1983 (8) TMI 187 - SC - Companies Law

As the appellants submitted that adopting a multiplier of six, assuming that roughly six years was the period; for which the agreement would have been renewed from year to year, the appellants unconditionally offered to deposit ₹ 1,50,000 in the court to be distributed at the discretion of this court amongst the creditors of the company in liquidation. We recorded this offer in our order disposing of the appeal. We are now informed that the amount has been deposited. The liquidator is accordingly directed to submit the list of the creditors of the company with the names, addresses and claims admitted by him within 4 weeks from today when the matter will appear again on board for directions.

Summary

Issues Involved:
1. Validity of the caretaker's agreement under the Bombay Rents, Hotel and Lodging House Rates Control Act, 1948 ("Rent Act").
2. Liquidator's authority to lease or license the premises.
3. Compliance with section 457 of the Companies Act, 1956.
4. Rights of the appellants as landlords.
5. Financial implications for creditors of the company in liquidation.

Detailed Analysis:

1. Validity of the Caretaker's Agreement under the Rent Act:
The appellants argued that the caretaker's agreement entered into by the liquidator with the second respondent contravened the provisions of the Rent Act. The learned company judge initially held that the agreement was permissible under the Rent Act. However, the Supreme Court found that the agreement was essentially a facade to collect compensation for the use and occupation of the premises, thereby violating the Rent Act. The court emphasized that the Rent Act prohibits sub-leasing or licensing the premises without the landlord's consent, and the caretaker's agreement was an attempt to circumvent these provisions.

2. Liquidator's Authority to Lease or License the Premises:
The liquidator sought directions from the court on whether to lease or license the premises or sell the furniture and fixtures. The court directed that the premises be given on a caretaker basis. The Supreme Court found that the liquidator's action of entering into a caretaker's agreement was not within the scope of his authority under section 457 of the Companies Act, as it did not pertain to carrying on the business of the company for its beneficial winding-up.

3. Compliance with Section 457 of the Companies Act, 1956:
Section 457 allows the liquidator to carry on the business of the company with the court's sanction if necessary for the beneficial winding-up of the company. The Supreme Court noted that the business of the company, which involved floating prize chit schemes, had come to a standstill upon the winding-up order. Therefore, there was no business to carry on, and the liquidator's actions in leasing or licensing the premises were not justified under section 457. The court found no order indicating the court's sanction for the liquidator to carry on the business, and thus, the liquidator's actions were unauthorized.

4. Rights of the Appellants as Landlords:
The appellants, as landlords, sought a direction for the liquidator to terminate the caretaker's agreement and hand over vacant possession of the premises. The Supreme Court held that the company, being a statutory tenant, could not sub-lease or license the premises without the landlord's consent. The liquidator's actions were found to be in violation of the Rent Act, and the court directed that possession be handed over to the appellants.

5. Financial Implications for Creditors of the Company in Liquidation:
The liquidator argued that leasing the premises would generate income to mitigate the hardships of the creditors. However, the Supreme Court emphasized that legal provisions cannot be violated, even for laudable objectives. The appellants offered to deposit Rs. 1,50,000 to be distributed among the creditors, which the court accepted. The liquidator was directed to submit a list of creditors for the distribution of this amount.

Conclusion:
The Supreme Court allowed the appeal, setting aside the orders of the learned Single Judge and the Division Bench of the Bombay High Court. The caretaker's agreement was found to be an impermissible attempt to circumvent the Rent Act. The liquidator's actions in leasing or licensing the premises were unauthorized under section 457 of the Companies Act. The court directed the liquidator to hand over possession of the premises to the appellants and arranged for the distribution of Rs. 1,50,000 among the creditors of the company in liquidation.