2014 (6) TMI 53 - SC - Indian Laws

Cancellation of lease - Conditions for termination of lease - Validity of termination notice - Prior permission for termination - Held that - as a matter of record that the Company failed to complete the construction and start factory on the demised land. In fact, no factory could be set up at all. One plot was allotted to the Company on 21.12.1984. Second plot was allotted to the Company on 10.1.1989. When the project did not take off by the prescribed time, the Board passed two separate resumption orders, both dated 6.5.1992 in respect of these two plots. Even thereafter, the company could not start factory operations - right to purchase the land did not fructify in favour of the Company. On the contrary, while the relationship between the Company and the Board was still that of lessee and lessor, the lease came to be determined by the Board because of the breach of the covenants of lease agreement. We, therefore, cannot accept the contention of the learned Senior Counsel for the appellant that the Company had become the owner of the plots in question. Company had committed clear breach in not completing the project and setting up the factory within the time given on the Lease Agreement or the time as extended by the Board. In such circumstances, the Lease Agreement gave a definite right to the Board to terminate the lease. We are, therefore, of the opinion that the Board was very well within its right to terminate the lease as provided in the Lease Agreement - an order of cancellation of the lease-cum-sale agreement is passed by the applicant Corporation, after presentation of the Company Petition and after passing the winding up order, but without the leave of the Court, and in our opinion, any such action is void. A void order cannot be regularised and, therefore, rightly the learned Company Judge has not acceded to the request made by the applicant Corporation. No where does the Act provide for the Board taking back possession of leased plots from the lessee, without recourse to eviction proceedings, whatever be the circumstances. On the other hand, the Act contains a specific provision (Section 25) providing for application of Public Premises Act to premises leased by the Board. The absence of any provision enabling the Board to take possession from lessees and the express provision for making Public Premises Act applicable to the premises leased by the Board, leads to inescapable conclusion that termination of leases and eviction of lessees are left to be governed by contract and general law. Therefore, any act of forcible dispossession of a lessee by the Board will be an act otherwise than in accordance with law. The court further held that the power of re-entry and 'resumption' that is reserved by the Board in the lease-cum-sale agreement, does not authorize the Board to directly or forcibly resume possession of the leased land, on termination of the lease. It only authorizes the Board to take possession of the leased land in accordance with law. It could be either by having recourse to the provisions of the Public Premises Act or by filing a Civil Suit for possession and not otherwise. Serving of cancellation notice simplicitor would not come within the mischief of this section as that by itself does not amount to attachment, distress or execution etc. No doubt, after the commencement of the winding up, possession of the land could not be taken without the leave of the Court. Precisely for this reason the Board had filed the application seeking permission. But according to us no such prior permission was required before cancelling the lease. In fact, it is only after the cancellation of the leases that the Board would become entitled to file such an application under Section 537 of the Act. Had the Board gone ahead further and taken the possession, after the cancellation and then approached the Company Judge, the situation which occurred in M/s. Anco Communication Ltd. (supra) would have prevailed. On the other hand, it would have been premature on the part of the Board to approach the Company Judge for permission to resume the land without cancelling the lease in the first instance. - termination notice dated 19.1.2002 of the Board is valid. Likewise the order of the Company Judge permitting the board to take possession of the land in question is legal and justified - Decided against Appellant.

Summary

Issues Involved:
1. Delay condonation and leave granted.
2. Locus standi of the appellant.
3. Ownership status of the property in question.
4. Validity of the termination notice.
5. Necessity of prior permission from the Company Court for lease termination.
6. Validity of the Company Court's order allowing the Board to resume the land.

Issue-wise Detailed Analysis:

1. Delay Condonation and Leave Granted:
The Supreme Court condoned the delay and granted leave to appeal.

2. Locus Standi of the Appellant:
The appellant, a promoter/shareholder of the Company, challenged the orders of the Company Judge and the Division Bench of the High Court. The Division Bench dismissed the appeal for lack of locus standi, but the Supreme Court found that the appellant had a significant interest in the matter due to potential personal liability for the Company's debts.

3. Ownership Status of the Property in Question:
The Board had leased the plots to the Company under a Lease Agreement with the provision that the Company could purchase the property after 11 years if certain conditions were met. The Company failed to complete the construction and set up the factory within the stipulated time. Consequently, the Board terminated the lease and resumed the land. The Supreme Court held that the Company had not acquired ownership of the plots as it did not fulfill the conditions of the Lease Agreement.

4. Validity of the Termination Notice:
The Board issued a resumption letter and show cause notice due to the Company's failure to implement the project. After considering the Company's responses, the Board terminated the lease. The Supreme Court found the termination notice valid as the Company had breached the covenants of the Lease Agreement by not completing the project.

5. Necessity of Prior Permission from the Company Court for Lease Termination:
The appellant argued that prior permission from the Company Court was required under Section 537 of the Companies Act before terminating the lease. The Supreme Court held that prior permission was not necessary for cancelling the lease but was required for resuming the land. The Board had appropriately filed an application for permission to resume the land after cancelling the lease.

6. Validity of the Company Court's Order Allowing the Board to Resume the Land:
The Company Judge granted the Board permission to resume the land, considering the Company's failure to establish the factory. The Supreme Court upheld this order, finding it legal and justified. The Company was in liquidation, and no valid rehabilitation scheme was proposed under Sections 391 to 394 of the Companies Act. The land was not required by the Company, and the Official Liquidator could not claim rights over it as it was not the property of the Company.

Conclusion:
The Supreme Court dismissed the appeal with costs, affirming the validity of the Board's termination notice and the Company Judge's order allowing the Board to resume the land. Consequently, related appeals were also dismissed.