Holding

The Company Judge could not authorize the liquidator to enter into a caretaker's agreement; the liquidator must surrender possession of the premises to the landlords.

Summary

The Official Liquidator, appointed to wind up Chit Centre Pvt. Ltd., took possession of the company's office premises and sought the court's direction on how to dispose of them. The Bombay High Court directed that the premises be let on a caretaker basis, leading the liquidator to enter a caretaker agreement with Smt. Sabita V. Adapa. The landlords of the building (appellants) challenged this, arguing that the caretaker agreement violated the Bombay Rents, Hotel and Lodging House Rates Control Act and exceeded the liquidator's powers under Section 457(1)(b) of the Companies Act, 1956. The Company Judge upheld the caretaker agreement, and the Division Bench dismissed the appeal. The Supreme Court allowed the appeal, holding that the Company Judge could not authorize such an agreement because the liquidator did not need the premises for the beneficial winding‑up of the company and the caretaker arrangement contravened the rent‑control provisions. Consequently, the liquidator was ordered to surrender vacant possession to the landlords, and the appellants were directed to deposit Rs 1,50,000 for distribution among the company's creditors.

Issues considered

The scope of the liquidator's power under Section 457(1)(b) of the Companies Act, 1956 to carry on the business of a company during winding up.
Whether a caretaker agreement constitutes a permissible mode of parting with possession of premises under the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947.
Whether the Company Judge had authority to direct the liquidator to enter into a caretaker agreement.
Whether the statutory tenant (the company) may sub‑let or licence the premises when it no longer requires them.

Legislation cited

Bombay Rents, Hotel and Lodging House Rates Control Act, 1947s. 13, s. 15
Companies Act, 1956s. 457(1)(b)

Subjects

Companies Actwinding upliquidator powerscaretaker agreementstatutory tenancyrent controlpossessionleaselicencebeneficial winding up

Judgment

,57
RAVINDRA ISHWARDAS SETHNA AND ANR.

v.

r OFFICIAL LIQUIDATOR, HIGH COURT,
BOMBAY AND ANOT~ER

A!lgust 19, 1983 B
(D. A. DESAI AND V. BALAKRISHNA ERADI, JJ,J "
Companies Act, 1956-Sec. 457(1) (b)-:-Power of liquidator to carry on
business of the Company-Interpretation of.
c
Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 as
amended in 1973-Secs. 13 and 15-lnterpretation of-Statutory tenancy confers
rights of possession-Statutory tenant co1nplete/y prohibited from givirlg possession
on licence, sub-lease or under caretaker's agreement.

The respondent, Official liquidator, after being appointed by the D
Company Judge of the High Court, as Liquidator of a Company, took
possession of the office premises of the Company. The Liquidator sought
direction of the Co1npany Judge whether the premises should be let out on
lease or licence. The Company Judge gave a direction that the premises .be
given on caret3ker basis. Under that direction the Liquidator entered intO an
agreement with the second respondent and gave possession of the premises to E
the second respondent. The appellants, who were the land-lords of the
building of which the office premises of the Company formed part, took out
Judge's summons praying for a direction to the Liquidator to terminate the
careta~er's agreement and to hand over vacant possession of the P.remises to
the appellants. The appellants contended that the so-called caretaker's agree-
1nent was in contravention of the various provisions of the Bombay Rents,
Hotel, and Lodging House Rates Control Act, 1947 as amended in 1973 ('Rent F
Act' for short). The Company Judge held that in substance. at}d in form the
agreement entered into by the Liquidator with the second respondent was a
caretaker's agreement which was permissible. A Division Bench of the High
Court dismissed the appeal preferred by the appellants.

Allowing the appeal, G
HELD : The Company Judge could not have authorised the Liquidator
to enter into caretaker's agreement with the second respondent. · The Liqui-
dator does not need the use of the premises for carrying on the winding up
activities of the Company because he sought direction for parting with
possession. The only course open to the Company Judge was to dfrect the H
l-iquidator to surrender J?Ossession of the premises to the appellants ..
. !664 F; B-C; HJ
658 SUPREME COURT REPORTS f!9S3] 3 s.c.R.

Section 457(1) (b) of the Companies Act, 1956 gives power to the
Liquidator in a winding up by the Court, with the sanction of the Court to
carry on the busineSs of the Company so far as may be necessary for ~he
beneficial winding up of the Company. If the Liquidator wanted to exercise
power under sec. 457(1) (b) to carry on business of the company so far as
necessary for its beneficial winding up, the business which was to. be carried
on must be the business of the Company. Giving ·premises on lease, licence
or under caretaker's agreement was not the business of the Company. Since
B the C0mpany's-business of floating prize chit schemes came to a stand stilJ, the
moment the Company was ordered to the wound up, there was no question of
the business of the Company to be carried on by the Liquidator and that too
for the beneficial winding up of the Company. (661 H; 663 C-G]

In re Batey; Ex parte Emmanuel, (1881] 17 Ch. Division 35 and Panch-
C mahals Steel Ud. v. Universal Steel Traders, [1976J 46 Company Cases 706 at
722, referred to .

.The company was a tenant or a Jessee of the premises of Which the
appellants are the land·lords. '.fhe date of the commencement of the lease is
not made available, but it is also not Claimed on behalf of the Liquidator that
there was lease of long duration. If so, the Company was a statutory tenant
D under the Rent Act. The statutory tenaricy confers the right to be in possession
but if the tenant does not any more require use ·or the pre1nises, the provisions
of the Rent Act and especiaily Secs. 13 and 15 completely prohibit giving the
possession of the premises on licence or on sub-lease. The Company Judge,
therefore, spelt out a third tnode of parting with possession of the premises by
the Liquidator namely, a caretaker·s agreement. This appears to be a facade
to wriggle out of the provisions of the Rent Act. The Rent Act is no doubt
enacted for protecting the tenants, and indisputably its provisions must receive
such interpretation as to advance the protection and thwart the action of the
landlord in rendering tenants destitutes. But this does not imply that the
court should lend its aid to float the provisions of the Rent Act so as to earn
money by unfair and impermissible use of the premises. (663 H; 664 A-FJ

F
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2609 of 1983.

Appeal by Special leave from the Judgment and Order dated
the !st July. 1982° of the Bombay High Court in Appeal No. 215 of
1981.
G
D. v. Patel, T. U. Mehta, H. J. Zaveri for the Appellants.

O. P. Malhotra, P. H. Parekh and Ms. lndu Malhotra for
Respondent No. l.
H
U. R La/it V. N. Ganpule and Mrs. V. D. Khannq for Respondent
~Q. ~.
f ', . '- I • ;; ;_

RAVINDRA v. OFFICIAL LIQUIDATOR (Desai, J.)

The Judgment of the Court was delivered by :
A
DESAI. J. As the matter brooked no delay, after granting
special leave to appeal, we proceeded to hear the appeal on merits.
When hearing was over. we pronounced the following order and
stated that the reasons would follow. The order reads as under : •
B
"The appeal is allowed and the order made by the
learned Single Judge as well as the Division Bench of the
Bombay High Court r.ejecting the Judge's Summons taken·
_out by the appellants is set aside and the Judge's
Summons is granted to the extent indicated herein.
c.
The appellants shall deposit Rs. 1, 50, 000 by or be-
fore March 1, 1983 in this Court. Respondent No. 2-
Smt. Sabita V. Adapa shall hand over vacant and peaceful
possession of the property being a shop Nos. 8/9 on the
ground •floor of tlie building formerly known as 'Jag-
mohan Building No. 2' or as 'Ayaz Mansion' and now
D
styled as 'Ram Kutir' situated at Station Road, Andheri, ·
Bombay-400058 to the liquidator on or before February
28,) 983 who. shall forthwith hand over possession on
March I, 1983 to the appellants, after taking a statement
from the appellants that they have deposited ·the· amount
E
Rs. I, 50, 000 in this Court as herein indicated.

On respondent No. 2 handing over vacant and peace-
ful possession of the afore-mentioned shops to the liqui·
dator by or before February 28, 1983, the liquidator shall F
forthwith refund to her the ·security ·deposit of
Rs. 28,800 deposited by the second respondent with the
liquidator.

Respondent No. 2 will be at liberty to remove all
furniture and fixtures placed by her in the suit· shop G
without causing damage to the property.

the amount of Rs. I, 50, 000 to be deposited by the
appellants in this Court will with the consent of the appel•
!ants be disbursed according to the direction to be given H
by this Court to the needy and the deserving creditors of
the Chit Centre Pvt. Ltd. already ordered to be wound up
SUPREME COURT REPORTS it9s3i 3s.c.11..
by the High Court. Neither the liquidator nor the creditors
A of Chit Centre Pvt. Ltd. have any right to claim this
amount of Rs. 1, 50, 000 or any part thereof as it is an ex
gratia payment made by the appellants for alleviating the ·
misery if any of some of the hard hit creditors of Chit
C~ntre Pvt. Ltd. The distribution of the aforesaid amount
will be at the absolute discretion of this Court. The
B appeal is allowed to the extent herein indicated with no
order as to costs."

These are the reasons.

c · On a winding up petition filed under the Companies Act, 1956,
a learned Company Judge of the Bombay High Court made an order
on September 23, 1974 winding ,up Chit Centre Private Ltd. ('Com-
pany' for short). The Company had its office in shops bearing Nos.
8 and 9 on the ground floor of th9 building formerly known as
'Jagmohan Building No. 2' or as 'Ayaz Mansion' ·now known as
D 'Ram Kutir'. On the winding up order be;ng made; the Official
Liquidator who was appoipted as Liquidator of the Company ' while
taking possession of the assets of the Company also took possession
of the office premises of the Company. It is in this manner that the
Liquidator acquired possession of shops Nos. 8 and 9, the ·premises
involved in this appeal. Subsequently, the Liquidator sought direction
E of the court on April 25, 1979 whether the premise's should be let out
on lease or licence or whether the furniture and fixtu'res in the
premises should be sold~ The Court gave a direction that the premi-
ses be· given on caretaker basis after obtaining a proper document
on a compensation not ·Jess than Rs. 2, 250 per month. Pursuant
F to this direction the Liquidator ·invited offers from persons willing to
occupy the premises on terms and conditions laid down by the Court.
On July 2, 1980, the Liquidator sought the direction of the Court
whether to accept the offer of M/s Modern Caterers represented by
respondent No. 2 herein, Smt. Sabita V. Ada pa.. The Company
Judge"'by his order dated July 3, 1980 directed the Liquidator to
G accept the offer as modified. by the Court of the second respondent.
The Liquidator there upon entered into an agreement on July 29, 1980
with the second respondent and gave possession of the premises to
the second respondent on terms and conditions set out in the agree,
H men!.

Appellants herein are the Landlords of the building of which
the premises involved in this appeal formed part. Appellants took
RAVINDRA v. OFFICIAL LIQUIDATOR (besal, J.) 661
out Judge's summons praying for a direction to the Liquidator to
terminate the caretaker's agreement entered into with the 2nd respon,
dent under the directio(ls of the Court, and to hand over vacant and
peaceful possession of the premises to the appellants.' There were
other prayers in the Judge's summons with. which we are not
concerned in this appeal.
B
The learned Company Judge repelled the contention of the
appellants that the so-called caretakers' agreement entered into by
the Liquidator with the 2nd respondent was in contravention of the
various provisions of the Bombay Rents, Hotel and Lodging House
Rates Control Act, 1947 as amended in 1973 ('Rent Act' for short)
ancl held tha~ in substance and in form it was a caretaker's agreement c
which was permissible. Accordingly, the learned Judge rejected the
Judge's summons in respect of both the prayers. Appellants preferred
an appeal to the Division Bench of the High Court. The Division
Bench held that appellants were not . entitled to the notice in respect
of the report submitted by the Liquidator for directions in respect of D
the premises and further .observed that the appellants had no right
to the present possession of the premises, more so, because the
appellants had already filed a suit for eviction in the Small Causes
Court at Bombay against the Official Liquidator and on this short
ground the appeal was dismissed. Hence this appeal by special
leave.-

The Company is already ordered to be wound up by the order
of the Court dated September 23, 1974. The l)ame of the Company
clearly spells out the objects for which it was formed. The name e>f
the .Company was Chit centre Pvt. Ltd. The Company had under• F
taken the.business of floating prize chit schemes. The nature of
business in modern times is sufficiently well known and does not
req.uire .elab0ration. The Company had set up an office for carrying
on this business and the office was set up in premises taken on lease.·
The business of ihe Company of floating · prize chit sci\emes came to
a stand still, the moment it was ordered to be wound up. It is not G
the Liquidators' case tha.t he is carrying on business of the Company
which is being wound up with the permission of the Court under sec.
457 of the Companies Act.
H
Sec. 457 enables the Liquidators in a winding-up by the Court,
with the sanction of the court, amongst others, to carry on the
business of the Company so far as may be necessary for the beneficial
. '
SUPREME CO\JRt REPORTS (1983] 3s.c.R.
winding-up of the Company. If the floating of the schemes for prize
A chits came to a stand still, the moment the Company was ordered to
be wound up, there was no question of the business of the Company
to be carried on by the Liquidator and that too for the beneficial
winding up of the Company. Whether to carry on the business of
the Company which is ordered to be wound up is not a matter left to
B uncontrolled discretion of the Liquidator. The Liquidator undoubtedly
has the power under sec. 457 to carry on the business of the Com·
pany, if it is necessary for the beneficial winding up of the Company.
And this power can be exercised not at the discretion of the Liquidator
but with the sanction of the court. Reliance was placed on In re
Batey; Ex parte Emmanuel(') wherein it was observed that the power
c to carry on the business can only be exercised for the purpose of the
beneficial winding up of the Company not because the creditors may·
think that the business will be a very profitable one and that the
longer it is carried on the better it will, and that they will niake a
profit from it. Reliance was also placed on Panchmahals Steel
D Ltd. v. Universal Steel Traders,(') wherein it was held that amongst
others' the Liquid.ator with the sanction of the court has the power
to carry on business of the Company so far as may be necessary
for the beneficial winding up of the Company. It ;is· true that the
Liquidator cannot carry on business for any other purpose except
. the pupose for which the power is conferred upon him, namely, for
E the beneficial winding up of the Company. He cannot carry on any ·
. business on the ground that it would be beneficial to the creditors or.
the contributors. The jurisdic\ional fact which must be ascertained
and established for the exercise of the power by the Liquidator to
carry on business of a Company, is that carrying on of the business
of the Company is necessary for the beneficial winding-up of the
F Company.' However, the language of the section being unambiguous
and clear, one does not need the assistance of precedents· to come to
a conclusion that the Liquidator with the sanction of the court can
carry on. the business of the Company only to the extent that such
carrying on of the business is necessary for the beneficial winding-up
G of the Company. ·

Let it at once be made clear that there is no order of the Court
brought to our notice which accorded the Court's sanction to the
exercise of the power to carry on the business of the Company by
H
(I) (188lj !7 Ch. Division 35.
(2) [1976J % Company Cases 706 at 72Z,
RAAINDRA v. OFFICIAL LIQUIDATOR (D~sai, J.) 66~

the Liquidator, and we posed a question as to which business of the
Company was to be carried on by the Liquidator? The business of A
floating prize chits scheme has come to a stand still, the moment the
Company was ordered to be wound up. It is not for a moment ,
suggested that a Liquidator was to float some prize chit schemes or
that a pending scheme was to he continued or persued by him. That
is not even the Liquidator's case -nor was it so contended before the
learned Company Judge.
B

The Liquidator has adopted a contradictory posture which the
learned Company Judge has unfortunately overlooked. If the
Liquidator wanted to exercise power under Sec. 457 (I) (b) to carry
on business of the Company so far as necessary for its beneficial c
winding-up, the business which was to be carried on must be the
business of the Company. Giving premises on lease, licence or under
caretaker's agreement was not the business of the Company. If
some other business of the Company was to be carried, the use of
the office premises would be necessary for carrying on the business D
of the Company. If possession of the premises was to be retained
for carrying on the business of the Company, the Liquidator could
not have sought the direction of the court to hand over possession ·
under any nomenclature such as lease, licence, caretaker's agreement
or any other facade to the second respondent. Now if the Liquidator
wanted to ex~rcise power under Sec. 457 (1) (b), he ough\ to have, E
with reference to the object clause in the Memorandum of Associa-
tion of the Company, shown that giving on lease or licence or under
caretaker's agreement was part of the routine business of the Com-
pany. Such is not the case here. In fa~t, as the business has come
to a grinding halt, the office premises are of no use to the Liquidator.
He has therefore, devised a scheme by which he can knock out the
F
compensation for the use and occupation of the 'premises, not .neces-
sary for the use of the Company, in contravention of the Rent Act
and unfortunately the Court accorded sanction of this venture of the
Liquidator disregarding t~e relevant provisions of the Companies
Act .. G
r
,..., '*' The Company was a tenant or a lessee of the premises of
which the appellants are the landlords. The date of the commence•
ment of the lease is not made available to us, but it. is also not
claimed on behalf of the Liquidator that there ·was lease of long H
duration. If so, the Company was a statutory tenant under the Rent
Act. The statutory tenancy confers the right to be in possession but
.SUPREME C0URT REPORTS . (19831 ~ s.c.R.
if the tenant does not any more require use of the premises, the
A provisions of the Rent Act and especially Secs. 13 and 15 completely
prohibit giving the possession of the premises on licence or on sub-
·~
lease. The learned Company Judge therefore spelt out a third way
of parting with the possession by the Liquidator, namely, that he
may give the premises to the second respondent under a caretaker's
B agreement. This caretaker's agreement appears to us to be an
euphemism for collecting compensation which is nothing else but
the charge for use and occupation of the premises exclusively by the
second respondent. Whether it is sub-lease or licence does not call
for decision. For the purpose of the· present proceedings it · is
enough .for us to say that the Company and its Liquidator no more
c needs .the premises for its own use. The Liquidator does not
need the use of the premises for carrying on the winding up
activities of the Company because he sought direction for parti1,1g
with possession., We are not impressed by the learned Judge saving
that there is some third mode of parting with possession of the premi-
ses exclusively in favour of the second respondent, naniely, caretaker's
D agreement which appears to us to be a facade to wriggle out of the
provisions of the Rent Act. The Rent Act is no doubt enacted ·for
protecting the tenants, and indisputably its provisions must receive
such interpretation as to advance the protection and thwart the action
of the landlord in rendering tenants destitutes. But this does not
E imply that the court should lend its aid lo flout the provisions of
the.Rent Act so as to earn money by unfair and impermissible use
of the premises. And that is what the Liquidator sought to do and
the Court extended its help to the Liquidator. This, in our opinion,
is wholly impermissible. The learned Company Judge could not
F have a11thorised the Liquidator to enter into such an agreement and
therefore his order is liable to be set aside.

In th.e appeal before the .Division Bench, this aspect was not
at all exalltined because it is stated that thi.s aspect was not canvassed
before the Ben9h he1uing the appeal. The.point we h.ave examined
G goes to the root of the matter and, therefore, we consider it
immaterial whether the point was examined at the hearing of the
appeal.

The learned Company Judge could not have permitted holding
H on to possession of the premises, not needed for efficiently carrying
on ~inding up proceedings. The only course open to him was to direct
the Liquidator to surrender possession to landlords and save recurring
Uability to pay rent. Before y1e part with this judjlment, we must
R~VINDRA v. OFFICIAL LIQUIDATOR (besai, J.) 665
take note of one submission that was made on behalf of the respon•
dent. · It was said that the creditors and members of the Company A
in liquidation have suffered huge losses and if the Liquidator would
have been permitted to enter into an agreement with the second
respondent, it would fetch a steady income which would have gone
towards mitigating the hardships of the creditors and members of
the Company. The accounts of the Company in liquidation were not B
brought to our notice nor can we permit v,iolation of law howsoever
laudable the objecl of such act may be. However, we must record
a statement made on behalf of the appellants when the afore-
mentioned argument was being examined ·by us. It was said that
the second respondent was to pay Rs. 2,500 per month as compensa-
tion under the directions of the Court. That would .have fetched c
the Liquidator an income of Rs. 30,000 per year and deducting the
costs, expenses and· taxes, .the .Liquidator may have been able to
realise at least Rs: 25,000 per year. The learned counsel for the
appellants submitted that adopting a multiplier of six, assuming
that roughly six years was the period for which the agreement
D
would have been renewed from year to year, the appellants un-
conditionally offered to deposit Rs. 1,50.000 in the Court to be
distributed at the discretion of this Court amongst the creditors of
I the Campany in liquidation: We recorded this offer in our order
disposing of the appeal. We are now informed that the amount has
been desposited. The Liquidator is accordingly .directed to submit E
the list of the creditors of the Company with the names, addresses
and claims admitted by him within 4 weeks from today when the
matter will appear again on board for directions.

These are the reasons which persuaded us to allow the appeal
and make the order extracted at the commencement of this F
judgment.

H.S.K. Appeal allowed.