1. Failure to obtain leave of court prior to institution of suit would not debar court from granting leave subsequently

Tenancy rights of company not an asset for liquidation

Erach Boman Khavar vs. Tukaram Sridhar Bhat [(2007)] 140 Comp Cas 52 (Bom)].

The Appellant was the owner of premises, which was let out on leave and licence basis in accordance with the agreement executed between the Applicant’s father and the Respondent company (M/s. Poysha Industrial Co. Ltd.) The court ordered the company to be wound up. The Applicant applied u/s. 446 of the Companies Act, 1956, seeking leave of the court to file an eviction suit against the official liquidator of the Respondent company and the sub-tenant (Mr. Tukaram Sridhar Bhat) before the Small Causes Court at Mumbai. Subsequently, the applicant filed another application u/s. 446 of the Act seeking leave of the court to file an eviction suit u/s. 41 of the Presidency Small Causes Court Act, 1882 and an order dated 23-2-2006 was passed by the Court to make an application for amendment of the plaint in the eviction suit which the applicant failed to make and as per the order the applicant was at liberty to apply afresh.

During the pendency of the suit for eviction before the Small Causes Court, Mumbai, the applicant filed a fresh application in a winding up petition seeking fresh leave of the court u/s. 446 of the Act for filing a fresh eviction suit against the official liquidator of the company in liquidation u/s. 41 of the presidency Small Causes Court Act, which was allowed by the Court. The sub-tenant appealed before the Division Bench and the order was set aside and the application was restored for rehearing and decision. The Respondent contended that (i) the application was not maintainable owing to the applicant’s failure to obtain leave of the Court prior to institution of the suit, (ii) applicant failed to comply with the order of the Court dated 23-2-2006, which was binding on the applicant and (iii) the concept of share capital was unknown to the company.

The Court held that the application was maintainable as failure to obtain leave prior to institution of the suit would not debar the court from granting such leave subsequently and that the suit would be regarded as having been instituted on the date on which the leave was obtained from the High Court. Also the order dated 23-2-2006 did not decide the question of grant of leave on the merits and as per that order the applicant was at liberty to apply for leave to file a suit.

Further, it was held that the question as to the existence of share capital in the event of winding up of company had to be decided by the competent court in the suit while adjudicating upon the rights of the rival parties. The issues involved in the suit and the reliefs claimed could be decided by the court trying the suit.

Further, the company in liquidation was not in need of the suit premises as per the reply filed by the official liquidator to the application and the tenancy right of the company in the tenanted premises were not an asset for the purpose of liquidation proceedings. The interest of the company in liquidation was not involved in the suit. Also the sub-tenant would be the only contesting party to the suit and therefore, there would be no strain on the financial resources of the company in liquidation. As the suit was not a frivolous suit, the case was a fit case for grant of leave provided that in the event of a decree it should not be executed against the company in liquidation without the leave of the court.

2. Official Liquidator cannot claim amounts received by sale of pledged goods by bank

State Bank of India vs. Vaishu Engineering Industries Ltd. & Ors. [(2007) 140 Comp Cas 117 (AP)]

The Second Respondent, the Andhra Pradesh Industrial Development Corporation, in its capacity as a creditor seized and sold the assets of the first respondent company to Respondent No. 11 by exercising powers under section 29 of the State Financial Corporations Act, 1951. This sale took place prior to the winding up passed by the Court in case of the first respondent company. The Appellant-bank one of the creditors of the company in liquidation had advanced amounts to the company against the security of current assets like raw materials and semi-finished goods. The bank was called upon by the auction purchaser to remove the goods pledged by the company in its favour which were lying in the factory premises and thereupon the bank called on the official liquidator to redeem the pledged goods as by then the winding up order had been passed.

The official liquidator while permitting the bank to conduct auction sale of the pledged goods filed an application before the company court seeking an undertaking from the bank to meet the necessary contribution towards the workmen’s dues whenever they were determined. The company judge while permitting the bank to sell the goods directed it to satisfy the demand of the official liquidator as and when it was required to meet the liability of the workmen. On appeal the bank contended that the properties pledged to it could not be termed as assets of the company and be made a subject matter of distribution in terms of section 529A of the Companies Act, 1956.

The Court allowed the appeal and following the decision of Supreme Court in case of Bank of Bihar vs. State of Bihar [(1971) 41 Comp cas 591(SC)] held that the pawned goods never became the property of the company even if used, they continued to remain the goods of the bank and the official liquidator had no claim over the amounts received by sale of pledged goods by the bank.

3. Grant of request of member for extracts of register of members excluding list of beneficial owners, contrary to section 41(3) and violative of section 152A of the Companies Act, 1956

Dinesh Kumar Jhunjhunwala vs. Karur Vysya Bank Ltd. [(2007) 140 Comp Cas 229 (Mad)].

The Appellant was a member of the Respondent bank holding 100 equity shares. He sought the extracts of the register of members of the bank, which was refused by the bank. On a petition by the Appellant before the Company Law Board for a direction to issue extracts of the register of members, the bank contended that the claim of the Appellant was contrary to section 163(2) of the Companies Act, 1956, inasmuch as the persons claiming a copy of the register of members should have inspected the register which was a pre-condition for demanding extracts of the register of members. Though the Company Law Board held that the right to seek a copy of the register of members was available only to those members who inspected the register, it granted the prayer of the Petitioner considering his age.

On appeal the Appellant challenged the direction of the Company Law Board in not including the list of beneficial owners of the shares of the bank in the membership list.

The Court observed that the definition of “member” u/s. 41(3) of the Companies Act, 1956 includes a beneficial owner, whose name is entered in the records of the depository and he shall be deemed to be a member of the concerned company with effect from 20-9-1995. Once the members of the depository are deemed to be members of the company, the register of the company, maintained under sections 151 & 152 of the Act, must contain the names of the beneficial owners maintained by the depository. Further, section 163 of the Act mandates the company to keep the register and return for inspection. Section 152A of the Act also states that the register and index of the beneficial owners maintained by a depository u/s. 11 of the Depositories Act, 1996, shall be deemed to be an index of members and register and index of debenture holders, as the case maybe, for the purpose of the Act.

The Court reversing the decision of the Company Law Board held that if the interpretation given by the Company Law Board were accepted, the insertion of section 41(3) would be rendered meaningless. A member of the company was defined without any ambiguity in the Act, and the intention of the legislature should not be given a narrow interpretation. It was not open for the bank to contend that it would maintain a list of members, excluding the beneficial owners whose names were found in the records of the depository. The order passed by the Company Law Board was contrary to section 41(3) of the Act and in violation of section 152A of the Act.

4. Workmen’s dues stand in priority over dues of other employees

Regional Provident Fund Commissioner vs. Official Liquidator, High Court, Kolkata [(2007) 140 Comp Cas 237 (Cal)]
The Regional Provident Fund Commissioner sought adjudication regarding whether provident fund dues of all employees of a company in liquidation should stand on the same footing as workmen’s dues.

The Court observed that section 530(1)(f) of the Companies Act, 1956, refers to sums being due to an employee, inter alia, from a provident. Section 530(8)(b) provides that the expression “employee” in such section does not include a workman. The opening words of section 530 makes the entirety of the provisions that follow subservient to section 529A. The workmen’s dues are covered by section 529A. By virtue of the definition of “workmen’s dues” contained in section 529(3)(b), the provident fund dues of a workman are included in the expression “workmen’s dues” appearing in section 529A(1)(a) of the Act. Section 529(3)(b)(iv) and section 530(1)(f) are similarly worded except that the former covers provident fund and related dues of all the employees not being workmen. Upon section 529A being introduced, all of the workmen’s dues including those on account of provident fund, are to rank pari passu with those of a secured creditor to the extent the dues of such secured creditor are covered by any security. Other employee’s dues, including on account of provident fund and like matters, are ranked below the secured creditors’ and workmen’s dues.

In view of the aforesaid the Court held that the provident fund dues of workmen ranked alongside the debts of the secured creditors of a company in liquidation to the extent that they were covered by the securities. The provident fund dues of the other employees stood below the workmen’s and the secured creditors dues on reading of sections 529A and 530 of the Act. The Provident Fund Commissioner had an equal claim along with the secured creditors of the company in liquidation in so far as such debts were covered by the securities for the amount. The quantum of the secured creditors’ dues and the provident fund dues of the workmen had to be ascertained and the amount had to be paid out by the official liquidator to the secured creditors and the provident fund authorities on a pro rata basis. Since the claim of the provident fund authorities on account of workmen’s provident fund was in excess of the sum available, without the secured creditors’ debts being taken into account, the sums due on account of other employees provident fund could not be met out of the money available for disbursement.

5. Employee failing after termination of service to vacate staff quarters is liable for prosecution u/s. 630 of the Companies Act, 1956

Rakesh Kumar vs. State of U.P. and Anr. [(2007) 140 Comp Cas 361 (All)].

Upon termination of services of the Petitioner, the second Respondent company issued a notice calling upon him to hand over vacant possession of the company quarters under his occupation. The company filed a complaint was filed for prosecution u/s. 630 of the Companies Act, 1956, as the Petitioner continued in occupation of the premises by avoiding the notice issued. The trial court imposed fine and directed the Petitioner to hand over vacant possession of the premises, failing which he was directed to pay damages every month until vacation of the premises. On appeal the order was confirmed in part by granting one month’s time to hand over vacant possession, to pay damages till such time and in the event of default, to undergo simple imprisonment for a period of six months.

The Petitioner filed a revision petition contending that since the case was pending against the termination order, the possession of the Petitioner was not illegal. It was further contended that since the services of the Petitioner was terminated he was no longer in the service of the company and therefore, section 630 of the Companies Act is not attracted at all.

The Court dismissed the petition and following the decision of the apex court in the case of Shubh Shanti Services Ltd. [(2005) 125 Comp Cas 477] held that section 630 was applicable in case of the Petitioner even though the services of the Petitioner was terminated by the company. It further following the decision in case of R. Antony (BLLJ 135) held that the complaint u/s. 630 of the Act was not barred due to the pendency of the industrial dispute before the Industrial Court. The Court further noticed that even on facts the Labour Tribunal had already rejected the application of the Petitioner and thus, there were no proceedings before the Labour Tribunal.