PHATU ROCHIRAM MULCHANDANIversusKARNATAKA INDUSTRIAL AREA DEVELOPMENT BOARD & ORS.

                        [2014] 3 S.C.R. 710


A               PHATU ROCHIRAM MULCl:IANDANI
                                  v.
       KARNATAKA INDUSTRIAL AREAS DEVELOPMENT
                       BOARD & ORS.
              (Civil Appeal No. 3803 of 2014)
B                         MARCH 12, 2014
                [S.S. NIJJAR AND A.K. SIKRI, JJ.]

      KARNATAKA INDUSTRIAL AREA DEVELOPMENT
C ACT, 1966:

         Lease-cum-sale agreement - Allotment of plots to
    company for setting up factory/industry - Industry not set up -
    Company in liquidation - Agreement terminated by Board -
    Held: Right to purchase the plots m question after the expiry
0
    of the lease period could accrue in favour of the Company
    only on fulfilling the covenants stipulated in clause 2(P) - On
    Company's failure to do so, Lease Agreement gave right to
    the Board to determine lease and resume the land - It is, thus,
    in the nature of Lease-cum-Sale Agreement, which started
E   with lease- and could culminate into sale - Lease came to be
    determined by Board because of the breach of covenants of
    lease agreement - Therefore, it cannot be accepted that
    Company had become the owner of the plots in question.

F      Validity of termination notice - Held: 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
G the Board to terminate the lease - Board was within its right
  to terminate the lease as provided in Lease Agreement.

         Requirement of prior permission of Company Court
    before terminating the lease - Notice of cancellation of lease

H                                710
PHATU ROCHIRAM MULCHANDANI v. KARNATAKA                     711
      INDUSTRIAL AREAS DEVP. BOARD
given after the winding up order - Held: Serving of cancellation   A
notice simplicitor would not come within the mischief of s.537
of Companies Act, as that by itself does not amount to
attachment, distress or execution etc - No doubt, after the
commencement of the winding up, possession of the land
could not be taken without the leave of the Court - Therefore,     B
no prior permission was required by the Board for cancelling
the lease - Companies Act, 1956 - s.537.

     COMPANIES ACT, 1956:

      s.536 - Company in liquidation - Resumption of plots         C
allotted to company, on its failure to set up Factory/industry -
Application for permission by Board - Held: Termination
notice by the Board is valid - Likewise, order of Company
Judge permitting the Board to take possession of land in
question is legal and justified.                                   D

     LOCUS STAND/:

      Company in liquidation - Cancellation of lease-cum-sale
agreement in respect of two plots allotted to Company, for its
failure to set up factory/industry - Order of Company Judge        E
to OL to hand over possession of plots to Board - Challenged
by one of the shareholder/Promoter of Company - Held:
Appellant is very much concerned IA(ith the outcome of the
proceedings in as much as, if the ownership of the land in
question vests with the Company, it may reduce his personal        F
liability, as he has given guarantees to the financial
institutions for the loan advances to the Company.

    Respondent No.2-company was allotted an industrial
plot on lease-cum-sale basis for a period of 11 years              G
under a lease agreement dated 21.12.1984 on certain
terms and conditions. On 10.01.1989 the Board assigned
an additional plot to the company. However, no lease-
cum-sale agreement was executed for the latter allotment.
Possession was given to the company on 19-01-1989.                 H
    712     SUPREME COURT REPORTS             [2014] 3 S.C.R.

A Meanwhile proceedings for winding up were initiated
  against the company and by order dated 15-01-1996 the
  company was wound up. Respondent no.1 Board
  terminated the agreement in respect of the two industrial
  plots allotted to the company. Subsequently, the Board
8 filed an application before the Company Judge seeking
  resumption of the two plots. The Company Judge
  directed the official Liquidator to handover possession
  of the said tow plots to the Board. The appellant claiming
  himself to be promoter/share holder of the company
c challenged the order in an appeal before the Division
  Bench of the High Court. The appeal was dismissed.

        In the instant appeal, the questions for consideration
    before the Court were:
D         Q.1   Whether the Company had acquired the
                ownership of the two plots in question and,
                therefore, the Board was precluded from
                terminating the lease and resuming the plots?

E                                 OR

                Whether the property in question continued to
                be leasehold property as per the Lease
                Agreement dated 21.12.1984?

F         Q.2 In the event it is decided that the property was
              on lease with the Company, whether the notice
              terminating the Lease Agreement was legal
              and justified?
          Q.3 Whether prior permission of the Company
G
              court was required to terminate the Lease
              Agreement by the Board since the Company
              was under liquidation?

          Q.4 Whether the circumstances warranted the
H             Company court to allow the application of the
  PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 713
        INDUSTRIAL AREAS DEVP. BOARD
            Board to resume the said land and take              A
            possession thereof?

     Dismissing the appeals, the Court

      HELD: 1. Prima facie, this Court is of the opinion that
  the appeal by the promoter/shareholder before the High        8
  Court was maintainable and should not have been
  dismissed on the ground that the appellant did not have
  locus standi to prefer the said appeal. The appellant is
  very much concerned with the outcome of the
· proceedings in as much as, if the ownership of the land       C
  in question vests with the Company, it may reduce his
  personal liability, as he has given guarantees to the
  financial institutions for the loan advances to the
  Company. [para 18] [728-A-C]
                                                                D
 Q.1 Re: Status of the property in question:

     2.1 Admittedly, the Lease Agreement dated
21.12.1984 was entered into between the Board and the
Company by which the Board had agreed to lease to the
Company the land in question upon certain terms and             E
conditions, non-fulfilment of which would result in
allotment being cancelled and agreement being
terminated under Clause 4. Clause 7 of the Lease
Agreement enabled the Company to purchase the
property in question at the end of 11 years lease period        F
or the extended period, if any. [para 21-22] [729-C-D; 731-
A-B]

    2.2 It is not in doubt that while construing an
agreement, it is not the nomenclature but the substance         G
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        H
   714     SUPREME COURT REPORTS              [2014] 3 S.C.R.

A by which lease for 11 years period was created in favour
  of the Company. At the same time, it was also not a Lease
  Agreement simplicitor. It did not provide that on expiry of
  the lease period, the demised property is to be reverted
  back to the Board. The specified purpose of the Lease
8 Agreement was to give the plots in question to the
  Company for setting up of radio factory/ industry. The
  Company was even allowed to construct the building for
  this purpose at its own cost within 24 months from the
  date of letter of allotment. On fulfilling these and other
C conditions, at the end of 11 years the Company could
  become entitled to even purchase the land at the sale
  price which was to be determined by the Board. So much
  so at that time the rental paid for the period of lease was
  to be adjusted against the sale consideration. However,
  this right to purchase the plots in question after the
0
  expiry of the lease period could accrue in favour of the
  Company only on fulfilling the covenants stipulated in
  clause 2(P). On the Company's failure to do so the Lease
  Agreement gave right to the Board to determine the lease
  and resume the land. In that event, the question of right
E to purchase the land could not arise. It is, thus, in the
  nature of Lease-cum-Sale Agreement, which started with
  lease and could culminate into sale. It is found as a matter
  of record that the Company failed to complete the
  construction and start factory on the demised land. In
F fact, no factory could be set up at all. [para 23-24) [731-
  D-H; 732-A-D]

      2.3 It is thus clear that right to purchase the land did
  not fructify in favour of the Company. On the contrary,
G 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. Therefore, it cannot
  accepted that the Company had become the owner of the
H plots in question. [para 25) [732-G-H; 733-A]
PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 715
      INDUSTRIAL AREAS DEVP. BOARD
Q.2 Re: Validity of termination notice                         A

     3.1 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         8
failure to implement the project in time. On 19.1.2002, the
Board passed the orders terminating the lease in respect
of both the plots. In this termination order, it was stated
that the Company had failed to construct the factory
building and implement the industrial projects on the          C
main land within the extended period and to execute
lease agreement in respect of additional land. [para 26
and 29) [733-B; 734-H; 735-A-B]

     3.2 The Company had committed clear breach in not
completing the project and setting up the factory within       D
the time given in 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. This Court is, therefore, of the opinion that the
Board was very well within its right to terminate the lease    E
as provided in the Lease Agreement. [para 30) [735-F-G]

Q.3 Re: Necessity of prior permission of the Company
Court before terminating the lease:
                                                        I

     4.1 In the instant case, the Company had gone into        F
liquidation and there was an order of winding up when
the notice of cancelling the lease· was given. It is clear
from the provisions of s. 537 of the Companies Act, 1956
that prior permission of the Court is required in respect
of any attachment, distress or execution put in force or       G
for sale of the properties or effects of the Company.
Serving of cancellation notice simplicitor woulq not come
within the mischief of this section as that by itself does
not amount to attachment, distress or execution etc. No
doubt, after the commencement of the winding up,               H
    716    SUPREME COURT REPORTS             (2014] 3 S.C.R.

A possession of the land could not be taken without the
  leave of the Court. Precisely for this reason the Board had
  filed the application seeking permission. It would have
  been premature on the part of the Board to approach the
  Company Judge for permission to resume the land
B without cancelling the lease in the first instance. This
  Court, thus, holds that no prior permission was required
  by the Board for cancelling the lease. [para 31, 38 and
  39] [735-H; 736-A]

  Q.4. Re: Validity of the order of the Company Court
C granting the permission.

       5.1 Once the application for permission to resume the
  land is filed, it is permissible for the Company Judge to
  go into the validity of the action of the applicant. Thus,
D in the instant case, the Company Judge could find out
  as to whether cancellation of lease is proper or not. The
  Company Judge could also go into the question as to
  whether the Company had become the owner of the
  property, or it was only a lessee. Company Judge could
E also go into the question as to whether the property in
  question is required by the Company and parameters of
  the provisions of s.535 of the Companies Act are satisfied
  or not. [para 40] [741-E-G]

      5.2 This Court does not find action of the Board to
F be illegal or blemished. The land was allotted to the
  Company for specified project which the Company failed
  to establish. In such an event, under the statute itself
  powers are given to the Board to cancel the allotment and
  resume such land. [para 41 and 43] [741-G-H; 743-B]
G
      5.3 The Company is in liquidation. Till date there is
  no validly propounded scheme of rehabilitation u/s 391
  to 394 of the Companies Act. Some obscure proposals,
  without concrete Scheme as required under the Act,
H cannot be made a sheet anchor to come in the way of the
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 717
       INDUSTRIAL AREAS DEVP. BOARD
rights of the Board which still remains the owner of the       A
plots. The O.L. could claim rights over this land only if it
had become the property of the Company and the
ownership was vested in it. Even that is not so. [para 44]
[743-C-D]
                                                               B
    5.4 This Court, therefore, holds that termination
notice dated 19.1.2002 of the Board is valid. Likewise the
order of the Company Judge permitting the board to take
possession of the land in question is legal and justified.
[para 45) [7 43-E-F]
                                                               c
      Rajratna Naranbhai Mills Co. Ltd. v. New Quality Bobbin
11\lorks; 1973 (43) Company Cases 131; in United Bank of
India v. Official Liquidator and Ors.; 1993 (3) Suppl. SCR 1
= 1994 (1) SCC 575; Mis. Hanuman Silks & Anr. v. Kamataka
Industrial Areas Development Board and Ors.; AIR 1997 Kar D
134 - cited.
                    Case Law Reference:
    1993 (3) Suppl. SCR 1                cited    para 13
                                                               E
    1973 (43) Company Cases 131          cited    para 14
    AIR 1997 Kar 134                     cited    para 16
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3803 of 2014.                                                  F

    From the Judgment and Order dated 11.02.2010 of the
High Court of Karnataka at Bangalore in Original Side Appeal
No. 4 of 2010.
    C.A. Nos. 3804-3807 of 2014.                               G
      T.R. Andhyarujina, C.A. Sundaram, Basava Prabhu S.
Patil, P.V. Shetty, M.K. Garg, Vijay Kumar Desai, Shakumbri
Singh, M.K. Verma, Soumik Ghosal, Anand Sanjay Nuli, Rohini
Musa, Sudarshan Rajan, Nishanth Patil, B. Subrahmanya
Prasad, Shankar Divate, Naresh Kaushik, Manoj Joshi (for       H
    718      SUPREME COURT REPORTS                   [2014] 3 S.C.R.


A   Lalita Kaushik) for the appearing parties.

          The Judgment of the Court was delivered by

          A.K. SIKRI, J. 1. Delay condoned.
B         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
C   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
D   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
E   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 have
F   been released in favour of the Board.

       4. Before we mention about the credentials and locus
  standi of the appellant, we deem it appropriate to cull-out the
  seminal facts from the record leading to the passing of the
G impugned order. The Board had leased 13,657 sq. mtrs. of land
  in Plot No. 19 (A+B) of Sadramangala Industrial Area to the
  Company under the Lease Agreement dated 21.12.1984, on
  certain terms and conditions, for the purpose of establishing an
  industry for manufacture of AH/ FM Radio, Audio Tape
H Recorder in combination with radio. The Board executed lease-
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 719
 INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.]
cum-Sale agreement ("Agreement") in favour of the Company            A
in respect of Plot No. 19 (A+B), measuring 13,657 sq. m. (3.5.
acres) situated in Sadarmangala Industrial Area,
Krishnarajapuram, Bangalore South. The consideration paid by
the Company towards the same was Rs. 3,07, 102/- as initial
deposit/premium and the lease rentals @ Rs. 6,921/- per              B
annum were to be paid for a period of 11 years.

      5. By its letter dated 10.1.1989, the Board assigned an
additional plot bearing No. 18 measuring 20,337.87 sq. m (5
acres) to the Company. The consideration paid by Respondent          C
No. 2 towards the same was Rs. 13,31, 182/- after adjusting a
sum of Rs. 10,19,441/- which was paid as rentals to
Respondent No. 1 for Peenya Lands and further payment of Rs.
3, 11, 741 vide receipt No. 32754 dated 3.1.1989. However, no
lease-cum-sale agreement was executed for this allotment.
Possession of additional plot bearing No. 18, measuring              D
20,337.87 sq. m (5 acres) was given to the Company on
19.1.1989.

     6. As mentioned above, the Board had allotted the
aforesaid plots of lands to the Company for the purpose of           E
establishing a factory to manufacture radio and TV sets. As per
the appellant, though the Company started the construction of
the factory sometime in the year 1989-1990 but could not
complete the same due to the ill health of the Managing
Director Mr. T.R. Mulchandani. The Company was also unable           F
to pay debts of its various creditors as it was running in losses.
One of the secured creditors namely M/s. Sanmar Financial
Limited filed a petition seeking winding up of the Company
which was registered as Company Petition No. 18 of 1994.
Industrial Development Bank of India (IDBI), another creditor        G
also joined as supporting creditor. Vide orders dated
15.11.1996, the High Court of Karnataka ordered the winding
up of the Company. 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                H
    720      SUPREME COURT REPORTS                 [2014) 3 S.C.R.


A Company for the resumption of the aforesaid industrial plots on
  a ground that Company had committed the br~ach 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
B 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
c 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
D         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 cancellation of the
          allotment.

E         (b) The benefit of industrial plots cannot be granted to a
          Company in liquidation to enhance its assets. The
          enrichment of the Company in liquidation at the cost of
          KIADB is not just and legal. Hence the termination of
          allotment by KIADB is proper.
F      8. The Official Liquidator did not contest the order of the
  Company Judge. However, the appellant herein, who claims to
  be the promoter/ shareholder of the Company, challenged this
  order by filing appeal before the Division Bench. His
  submission was that he is a bonafide person as promoter/
G shareholder of the Company and is evincing genuine interest
  to revive this Company and for this purpose retention of land
  is very crucial. This contention of the appellant has not been
  accepted by the Division Bench of the High Court primarily on
  the ground that the merits of the appeal could not be gone into
H at the instance of the promoter/ shareholder which lacks
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 721
 INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.]
bonafide~. On that basis, the appeal has been dismissed.               A

      9. Mr. T.R. Andhyarujina, learned Senior Counsel
appearing for the appellant questions the aforesaid wisdom of
the High Court in dismissing the appeal of the appellant on the
ground of want of bona tides. His submission in this behalf was        B
that it is the Official Liquidator who is the custodian and trustees
 of the properties of the Company in liquidation and, therefore,
 it was his prime responsibility to file the appeal against the
order of the Company Judge. As such the order was not in the
 interest of liquidation proceedings. He argued that a valuable        C
 asset of the Company was taken away by the Board and the
Company Judge had given permission to the Board to do so.
Therefore, it was the bounden duty of the O.L. to challenge such
an order when huge amount of debts were payable by the
Company to the Public Financial Institutions. He further
submitted that in any case the appellant had also vital interest       D
 in the matter. The Company had taken financial
accommodations from the financial institutions and against
those loans etc. the Directors/ Promoters including the appellant
had given personal guarantees. In the event of non-payment of
dues to those financial institutions by the Company, liability was     E
likely to fall upon the promoters as contributors. Further, the
promoters as contributors had a right to intervene in the
liquidation proceedings at any stage, if they have a scheme of
revival. In these circumstances the appeal of the appellant could
not have been dismissed for purported lack of bonafides. He            F
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,            G
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           H
    722      SUPREME COURT REPORTS                  [2014] 3 S.C.R.


A 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
B 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.

       11. As already pointed out above on an application filed
C by the Board, the Company Judge permitted the Board to
  resume the aforesaid two industrial plots which were allotted
  to the Company. Mr. Andhyarujina, learned Senior Counsel,
  drew our attention to the reply which was filed by the O.L. before
  the Company Judge opposing the aforesaid application of the
D Board. This reply shows that OL had contested the application
  on two grounds namely;

          (i) There could not have been any termination of Lease
          Agreement by the Board without seeking prior permission
          of the Company Court, since the Company was under
E
          liquidation.

          (ii) The two plots, in fact, had become the property of the
          Company, as the Company had paid the entire
          consideration in respect of these plots. Therefore, there
F         was no question of termination of the lease and resumption
          of the plots.
       12. Before us the order of the High Court was assailed on
  these very grounds. Referring to clause 7 of the Lease
G Agreement dated 21.12.1984 it was argued that the lease was
  for a period of 11 years initially and the amount of rent paid by
  the Company for the period of lease was to be adjusted
  towards the balance of the value of the property. The value of
  the property was to be fixed in the manner stated in the
H agreement and on payment of the consideration as fixed,
PHATU ROCHIRAM MULCHANDANI v. KARNATAKA                      723
INDUSTRIAL AREAS DEVP. BOARD [AK. SIKRI, J.]

Clause 7 further provided that on payment of entire price as        A
fixed by the Board the property in question was to be sold to
the Company. He submitted that virtually the entire price had
been paid by the Company in the form of rents which were to
be adjusted and, therefore, the only requirement that was left
was to execute sale deed in favour of the Company, which            B
could not be done as in the meantime the Company had gone
into liquidation. He submitted that the order of Company Court
is totally erroneous, in as much as:

      (a)   In the first instance, the Court could not have given   C
            its imprimatur to the Order of termination of the
            Board dt. 19.1.2002 because such an order of
            termination, after an order of winding up, could not
            have been passed without the leave of the
            Company Court. For this proposition he referred to
            the judgment of the Karnataka High Court in the         D
            case of Kamataka State Electronics Development
            Corporation Ltd. v. The Official Liquidator of Mis
            Anco Communication Ltd. decided on 20.6.2005.

      (b)   Secondly, all the assets of a Company in liquidation    E
            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.              F

     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 and Ors.; 1994 (1) SCC 575 and
paras 10 and 11 which reads as under:
                                                                    G
    "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             H
    724       SUPREME COURT REPORTS                    [2014] 3 S.C.R.

A         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
B         by reason of onerous covenants. The power under Section
          535 is not to be lightly exercised. Due care and
          circumspection have to be bestowed. It must be
          remembered that an order permitting disclaimer, while it
          frees the Company in liquidation of the obligation to
c         comply with covenants, puts the party in whose favour the
          covenants are, to serious disadvantage. The Court must
          therefore, be fully satisfied that there are onerous
          covenants, covenants which impose a heavy burden upon
          the Company in liquidation, before giving leave to disclaim
          them.
D
          11. We are of the view that the High Court ought to have
          appreciated that it was rather unlikely that the party who
          had the benefit of onerous covenants would apply for
          disclaimer and ought to have viewed the Official
E         Liquidator's application to disclaim made pursuant to the
          Trust's letter to him in that behalf, in that light. We find it
          difficult to see how such a large area of land leased to the
          Company in liquidation for 99 years with the option of
          renewal for a further 99 years for the meager rent of Rs.
F         1200 per annum can be said to be land burdened with
          onerous covenants. We do not think that the High Court
          was justified in debating and holding in proceedings under
          Section 535 that the lease of the said land had been validly
          terminated so that the Official Liquidator became liable to
G         pay mesne profits to the Trust, and that this coupled with
          arrears of rent, in five figures made the lease onerous. We
          are also of the view that the Bank's offer to pay the arrears
          of rent to the Trust should have been accepted by the High
          Court. The Bank to protect and keep alive its security, had
H         put official liquidator in funds in regard to other matters and
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 725
 INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI-, J.]
    was eager to meet this liability. Had this been done            A
    valuable property of the Company in liquidation could have
    been retained so that its undertaking, which stood on the
    said land, could have been sold as a running concern, as
    has been done upon intervention of this Court, for the
    benefit of its creditors."                                      B

      14. Deprecating the inaction on the part of the O.l. in not
filing the appeal and thereby protecting the property of the
Company in question he relied upon the judgment in the case
of Rajratna Naranbhai Mills Co. Ltd. v. New Quality Bobbin          C
Works; 1973 (43) Company Cases 131, holding that the most
important task assigned to the liquidator under the Companies
Act while acting as liquidator of a Company ordered to be
wound up is to collect assets of the Company and sell them
and to distribute the realization amongst all those who have
claims against the Company and payment must be made                 D
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       E
at what length of time winding up proceedJngs 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         F
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       G
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 stipulation that the     H
    726      SUPREME COURT REPORTS                  [2014] 3 SC R


A Company was to construct factory thereupon and complete the
  project within 24 months .The Company had miserably failed
  to implement the project in time for which show cause notices
  were given and all these happened much before the passing
  of the winding up order of the Company by the High Court. He
B further submitted that on failure of the Company to complete
  the project, lease-cum-sale agreement dated 21.12.1984 gave
  categorical right to the Board to resume the land. He, thus.
  submitted that the Company never became the owner of the
  land that too when no sale deed was executed in favour of the
c Company. Moreover, due procedure was followed before
  terminating the lease by giving appropriate and due opportunity
  to the Company which had even replied to the show cause
  notices. He further argued that before terminating the lease no
  prior permission under Section 537 of the Companies Act was
  required. It was only for resumption of the land, after termination
0
  of the lease, that such a permission was necessitated and
  keeping in view this legal requirement the Board had filed the
  application before the Company Judge which has been allowed
  by the impugned order. The learned Counsel relied upon the
E judgment of Karnataka High Court in the case of M/s.
  Hanuman Silks & Anr. v. Kamataka Industrial Areas
  Development Board and Ors.; AIR 1997 Kar 134. He also
  referred to the provisions of Karnataka Industrial Areas
  Development Act, 1966 (hereinafter referred to as 'KIAD Act')
  under which the Board has been constituted. Predicted on the
F provisions of this Act his submission was that the action, taken
  in terms of the said provisions, was absolutely justified and
  legal.

       17. We may mention at this juncture that after the
G permission given by the learned Single Judge to the Board to
  resume the land, the possession of the plots was taken by the
  Board. The Board has made fresh allotment in favour of M/s.
  Relectronics Ltd , Respondent No. 3 herein. This action of the
  Board making allotment in favour of respondent No.3 was
H challenged by the appellant in the form of Writ Petitions filed in
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 727
 INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.]
the High Court of Karnataka. Those Writ Petitions have also_          A
been dismissed by the High Court vide judgment dated 22nd
June 2011 and the correctness thereof is challenged by the
appellant in appeals arising out of S.LP.(Civil)No ... CC 14177-
14180/2011. Counsel for the parties conceded that the
outcome of appeal arising out of S.L.P.(Civil) No.14161/2010          B
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 ~f M/s. Hanuman Silks (supra) and              c
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                D
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            E
 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
 writ petition was dismissed. Thereafter, keeping in view the
 spirit of M/s Hanuman Silk's case, termination notice was given      F
 which is duly reflected in the show cause notice/ termination
 letter itself. This termination was never challenged by the
 Company or the O.L He thus argued that in this manner once
 the termination is found to be valid, the Company Judge did
 not commit any error in allowing the Board to resume the land.       G

     18. We have given our considered thoughts to the various
issues involved on which arguments were addressed by the
Counsel for the parties. We would like to point out, at the outset,
that we are not venturing into detailed discussion on the             H
    728      SUPREME COURT REPORTS                    [2014] 3 S.C.R.

A question of maintainability of the appeal filed by the appellant
  before the Division Bench of the High Court against the order
  of the Company Judge. Prima facie, we are of the opinion that
  this appeal was maintainable and should not have been
  dismissed on the ground that the appellant did not have locus
B standi to prefer the said appeal. The appellant is very much
  concerned with the outcome of the proceedings in as much as,
  if the ownership of the land in question vests with the Company
  and proceeds from the sale of this land comes into the kitty of
  the Company, the effect of that would be to reduce the liability
c of the creditors, particularly the financial institutions. In turn, it
  may result in reducing the personal liability of the appellant who
  has given guarantees to the financial institutions for the loan
  advances to the Company. However, we leave the matter at
  that, as Counsel for the respondents did not press the issue of
  maintainability very seriously.
0
        19. In so far as the dispute on merits is concerned, it has
  various facets which give rise to the following questions:

          Q.1   Whether the Company had acquired the ownership
E               of the two plots in question and, therefore, the Board
                was precluded from terminating the lease and
                resuming the plots?

                                       OR
F               Whether the property in question continued to be
                leasehold property as per the Lease Agreement
                dated 21.12.1984?
          Q.2 In the event it is decided that the property was on
G             lease with the Company, whether the notice
              terminating the Lease Agreement was legal and
              justified?

          Q.3 Whether prior permission of the Company court
              was required to terminate the Lease Agreement by
H             the Board since the Company was under
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 729
 INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.)

            liquidation?                                           A

      Q.4   Whether the circumstances warranted the
            Company court to allow the application of the Board
            to resume the said land and take possession
            thereof?                                               B
     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
                                                                   c
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       D
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     E
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         F
also provided that the civil construction work and erection of
factory shall be completed within stipulated period which was
24 months from the date of letter of allotment i.e. 21.02.1983.
This time, however, could be extended in writing for good and
sufficient reasons furnished by the Company. On extension          G
being given, the Company was to complete the number of
works within the extended period. For this purpose time bound
schedule was provided in clause 2(P)(1) of the Lease
Agreement which is reproduced below:
                                                                   H
    730       SUPREME COURT REPORTS                   [2014] 3 S.C.R.


A         "2{P) (1) (i) To submit the property of the plan of the civil
          construction to him lessor or prior approval within six
          months from the date of receipt of letter of allotment within
          two months from the due date of.

          (ii) The civil constructions works within three months from
8
          the approval of the blue prints, after obtaining licence from
          the Chief Inspector of Factory and Boilers of Karnataka
          State.

          (iii) To complete civil construction works and erection of
c         factory within twenty months from the date of letter of
          allotment that is the TWENTY FIRST day of February One
          Thousand nine hundred and Eighty Three.

          (iv) To commence production within twenty four months
D         from the ate of letter of allotment that is the Twenty First
          day of February one thousand nine hundred and Eighty
          Three.

          For good and sufficient reasons, the Lessor may extend
          the time in writing in any of the cases mentioned in sub
E         clauses (i) to (iv) above, by such period as the Lessor. In
          his discretion deem fit and the Lessee shall complete the
          item of works for which extension of the time given within
          such extended time.

F         Failure to fulfill any of the conditions (I) to (IV) mentioned
          above shall result in allotment begin cancelled and
          agreement being terminated under clause 4 and a sum not
          exceeding 5% of the cost of land as indicted in Clause 1
          of the lease agreement subject to a maximum of
G         Rs.10,000/- and minimum of Rs.1000/- and interest due
          and payable as per clause 1 from the date of taking
          possession to the date of resumption of the land by the
          Board shall be forfeited to the Lessor."

          22. It was further specifically mentioned that in case there
H
PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 731
INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.]
is a failure on the part of the Company to fulfill the said            A
condition, it would result in allotment being cancelled and
agreement being terminated under Clause 4. Clause 4 of the
Lease Agreement provided for determination of the Lease
Agreement under certain circumstances including the one
mentioned above. Clause 7 of the Lease Agreement enabled               B
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              c
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             D
 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        E
be the sole determinative factor. However, various clauses of
the agreement also clearly manifest that it was an agreement
vide which lease for 11 years period was created in favour of
the Company. However at the same time, it was also not a
Lease Agreement simplicitor. It did not provide that on expiry         F
of the lease period, the demised property is to be reverted
back to the Board. Under this very lease agreement, certain
rights were to accrue in favour of the Company, albeit on
fulfilling various obligations imposed upon the Company under
the Lease Agreement. In nut shell, the specified purpose of this       G
Lease Agreement was to give the plots in question to the
Company for setting up of radio factory/ industry. The Company
was even allowed to construct the building for this purpose at
its own.cost within 24 months from the date of letter of allotment.
On fulfilling these and other conditions, at the end of 11 years       H
    73 2     SUPREME COURT REPORTS                    [20141 3 S.C.R.

A   the Company could become entitled to even purchase the land
    at the sale price which was to be determined by the Board. So
    much so at that time the rental paid for the period of lease was
    to be adjusted against the sale consideration. However, this
    right to purchase the plot in question after the expiry of the lease
B   period could accrue in favour of the Company only on fulfilling
    the covenants stipulated in clause 2(P). On the Company's
    failure to do so the Lease Agreement gave right to the Board
    to determine this lease and resume the land. In that event, the
    question of right to purchase the land could not arise. It is, thus,
c   in the nature of Lease-cum-Sale Agreement, which started with
    lease and could culminate into sale. The question is, whether
    this culmination has occurred in the given case?

        24. Having considered the nature of agreement in question,
  ·in the instant case it is found as a matter of record that the
D Company failed to complete the construction and start factory
   on the demised land. In fact, no factory could be set up at all.
   One plot was allotted to the Company on 21.12.1984. Second
   plot was allotted to the Company on 10.1.1989. When the
   project did not take off by the prescribed time, the Board
E passed two separate resumption orders, both dated 6.5.1992
   in respect of these two plots. Even thereafter, the company
   could not start factory operations. In fact, against these
   resumption orders Writ Petition No. 11957 of 1993 was filed
   by the Company and interim protection was given to the
F company because of which the Board could not take
   possession of the plots. However, this 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
G 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 'Jf 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
H
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 733
 INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.]
become the owner of the plots in question.                            A

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        B
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    C
the agreement and to implement the project. The Company
submitted its reply dated 28.5.1992, inter alia, stating that
development of the two plots could not be viewed independently
more so when the Board itself had allotted the second plot as
part of a consolidated project. It was further stated that the        D
project involved an investment of Rs. 9 crores and the Company
had already invested nearly Rs. 5 crores on the project by
availing financial assistance from the financial institutions after
pledging both the plots. The resumption proceedings were
drawn thereafter. After considering this reply, vide letter dated     E
15.6.1992, the Board directed the Company to submit the
following documents:-

     (i) Copy of the loan sanctioned letter from IDBI and the
     details of balance loan to be released by them.
                                                                      F
     (ii) Certificate of investment on the project so far made
     issued by the financial institutions.

    (iii) Proof for having invested Rs. 5 crores on the project
    so far along with supporting documents.                           G

    (iv) PERT Chart for implementing the project indic.ating
    monthly progress.

    27. The Company submitted its reply/ detailed
representation dated 4. 7 .1992 in response to the above.             H
    734       SUPREME COURT REPORTS                  [2014] 3 S.C.R.


A Thereafter. the Board also asked the Company to furnish the
  proof of investment and in response thereto the Company
  submitted certificate issued by the Chartered Accountant. After
  considering the replies the Board was not satisfied and,
  therefore, issued another resumption order in respect of first
B plot dated 22.3.1993 stating that the possession will be taken
  on 21.8.1993 for failure to implement the project in time. At this
  moment, Writ Petition was filed by the Company against this
  order in which the interim order was passed staying the
  resumption proceedings because of which the Board could not
c take possession of the said plot. While these proceedings were
  pending, winding up petition was filed against the Company by
  one of its creditors in the year 1994 and winding up orders
  were passed in the said Company petition on 15.11.1996.

       28. On 13.8.1997, another show cause notice in respect
D of second plot was issued to the Company asking it to show
  cause as to why the allotment be not cancelled. This notice was
  returned undelivered as factory was closed. Accordingly, notice
  was published in Deccan Herald Newspaper on 8.1. 1998. In
  response to that public notice, IDBI informed the Board that the
E Company had been ordered to be wound up by the High Court
  on 15.11.1996. The Board did 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
F 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
G
          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
H terminating the lease in respect of both the plots. In this
PHATU ROCHIRAM MULCHANDANI v. KARNATAKA                      735
INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.)
termination order. after giving the past history of events which     A
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   B
the earlier resumption order, a writ petition was filed and
because of the stay orders passed therein the Board could not
resume the land. This writ petition was dismissed on 14.9.1999.
Though the Board could act thereafter, however in the meantime
 High Court of Karnataka had passed orders dated 10.4.2001           c
 in the matter of The Karnataka Industrial Areas Development
 Board v. Mis. Electro Mobiles (India) Ltd.; holding that when
the allotment is on lease-cum-sale basis and possession is
delivered to the allottee in pursuance of the allotment, .it
 becomes a lease irrespective of the fact that whether a lease
                                                                     0
 deed is executed or not. For this reason the Board did not
 attempt to resume the possession merely by cancelling the
 allotment without terminating the lease or taking action in
 accordance with law. It was for this reason that the Board was
 formally terminating the lease by the said notice dated
  19.1.2002. The termination notice also mentioned that this was     E
 being done under Section 34B of the Karnataka Industrial
 Areas Development Act, 1966.

     30. We have already held that the Company had committed
clear breach in not completing the project and setting up the        F
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       G
provided in the Lease Agreement.

Q.3 Re: Necessity of prior permission of the Company
court before terminating the lease:

     31. As the Company had gone into liquidation and there          H
    736      SUPREME COURT REPORTS                 [2014] 3 S.C.R.

A was an order of winding up when the notice of cancelling the
   lease was given, the next question is as to whether prior
   permission of the Company Court was necessary before
  terminating the lease. Case of the appellant is that such prior
  permission is required under Section 537 of the Companies
B Act and the appellant has relied upon the judgment of
  Karnataka High Court in the case of Karnataka State
  Electronics Development Corporation Ltd. v. The Official
  Liquidator of Mis Anco Communication Ltd. On the other hand,
  respondent stated that before terminating the lease no prior
C permission under the aforesaid provision of the Companies Act
  was needed and it was only for resuming the land that such a
  permission was required which led the Board to file an
  application for this very purpose. The respondents have relied
  upon the judgment of the Karnataka High Court in the case of
D Mis. Hanuman Silks (supra). It, therefore, becomes necessary
  to discuss these two judgments in the first instance.

        32. In Mis. Anco Communication Ltd. (Supra) there was
  an allotment of industrial plot in favour of Anco by the Karnataka
  State Electronics Development Corporation (Corporation) on
E 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
  liquidati.on and winding up orders dated 8.6.2000 were passed.
F 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
G 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 Bench. The
H Division Bench was not impressed with the arguments that the
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 737
 INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.]
Corporation was not aware of the winding up proceedings and            A
for this reason it had resumed the possession of the industrial
plot, after cancellation thereof, without obtaining the leave of the
Court. Once the plea of ignorance was denounced, the court
addressed the question as to whether the Corporation could
have cancelled the allotment of industrial plot made in favour         B
of the Company in liquidation and answered the same in the
negative with the following observations:-

     "11. Now the only question before us is, whether after 2n
     order was made by this Court in winding up the
     respondent Company (Company in liquidation), the                  C
     applicant Corporation could have ventured to cancel the
     allotment of industrial plot made in favour of the Company
     in liquidation? This could be answered only after noticing
     the provisions of Sec. 537 of the Act.
                                                                       D
     12. Section 537 of the Act,· provides for avoidance of
     certain attachments, executions, etc. in winding up by or
     subject to supervision of Court. The winding up
     proceedings would commence from the date of
     presentation of the petition before this Court for winding        E
     up of the Company as envisaged under Section 433 of the
     Act and other similar provisions under the Act. Once such
     proceedings are initiated, any assets of the Company
     cannot be meddled without the leave of the Court. This
     settled legal proceedings, time and again is stated by            F
     various High Courts and also the highest Court. An
     elaboration of this settled legal principle, in our view, is
     wholly unnecessary.

     In the present case, an order of cancellation of the lease-
     cum-sale agreement is passed by the applicant                     G
     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          H
    738       SUPREME COURT REPORTS                   [2014] 3 S.C.R.

A         request made by the applicant Corporation We do not
          see any error in the order passed by the learned Company
          Judge and, therefore, no interference with the said order
          is called for. Accordingly, appeal requires to be rejected
          and is rejected. No order as to costs. Ordered accordingly."
B
        33. Though the aforesaid observations give the impression
  that there cannot even be a cancellation of the allotment 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
C 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
D 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. 'Ne are of the opinion that the
E 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
F or taking possession thereof could have arisen only after the
  cancellation of the lease. We will dilate on this aspect further
  after discussing the judgment in Mis. Hanuman Silks (Supra).
        34. In Mis. Hanuman Silks (supra) the said Company was
G allotted plots by the Board for which lease-cum-sale
  agreements were entered into on 18.8.1993 and 19.8.1993.
  The Company was to erect the factory within 12 months and to
  commence the production within 24 months (same conditions
  as in the instant case). The Company failed to commence the
H civil construction work and did not complete the construction
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 739
 INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.]
nor commenced production by these stipulated dates. Show              A
cause notices were given by the Board and after that the plots
allotted to the Company were resumed on 25.7.1995. The
Company filed the petitions for quashing of the letters of
resumption. The High Court formulated two questions which
arose for consideration. We are concerned only with the first         B
question which was couched in the following terms:-

     "Whether the Board can take possession of the plots in
     the possession of its lessees, without having recour~e to
     a civil suit for possession or to an eviction proceedings
     under the provisions of the Karnataka Public Premises            C
     (Eviction of unauthorized occupants Act), 1974".

      35. After taking note of various provisions of the Act and
discussing case law cited by both the parties, the Court
co"ncluded that no where does the Act provide for the Board           D
taking back possession of leased plots from the lessee, without
rec.ourse, to e.viction proceedings, whatever be the
circumstances. On the other hand, the Act contains a specific
provision (Section 25) providing for application of Public
Premises Act to premises leased by Jhe Board. The absence             E
of any provision enabling the Board to take possession from
lessees and the express provision for making Public Premises
Act applicable to the premises leased by the Board, leads to
inescapable conclusion that termination of leases and eviction
of lessees are left to be governed by contract and general law.
                                                                      F
Therefore, any act of forcible dispossession of a lessee by the
Board will be an act otherwise than in accordance with law. The
court further held that the power of re-entry and 'resumption' that
is reserved by the Board in the lease-cum-sale agreement,
does not authorize the Board to directly or forcibly resume
                                                                      G
possession of the leased land, on termination of the lease. It
only authorizes the Board to take possession of the lea.sed land
iil 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.
                                                                      H
    740          SUPREME COURT REPORTS                  [2014] 3 S.C.R.

A      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,
8 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,
C which reads as under:

          "537. Avoidance of certain attachments, executions,
          etc., in winding up by Tribunal.

           (i)     Where any Company is being wound up by
D
                   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
E                  commencement of the winding up; or

                   (b) any sale held, without leave of the Tribunal of any
                   of the properties or effects of the Company after
                   such commencement shall be void.
F         (ii) Nothing in this Section applies to any proceedings for
                 the recovery of any tax or impost or any dues
                 payable to the Government.
       38. It is clear from the above that prior permission of the
G Court is required in respect of any attachment, distress or
  execution put in force or for sale of the properties or effects of
  the Company. We are of the opinion that the serving of
  cancellation notice simplicitor would not come within the
  mischief of this section as that by itself does not amount to
H attachment, distress or execution etc. No doubt, after the
 PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 741
 INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.]
commencement of the winding up, possession of the land could A
not be taken without the leave of the Court. Precisely for this ·
reason the Board had filed the application seeking permission.
But according to us no such prior permission was required
before cancelling the lease. In fact, it is only after the cancellation
of the leases that the Board would become entitled to file such B
an application under Section 537 of the Act. Had the Board
gone ahead further and taken the possession, after the
cancellation and then approached the Company Judge, the .
situation which occurred in Mis. Anco Communication Ltd.
(supra) would have prevailed. On the other hand, it would have c
been premature on the part of the Board to approach the
Company Judge for permission to resume the land without
cancelling the lease in the first instance.

     39. We thus, hold that no prior permission was required
by the Board for cancelling the lease.                                 D

Q.4. Re: Validity of the order of the Company Court
granting the permission.
      40. Once the application for permission to resume the land       E
is filed, undoubtedly it is permissible for the Company Judge
to go into the validity of the action of the applicant. Thus, in the
instant case the Company Judge could find out as to whether
cancellation of lease is proper or not. The Company Judge
could also go into the question as to whether the Company had
                                                                       F
become the owner of the property, or it was only a lessee.
Company Judge could also go into the question as to whether
the property in question is required by the Company and
parameters of the provisions of Section 535 of the Companies
Act are satisfied or not.
                                                                       G
     41. In view of our elaborate discussion above, we do not
find action of the Board to be 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        H
    742       SUPREME COURT REPORTS                  [2014] 3 S.C.R

A 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
B with the declaration and alteration of Industrial Areas. Chapter
  Ill 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
c 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
0
  of industries in industrial areas; and in particular, to develop
  industrial areas declared by the State Government and make
  them available for undertakings, to establish themselves; to
  establish, maintain, develop and manage industrial estates
  within industrial areas; and to undertake such schemes of
E programmes of works for the furtherance of the purposes for
  which the Board is established and for all purposes connected
  therewith.

          42. Section 33 in Chapter VIII of KIAD Act provides that if
F the Board is satisfied that if a lessee of any land in an industrial
  area fails to provide any amenity or carry out any development
  of the land, the Board may after due notice in that behalf, may
  itself provide such amenity or carry out such development at
  the expense of the Lessee. Section 34 provides for penalty for
G construction or use of land and building contrary to terms of
  holding. Section 34 A provides for demolition or alteration of
  unauthorized construction or alteration. Section 35 of the Act
  enables a person authorized by the Board to enter upon any
  land for the purpose of inspection, survey, measurement,
H valuation or enquiry. Section 41 enables the Board by
PHATU ROCHIRAM MULCHANDANI v. KARNATAKA 743
INDUSTRIAL AREAS DEVP. BOARD [A.K. SIKRI, J.]
notification to make regulations consistent with the Act and          A
Rules thereunder, to carry out the purposes of the Act with the
previous approval of the State Government.

     43. Thus, when it was found that the Company has not
been able to establish the factory for which the land was allotted,   B
under the statute itself powers are given to the Board to cancel
the allotment and resume such land.

      44. We, further find that the Company is now in liquidation.
Till date there is no validly propounded scheme of rehabilitation
under Section 391 to 394 of the Companies Act. Some C
obscure proposals, without concrete Scheme as required under
the Act, cannot be made a sheet anchor to come in the way of
the rights of the Board which still remains the owners of these
plots. It, therefore, cannot even be said that the land in question
is required by the Company. The O.L. could claim rights over D
this land only if it had become the property of the Company and
the ownership was vested in it. Even that is not so (whether cost
of construction should be reimbursed to Company).

      45. The up-shot of the aforesaid discussion would be to
hold that termination notice dated 19.1.2002 of the Board is          E
valid. Likewise the order of the Company Judge permitting the
board to take possession of the land in question is legal and
justified.

    46. As a result this appeal is dismissed with costs.              F
Consequently, the appeals arising out of S.L.P.(Civil) 7602-
7605 of 2014 CC 14177-14180/2011 are also dismissed.
R.P.                                        Appeals dismissed.