IMPORTANT POINT
When the lessee Company is in liquidation, the Board would be within its rights to terminate the lease and does not require Court’s permission for the same. However, Court’s permission will be required for resumption of leased land.

Headnote:(a) Letters Patent – Division Bench dismissing appeal against order of Company Judge for want of locus standi – Not valid. (Para 18)
       (b) Interpretation of agreement – Nature of – Not the nomenclature but substance of agreement is decisive – Agreement not providing for reverting back the property to the Board on expiry of the lease period – Plots specifically given to the Company for setting up of radio factory/ industry – Even allowing the Company to construct building for this purpose at its own cost within 24 months from the date of letter of allotment – Allowing the Company to purchase t- a he lands after expiry of lease period – The agreement therefore is Lease-cum-Sale Agreement. (Para 23)
       (c) Lease – Lease-cum-sale agreement – Company not fulfilling covenants – Not able to purchase the plots – Lease continuing – Terminated in terms of the lease – Company never became owner of the plots. (Para 25)
       (d) Lease – Termination – Company not fulfilling conditions and covenants – Lease terminated in terms of the agreement – No infirmity. (Para 30)
       Companies Act, 1956 – Section 537 – Lessee Company in liquidation – Board within its rights to terminate the lease – Did not require Court’s permission – However, Court’s permission required for resumption of leased land. (Para 38)
       (1994) 1 SCC 575; 1973 (43) Company Cases 131; AIR 1997 Kar 134; Anco Communication – Referred
       (e) Karnataka Industrial Areas Development Act, 1966 – Sections 33 to 35 – Company not able to establish factory – Board empowered to cancel allotment and resume land. (Para 43)
       (f) Companies Act, 1956 – Section 391 to 394 – Company in liquidation – No validly propounded scheme for rehabilitation – Obscure proposals cannot prevent Board from exercising its rights. (Para 44)
       Facts of the case:
       The Karnataka Industrial Areas Development Board had allotted plots of lands to M/s. Relectronics Ltd. for the purpose of establishing a factory to manufacture radio and TV sets.
       The Company could not complete construction of the factory. The Company was also unable 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. Industrial Development Bank of India (IDBI), another creditor also joined as supporting creditor. The High Court ordered the winding up of the Company. All the assets and liabilities were got transferred to Official Liquidator (OL) who took charge thereof.
       The Board sent notice to the Company for the resumption of the aforesaid industrial plots on a ground that Company had committed the breach of the terms and conditions of the Lease Agreement and had not established any factory for which purpose land was allotted to it. The Board terminated the agreement in respect of the two industrial plots. This order was also served upon the OL. Subsequent thereto application was preferred before the Company Judge by the Board seeking resumption of these Industrial Plots. This application was opposed by the OL. The Company Judge allowed the said application and directed the OL to handover the possession of the industrial plots to the Board.
       The Official Liquidator did not contest the order of the Company Judge. However, the appellant, who claims to be the promoter/ shareholder of the Company, challenged this order by filing appeal before the Division Bench which was ultimately dismissed.
       Finding of the Court:
       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.
       Result: Appeal dismissed.

JUDGMENT

A.K. SIKRI, J. –

1. Delay condoned.

2. Leave granted.

3. In this appeal the appellant has assailed the judgment and order dated 11.2.2010 passed by the High Court of Karnataka in Company Appeal which was preferred by the appellant herein against the orders dated 3.9.2009 by the Company Judge of the said court. Respondent No. 2 namely M/s. Relectronics Ltd. (hereinafter referred to as the 'Company') is ordered to be wound up and liquidation proceedings are pending before the Company Court. Respondent No. 1 i.e. Karnataka Industrial Areas Development Board (hereinafter referred to as the 'Board') had allotted an industrial plots to the Company on lease-cum-sale basis for a period of 11 years. The Board terminated the lease. The Company Judge, on application filed by the Board, had directed the liquidator to release the said land to the Board and the appeal by the appellant against this order has been dismissed by the Division Bench of the High Court, not on merits but for want of locus standi of the appellant to question the orders. The appellant herein is questioning the veracity of the orders on the ground that it was the property of the Company which could not have 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 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 Recorder in combination with radio. The Board executed lease-cum-Sale agreement ("Agreement") in favour of the Company 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 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 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 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 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 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 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 Company for the resumption of the aforesaid industrial plots on a ground that Company had committed the breach of the terms and conditions of the Lease Agreement and had not established any factory for which purpose land was allotted to it. Thereafter, vide noti

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2014 Supreme(SC) 199

IMPORTANT POINTWhen the lessee Company is in liquidation, the Board would be within its rights to terminate the lease and does not require Court’s permission for the same. However, Court’s permission will be required for resumption of leased land.

Cases Referred (2)

IMPORTANT POINT
When the lessee Company is in liquidation, the Board would be within its rights to terminate the lease and does not require Court’s permission for the same. However, Court’s permission will be required for resumption of leased land.