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Official Liquidator of the Mysore Kirloskar Limited, Bangalore v/s Kirloskar Institute of Advanced Management Studies

Company & Directors' Information:- THE MYSORE KIRLOSKAR LIMITED [Under Liquidation] CIN = U00357KA1941PLC000277

Company & Directors' Information:- KIRLOSKAR INSTITUTE OF ADVANCED MANAGEMENT STUDIES LIMITED [Amalgamated] CIN = U80902KA1991PLC011786

Company & Directors' Information:- H S MANAGEMENT INSTITUTE PRIVATE LIMITED [Active] CIN = U74140DL2005PTC141500

Company & Directors' Information:- A S INSTITUTE OF MANAGEMENT PRIVATE LIMITED [Strike Off] CIN = U80302DL2005PTC140941

    Company Application No. 826 of 2011 in Company Petition No. 166 of 2001

    Decided On, 21 July 2015

    At, High Court of Karnataka


    For the Applicant: K.S. Mahadevan, V. Jayaram, Advocates. For the Respondent: K.G. Raghavan, Senior Advocate for V. Manjunath, Advocate.

Judgment Text

(Prayer: This Company Application is filed under Section 446 read with Section 456[1] and [2] and 457, 531A of the Companies Act, 1956, praying to declare lease agreement dated 21.10.2000 entered between the Ex-Management of The Mysore Kirloskar Limited and M/s. Kirloskar Institute of Advanced Management Studies as void against the Official Liquidator and cancel the lease agreement and etc.)

1. Heard the Counsel for the Official Liquidator and the learned Senior Advocate Shri. K.G. Raghavan, appearing for the counsel for the respondent.

2. It is the case of the Official Liquidator that the company in liquidation, M/s. Mysore Kirloskar Limited, had been ordered to be wound by this court, by an order dated 1.4.2004 in Company Petition No. 166/2001 and he has been appointed as the Official Liquidator by virtue of Section 449 of the Companies Act, 1956 (Hereinafter referred to as the ‘Act’, for brevity).

3. The present application is filed seeking cancellation of a lease deed entered into between the erstwhile management of the company in liquidation and M/s Kirloskar Institute of Advanced Management Studies Limited (Hereinafter referred to as the ‘KIAMSL’, for brevity).

It is alleged that the erstwhile management had executed the lease agreement for a period of 28 years commencing from 22.1.2000, on a lease rent of Rs. 1250/- per month in respect of land measuring 6.29 acres. In terms of Section 531-A of the Act, the lease agreement entered into between the company in liquidation and the said ‘KIAMSL’ is invalid and void against the liquidator and is also prejudicial to the interest of the creditors, workers and contributories of the company in liquidation. In this regard, it is pointed out that the factory premises of the company in liquidation has been closed on 31.12.2000 and the winding up petition was filed on 14.3.2000 and the order of winding up was passed on 1.4.2004. A lease deed was said to have been entered into between the parties on 22.1.2000, which is 1 month and 22 days before the presentation of the winding up petition and therefore in terms of Section 531A of the Act, it was clearly void and hence, the present application.

4. The learned counsel for the Official Liquidator would submit that the lease deed, on the fact of it, is executed only to defeat the object of winding up and to ensure that the assets of the company are kept out of the hands of the Official Liquidator. As seen from the terms of the lease deed, the lease amount is a paltry sum of Rs. 1,250 per month in respect of a vast extent of land measuring over 6.29 acres and that the transaction having been entered into, just prior to the presentation of the winding up petition, would fall within the mischief of Section 531-A of the Act.

The application is hotly contested by the respondent – lessee and in view of which, this court had directed that the parties tender evidence in support of their respective claims. The evidence has also been recorded in the present case on hand to demonstrate that even prior to the lease deed, the respondent had been put in possession as a licensee and even if the lease deed were to be cancelled, the possession having been continued as a licensee over a period of time, the respondent could not be disturbed otherwise than under due process of law etc.

5. The learned Senior advocate Shri Raghavan, appearing for the counsel for the respondent would however insist that the application could be disposed of on a preliminary objection as regards limitation. In this regard, he would point out that having regard to the very tenor of Section 458A and giving the benefit of exclusion of time in computing the period of limitation, it was incumbent on the Official Liquidator to demonstrate that the present application was filed in time. In this regard, he would point out that the lease deed is dated 22.1.2000 and the petition for winding up was filed on 14.3.2000 and the winding up order was passed on 1.4.2004 and the present application is filed as on 27.7.2011. Therefore, accommodating the period during which the petition was filed and the winding up order was passed, would be 5 years and 15 days. And giving the benefit of the period of 1 year from the date of the winding up order, within which time, the application could be filed and also the period of limitation prescribed in Article 58 of the Schedule to the Limitation Act, 1963, being 3 years from expiry of one year, within which the official liquidator could have filed an application, the application is clearly barred by time, as the last date by which the application could have been filed expired on 4.4.2008 and hence would submit that the application would have to be rejected on the ground of limitation alone.

On the other hand, the learned counsel for the Official Liquidator, as regards the preliminary objection raised, would seek to place reliance on a division bench judgment of the Madras High Court in Sri Krishnasamy Reddiar Educational Trust vs. Official Liquidator, High Court of Madras, [2011] 167 Company Cases 153 (Madras), to contend that the even in a case where there was no challenge to a lease deed which was void, for being in violation of section 531-A, the court would be within its inherent power to set at naught the lease deed and permit the official liquidator to take possession of the property. Therefore, on that proposition, the learned counsel for the Official Liquidator would submit that the law of limitation would not apply when the transaction is void ab initio and would hence seek to contend that the application be allowed without reference to the question of limitation.

Further, it is pointed out that the present respondent had earlier approached this court seeking permission to purchase the property, which according to the learned counsel for the Official Liquidator, was turned down by this court, observing that the transaction under which the respondent claims to be in possession appears to be illegal and fraught with dishonesty and therefore the relief claimed by the respondent could not be granted. And a challenge to the said order of the Company Judge before the division bench of this court had only resulted in dismissal of the appeal. The Division Bench, has observed that the respondent is not entitled to any such exclusive sale in his favour and if and when the property is brought to sale by public auction, it would be open for the respondent to also participate. Having regard to those findings, it is contended that the respondent is precluded from resisting the present application and that as the transaction was void ab initio, the application under Section 531-A of the Act would have to be addressed de hors. Section 458A of the Act, and without reference to the law of limitation.

6. The learned Senior Advocate, by way of reply, would place reliance on a decision of a division bench of the Kerala High Court, while pointing out that the question of limitation did not arise for consideration before the Madras High Court in Krishnasamy Reddiar Educational Trust, supra, and the court was proceeding on the basis that the lease deed was unconscionable and the intention of the company was to deny the assets of the creditors and the learned Company Judge having directed the lessee to hand over possession to the Official Liquidator and to pay damages from the specified period till handing over of possession was at the initiative of the court and not on the ground of limitation.

On the other hand, a Division Bench of the Kerala High Court in K.N. Narayana Iyer vs. Commissioner of Income-Tax, [1993]78 Company Cases 156, while considering the scope of Section 531-A, has observed that Section 531-A of the Act treats certain transactions as invalid and Section 532 treats another category of transfer as void, Section 531A stands in between treating the transfers covered thereby as void against the liquidator. The expression is often used 'void as against' a person or persons. In strict terminology, a thing cannot be void and valid at the same time. As 'void' denotes a nullity, a thing which is void must be a nullity for all. It is totally non-existent. Therefore, 'void as against A' can mean only that A can treat it as void; or, in other words, A can avoid it. It is, strictly speaking, voidable at the option of A. The fact that a transfer falling within Section 531A is void as against the Liquidator implies that it is not a nullity in the absolute sense. Since it is void only as against the liquidator, it means that court would invalidate or ignore the transfer if the relief is sought by the right person, namely the liquidator and in appropriate circumstances. Therefore, the learned Senior Advocate would submit that the proposition sought to be canvassed that there is no need to question the transaction if it is void ab initio is an incorrect proposition. The learned Senior Advocate would also draw attention to Section 31 of the Specific Relief Act, 1963, to point out that any person against whom a written instrument is void or voidable, and who has reasonable apprehension that such instrument, if left outstanding may cause him serious injury, may sue to have it adjudged void or voidable; and the court may, in its discretion, so adjudge it and order it to be delivered up and cancelled. And further, if the instrument has been registered under the Indian Registration Act, 1908, the court shall also send a copy of its decree to the officer in whose the instrument has been so registered; and such officer shall note on the copy of the instrument contained in his books the fact of its cancellation. In the instant case on hand, it is pointed out that the lease deed is a registered document and if it is sought to be canvassed that it is void or voidable, it is for the official liquidator to make an application in that regard, which is apparently the present application. Therefore, to contend that the Limitation Act, 1963 would not apply is a misleading statement. On the other hand, it is possible for the official liquidator to canvass that the law of limitation is kept in abeyance during the pendency of the winding up petition and would operate in terms of Section 458A. Given the full benefit of the tenor and object of Section 458A of the Act, it is pointed out by the learned Senior Advocate, that the application was clearly barred by time.

7. In the above facts and circumstance, the question whether the official liquidator is in a position to claim avoidance of a transfer on the ground that the transfer is void in terms of Section 531-A can also plead that the period of limitation in seeking such adjudication or seeking recovery of possession pursuant to that transfer of the property in question can plead exemption from the application of the law of limitation. This would necessarily have to be answered in the negative. Notwithstanding the decision in Krishnasamy Reddiar, supra, relied upon by the Official Liquidator, that judgment was rendered in a totally different context and the question of limitation did not fall for consideration therein. The law as laid down by the Kerala High Court to indicate that whether the transfer is said to be void or voidable, it would be necessary for the Official Liquidator to take appropriate measures to have the same declared as void, is to be kept in view. The present application is one such. Therefore, the contention that the Limitation Act, 1963 or that the period of limitation cannot be applied to the Official Liquidator is not tenable. At best, it is open to the Official Liquidator to contend that notwithstanding the provisions of the Limitation Act, 1963. Section 458A of the Act would afford exclusion of time in computing the period of limitation. The benefit of which is extended to the hilt, as rightly contended by the learned Senior Advocate. It is even after affording such exclusion, the application is seen to be clearly barred by time and therefore it would result in the Official Liquidator being given license to proceed against the proper

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ty much after expiry of the period of limitation to recover such possession and hence, the application must be dismissed as being barred by limitation. Incidentally, it is on record that the applicant is receiving rent from the respondent in terms of the lease deed. Therefore, to characterize the lease deed as being void is akin to approbating and reprobating, which is not permissible. This is one other aspect that is ignored by the Official Liquidator in making the claim that the lease deed was void. Insofar as the contention of the learned Counsel for the Official Liquidator that this court has come down heavily on the respondent in observing that the lease deed is tainted with dishonesty and the lease deed is contrary to Section 531A of the Act and the transaction between the lessor and the lessee is tainted with dishonesty is concerned, that order having been challenged in appeal, the appellate bench has, insofar as the above said observations of the company judge are concerned, has observed that the learned Company Judge was not justified in making certain observations especially when the present application was pending and therefore any such observations cannot be held as precluding the respondent from contesting the claim of the Official Liquidator. Accordingly, the application stands dismissed.