2018 (2) TMI 334 - HC - Companies Law

Company under liquidation expended for construction of superstructures on lands - whether superstructures up for sale which respondent no.3 purchased during the auction proceedings? - Held that - It is universally accepted that the applicant is the owner of the lands bearing survey nos. 340/2 and 340/3 and not the company in liquidation.The superstructures standing on such lands were put up by the company at its cost. The labourers of the company were residing in such quarters when the company was actually operational. We are informed that currently the labourers employed by respondent no.3 in the factory are occupying such premises for their residential use.Neither the lands nor the superstructures standing thereon were put for sale under the advertisement dated 30.5.2007.Neither the lands nor the superstructures formed part of the sale deed dated 16.6.2005. Consequently, respondent no.3 never became and is not the owner of the superstructures standing on lands bearing survey nos. 340/2 and 340/3. Despite these conclusions, we are not inclined to grant reliefs of the applicant as claimed. This is so because, as noted, the superstructures were constructed by the company at its own cost and would therefore, be the property of the company. If the applicant seeks restoration of the possession, the applicant must pay the cost of such construction to the Official Liquidator which proceeds can be used for the purpose of discharging Company s remaining debts We pass the following order 1) The Official Liquidator shall have the cost of construction standing on lands bearing survey nos. 340/2 and 340/3 assessed by a Government approved valuer. The construction is quite an old one. Value of such construction as on date therefore, shall have to be on the basis of the current cost of similar construction reduced by depreciation for the period between the completion of construction till date. We make it clear that the valuer shall not apply the rate of depreciation provided in the Incometax Act which is entirely for different purpose but actual reduction in value of construction with passage of time. 2) Such report shall be placed before the Court on the next date of hearing. SO to 21.3.2018. 3) The applicant shall deposit an adhoc sum of ₹ 50,000/with the Official Liquidator towards the possible cost of such valuation subject to adjustments in future latest by 5.2.2018.

Issues Involved:
1. Ownership of lands and superstructures.
2. Legal right of the Official Liquidator to sell properties.
3. Validity of sale to respondent no.3.
4. Claim of adverse possession.
5. Delay and laches in filing the application.
6. Application of Section 41 of the Transfer of Property Act.
7. Relief and compensation for the applicant.

Detailed Analysis:

Ownership of Lands and Superstructures:
The appellant claimed that several parcels of land, including survey nos. 340/1, 340/2, and 340/3, were his private property and not part of the company's assets. The learned Company Judge confirmed that the lands bearing survey nos. 167/1, 167/2, 168/1, 168/2, 169/1, 170, 171, 340/2, and 340/3 were indeed the private properties of the appellant. However, the Judge noted that the superstructures on survey nos. 340/2 and 340/3 were constructed by the company, complicating the issue of ownership and possession.

Legal Right of the Official Liquidator to Sell Properties:
The Official Liquidator, respondent no.1, and respondent no.3 (Kanak Castors Products Private Ltd.) contended that the properties, including the superstructures, were sold under a court-supervised auction. The Official Liquidator's report indicated that while the lands belonged to the appellant, the superstructures were shown as assets of the company in the balance sheet, leading to their inclusion in the sale.

Validity of Sale to Respondent No.3:
The sale deed dated 16.6.2005 and the advertisement for auction did not include lands bearing survey nos. 340/2 and 340/3 or the superstructures on these lands. The court found that the sale deed and advertisement did not convey the title of these superstructures to respondent no.3, as these properties were not part of the sale.

Claim of Adverse Possession:
Respondent no.3 claimed adverse possession, stating that the company had constructed the superstructures in 1996 and had been using them since. The court rejected this claim, noting that mere length of possession does not establish adverse possession without evidence of hostile possession against the true owner.

Delay and Laches in Filing the Application:
Respondent no.3 argued that the application was barred by delay and laches, as the sale was confirmed in 2004 and the application was filed in 2010. The court found no merit in this argument, stating that the delay did not defeat the appellant's ownership rights.

Application of Section 41 of the Transfer of Property Act:
The court dismissed the application of Section 41, which pertains to the transfer by an ostensible owner. The appellant did not consent to the transfer, nor was the company an ostensible owner of the properties in question.

Relief and Compensation for the Applicant:
The court concluded that the appellant was the owner of the lands but not the superstructures, which were constructed by the company. The court directed that the appellant could reclaim the lands and superstructures upon paying the cost of construction to the Official Liquidator. The valuation of the superstructures would be assessed by a Government-approved valuer, considering depreciation.

Conclusion:
The court partially allowed the appellant's application, directing the Official Liquidator to hand over the lands to the appellant after assessing and receiving the cost of construction for the superstructures. The court stayed the order until 21.3.2018 to allow respondent no.3 to approach the Supreme Court, while the valuation process could proceed.

← Previous Next →