2018 (10) TMI 120 - HC - Companies Law

Company under liquidation - right of the State on leased out property - application for determination of right over the property - Held that - during liquidation proceedings the State of Madhya Pradesh through its functionaries had filed an application that they are the owner/lessor of the property in question. However the company court without dwelling on the same passed the liquidation order. The official liquidator on receiving the inventories since proceeded to put on auction the land in question in our considered opinion it was well within the right of the State to have moved an application for determination of their right over the property. The analysis takes care of the submissions on behalf of the official liquidator that it will be beyond the jurisdiction of the Company Judge to dwell upon the dispute as to the title over the land in question. And dispels the doubt as to whether it was within the competence of the Company Judge to have entertained the application on merit. To conclude when the impugned order is tested on the anvil of above analysis it cannot be given the stamp of approval. Consequently it is set-aside. Application filed by the State of Madhya Pradesh claiming to be the owner of the immovable property in question being the successor of erstwhile owner is allowed. It is held that the lessee and subsequent transferee from the original lessee did not incur absolute right and title in the immovable property in question. In other words they continue to remain as lessee. And the object for which the land was leased out being frustrated on winding up of the company in question; the land leased out to it stands reverted to its owner the State of Madhya Pradesh. As a consequence whereof it is held that the official liquidator has no right to auction the leased property in question.

Issues Involved:
1. Ownership and reversion of leased land.
2. Conditions of the lease agreement.
3. Rights of the lessee and subsequent transferees.
4. Jurisdiction of the Company Court in liquidation proceedings.
5. Validity of cross-objections by third parties.

Detailed Analysis:

Ownership and Reversion of Leased Land:
The primary issue was whether the land leased to J.C. Mills by the erstwhile Gwalior State should revert to the State of Madhya Pradesh upon the winding up of the company. The State claimed that the land should revert back to it as per the original lease conditions, which stipulated that the land was leased solely for running a factory and would revert to the State if the factory ceased operations. The Company Court initially dismissed the State's claim, stating that the land belonged to the company and could be auctioned by the official liquidator. However, the High Court set aside this decision, affirming that the land should revert to the State of Madhya Pradesh as the original lease conditions were not superseded by any subsequent agreements.

Conditions of the Lease Agreement:
The lease agreement dated 24.02.1921 specified that the land was granted for the purpose of setting up a factory and included a reversion clause if the factory ceased operations. The High Court emphasized that this condition remained valid and was not waived by any subsequent actions or permissions granted by the government. The court found that the initial lease conditions were not altered or waived by any later agreements or permissions granted for industrial expansion.

Rights of the Lessee and Subsequent Transferees:
The court examined whether the lessee (J.C. Mills) and subsequent transferees (such as GRASIM Industries, CIMMCO Birla, etc.) had acquired any absolute rights over the leased land. It was determined that the lessee and transferees only held lease rights and not ownership rights. The court cited precedents to support the view that mere possession or transfer of leasehold rights does not confer ownership. The High Court concluded that the subsequent transferees could not claim higher rights than those of the original lessee, and the land should revert to the State upon the cessation of the factory's operations.

Jurisdiction of the Company Court in Liquidation Proceedings:
The High Court addressed whether the Company Court had the jurisdiction to entertain the State's application regarding the ownership of the leased land during the liquidation proceedings. It was clarified that under Section 446(2) of the Companies Act, the Company Court has the jurisdiction to entertain claims and questions of priorities related to the winding up of the company. The High Court affirmed that it was within the Company Court's jurisdiction to determine the State's claim over the land.

Validity of Cross-Objections by Third Parties:
A cross-objection was filed by Harshit Textiles, claiming ownership of a parcel of the land purchased from GRASIM Industries. The High Court rejected this cross-objection, stating that only respondents to the original appeal could file cross-objections under Order XLI Rule 22 of the CPC. Since Harshit Textiles was not a respondent but a third party, its cross-objection was not maintainable.

Conclusion:
The High Court allowed the appeal by the State of Madhya Pradesh, holding that the land leased to J.C. Mills should revert to the State upon the winding up of the company. The court ruled that the lessee and subsequent transferees did not acquire absolute ownership rights over the land, and the official liquidator had no right to auction the leased property. The cross-objection by Harshit Textiles was dismissed as not maintainable. The appeal was allowed without any order as to costs.

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