2013 (1) TMI 78 - HC - Companies Law

Winding up petition - company-in-liquidation was the lessee under the Corporation, subject to payment of lease rent and other statutory and contractual outgoings - company not clearing their dues with the Corporation - Official Liquidator tried for sale of assets of the company -in-liquidation - Company Judge confirmed the sale in favour of Pollen Laboratories but offer does not match the valuation report - Corporation contested against the sale as lease did not provide liberty to create any sub-lease or power to assign the same - Held that - The company-in-liquidation was a small scale unit. To support this small scale unit a meagre amount of rent at the rate of Rs. 500/- per month was fixed for a land comprising of about 10 cottahs at the prime location of the city. The terms of the lease as a whole would depict, it was nothing but an incentive to a small-scale unit given at the behest of the Corporation. That facility could not be used for commercial purpose by assigning the same to any outsider. Admittedly, the company-in-liquidation did not have a valid lease on the date of winding up. It was not the case of the Official Liquidator, there was no rent in arrear as on the date of the winding up. Hence, there was no valid lease. Corporation was entitled to repossess the land in question. The sale that was held by His Lordship was for the movable assets and the sheds and structures, belonged to the company-in-liquidation. The company was being sold as a going concern with an undertaking to engage all employees, would mean, the unit was to be run by the new purchaser along with the existing machinery and the workforce. Where it would be run, was the headache of the purchaser. The purchaser might approach the Corporation for a fresh lease. The order of His Lordship might help them to have a fruitful negotiation with the Corporation. If the bid would fail, the purchaser would have to look for a different venue. The order of His Lordship could not be construed to mean, sale as a going concern, would also include the unexpired lease - Corporation being a public sector undertaking should sympathetically consider retention of the unit, provided they make an independently approach to the Corporation for a fresh lease being obtained on such terms and conditions as may be mutually agreed upon. The Corporation should wait for three months to have such approach and to take lawful step to remove the purchaser from the premises and repossess the plots in question, but after observing due process of law.

Summary

Issues:
1. Validity of sale of assets of a company-in-liquidation.
2. Competency of Official Liquidator to assign leasehold interest.
3. Corporation's entitlement to repossess the land.

Issue 1: Validity of sale of assets of a company-in-liquidation

The judgment revolves around the sale of assets of a company-in-liquidation, M/s. Quality Pharmaceuticals Pvt. Ltd., by the Official Liquidator. The company defaulted on lease rent and other charges, leading to a winding-up petition by the Corporation. Despite objections, the sale was confirmed in favor of Pollen Laboratories Pvt. Ltd. for Rs. 40 lacs. The appellant contended that the Official Liquidator had no authority to sell the leasehold interest as a going concern without the Corporation's consent. The court examined the status of the lessee at the time of winding up, finding that the lease had been terminated by the Corporation. It was concluded that the Official Liquidator was not entitled to sell the unexpired lease period without the Corporation's consent.

Issue 2: Competency of Official Liquidator to assign leasehold interest

The appellant argued that the Official Liquidator, stepping into the shoes of the company-in-liquidation, could not sell the leasehold interest as a going concern without permission. The court analyzed the terms of the lease, which prohibited assignment without the Corporation's consent. It was established that the company-in-liquidation did not have a valid lease at the time of winding up, as the unit had been closed for a significant period with dues in arrears. Therefore, the Official Liquidator lacked the authority to assign the lease without the Corporation's approval.

Issue 3: Corporation's entitlement to repossess the land

The court determined that the Corporation was entitled to repossess the land in question as the lease had been terminated. The sale confirmed by the judge was for movable assets and structures, not the unexpired lease period. The judgment clarified that the sale as a going concern did not include the lease. The Corporation was advised to consider retaining the unit by negotiating a fresh lease with the purchaser. The court granted the Corporation three months to approach for a new lease, after which lawful steps could be taken to repossess the land, emphasizing the need to follow due process of law.

In conclusion, the appeal was disposed of without costs, affirming the Corporation's entitlement to repossess the land and emphasizing the importance of lawful procedures in such matters.