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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 190 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

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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).        191        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

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      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        192        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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                                  193        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

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      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

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      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