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PETITIONER: NARENDRA BAHADUR TANDON

       Vs.

RESPONDENT: SHANKERLAL (SINCE DECEASED) BY LRS. AND ANR.

DATE OF JUDGMENT25/01/1980

BENCH: REDDY, O. CHINNAPPA (J) BENCH: REDDY, O. CHINNAPPA (J) UNTWALIA, N.L.

CITATION:  1980 AIR  575            1980 SCR  (2) 821  1980 SCC  (2) 253

ACT:      Lease-Land  leased   to  a  company-Company  went  into voluntary  liquidation-Land   transferred  to   one  of  the Creditors,  a   Bank-Bank  went   into  liquidation-Official liquidator of  Bank found  no  deed  of  transfer  executed- Voluntary liquidator  executed deed of transfer-If competent to do  so-Property if  passed to  state by  escheat-Lessor’s interest transferred  to plaintiffs-Official liquidator sold land  to  defendant-Defendant  raised  structures  on  land- Plaintiffs  never   objected  to   raising  of   structures- Plaintiffs, if  estopped from  contending that defendant had no right in land.

HEADNOTE:      The original  owners of  the land  in dispute granted a permanent lease  of the  land to a company. The lessee could use the  land for  any purpose  and could  also transfer the leasehold interest.  Though a  permanent  lease  the  lessor could forfeit the lease if the lessee failed to pay rent for three consecutive  years. The lessors interest changed hands twice and  by virtue  of a  decree in a suit for pre-emption filed by  the  respondents  they  became  entitled  to  such interest.      In  the  meanwhile  the  company  went  into  voluntary liquidation and the liquidator executed an agreement of sale of all its assets including the leasehold interest in favour of a  Bank which  was the  biggest creditor  of the Company. Immediately   thereafter   the   Bank   itself   went   into liquidation. Sometime  later the  official liquidator of the Bank found  that no  deed of  transfer was  executed by  the voluntary liquidator  in favour  of the  Bank, the erstwhile voluntary liquidator  therefore executed  a deed  of sale in favour of  the Bank.  Thereafter the  official liquidator of the Bank  transferred the lease-hold interest in the land to the defendant-appellant.      Before the  company went  into  liquidation  the  first transferee of  the land  accepted rent  from  the  voluntary liquidator. After  the transfer of the leasehold interest to the Bank  the second  transferee demanded  from the official liquidator arrears  of rent  for four years and claimed that the lease  was forfeited  by reason of the Bank’s failure to pay rent  for a continuous period of three years in terms of

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the lease.  The official  liquidator  denied  the  right  to forfeit the lease. He, however, paid rent which was accepted by the  lessors. Even  subsequently rent was accepted by the lessors.      The respondent  sued to  recover possession of the suit land on  the ground  that the  lease-hold interest  was  not validly transferred  by the  voluntary liquidator  and  that therefore neither  the Bank  nor the  defendant acquired any right  in  the  land.  The  defendants  contended  that  the voluntary liquidator had the authority in law to execute the deed of  sale and  formally complete a transaction which had already taken  place, that  the predecessors  in interest of the  plaintiff   having  accepted  rent  from  the  official liquidator were estopped 822 from contending  that the transfer in favour of the Bank was not valid  and that  the lease-hold interest in the land had escheated to  the  Government  on  the  dissolution  of  the company.      The suit  was dismissed  by the  Trial  Court  and  the Appellate Court.  On second  appeal, the  High Court decreed the suit  holding  that  the  voluntary  liquidator  had  no authority to  execute the deed of sale after the dissolution of the  company and  that there  was  neither  estopped  nor escheat.      Allowing the appeal, ^      HELD: 1.  The High  Court was right in holding that the liquidator had  no jurisdiction  to execute the deed of sale after the  company had  been dissolved. Once the company was dissolved in  accordance with the procedure laid down in the Indian Companies  Act, 1913 it ceased to exist and therefore the voluntary  liquidator could not represent a non-existent company. If  the liquidator  was to  discharge any  duty  or perform any  function on  behalf of the dissolved company he should have  express statutory  authority to do so, which he did not have under the Act. [826 D, 825 G]      2. If  the company  had a  subsisting interest  in  the lease  on  the  date  of  dissolution,  such  interest  must necessarily vest  in  the  Government  by  escheat  or  bona vacantia. It  is  well  settled  that  the  property  of  an intestate  dying   without  leaving  lawful  heirs  and  the property of a dissolved corporation passes to the Government by escheat  or bona  vacantia. If the lease-hold interest of company became  vested in the Government on its dissolution, a  suit   at  the   instance  of   the  plaintiffs  was  not maintainable. [826 E, 827 G]      3. The  successors in  interest of the original lessors accepted rent  from the  official liquidator indicating that they accepted  the position  that the  Bank had succeeded to the rights  of the  company in  the lease-hold interest. The official liquidator  sold the land to the defendant with the permission of  the Company  Judge only when he failed to get the highest  bid in  public auction. At no point of time did the predecessors  in interest  of the  plaintiffs  raise  an objection to  the sale  of the lease-hold interest. When the defendant obtained  permission of  the Municipal  Board  and raised constructions on the land, the plaintiffs who resided near-about the  land did  not raise  any  objection  to  the constructions. In  the  circumstances  the  plaintiffs  were estopped from  contending that the defendant had no right in the land. Their only right is to receive rent. [827 F-828 B]

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JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 575 of 1970.      From the  Judgment and  Decree dated  17-2-1966 of  the Allahabad High Court in Special Appeal No. 92 of 1960.      S. S. Javali and B. R. Aggarwal for the Appellant.      R. K. Garg and V. J. Francis for the Respondent.      The Judgment of the Court was delivered by      CHINNAPPA  REDDY,  J.  Hulas  Chand  and  Bilas  Chand, original owners  of a  certain plot  of land  in Saharanpur, granted a  permanent lease  of the land to Patel Mills Ltd., in May, 1930. The annual rent 823 was Rs.  75/-. The  lease was  empowered to use the land for any purpose  whatsoever.  The  rights  of  the  lessee  were expressly made transferable. Though the lease was permanent, there was  a condition  that the  lessor could  forfeit  the lease if the lessee failed to pay rent for three consecutive years. On  November 1,  1932 Hulas  Chand  and  Bilas  Chand transferred their  interest to  Budh Singh and Jialal. Jugal Kishore, became  entitled to  the rights  of Budh  Singh and Jialal by purchase under sale deeds dated April 17, 1943 and May  11,   1943.  But,  Shankerlal  and  Piareylal  (present plaintiff) filed  a suit for presumption against the vendors and Jugal  Kishore and  as a  result of the decree passed in the suit,  they became  entitled to the lessor’s interest in the suit plot of land on August 13, 1945.      Meanwhile the  lessee Patel Mills went into liquidation and Mehra  was appointed voluntary liquidator of the company on May  11, 1937 by a special resolution at a meeting of the creditors of the company. Benaras Bank Ltd., was the biggest creditor of  the Company.  So the  liquidator negotiated the sale of  all the  assets of  the Company to the Benaras Bank Ltd., for  a sum  of Rs.  70,000/- and  on February 23, 1939 executed  an   agreement  of   sale  after   receiving   the consideration. The  lease-hold interest in the suit plot was also included as one of the assets in the agreement of sale. As a  meeting held on May 4, 1939 the creditors accepted the final report  of the  voluntary liquidator.  The report  was sent  to   the  Registrar  of  Joint  Stock  Companies,  and registered on  September 9,  1939. The  company  thus  stood dissolved with effect from December 9, 1939. Subsequently on March 1,  1940  the  Benaras  Bank  Ltd,  itself  went  into liquidation. The  Official Liquidator  of the  Benaras  Bank Ltd. found  that there was no duly executed deed of transfer executed by  the voluntary  liquidator  of  the  company  in favour of the Benaras Bank Ltd. in respect of the lease-hold interest in  the suit  plot of  land. At the instance of the official liquidator  of the  bank, Shri  Mehra the erstwhile voluntary liquidator  of the company executed a deed of sale on January  28, 1941 and had it duly registered. On March 9, 1943 the  official  liquidator  transferred  the  lease-hold interest  in  the  suit  plot  of  land  to  the  defendant- appellant.      We  have   mentioned  that   Patel  Mills  Ltd.,  stood dissolved with  effect from December 9, 1939. Budh Singh and Jialal had  earlier, i.e.  on April  12, 1939, accepted rent from the  voluntary liquidator  of the  company.  After  the dissolution of  the company  and the  transfer of  the lease hold interest  by the  voluntary liquidator  to the  Benaras Bank Ltd.  Budh Singh and Jialal sent a notice dated January 11, 1941  to the liquidator of the Benaras Bank Ltd. through their lawyer  demanding payment  of arrears of rent for four years and asserting that the 15-91SCI/80 824

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lease was  forfeited consequent  on the  lessee’s failure to pay rent  for  a  continuous  period  of  three  years.  The liquidator denied  the claim  of  right  of  the  lessor  to forfeit the  lease but admitted the claim for rent. Rent was accordingly paid  and was accepted by Budh Singh and Jialal. Later, on  March 21,  1946, Jugal  Kishore who had purchased the rights  of Budh Singh and Jialal also accepted rent from the official liquidator of the Benaras Bank Ltd.      Shankerlal and  Piarey Lal  who became  entitled to the lessor’s interest  in the  suit plot  of land as a result of the decree  from pre-emption  which  they  obtained  against Jugal Kishore  and his  vendors, filed the suit out of which the appeal  arises to  recover possession of the land. Their case was  that the  lease hold  interest in the land was not validly  transferred   by  the   voluntary  liquidator   and therefore, the defendant acquired no right in the land.      Several defences  were raised.  It was claimed that the voluntary liquidator had the authority in law to execute the deed of  sale and  formally complete a transaction which had already  taken   place.  It   was  also   claimed  that  the predecessors  in  the  interest  of  the  plaintiffs  having accepted rent  from the official liquidator of the bank, the plaintiffs were  estopped from  contending that the transfer in favour of the bank was not valid. Section 53A Transfer of Property Act  was also invoked as a defence to the action of the plaintiffs.  It was  lastly pleaded  that the plaintiffs had no  right  to  sue  for  possession  as  the  lease-hold interest in  the land had escheated to the Government on the dissolution of  the Company.  The suit  was dismissed by the Trial Court. The judgment and decree of the Trial Court were affirmed by  the 1st  Appellate Court  and a  learned single Judge of the High Court in second appeal. The learned Single Judge found  in favour  of the  defendant on the question of estopped, escheat  and authority of the voluntary liquidator to execute  the sale deed but found against the defendant on the applicability of s. 53A of the Transfer of Property Act. On appeal  by the  plaintiffs under clause 10 of the Letters Patent a  Division Bench  of the  High  Court  reversed  the judgment and  decree of  the Subordinate  Courts and decreed the  suit.  The  Division  Bench  held  that  the  voluntary liquidator had  no authority  to execute  the deed  of  sale after the  dissolution of  the company  and that  there  was neither estopped  nor escheat.  The Division Bench also held that s.  53A of the Transfer of Property Act did not protect the defendant. The defendant has preferred this appeal after obtaining a  certificate from  the  High  Court  under  Art. 133(1)(b) of the Constitution.      The submissions  of Shri Javali learned counsel for the appellant on  the question of applicability of s. 53A of the Transfer of Property 825 Act and  the authority of the voluntary liquidator after the dissolution of  the company  to execute the deed of sale may be easily  disposed of.  We do  not think that s. 53A of the Transfer of  Property Act  is attracted  to the facts of the present case.  The right  under s.  53A is available against the transferor  (effecting the  incomplete transfer) and any person claiming under him. It is difficult to understand how the successor-in-interest  of a lessor can ever be said to a person claiming under a lessee making an incomplete transfer of the  lease-hold interest.  Nor do  we find  force in  the submission  of   the  learned  counsel  that  the  voluntary liquidator had  legal authority,  after dissolution  of  the company to  execute the  deed of  sale  so  as  to  formally complete the  transaction which  had  already  been  entered

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into. Reliance  was placed  by the  learned counsel  for the appellant on  the decision  of Farwell,  J., in  Pulsford v. Demanish(1). In  that case  a liquidator was guilty of gross dereliction of  duty. In  the words  of Farwell  J., "A more gross dereliction  of duty  by a  liquidator I  have  seldom heard of".  Though in possession of sufficient assets of the liquidating company  to  pay  all  its  debts  in  full  the liquidator took  no steps  to ascertain the creditors of the liquidating company  or to  see that they were paid. Instead he sold  the  business  and  assets  of  the  company  to  a purchasing company  who covenanted  to pay all the debts and liabilities  of  the  liquidating  company.  The  purchasing company did  not pay  the debts. The liquidating company was dissolved. The  creditors had  no remedy by which they could recover their  debts. A  creditor of the liquidating company sued the  liquidator for  recovery of  damages. It  was held that  the   liquidator  was  guilty  of  negligence  in  the discharge of his statutory duty and was liable in damages to the unpaid  creditors of  the liquidating  company. What was decided  in  the  case  was  not  that  a  liquidator  could represent the  erstwhile company  after it was dissolved but that a  liquidator could  be sued in damages for breach of a statutory  duty   which  he  had  failed  to  perform  while functioning as liquidator. We do not think that this case is of any  assistance  to  the  appellant.  We  are  unable  to appreciate  how   after  the   company  was   dissolved  the liquidator could  still claim  to represent  the company and execute a  registered deed  of sale.  Once the  company  was dissolved it  ceased to  exist and  the liquidator could not represent a  non-existing company.  If the liquidator was to discharge any  duty or perform any function on behalf of the dissolved  company   he  should   have   express   statutory authority. The  Companies Act  1913 contained  no  provision enabling the  liquidator to  do  any  act  on  behalf  of  a dissolved company.  S. 209(H)  of the  Companies  Act,  1913 enjoined the  liquidator as  soon  as  the  affairs  of  the company were  wound up  to make up an account of the winding up and to call a gene- 826 ral meeting  of the  company and  a meeting of the creditors for the  purpose of laying the accounts before the meetings. The liquidator  was then required to send to the Registrar a copy of  the account  and to  make a  return to  him of  the holding of  the meetings.  The Registrar  on  receiving  the accounts and the returns was required to register them an on the expiration  of three  months of registration the company was to  be deemed  as dissolved. The only duty cast upon the liquidator thereafter  was that under s. 244(B). It was that the liquidator  should on the dissolution of the company pay into the Reserve Bank of India, to the credit of the Central Government in  an account  called the  Companies Liquidation Account any  money representing  unclaimed dividend  or  any undistributed assets in his hands on the day of dissolution. No  other  duty  was  stipulated  to  be  performed  by  the liquidator under  the provisions of the Companies Act, 1913, after the  dissolution of  the company.  We are,  therefore, unable to  agree with  the submission of the learned counsel that the liquidator had the jurisdiction to execute the deed of sale  dated January  28, 1941  after the company had been dissolved.      The next  question which  we must  consider is what was the effect  of the  dissolution of the company on the lease- hold interest  which the company had in the land. No term of the lease  has been brought to our notice by which the lease would stand  extinguished on the dissolution of the company.

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If the company had a subsisting interest in the lease on the date of  dissolution such  interest must necessarily vest in the Government  by escheat or as bona vacantia. In India the law is  well settled that the property of an intestate dying without leaving lawful heirs and the property of a dissolved Corporation passes  to the  Government by escheat or as bona vacantia. Of  course such property will be subject to trusts and charges,  if any,  previously effecting  its  vide  M/s. Pierce Leslie  & Co.  Ltd., v. Violat Ouchterlong Wapshare & Ors.(1). It is also to be noticed here that s. 244(B) of the Companies Act  1913, as  well as  s. 555(2) of the Companies Act 1956  expressly enjoin  a  duty  on  the  liquidator  to deposit, on  the dissolution of the company, into an account in  the  Reserve  Bank  of  India  known  as  the  Companies Liquidation Account  any money  representing unpaid dividend or undisputed  assets lying  in his  hands at  the  time  of dissolution. The  learned counsel  for the  appellant relied upon the decisions of the Allahabad High Court in Tulshi Ram Sahu & Anr. v. Gur Dayal Singh & Anr.(2) and Mussamat Ramman Bibi v.  Mathura Prasad  & Anr.(3). Both were cases of fixed rate tenancies. As pointed out 827 by the  Full Bench  in Tulsi  Ram Sahu  & Anr.  v. Gur Dayal Singh &  Anr.,(1) one  of the  incidents  of  a  fixed  rate tenancy was  that provided  by s. 18 of the Agra Tenancy Act 1901 which  prescribed that a right of occupancy would stand extinguished when  a fixed-rate  tenant died leaving no heir entitled under the Act to inherit the right of occupancy. It followed therefrom  that the  land  had  to  revert  to  the landlord and  could not  go to the Government by escheat. On the other  hand in  Sonet Kooer v. Himmat Bahadur & ors.(2). The Privy  Council held  that on  the failure  of heirs to a tenant holding land under Mukerrori Tenure there was nothing in the  nature of  the tenure which prevented the Crown from taking the  Mukerrori by  escheat, subject to the payment of rent to  the Zamindar.  If the  lease-hold interest  of  the company in  the land  became vested in the government on the dissolution of  the company  it must follow that the suit at the instance of the plaintiffs was not maintainable.      The next  question for  consideration  is  whether  the plaintiffs were  estopped from  denying the  validity of the sale in  favour of  the Benaras Bank Ltd., and the character of the  possession  of  the  Benaras  Bank.  Ltd.,  and  its successors in interest. As already mentioned by us Budhsingh and Jialal  sent a  notice dated  January 11,  1941, through their lawyer demanding of the liquidator of the Benaras Bank Ltd.,  payment  of  arrears  of  rent  for  four  years  and asserting that  the lease  was forfeited  consequent on  the lessee’s failure  to pay  rent for  a continuous  period  of three years. The liquidator denied the claim of right of the lessor to forfeit the lease but admitted the claim for rent. The liquidator  paid the  rent and  it was  accepted by Budh Singh and  Jialal. Later  also the evidence shows that Jugal Kishore the  purchaser  from  Budh  Singh  and  Jialal  also accepted rent  from the  official liquidator  of the Benaras Bank Ltd.  This course  of conduct  of Budh Singh and Jialal and their  successor Jugal  Kishore  clearly  indicates  the acceptance, by  them, of  the position that the Benaras Bank Ltd. had  succeeded to  the rights  of the  company  in  the lease-hold interest. Further, the official liquidator of the Benaras Bank  Ltd. said  first tried  to sell the lease-hold interest by  public auction. When that sale did not fructify because of  the failure of the highest bidder to deposit the sale  price,   the  lease-hold  interest  was  sold  to  the defendant with  the sanction  of the  Company Judge.  At  no

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point  of  time  did  the  predecessors-in-interest  of  the plaintiffs raise  the slightest objection to the sale of the leas-hold interest.  It was  thereafter that  the  defendant obtained the permission 828 of the  Municipal Board, Saharanpur, and raised construction on the  land. The  plaintiffs themselves  admittedly  reside near about  the land  in dispute.  They did  not  raise  any objection  to   the  raising   of  the   constructions.  The plaintiffs as  well as the defendants appeared to proceed on the common  understanding that  the defendants had succeeded to the  interest of  Patel Mills  Ltd.,  in  the  lease-hold interest. We are, therefore, of the view that the plaintiffs were estopped  from contending  that the  defendant  had  no interest in  land. The  amount only  right of the plaintiffs was to  receive the  rent. The  result of  our discussion is that the  appeal is  allowed and  the suit is dismissed with costs throughout.  It  is,  however,  made  clear  that  the plaintiffs  have   the  right   to  receive  rent  from  the defendants. P.B.R.                                       Appeal allowed. 829