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TMI Blog2007 (4) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... 3854.42. On 17-7-1989, the appellants served a legal notice by registered AD, upon the company, terminating its tenancy and calling upon it to hand over vacant peaceful possession of the tenanted premises by the midnight of 31-8-1989. Despite the termination of the lease, the company did not hand over vacant possession of the premises. The appellants, therefore, filed Suit No. 982 of 1993, in the Court of Additional District Judge, Delhi. During the pendency of the aforementioned suit, the company was ordered to be wound up, vide order of this Court, dated 15-7-1999, passed in C.P. No. 121 of 1998. The appellants thereafter filed an application praying for liberty to proceed with the suit vide order, dated 12-5-2000, the learned Company Court allowed the said application. On 8-3-2001, the Additional District Judge, Delhi, decreed the suit and passed a decree for possession and mesne profits at Rs. 25,000 per month with effect from 1-10-1989. On 26-4-2001, the appellants filed C.P. No. 68 of 2001 for execution of the decree. On 17-8-2001, the Official Liquidator prayed that time be granted to enable sale of the assets of the company, whereafter, possession of the premises would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , partakes the nature of liquidation expenses, in terms of section 530(6) of the Companies Act, 1956 (for short hereinafter referred to as the Act ) and should be paid to the appellants, by assigning priority over and above the other creditors. 5. The official liquidator disputed the locus standi of the appellants and contended that the premises in question remained in the custody of the official liquidator in the usual course of office, as the property was not disclaimed. It was asserted that merely because the property remained in the official liquidator s possession, the appellants were not entitled to a preferential payment. All payments, due towards rent, were to be paid to the appellants as unsecured creditors. 6. The learned Single Judge, after hearing counsel for the parties, and upon an appraisal of the record, placed reliance upon a judgment of the Hon ble Supreme Court in Official Liquidators, U.P. Union Bank Ltd. v. Rameshwar Nath Agarwal [1960] 30 Comp. Cas. 114, and held that though it was open to the appellants to seek rescission of the contract of tenancy after the order of winding up was passed, they instead sought permission to continue with the sui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after winding up for the purpose of liquidation and where property has not been used for the purpose of liquidation. A claim in the former situation would be in the nature of liquidation expenses, whereas a claim as regards latter, would not be so. Thus, where the property is utilised for the purpose of bringing liquidation proceedings to a successful conclusion, such expenses would partake of the nature of liquidation expenses to be assigned priority in matters of payment. 10. Reliance for the above contentions is placed upon Board of Trustees for the Port of Kolkata v. Official Liquidator, Gauhati High Court [2006] 130 Comp. Cas. 595 (Gau.), ITO v. Official Liquidator, Swaraj Motors (P.) Ltd. [1978] 111 ITR 77 (Ker.) and the judgment of this Court, R.K. Manik v. Altos India Ltd. [2003] 114 Comp. Cas. 470 1 (Punj. Har.). 11. Counsel for the respondents, however, contends that as the premises in dispute were merely possessed by the official liquidator and were not retained for the purpose of liquidation of the assets of the company, the amounts claimed by the appellants partake the nature of ordinary debts and cannot be held to be liquidation expenses. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the occupation of the liquidator, after winding up for the purpose of liquidation and between occupation by the liquidator merely in normal course. It was held, on facts, that as the liquidator remained in occupation of the premises not for the purpose of winding up, the landlord was not entitled to priority in respect of payment of rent. The relevant extract of the aforementioned judgment reads as follows: "Distinction has been made by the Courts in England where the relevant provisions of the Companies Act are substantially the same that if the liquidator continues in possession of leaseholds for the purpose of the better realisation of assets, the lessor will be entitled to payment of the rent in full, as part of the expenses properly incurred by the liquidator; but as observed by Lord Justice Lindley, Oak Pits Colliery Co., In re [1882] 21 Ch. D. 322, at page 331: . . . no authority has yet gone the length of deciding that a landlord is entitled to distrain for or be paid in full rent accruing since the commencement of the winding up, where the liquidator has done nothing except abstain from trying to get rid of the property which the company holds as lessee. Evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses incurred in winding up proceedings. In R.K. Manik v. Altos India Ltd. s case ( supra ), a Single Bench of this Court held that the landlord was entitled to priority with respect to the payment of mesne profits, due to him, as storage of the company s movable assets, in their godowns, was necessary to ensure a fair distribution of the sale proceeds of the property of the company in liquidation. 16. The judgment cited by counsel for the official liquidator, in S.S. Chawla Co. s case ( supra ), in our considered opinion, does not strike a discordant note. After examining the law obtaining with respect to the controversy in hand, it was held as follows : "The question, then, is whether, on the facts of the present case, the rents which accrued due, after the winding up order was made, can be regarded as the costs and expenses of the winding up . The test evolved by the English cases is stated in the following passage in Palmer s Company Law, twenty-third edition, at page 1179 : The lessor can prove for rent due up to the date of the commencement of the liquidation, and he can also prove for the rent as it accrues due after the commencement of the liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in liquidation, stood terminated by service of a legal notice, dated 17-7-1989. This notice issued, under section 106 of the Transfer of Property Act, determined the lease and the lease no longer subsisted. The relationship of the landlord and the tenant or lessor and lessee between the appellants and the company in liquidation came to an end. The company was ordered to be wound up, vide order dated 15-7-1999. The assets of the company, including possession of the tenanted premises, vested in the Company Court, as custodian thereof. It is not denied, by counsel for the official liquidator, that prior to the order of liquidation, a suit for possession had been filed by the appellants. The appellants sought and were granted permission by the learned Company Court to continue the suit. A decree for possession and mesne profits was passed by the Additional District Judge, Delhi on 8-3-2001. Thereafter, in response to a petition for execution of the aforementioned decree, filed before the Company Court, the official liquidator, prayed for time to retain possession of the premises so as to enable him to sell the assets of the company, housed in the tenanted premises. The official liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters of payment, in accordance with the provisions of section 520 of the Companies Act, 1956. 22. The learned Company Judge declined relief to the appellants primarily, by holding that after the company went into liquidation, the appellants, instead of praying for rescission of the contract, prayed for permission to continue with the suit and, therefore, the mesne profits would be an ordinary debt. The learned Company Judge did not notice that the contract of lease stood rescinded as far back as 17-7-1989, on which date the appellants issued a notice, under suction 106 of the Transfer of Property Act, terminating the lease. The contract of lease stood-terminated/rescinded prior to the filing of a petition for winding up and/or passing of the order of winding up. As the contract of lease stood determined, there was no occasion for the appellants to pray for rescission of the contract. A contract that does not subsist cannot be rescinded or terminated and, therefore, the learned Company Judge erred in holding that as the appellants sought permission to continue with the suit, their claim for mesne profits would rank, as an ordinary debt. 23. In view of what has been stated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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