2019 (11) TMI 732 - HC - Companies Law

Handover of possession of the properties belonging to the Company (In Liquidation) - Permission to Official Liquidator to break open the lock put by the ex-management of J.B. Diamonds Limited, the Company (In Liquidation) on the premises namely Bharat Diamond Bourse, Office Space No.8120, Bandra Kurla Complex, Bandra (E), Mumbai-400 051 - takeover of physical possession of the assets of the Company, of which symbolic possession has already been taken by the Official Liquidator, and if necessary, with the assistance of the Police Authorities, by directing the tenants (tenancy rights whereof are disputed by the Official Liquidator) to vacate the premises. HELD THAT - The record reveals gross collusion between the ex-directors of the Company in liquidation and the directors/partners of the tenants. All the suits have been filed by the tenants in the year 2011, which is the same year in which the Company Petition was filed against the Company under Sections 433 and 434 of the Companies Act. It is during that time, the tenants, claiming a right in the assets of the Company (in liquidation), approached the Courts in Mumbai and in Surat, where the various assets of the Company are situated and obtained orders/decrees from the Courts, which forms the underlying basis on which the tenants are claiming protection and have obstructed the Official Liquidator from taking possession of the assets of the Company in liquidation. It is an admitted fact that the properties are the assets of the Company in liquidation. Hence, under the scheme and the provisions of the Companies Act, 1956, this Court is required to protect the assets of the Company in order to not defeat the rights of the workers and the creditors of the Company. The record reveals a shocking state of affairs, which supports the stand of the Official Liquidator of the collusion and fraud on part of the ex-directors of the Company and the tenants. The relationship between the ex-directors of the Company and the directors/partners of the tenants is not in dispute - it can be hardly contended by the tenants that the orders/decrees were not collusive and/or that no fraud was played by the tenants and the ex-directors of the Company on the Courts in Mumbai and Surat. The orders/decrees passed by the Courts in favour of tenants declaring them to be tenants, are a nullity in the eyes of law and are declared illegal and void, as being coram non judice and hence not binding on the Official Liquidator of the Company (in liquidation) - The tenants are directed to handover physical possession of the properties set out in paragraphs 7 and 8 above within a period of one (1) week from the date of uploading this Order. The Official Liquidator's Report is accordingly disposed of.

Summary

Issues Involved:
1. Legitimacy of decrees obtained by tenants.
2. Jurisdiction of courts to pass decrees post-winding up order.
3. Collusion and fraud by ex-directors and tenants.
4. Validity of tenancy claims by tenants.
5. Authority of the Company Court to declare decrees void.

Issue-wise Detailed Analysis:

1. Legitimacy of Decrees Obtained by Tenants:
The Official Liquidator contended that the decrees obtained by the tenants were collusive and fraudulent, lacking jurisdiction since they were procured without the requisite leave under Section 446 of the Companies Act, 1956. The decrees were obtained after the winding-up order dated 19th June 2012, which rendered them void. The court noted the collusion between the ex-directors and the tenants, who were often family members, and found that the decrees were indeed fraudulent and collusive.

2. Jurisdiction of Courts to Pass Decrees Post-Winding Up Order:
The court held that the decrees passed by the Courts post the winding-up order were without jurisdiction as no leave under Section 446 of the Companies Act was obtained. The decrees were declared nullities and coram non judice, meaning they were invalid and non-binding. The court cited the Supreme Court judgments in "Chief Engineer, Hydel Project v. Ravinder Nath" and "Harshad Chiman Lal Modi v. DLF Universal Ltd." to support this position.

3. Collusion and Fraud by Ex-Directors and Tenants:
The court found substantial evidence of collusion and fraud between the ex-directors of the Company and the tenants. The ex-directors led evidence on behalf of the tenants and failed to contest the suits, resulting in decrees that favored the tenants. The court observed that these actions were intended to obstruct the Official Liquidator from taking possession of the Company’s assets.

4. Validity of Tenancy Claims by Tenants:
The tenants claimed tenancy based on oral agreements and subsequent written agreements made after the winding-up order. The court found these claims to be invalid, as the agreements were made post the winding-up order and without proper documentation or rent receipts. The court also noted that the tenants failed to produce convincing evidence to substantiate their claims.

5. Authority of the Company Court to Declare Decrees Void:
The court affirmed its authority to declare the decrees void, citing the judgment in "Forbes and Company v. Coromandel Garments Ltd." which established that decrees obtained by fraud can be set aside at any stage. The court rejected the tenants' reliance on "Modella Woollens Ltd. v. Official Liquidator," distinguishing the facts and legal principles applicable in the present case.

Conclusion:
The court declared the decrees obtained by the tenants as illegal and void, directed the tenants to handover physical possession of the properties within one week, and authorized the Official Liquidator to take necessary actions, including breaking locks and seeking police assistance if required. The court emphasized the need to protect the assets of the Company for the benefit of its workers and creditors, condemning the fraudulent actions of the ex-directors and tenants.