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TMI Blog2014 (6) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Senior Counsel for the appellant that the Company had become the owner of the plots in question. Company had committed clear breach in not completing the project and setting up the factory within the time given on the Lease Agreement or the time as extended by the Board. In such circumstances, the Lease Agreement gave a definite right to the Board to terminate the lease. We are, therefore, of the opinion that the Board was very well within its right to terminate the lease as provided in the Lease Agreement - an order of cancellation of the lease-cum-sale agreement is passed by the applicant Corporation, after presentation of the Company Petition and after passing the winding up order, but without the leave of the Court, and in our opinion, any such action is void. A void order cannot be regularised and, therefore, rightly the learned Company Judge has not acceded to the request made by the applicant Corporation. No where does the Act provide for the Board taking back possession of leased plots from the lessee, without recourse to eviction proceedings, whatever be the circumstances. On the other hand, the Act contains a specific provision (Section 25) providing for appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ikri, J. Delay condoned. 2. Leave granted. 3. In this appeal the appellant has assailed the judgment and order dated 11.2.2010 passed by the High Court of Karnataka in Company Appeal which was preferred by the appellant herein against the orders dated 3.9.2009 by the Company Judge of the said court. Respondent No. 2 namely M/s. Relectronics Ltd. (hereinafter referred to as the 'Company') is ordered to be wound up and liquidation proceedings are pending before the Company Court. Respondent No. 1 i.e. Karnataka Industrial Areas Development Board (hereinafter referred to as the 'Board') had allotted an industrial plots to the Company on lease-cum-sale basis for a period of 11 years. The Board terminated the lease. The Company Judge, on application filed by the Board, had directed the liquidator to release the said land to the Board and the appeal by the appellant against this order has been dismissed by the Division Bench of the High Court, not on merits but for want of locus standi of the appellant to question the orders. The appellant herein is questioning the veracity of the orders on the ground that it was the property of the Company which could not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. All the assets and liabilities were got transferred to Official Liquidator (OL) who took charge thereof. 7. The Board sent notice dated 23.12.1997 to the Company for the resumption of the aforesaid industrial plots on a ground that Company had committed the breach of the terms and conditions of the Lease Agreement and had not established any factory for which purpose land was allotted to it. Thereafter, vide notice dated 19.1.2002 the Board terminated the agreement in respect of the two industrial plots. This order was also served upon the OL. Subsequent thereto application was preferred before the Company Judge by the Board seeking resumption of these Industrial Plots. This application was opposed by the OL. After hearing the parties, the Company Judge passed the orders dated 3.9.2009 allowing the said application and directing the OL to handover the possession of the industrial plots to the Board. In support, the Company Judge gave the following reasons: (a) KIADB had taken steps and measures as required under the provisions of the Act in placing the Company in liquidation on notice of its breach and its intention to resume the industrial plots after cance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a scheme of revival. In these circumstances the appeal of the appellant could not have been dismissed for purported lack of bona fides. He also submitted that the Division Bench could have imposed suitable terms for the appellant which could be complied with by the appellant to establish his bona fides, instead of summarily dismissing the appeal. In this behalf he sought to demonstrate that in the meanwhile one of the two promoters, viz. Mr. G. Mohan Rao had offered to invest sufficient funds for reviving the business of the Company. So much so he had offered to pay off all the debts which are due from the Company to its creditors. The appellant along with Mr. G. Mohan Rao was ready to revive the business of the Company and even willing to agree to the condition not to alienate the land in question. 10. Since it was agreed by and between the Counsel for the parties that in case the appeal filed by the appellant before the Division Bench of the High Court is held to be competent by this Court, then this Court itself should consider and decide the matter on merits, instead of remitting the case back to the High Court, we have heard the Counsel for the parties on merits as well. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Secondly, all the assets of a Company in liquidation after an order of liquidation belong to the creditors and shareholders and it is not open to the Company Court to give up the assets of the Company in liquidation except by way of disclaimer of onerous property under Section 535 of Company Act. 13. In support of second contention, the learned Senior Counsel referred to the judgment of this Court in United Bank of India v. Official Liquidator [1994] 1 SCC 575 and paras 10 and 11 which reads as under: 10. While the aforesaid direction will dispose of the appeal, we would like to say, having heard counsel on the merits of the appeal, that we are not satisfied that the Division Bench appreciated the purpose of the provisions of Section 535 of the Companies Act. Thereunder the High Court may give leave to the Official Liquidator to disclaim land of any tenure which is part of the property of the Company in liquidation if it is burdened with onerous covenants. The intention of Section 535 is to protect the creditors of the Company in liquidation and not mulct them by reason of onerous covenants. The power under Section 535 is not to be lightly exercised. Due car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company and sell them and to distribute the realization amongst all those who have claims against the Company and payment must be made according to priorities fixed by law. This appears to be not only the foremost but the most basic duty of a Liquidator of a Company ordered to be would up. Now, if the liquidator in course of winding up is required to file suit for recovery of properties and assets of the Company, one has only to imagine at what length of time winding up proceedings can be brought to a close. 15. Mr. Andhyarujina, further mentioned that on 11.1.2010, Mr. Mohan Rao had offered to revive the Company and pay off the debts of the Company. In this behalf he also drew our attention to the orders dated 19.7.2009, 16.8.2010 and 11.2.2011 passed in the present case. In this context, his submission was that there was every chance of the Company to be revived and, therefore, a valuable asset of the Company should not be allowed to be frittered away. 16. Mr. Patil, Senior Advocate, appearing for the Board stoutly refuted the aforesaid submissions. His argument was that the plots in question were allotted by the Board to the Company on lease-cum-sale basis with clear stip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of appeal arising out of S.L.P.(Civil) No.14161/2010 shall govern these appeals as well. Mr. Sundram, learned Senior Counsel appeared for Respondent No. 3 also endeavoured to justify the action of the Board in terminating the lease. He heavily relied upon the judgment of the Karnataka High Court in the case of M/s. Hanuman Silks (supra) and submitted that as per the said judgment it was permissible for the Board to issue termination notice but for further action of taking possession, permission of the Court was to be taken which was done in the present case. He further referred to the provisions of the Lease Agreement dated 21.12.1984 and submitted that the allotment was on certain terms and conditions with specific purpose, viz. to set up industry. Since this could not be accomplished by the Company, action of the Board in resuming the land was justified. In such a scenario, the payment of money in the form of rental by the Company to the Board was totally immaterial. He further pointed out that resumption order was of the year 1992 i.e. before the winding up order was passed which was even challenged up by the Company by filing Writ Petition in the High Court and the said wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances warranted the Company court to allow the application of the Board to resume the said land and take possession thereof? 20. We proceed to answer the aforesaid questions in seriatim: Q.1 Re: Status of the property in question 21. Admittedly, the Lease Agreement dated 21.12.1984 was entered into between the Board and the Company vide which the Board had agreed to lease to the Company the land in question upon certain terms and conditions. In consideration, the Company had paid a sum of Rs. 3,07,102/- as the initial deposit/ premium and it was also to pay the yearly rent of Rs. 6,921/- for the period of lease which was 11 years, computed from 4.8.1984. Clause 2 of the Lease Agreement stipulated various others covenants. Having regard to the nature of functions which the Board performs, which has been constituted for industrial development in that area, the plots in question were given to the Company exclusively for the purpose of establishing an industry/ factory for manufacture of AH/ FM Radio Audio Tape Recorder in combination with radio. The lease provided that the premises shall be used only for the aforesaid purpose and not for any other purpose. The lease al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided for determination of the Lease Agreement under certain circumstances including the one mentioned above. Clause 7 of the Lease Agreement enabled the Company to purchase the property in question at the end of 11 years lease period or the extended period, if any. For this purpose, the Board was supposed to fix the price of the demised premises for such sale. The rent already paid by the Company was to be adjusted towards the sale consideration so fixed and on payment of the balance amount of the value of the property within 1 month, the sale was to be effected, as provided in Clause 9. Amount of Rs. 3,07,102/- was to be kept by the Board as security for any loss of expenses that the Board may put to in connection with any legal proceedings including proceedings that may be taken against the Company. 23. It is not in doubt that while construing an agreement, it is not the nomenclature but the substance thereof needs to be looked into. Therefore, mainly because the agreement in question is termed as Lease Agreement that by itself will not be the sole determinative factor. However, various clauses of the agreement also clearly manifest that it was an agreement vide which lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his writ petition was dismissed by the High Court on 14.9.1999. 25. It is clear from the above that right to purchase the land did not fructify in favour of the Company. On the contrary, while the relationship between the Company and the Board was still that of lessee and lessor, the lease came to be determined by the Board because of the breach of the covenants of lease agreement. We, therefore, cannot accept the contention of the learned Senior Counsel for the appellant that the Company had become the owner of the plots in question. Q.2 Re: Validity of termination notice 26. As mentioned above, on the failure of the Company to complete the project within the specified period, the Board served resumption letter dated 6.5.1992 upon the Company stating that the land would be resumed on 8.6.1992 for failure to implement the project in time. On the same date in respect of second plot, a show cause notice was also issued by the Board to the Company to show cause within 15 days as to why action be not taken to cancel the allotment for failure to execute the agreement and to implement the project. The Company submitted its reply dated 28.5.1992, inter alia, stating that developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not take further action immediately thereafter. In the meantime, W.P. No. 11957 of 1993 filed against the resumption order dated 22.3.1993 in respect of Plot No. 19(A+B) came up for hearing before the High Court on 14.9.1999 and was dismissed with the following order: When the matter came up today, learned counsel for the petitioner and the respondents submitted that the petitioner Company has been wound up in pursuance of the order of this court in Company Petition No. 18 of 1994 and, therefore, this petition may be dismissed, as having become infructuous. Petition is dismissed accordingly. 29. On 19.1.2002, the Board passed the orders terminating the lease in respect of both the plots. In this termination order, after giving the past history of events which have already been noted above and mentioning that the Company had failed to construct the factory building and implement the industrial projects on the main land within the extended period and to execute lease agreement in respect of additional land, thereafter it was also stated that pursuant to the earlier resumption order, a writ petition was filed and because of the stay orders passed therein the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of M/s. Hanuman Silks (supra). It, therefore, becomes necessary to discuss these two judgments in the first instance. 32. In M/s. Anco Communication Ltd. (Supra) there was an allotment of industrial plot in favour of Anco by the Karnataka State Electronics Development Corporation (Corporation) on lease-cum-sale basis for which an agreement was executed. As per the said agreement, the Company was to establish its manufacturing unit within two years from the date of allotment of the Industrial Plot. In the meantime, the said Anco went into liquidation and winding up orders dated 8.6.2000 were passed. Much after the winding up orders, the corporation cancelled the lease-cum-sale deed on 28.6.2003 and took paper possession of the industrial plot. Thereafter, the Corporation filed the application in the Company Petition requesting the Company Judge to declare the Cancellation Order passed by the Corporation to be valid and direct the O.L. not to interfere with its paper possession. The Company Judge rejected the said application keeping in view the language employed in Section 537 of the Companies Act. The Corporation filed appeal which came to be dismissed by the Division B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of industrial plot in respect of a Company in liquidation without the prior permission of the Company court, we are of the view that these observations are to be read in the factual context of the aforesaid case. As noted above, the Corporation had not only cancelled the lease but had even resumed the land by taking paper possession . Further, in the application filed before the Company Court, it did not pray for permission to take possession. On the contrary, the Corporation took up the stand that it already had the possession which should be declared as validly taken and the prayer made was to direct the Official Liquidator not to interfere with the possession. It is in this context that the High Court held that same could not be done without the leave of the court. We are of the opinion that the observations are to be read giving restricted meaning that possession could not be taken without the prior leave of the court. It may not be correct to hold that the law requires that prior permission of the Company Judge is mandated even for cancellation of the lease. In fact, question of resumption of land or taking possession thereof could have arisen only after the cancellation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Board to take possession of the leased land in accordance with law. It could be either by having recourse to the provisions of the Public Premises Act or by filing a Civil Suit for possession and not otherwise. 36. It, thus, becomes clear that even though order of re-entry or resumption can be passed by the Board, but for taking possession the Board is supposed to have recourse to legal proceedings act in accordance with law. However, this was a case where the Company had not gone into liquidation and, therefore, the question of applicability of Section 537 of the Companies Act could not arise. 37. In the present case, we are confronted with a situation where Company is in liquidation. Thereafter, we have to understand the implication of the provisions of Section 537, which reads as under: 537. Avoidance of certain attachments, executions, etc., in winding up by Tribunal. (1) Where any Company is being wound up by Tribunal (a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the Company, after the commencement of the winding up; or (b) any sale held, without leav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal or blemished. The land was allotted to the Company for specified project which the Company failed to establish. Let us examine the Scheme of the KIAD Act at this point of time, KIAD Act is enacted to make special provisions for securing the establishment of industrial areas in the State and generally to promote the establishment and orderly development of industries therein, and for that purpose, to establish an Industrial Areas, Development Board, and for purposes connected with such matters. Chapter II deals with the declaration and alteration of Industrial Areas. Chapter III deals with establishment and constitution of the Board. Chapter IV deals with functions and powers of the Board and Chapter V deals with Finance, Accounts and Audit of the Board. Chapter VI deals with application of Public Premises Act and non-application of Karnataka Rent Control Act, 1961 to the premises of the Board. Chapter VII deals with Acquisition and disposal of land. Chapter VIII contains the supplementary and miscellaneous provisions. Section 13 in Chapter IV defines the functions of the Board as generally to promote and assist in the rapid and orderly establishment, growth and development ..... X X X X Extracts X X X X X X X X Extracts X X X X
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