2019 (10) TMI 1526 - SC - Companies Law

Termination of lease agreement - WBSIDC's right to forfeit the lease, when the lessor had no grievance in that regard - HELD THAT - The finding that since the exercise by the lessor (WBSIDC) of its right to determine the lease attained finality, the mortgagee (represented by the Appellant) could not claim rights superior to that of the lessee, is in consonance with settled law. There can be no dispute, nor was it contended that a donee or a grantee (as the status of the lessee company in liquidation as in this case) can have no rights in excess of that possessed by the donor or the grantor. The mortgagee (whose shoes SASF has stepped into) of the lessee (Wellman) can have no right greater or better than that of the lessee in terms of the deed of lease. Appeal dismissed.

Summary

Issues:
1. Interpretation of lease conditions and rights of lessor and lessee.
2. Validity of lease forfeiture and possession restoration.
3. Rights of mortgagee in case of lease termination.

Issue 1: Interpretation of lease conditions and rights of lessor and lessee

The case involved an appeal challenging a judgment of the Calcutta High Court regarding the interpretation of lease conditions under the Companies Act, 1956. The Appellant, a trust acting as a special purpose vehicle, acquired stressed assets of a bank and managed them. The dispute arose from the transfer of assets, including immovable property leased to a company in liquidation. The High Court upheld the lessor's right to possession due to the lessee's failure to use the property for the intended purpose of manufacturing activity. The Court emphasized the importance of lease compliance and the lessor's entitlement to terminate the lease under the West Bengal Government Premises Act, 1976.

Issue 2: Validity of lease forfeiture and possession restoration

The first Respondent, to whom the lease rights were assigned, sought possession restoration from the Official Liquidator after the original lessee ceased manufacturing activities on the leased premises. The High Court, through a detailed judgment, supported the lessor's claim for possession restoration based on the lease conditions and the lack of manufacturing activity for an extended period. The Division Bench affirmed this decision, highlighting the unchallenged lease forfeiture and the lessor's right to seek possession in such circumstances.

Issue 3: Rights of mortgagee in case of lease termination

The Appellant, representing the mortgagee of the leasehold rights, contested the High Court's decision, arguing potential financial losses and the long-term nature of the lease. However, the Court upheld the lessor's right to terminate the lease, emphasizing that the mortgagee cannot claim superior rights to the lessee. The judgment referenced the Phatu Rochiram Mulchandani case to support the lessor's actions in seeking possession post-lease forfeiture, which had attained finality. The Court dismissed the appeal, stating that the mortgagee's rights cannot exceed those of the lessee and that the lessor's decision to terminate the lease was legally sound.

In conclusion, the Supreme Court affirmed the High Court's decision, emphasizing the importance of lease compliance, the lessor's right to terminate the lease, and the limitations on the mortgagee's rights in case of lease forfeiture. The judgment highlighted the legal principles governing lease agreements and upheld the lessor's entitlement to seek possession in cases of non-compliance by the lessee.