1987 (6) TMI 371 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the sale conducted by the official liquidator.
2. Applicability of sub-rule (2) of rule 15 of the Kerala Land Assignment Rules.
3. Requirement of written consent from the District Collector for the sale.
4. Validity of the restrictive covenant in the lease agreement.
5. Consequences of breach of the lease agreement.

Issue-wise Detailed Analysis:

1. Legality of the Sale Conducted by the Official Liquidator:
The official liquidator, supported by the Canara Bank and the highest bidder, contended that the company still exists and the fact that it is ordered to be wound up is not sufficient to rescind the lease. The unexpired portion of the lease is a valuable asset of the company, and the official liquidator is entitled to sell it to realize money. The sale conducted by the official liquidator is not voluntary but under court orders in the course of winding up, which should not be restricted by the lease agreement. The High Court of Kerala, referencing decisions from other high courts and the Supreme Court, concluded that the sale by the official liquidator is not a voluntary sale but an involuntary sale by operation of law, thus not restricted by the lease agreement.

2. Applicability of Sub-rule (2) of Rule 15 of the Kerala Land Assignment Rules:
The Government Pleader argued that the lease created under exhibit A-2 is not alienable but only heritable as per sub-rule (2) of rule 15 of the Kerala Land Assignment Rules. However, the court noted that rule 1A of the Kerala Land Assignment Rules provides exemptions, stating that the rules do not apply to lands within the limits of a corporation, municipality, or cantonment, or lands held under special agreements with the Government. Hence, the provisions of the Kerala Land Assignment Rules are not applicable to exhibit A-2 lease agreement.

3. Requirement of Written Consent from the District Collector for the Sale:
The Government Pleader contended that sub-clause (3) of clause 2 of exhibit A-2 prohibits assignment or sub-letting without the written consent of the District Collector, rendering the sale illegal without such consent. The respondents argued that the restrictive covenant applies only to voluntary sales, not to involuntary sales by operation of law. The court, referencing the Supreme Court's decision in Parasram Harnand Rao v. Shanti Parsad Narinder Kumar Jain, held that the sale by the official liquidator is a voluntary sale and thus requires the written consent of the District Collector.

4. Validity of the Restrictive Covenant in the Lease Agreement:
The court examined whether the restrictive covenant in sub-clause (3) of clause 2 of exhibit A-2 applies to the sale by the official liquidator. The respondents cited various decisions indicating that restrictive covenants do not apply to involuntary sales. However, the Supreme Court's ruling in Parasram Harnand Rao's case clarified that even if the sale by the official liquidator is considered involuntary, it still falls within the scope of the restrictive covenant. Therefore, the sale without the District Collector's consent is not valid.

5. Consequences of Breach of the Lease Agreement:
Sub-clause (2) of clause 3 of exhibit A-2 provides that in case of a breach of any covenants or conditions, the lessor may re-enter the land and determine the lease. Since the sale by the official liquidator without the District Collector's consent constitutes a breach, the Government has the right to terminate the lease. However, the court found the application premature as no sale had been effected yet. The official liquidator was directed to apply for the necessary sanction from the District Collector. The District Collector is expected to consider the interests of all parties, including the Canara Bank and other creditors, before making a decision.

Conclusion:
The appeal was disposed of with directions for the official liquidator to seek the District Collector's sanction for the sale. The District Collector should consider all relevant factors, including the interests of the creditors and shareholders, in disposing of the application for sanction. The parties may approach the company court for appropriate orders after the District Collector's decision, if necessary. There was no order as to costs.