e.f November  28, 1962 on a monthly rental basis of Rs. 1,049.12. It was stated  in the deed that, the lessee may have the option of a fresh lease  for a further term of 30 years provided a notice stating the same  was given to the Port Trust at least six months before expiration  of subsisting lease. According to the deed, the Municipal Taxes in  respect of the land was to be paid by the Company.  The Port  Trust had the option of renewing the lease for such further  period, provided the covenant conditions are duly performed and  the increase in rent is upto 25%, but not exceeding the rent as  per the ’Schedule of Rates’.          It was also clearly stipulated in the Lease deed that, if the  company goes into liquidation or is wound up compulsorily or  voluntarily, the Port Trust would re-enter possession and the  lease would be brought to an end.          On 01.08.1991, a letter was written by the Company to the  Port Trust requesting the appellant for considering the renewal of  the lease executed in their favour in 1962 for another term of 30  years.  It was also stated in the letter that, the company has  rental dues and municipal taxes to be paid which they will clear  before the expiry of the lease which was subsisting. The Port  Trust however, did not respond to this letter. Later on  26.11.1991, another letter was sent by the company to the Port  Trust requesting for the extension of the lease of the land. The  lease deed expired on 22.01.1992 by efflux of time. The company  had not even then, paid of their outstanding dues, thereby was

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

still in breach of the stipulations in the lease deed.          On 07.03.1992, the Port Trust informed the company that a  total sum of Rs.66,312/- was outstanding towards rent and taxes  including 15% interest and this should be cleared before any  extension of lease could be considered. However, by taking into  consideration the fact of a large number of workmen working in  the company, the Port Trust asked the company to correct its  breaches so that the extension of lease could be considered.          On 21.12.1994, by an order in Company Petition  No.151/1986, the High Court of Calcutta, directed to take  possession of the assets of the company forthwith. By an order  dated 27.08.1997, invitation for offers for purchasing the assets  of the liquidated company was made. Various advertisements  were issued as per the order of the High Court after which many  offers were made by different parties.          The High Court accepted the offer made by the present  respondent No. 1(Efclon) by an Order dated 16.01.1998, for Rs.  50 lakhs and also on an agreement made by the respondent with  the workmen of the liquidated company to re-employ them.          Aggrieved by this order of the High Court, United Bank of  India filed an appeal in the High Court on the ground that the  sale of assets of the company was conducted with undue haste  and without trying to ensure that the maximum price was  fetched for the assets of the company.  The Division Bench held  on 09.04.2003, that, the finding of the learned single Judge was  correct and thereby confirmed the sale of all the assets of the  company at, P-10, Taratolla Road, Kolkata. The Division Bench  also observed that the lease over the land had expired and since  the purchaser, Efclon, does not intend to destroy the character of  the factory, it would be desirable that the Port Trust should grant  a fresh lease of the Taratola land which has expired in favour of  respondent No.1 (Efclon). On 11.08.2003, an application was  made by the respondents in the High Court, for the modification  of the order of the Division Bench dated 09.04.2003, stating that,  the option of renewal has been found to be validly exercised by  the liquidated company and therefore, the Port Trust had no  option but to renew the lease in terms of the indenture of lease  which existed between the liquidated company and the Port  Trust.          The High Court while deciding on this matter on  01.12.2004, allowed the claim of the respondents and thereby  ordered the Port Trust that, upon the respondent clearing all the  outstanding rental dues and taxes, the Port Trust shall grant  fresh lease in consonance with the lease indenture that existed  between the Port Trust and Das Reprographics.

The present appeal before this Court is preferred against  this order dated 01.12.2002 of the High Court.

We heard Mr. T.R. Andhyarujina, learned Senior Counsel,  appearing for the appellants and Mr. U.U.Lalit, learned Senior  Counsel, appearing for the respondents and Mr. Vijay Hansaria,  learned Senior Counsel appearing for the workmen.           Learned Senior Counsel appearing for the appellant  submitted that, the question of renewal of lease deed could not  arise owing to the fact that the option to renew the lease was not  validly exercised by the Company in liquidation as the Company  was in breach of various terms and conditions of the indenture of  lease by having outstanding rental dues and municipal taxes.    

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

Also the lease deed provided that, if the company (Das  Reprographics) was either voluntarily or compulsorily wound up,  the lease deed would be brought to an end. Here since the  company has been wound up, the lease is presumed to have  come to an end and therefore, the question of granting extension  of lease would not arise.          The appellant further submitted that respondent No.1  (Efclon) is only the owner of the assets of the Liquidated  Company which includes fixtures and furnitures.  Therefore, they  could exercise their rights only over the assets of the company  and not on the land which is the property of the Port Trust. Also  since the lease had come to an end, the company has absolutely  no right over the property in question.          Mr. Andhyarujina, submitted that the Port Trust after the  order of the High Court has agreed to grant a fresh lease to the  company, as per the prevailing rates in Schedule of rates of the  Port Trust which are based not on profiteering, but on  inflationary tendencies. But the High Court granted fresh lease at  the rates prescribed under the lease deed which was drawn in  1962 which is not fair.          Mr. U.U.Lalit, learned senior advocate for the respondents  submitted referring to the letters written by the company and the  Port Trust that the correspondence would indicate that the  company did exercise their option to renew the lease in the  procedure mentioned in the lease and also the letter by the Port  Trust reveals that, it was not the intention of the Kolkata Port  Trust to terminate the lease but to grant a fresh lease to the  lessee upon payment of the balance dues.           Mr.U.U.Lalit submitted that, the respondent after acquiring  the assets of the company entered into a contract with the  employees of the liquidated company for re-employing them,  clearly shows that the sole object of the respondent was to revive  and rehabilitate its units and to reemploy its workmen.          It was further contented by the respondents that renewal of  the lease must be from the date of expiry of the original lease,  and also that the amount should be in accordance to what was  prescribed in the original lease deed between the Port Trust and  Das Reprographics.          Another submission made by the respondent was that, if  Das Reprographics had not gone into liquidation, while renewing  the lease, the company would have only had to pay 25% over and  above the last rent paid under the original lease for the period of  renewal of the same. The Kolkata Port Trust is now demanding  rent at its scheduled rates for a fresh grant of lease which is  three times than the last rent, which will make it impossible for  the respondents to reopen the closed units of the company or to  reemploy its workmen.          Mr. Vijay Hansaria, learned Senior Counsel, appearing for  the workmen submitted that the Port Trust has no right to refuse  formal renewal of the lease, particularly with the knowledge that  the livelihood of a large number of people are dependant on it.  Also that the Port Trust, by allowing the erstwhile lessee to  continue to occupy the property even after the expiry of the  original terms of the lease and thereby renewed the lease by  conduct.

We heard all the parties extensively and also went through

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

the documents placed before us.  The issues in this case that  deserve discussion according to us is whether: ?       The respondent No.1 (Efclon) due to the fact of them having  bought over the assets of the company that was liquidated  could exercise right over the property (land) which the Port  Trust had by an indenture of lease, leased to the liquidated  company (Das Reprographics)? ?       Whether the high Court was correct in granting a fresh  lease to the respondent No.1 (Efclon) on the terms specified  in the original indenture of lease between the Port Trust and  the liquidated company (Das Reprographics)? In other words, the question we are really concerned  with now is whether a fresh lease should be granted on the  basis of the rates as subsisting according to the schedule to  the major Port Trust or whether a fresh lease or whether a  fresh lease could be allowed to be executed on the terms  and conditions as were existing in the earlier lease.

The lease could not be granted to respondent No.1 \026 Efclon Tie- up Private Limited for the following reasons:- 1.      The option to renew the lease was not validly exercised by  the Company in liquidation.  The Company was in breach  of various terms and conditions of the indenture of the  lease, inter alia, relating to non-payment of rent,  municipal taxes, unauthorized construction of land in  question etc.; 2.      M/s Efclon Tie-up Private Limited were the auction  purchasers of only the assets of the company (fixtures  and furnitures) lying, inter alia, in the premises in  question.  It was incorrect to assume that a further right  to renew the lease deed vested in M/s Efclon Tie-up  Private Limited; 3.      M/s Efclon Tie-up Private Limited were not the  successors in interest of the Company in liquidation qua  the right to renew the lease deed; 4.      It was the admitted position that the lease deed came to  an end in 1992 and no renewal was granted thereon,  particularly, since the right to grant renewal was in the  discretion of the Port Trust, such discretion existed even  if the terms and conditions of the indenture of the lease  had not been breached by the Company in liquidation; 5.      In all fairness the Port Trust had agreed to the grant of a  fresh lease to M/s Efclon Tie-up Private Limited as per  the prevailing rates in the schedule of rates in the Port  Trust which was unacceptable to the said Company  which wanted renewal at the rates prescribed in the lease  deed.  

The High Court ought to have seen that the schedule of rent  changes on the basis of the economic condition that is prevailing  at a given point of time in every economy. Therefore, the rent that  is demanded by the Port Trust from Efclon now is absolutely fair  and reasonable and the schedule of rent changes has been  declared valid by the Calcutta High Court.  

The High Court should have seen that, in any case, the  indenture of lease clearly provided that if the Company in  liquidation M.L. Das Reprographics was either voluntarily or  compulsorily wound up, then the lease deed would be brought to  an end.  In that case, of course, no question of granting  extension of the lease deed would arise.  Even if it is assumed  that the extension of lease was to be granted from 1992 onwards  the lease deed itself would automatically have come to an end by  operation of the express terms of the indenture of lease.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

The lease granted in 1964 did not provide renewal as a  matter of right and, in fact, the lease ended by efflux of time on  22.01.1992 whereupon no extension was given.  The option for  renewal of lease was not given to the respondent No.3 Company  but was given to the Port Trust.  The Port Trust had agreed in  fairness to execute a fresh lease deed with respondent No.1.  The  rent would not be the market rent and, in fact, would be in  consonance with the schedule of rates framed under the Major  Port Trust Act, which have the prior approval of the Central  Government.   

It is also relevant to note that respondent No.1 had  purchased the assets of the Company in liquidation excluding  the land belonging to the Port Trust.   

We are of the opinion that: 1.      There is no right over the property of the Port Trust  existing with the respondent No.1 (Efclon) as claimed by  them. In the present case only the assets of the company  which was liquidated has been bought by the respondents,  the land belonged to the Port Trust. Even according to the  original indenture of lease between the Port Trust and the  liquidated company, there were clauses which very clearly  stated that, the Port Trust had the option of renewing the  lease for such further period, provided the covenant  conditions are duly performed. It was also clearly  stipulated in the Lease deed that, if the company goes into  liquidation or is wound up compulsorily or voluntarily, the  Port Trust would re-enter possession and the lease would  be brought to an end. In the present fact situation, the  company in liquidation was clearly in breach of the  covenant conditions by having outstanding rental dues  and tax liability with interest. Also the company did go into  liquidation and therefore as the lease indenture says, the  original lease has come to an end and the Port Trust is  presumed to have automatically come into possession of  the land in question.       Therefore we hold that, there is no lease that is subsisting  between the Port Trust and the liquidated company and  hence the respondent No.1 (Efclon) claim that the original  lease deed is subsisting thereby giving them an automatic  right to the land in question is untenable and has no  merit. 2.      To the question as to whether the High Court was correct  in granting a fresh lease to the respondent No.1 (Efclon) in  accordance with the clause stipulated in the original lease  agreement, we are of the opinion that the High Court is  correct as far as the grant of fresh lease is concerned.  Coming to the second part of the question as to whether  the rental amount should be based on the stipulation  mentioned in original lease deed is concerned; we believe  that the rates that are present in the current Schedule of  the Port Trust Act in Kolkata should apply. We are of the  view that, the claim of the respondent that they should be  allowed to pay the rates in accordance to the clause in the  original lease indenture of 1962 is not fair on the Port  Trust. Also we are satisfied that the prices that are  prevalent in the schedules of the Port Trust Act are not  based on profiteering, but on inflationary tendencies.  3.      With regard to the respondent No.1’s (Efclon) claim of, if  Das Reprographics had not gone into liquidation, while  renewing the lease, the company would have only had to  pay 25% over and above the last rent paid under the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

original lease for the period of renewal of the same, does  not hold good in our view, as such a renewal need not be  contemplated at this point, as the company itself is not in  existence and also the clause in the original lease  indenture will come in the way which specifically mentions  that if the company goes into liquidation or is wound up  compulsorily or voluntarily, the Port Trust would re-enter  possession and the lease would be brought to an end. The larger interest of the workmen was canvassed by Mr.  Vijay Hansaria and also by respondent No.1 for its own  commercial purposes.  The interest of workmen can be met by  the Port Trust’s willingness to grant a fresh lease of the premises  not at the market rate but at the rate prescribed in the schedule  framed under the major Port Trust Act.  

It has now brought to our notice that respondent No.1 who  are continuing in possession are now inducting the third parties  and seeking to alienate the property to them.  In these  circumstances, I.A. No.3 of 2006 was filed by the Port Trust to  direct respondent No.1 to handover possession of the property to  the Port Trust.  In these circumstances, a contention was also  raised by the Port Trust that they were not required to execute  the lease deed in favour of respondent No.1.  

The fact remains that respondent No.1 Company remained  in possession of the property.  It has now come to the knowledge  of the Port Trust that despite the fact that no right over the  property existed in favour of respondent No.1.  They are not only  carrying out unauthorized constructions in the premises but  have also parted with the possession to various individuals and  companies not connected with their own business and are  creating third party rights.  Such construction and part of the  possession is not only impermissible in view of the order of stay  granted by this Court but in any event was not even permitted  under the lease of 1964.  

We cannot also, at the same time, close our eyes to the  realities.  We have, therefore, to safeguard the interest of the Port  Trust, the interest of the first respondent and the workmen by  one stroke of pen.  The trade unions has applied for intervention  and is represented by Mr. Vijay Hansaria, learned senior counsel  which has a large number of membership of workers working in  Das Reprographics Ltd. (in liquidation).  Much water has flown  after the order of liquidation of respondent No.3 Company.  Any  adverse orders passed by this Court, at this stage, would affect  the right and interest of the members of the union.  The  Company was directed to be wound up and the Official  Liquidator was directed to take charge of the assets and  properties.  The assets and properties thereof were put up for  sale in terms of a sale notice made and published on 05.09.1997.   In these circumstances, in an attempt to protect the livelihood of  its members, the union entered into an agreement with  respondent No.1 providing, inter alia, that respondent No.1  would take necessary steps in Court to purchase the assets and  properties of the Company and also would assure employment to  all the eligible workers of the Company in phase-wise manner.   There are other conditions with which we are not now concerned.   In terms of the commitment made, respondent No.1 participated  in the sale of the assets and properties of the Company and was  declared the successful purchaser in respect thereof by an order  dated 16.01.1989.  Several other proceedings were taken by both  the parties with which also we are not concerned.  It is stated  that in terms of the order, respondent No.1 has made payment of  the entire consideration to the Official Liquidator.  The intention  of the High Court while passing the orders dated 16.01.1998 and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

09.04.2003 is manifest from the fact that while confirming the  order dated 16.01.1998 for sale of the assets and properties of  the Company, the High Court made the same free from  encumbrances and without any liabilities on account of any  other dues.  With the revival and rehabilitation of the Company  in mind, the High Court directed that the properties where the  factories of the Company are situate be provided to respondent  No.1.  The High Court also directed that a fresh lease in respect  thereof be granted to Respondent No.1 presently in possession of  the factory premises.  Respondent No.1 is also in possession of  the assets and properties located therein.  It is also not in  dispute that respondent No.1 is not operating the factory for  want of former renewal of the lease.  As a result, the right of the  members of the workers of the union has been put in jeopardy.   The Port Trust itself allowed the erstwhile lessee to continue to  occupy the property even after the expiry of the original terms of  the lease.  

In our view, the workmen of the Company have a right to  earn their livelihood.  The workmen are as such vitally interested  in the renewal of the lease in respect of the property in question.   The Port Trust, by its conduct, accepted the right of the Company  to obtain renewal of the lease.  The Port Trust has never called  upon the Company or the official liquidator to vacate the  property. The act of the Port Trust in allowing the respondent to  continue is only a benevolent act of the Port Trust keeping in  view the consequences that can arise if this was not allowed for  the large number of workmen of the company.  As such, the lease  of the property has been renewed or must be deemed to have  been renewed as the workmen being interested in the renewal of  the lease of the property.  They were also heard through their  senior counsel.  

Social justice demands that the lease in respect of the factory  premises be renewed by the Port Trust in favour of respondent  No.1 so that the operation of the factory thereof can be  commenced.  However, the lease can be renewed only subject to  the payment of all the arrears and dues together with interest.   We are, therefore, inclined in the larger interest of the industry  as also the workmen and of the Port Trust to direct the Port  Trust to grant a fresh lease to respondent No.1 herein subject to  the respondent No.1 complying with the terms relating to the  payment of the arrears/dues together with interest at the rate of  15% p.a. as suggested by the Kolkata Port Trust in its letters  dated 07.03.1992 and 13.04.1995.  The Port Trust shall also  grant a fresh lease in favour of respondent No.1 on the basis of  the scheduled rate from the date of possession i.e. 04.08.2003.       

In conclusion, we order a fresh lease indenture to be drawn  from the date the company came into possession of the land  (i.e.04.08.2003) between the Port Trust and the Respondent No.1  (Efclon) with regard to the premises situated at P-10, Taratola  Road, Kolkata at the rental rates contained in the present  Schedule of the Kolkata Port Trust Act as soon as the dues of the  liquidated company are discharged with by the respondents.  

We are, therefore, directing the Port Trust to inform the  Efclon Tie-up Private Limited; respondent No.1 herein of the  rental arrears together with interest as suggested by the Port  Trust in its letters dated 07.03.1992 and 13.04.1995 within four  weeks from the date of this order.  In other words, the Port Trust  shall inform the first respondent herein of the rental arrears from  the date of expiry of the earlier lease (21.01.1992) till the date of  the execution of the fresh lease at the old rate together with  interest at the rate of 15% p.a. within 4 weeks from the date and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

upon such intimation the said dues are to be cleared by the first  respondent within 2 weeks thereafter and upon such dues being  cleared, the Port Trust shall grant a fresh lease from 04.08.2003  i.e. the date on which the first respondent was to be in  possession of the property by the official liquidator on the basis  of the scheduled rate as now prevalent.  The rate fixed by the  Kolkata Port Trust as per the scheduled rate will be effective from  04.08.2003.  We are inclined to grant the lease in favour of the  respondent No.1 who sought renewal of the lease with the sole  object of reviving and rehabilitating its units and to re-employ its  workmen thereof.   In the result, the civil appeal stands allowed.  However, there  shall be no order as to costs.