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TMI Blog2004 (12) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of such a company the leased premises are also included wherein the assets, belongings and records of the company are also generally kept. Since the company goes into liquidation and liquidation process is time consuming, landlord who lease out the premises to the company wants his premises back. This is natural impulse, for no landlord would like his leased premises to be sealed/locket without fruition as he would not be getting the rent any longer. In such circumstances, it is neither in public interest nor in the interest of company and much less in the interest of the creditors that such premises are kept idle and without use by simply locking them. Therefore, normally in those cases where the O.L. also finds that the premises would not be required by the company or for liquidation purposes any longer, it is always proper to give back these premises to the landlord as soon as possible so that he is not made to suffer in the process. 2. This statement of law can be found in the judgment of the Supreme Court in Ravindra Ishwardas Sethna and Another Vs. Official Liquidator, High Court, Bombay and Another reported in (1983) 4 SCC 269. That was a case where a chit fund compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. The learned Company Judge could not have authorised the Liquidator to enter into such an agreement and therefore his order is liable to be set aside. 3. Therefore, this aspect may not pose much problem in most of the cases. However, another related aspect, which, though, is again a normal phenomenon, raises interesting question. In many such cases it is also found that invariably at the time of taking the premises on lease the company had given to the lessor some money as advance, commonly known as security deposit. And with obvious purpose, viz. in case there is default in making payment of rent or there are dues payable by the lessee while using the premises like electricity, water charges etc. or if some damage is caused by the lessee to the premises while using them the landlord is in a position to recover such payments from the security deposit kept with the landlord at the time of letting. If there is no such outstanding or dues he is under obligation to refund this amount to the tenant at the time of vacation of the premises. This is obvious statement of law which neither needs elaboration nor further clarification. However, in those cases where a company goes into l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims that he is the landlord of certain premises at Mathura Dass Mills Compound, Lower Parel, Mumbai. These premises were let out to M/s. CRB Capital Markets Ltd. (in provisional liquidation) (hereinafter referred to as the 'Company') and in November, 1995 part of second floor of the aforesaid premises having carpet area of 11005 sq. ft. was let out to the company at a monthly rent of ₹ 1,10,056.20p. Agreement for Leave and Licence dated 13th November, 1995 was executed between the parties for this purpose. Although the agreement is termed as Leave and Licence , it was essentially a lease agreement as would be clear from the actual nature of transaction. In any case, that aspect is not relevant for us in these proceedings. The agreement was for a period of five years commencing from 13th November, 1995, i.e. the date of agreement. The company also made a deposit of ₹ 44,01,668/- as security deposit. The clauses relating to determination of the said agreement and also relating to the security deposit are 12 and 13, which are reproduced below:- 12. Notwithstanding anything herein contained, the Licensor shall be entitled to determine the licence hereby grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant; (iii) at the time of handing over possession of the premises the applicant was to refund the amount lying deposited with the applicant; (iv) the applicant was entitled to forfeit the amount of security deposit and recover from the company additional licence fee or compensation @ ₹ 15,000/- per day in addition to the payment of licence fee as provided in clause (3) till such time the company vacates and hands over quite, vacant and peaceful possession to the applicant. (v) On the same date another agreement was also executed between the parties relating to deposit of ₹ 33,01,686/- by the company with the applicant and the relevant portion of this agreement is as under:- AND WHEREAS the Licensee has at the request of the Licensor agreed to deposit with the Licensor simultaneously with the execution hereof, a sum of ₹ 33.01,686/- (Rupees Thirty three lacs one thousand six hundred eighty six only) as and by the way of interest free security deposit for the due observance and performance of the said Leave and Licence Agreement; 6. During the currency of this agreement the company decided to surrender the premises. This was recorded by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e security amount should be deposited with the O.L. Let me take stock of the judgments cited at the Bar and other judgments which came to my notice on this aspect. 10. Case of The Official Liquidators, U.P. Union Bank Ltd. (In Liquidation) Vs. Sh. Rameshwar Nath Agarwal, AIR 1960 SC 332 (as cited by Mr. Batra) can be taken note of, in the first instance, as that is the first available case in point of time. In this case the Supreme Court held that where the property of which the bank was in occupation as a tenant had not been challenged, the property not having remained with the liquidators for the purpose of liquidation, unless the court passes an order holding that the debt incurred was part of the cost and expenses of liquidation, the rent accruing due since the debt of winding-up cannot be claimed in priority over other ordinary debts. It was a case under Companies Act, 1913. The bank in question was ordered to be wound up vide order dated 13th September, 1949 by the High Court of Judicature at Allahabad and Official Liquidator was appointed. Certain property was occupied by the bank as a tenant. On 30th November, 1950, the landlord applied to the High Court for permission t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty which remains in the occupation of the liquidator after the winding up when the occupation is shown to be for the purpose of liquidation and property which merely remain with the liquidator, he having abstained from trying to get rid of the same and it does not appear or is not shown that the property was used for the purpose of winding up. (9) The High Court held on the facts that the liquidators had remained in occupation of the premises not for the purpose of winding up but because they could not think of any suitable method of getting rid of the premises in spite of all their desire to do so . It was pointed out that the Bank had closed its business and the liquidators were not carrying on any business after the winding up and the properties were not used by the liquidators for the purpose of liquidation. This conclusion of the High Court on the evidence has not been challenged. The property not having remained with the liquidators for the purpose of liquidation unless the court passes an order holding that the debt incurred was part of the costs and expenses of liquidation the rent accruing due since the date of the winding up cannot be claimed in priority over other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that this opinion was rendered having regard to the provisions of Section 529(i)(a) which makes Section 46 of Provincial Insolvency Act, 1920 applicable to winding-up proceedings and Section 46 of Provincial Insolvency Act gives such a right, which is in the following terms:- Where there have been mutual dealing between an insolvent and a creditor proving or claiming to prove a debt under this Act, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings and the sum due from the other party and the balance of the account, and no more, shall be claimed or paid on either side respectively. In the context of Section 46 the Court in that case observed as follows: What is necessary for the present purpose is whether or not dealings between the plaintiff and the defendant in this case fall within the category of the phrase mutual dealing under Section 46, Provincial Insolvency Act. The leading case on the subject is- 'Rose v. Hart', (1818) 129 ER 477 (A) to be found also in the II Volume of Smith's Leading cases, p. 271, 12th Edition. It would appear from a consideration of that case and the case of followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation) Vs. Sh. Rameshwar Nath Agarwal (supra), which can also be seen from the three judgments cited by Mr. Batra and taken note of above where even the interest calculated on amount payable to secured creditors is to be treated as debt payable to unsecured creditor and is to be paid accordingly. Up to this stage there would not be any problem. However, in the present case we are not concerned with this aspect of the matter. The issue is as to whether landlord has right to adjust the amount of outstanding rent or other charges from the security deposit kept with him. The subtle and fine distinction, which is to be kept in mind, is that in such a case he is not lodging claim with the O.L. and wants something to be paid to him by the O.L. after he realises the assets of the company, which is wound up. He has the money with him which was deposited as a security and at the time when the company was fully solvent. The purpose of making such security deposit with him was to enable him to adjust the outstanding from this security in case the company defaulted in making payment of rent or other charges which the company was to pay as a lessee like electricity, water dues etc. In those case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recoverable on account of arrears of rent etc., landlord can make claim with the O.L. and would be paid pari passu with other secured creditors. 16. However, the arrear of rent etc. falling in the second category would require some discussion. In The Official Liquidators, U.P. Union Bank Ltd. (In Liquidation) Vs. Sh. Rameshwar Nath Agarwal (supra) it is held that (Such outstanding would only be treated in the category of ordinary creditors and have to be paid accordingly. Whether it can be held that this judgment goes to the extent of holding that landlord is to lodge his claim in respect of rentals for this period with the O.L. as a creditor and at the same time in so far as security deposit with him is concerned he is debtor of the company and, therefore, he should refund that security amount to the O.L. To put it differently whether it can be said that the purport of the aforesaid judgment is to hold that he has no right to adjust the arrears of rent from the security deposit. I am of the opinion that the judgment of the Supreme Court does not go that far. The ratio of the judgment is to be confined to what it decides. The Supreme Court while holding that claim of rental by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for recovery of this money from the assets of the company in liquidation process; (ii) if there is some amount lying with him as a security deposit, he would have a right to set off the same there from any such arrears of rent or electricity or water and other charges payable upto the date of winding up. After this adjustment, if there is surplus, he would refund the same to the O.L. However, if still some amount is recoverable after the set off for balance outstanding he would be entitled to raise claim with the O.L. as an unsecured creditor; (iii) position would be same as (ii) above even if rentals etc. outstanding are for the period after the winding up. In view of the aforesaid discussion, I hold that it is not necessary for the landlords/applicants in all these applications to remit any amount to the O.L. at the time of vacation of the premises. Consequently, I direct that in those cases where the applicants had deposited the amount in this Court at the time of taking possession, they will be entitled to seek refund thereof. In cases of those applicants where possession is not given so far for the reason that security was not refunded, it shall be given by the O.L. without ..... X X X X Extracts X X X X X X X X Extracts X X X X
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