# I959 November IO '959 Official Liquidators, U. P. Un£on Bank Lid v. R. N. Aggarwal Shah ]

- **Citation:** [1960] 2 S.C.R. 189
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Case number:** Civil Appeal No. 28of1958
- **Bench:** P. B. Gajendragadkar, K. SuBBA RAo, J. 0. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/i959-november-io-959-official-liquidators-u-p-un-on-bank-lid-v-r-n-aggarwal-shah-1854
- **Pages:** 9

## Headnote

Company Law-Winding up of Bank-Landlord's claim for
rent of bank premises after order of winding up:_Official Liquidators calling upon Landlord to take possession of the premises and
not using the same for the purposes of winding up-Landlord
refusing to take possession-Whether Official Liquidators liableIndian Companies Act, I9I3 (VII of i9I3), ss. I93· 230, 230(3)-
Company Rules framed by the Allahabad High Court r. 97 (Proviso).
I
The U. P. Union Bank was in occupation of a building
belonging to the respondent as a tenant. After the passing of the
winding up order of the bank the Official Liquidators removed
the offices of the bank from the premises and called upon the
respondent landlord to take possession thereof. The respondent
refu5ed to do so as part of the premises was occupied by some
trespassers. Thereafter the Official Liquidators did not do· any
business in the building in connection witn the winding up of
the bank. The respondent claimed the entire rent from the
date of the winding up order up to the date on which the
Official Liquidators wouid give him vacant. possession of the
premises.
The High Court held• that in view of the proviso
to r. 97 of. the Rules framed by the High Court under the
Companies Act the respondent was entitled to recover the entire
rent claimed by him and not pro-rata with the 9ther creditors of
the bank.
The proviso to r. 97 of the Company Rules runs thus:
"Provided that where the official liquidator remains in
occu1·ation of .premises demised to a company which is being
wound up, nothing herein contained shall prejudice or affect
the rights of the landlord of such premises to claim payment
I959
Bharwad
Mepa Dana
v.
State of Bombay
S.K. Das].
I959
November IO
'959
Official
Liquidators, U. P.
Un£on Bank Lid.
v.
R. N. Aggarwal
Shah ].
190
SUPRE11E COURT REPORTS [1960 (2)]
by the Company or the Official Liquidator of rent dnring
the period of the company's or the Official Liquidator's
occupation."
-
On appeal by the Official Liquidators by a certificate of the
High Court:
Held, that the landlord respondent was not entitled to claim
priority in respect of payment of rent because the proviso to
r. 97 of the Company Rules framed by the High Court affirms
the right, of the landlord to claim payment of rent accruing due
since the date of winding up but does not deal with the question
of priority in payment thereof, and further because the building
in question did not remain in the possession of the liquidators
for the purpose of liquidation.
In re Oak Pits Colliery Company, 1882 Ch. D. 321, followed.
Held, further, thats. 230 of the Companies Act, lqr3, which
specifies categories to which priority in payment should be
given, does not give priority to rent due to landlord and it is not
within the competence of the High Court to give priority by its
rnb to a category which is not included in that section.
Under s. 193 th~ Court has power to order payment of the
costs and expen~es of winding in such priority as it thinks fit in
cases \Vhere the assets are insufficient to discharge the liabilities,
and s. 230(3) empowers the Court to direct the company to
retain such sums as may be necessary for the costs and expenses
of winding up even before discharging the debts for which
priority is given by s. 230.
If a debt can reasonably be described as costs and expenses
of winding up the court may direct preferential paymentlhereof,
otherwise only pro-rata payment with the other ordinary creditors can be claimed out of the assets of the company.

## Text

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....
S.C.R.
SUPREME COURT REPORTS
189
murders and the part played by the appellants, it
would not be justified in imposing the lesser sentence.
We see no good reasons for differing from the High
Court and interfering with the sentence.
For the reasons given above, the appeal fails and is
dismissed.
Appeal dismissed.
THE OFFICIAL LIQUIDATORS,
U. P. UNION BANK •LTD.
v.
SHRI RAMESHWAR NATH AGGARWAL
(P. B. GAJENDRAGADKAR, K. SuBBA RAo and
J. 0. SHAH, JJ.)
Company Law-Winding up of Bank-Landlord's claim for
rent of bank premises after order of winding up:_Official Liquidators calling upon Landlord to take possession of the premises and
not using the same for the purposes of winding up-Landlord
refusing to take possession-Whether Official Liquidators liableIndian Companies Act, I9I3 (VII of i9I3), ss. I93· 230, 230(3)-
Company Rules framed by the Allahabad High Court r. 97 (Proviso).
I
The U. P. Union Bank was in occupation of a building
belonging to the respondent as a tenant. After the passing of the
winding up order of the bank the Official Liquidators removed
the offices of the bank from the premises and called upon the
respondent landlord to take possession thereof. The respondent
refu5ed to do so as part of the premises was occupied by some
trespassers. Thereafter the Official Liquidators did not do· any
business in the building in connection witn the winding up of
the bank. The respondent claimed the entire rent from the
date of the winding up order up to the date on which the
Official Liquidators wouid give him vacant. possession of the
premises.
The High Court held• that in view of the proviso
to r. 97 of. the Rules framed by the High Court under the
Companies Act the respondent was entitled to recover the entire
rent claimed by him and not pro-rata with the 9ther creditors of
the bank.
The proviso to r. 97 of the Company Rules runs thus:
"Provided that where the official liquidator remains in
occu1·ation of .premises demised to a company which is being
wound up, nothing herein contained shall prejudice or affect
the rights of the landlord of such premises to claim payment
I959
Bharwad
Mepa Dana
v.
State of Bombay
S.K. Das].
I959
November IO
'959
Official
Liquidators, U. P.
Un£on Bank Lid.
v.
R. N. Aggarwal
Shah ].
190
SUPRE11E COURT REPORTS [1960 (2)]
by the Company or the Official Liquidator of rent dnring
the period of the company's or the Official Liquidator's
occupation."
-
On appeal by the Official Liquidators by a certificate of the
High Court:
Held, that the landlord respondent was not entitled to claim
priority in respect of payment of rent because the proviso to
r. 97 of the Company Rules framed by the High Court affirms
the right, of the landlord to claim payment of rent accruing due
since the date of winding up but does not deal with the question
of priority in payment thereof, and further because the building
in question did not remain in the possession of the liquidators
for the purpose of liquidation.
In re Oak Pits Colliery Company, 1882 Ch. D. 321, followed.
Held, further, thats. 230 of the Companies Act, lqr3, which
specifies categories to which priority in payment should be
given, does not give priority to rent due to landlord and it is not
within the competence of the High Court to give priority by its
rnb to a category which is not included in that section.
Under s. 193 th~ Court has power to order payment of the
costs and expen~es of winding in such priority as it thinks fit in
cases \Vhere the assets are insufficient to discharge the liabilities,
and s. 230(3) empowers the Court to direct the company to
retain such sums as may be necessary for the costs and expenses
of winding up even before discharging the debts for which
priority is given by s. 230.
If a debt can reasonably be described as costs and expenses
of winding up the court may direct preferential paymentlhereof,
otherwise only pro-rata payment with the other ordinary creditors can be claimed out of the assets of the company.
CIVIL APPELLATE JURISDICTION:
Civil Appeal No.
28of1958.
Appeal from the
judgment and order dated
April 17, 1956, of the Allahabad High Court, in Special
Appeal No. 20 of 1954, arising out of the judgment
and order dated :February 10, 1954, of the said High
Court (Compt>ny Jurisdiction}, in Application No. 29
of 1953/Company case No. 24of1949.
1959. October 30.
H. N. Sany al,
Additional SolicitorGeneral nf India. and N. C. Sen, for the appellant. Rule 97 of
the High Court Company Rules merely gives the landlord the
right to claim payment of rent and nothing more. It does not
give any priori1y to him. The question of priority is dealt with
in s. 230 which gives no priority to the landlord.
[Shah, ].-Top priority is given to costs and expenses of
winding up under ss. 193 and 203(3).]
...
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•
,
..
-
S.C.R.
SUPREME COURT REPORTS
191
We offered possession to the landlord and we never used the
I959
premises for the purpose of liquidation after the winding up
order. Therefore the rent claimed by the landlord cannot be
Official
treated to have been incurred as costs and expenses of winding Liquidators, U. P.
up.
Union Bank Ltd.
The real question for decision is whether we used the
premises for the purpose of liquidation. It has been found by
the High Court that we did not do so. There is a rule under the
English Companies Act which is identical to our r. 97 but none
of the English cases have gone so far as to make the liquidators
liable for the rent claimed by the landlord even if the premises
were not used for the purμose of liquidation.
In re Silkstone and Dodworth Coal and Iron Company, 17 Ch.
D. 158, In re Oak Pits Colliery Company, (1882) Ch. D. 21 and
In re Lrvy and Company, 1919 Ch. D. 416, cited.
The Oak Pits case definitely holds that the landlord is not
entitled to full rent accruing since the commencement of the
winding up if the liq ui<lator has done nothing except abstain
from trying to get rid of the property. This principle should be
applied in this case and r. 97 should not be so interpreted as to
give any priority to the landlord.
A. V. Viswanatha Sastri, Mrs. E. Udayaratnam and S.S.
Shukla, for the respondent. By a previous order Mootham, ].,
who was then dealing with company matters in the High Court,
passed an order to the effect that the landlord was entitled to
·recover rent from the bank from the date of winding up to the
date when the liquidators would give him possession and thus
terminate the tenancy. This order was virtually passed under
s. 45B of the Banking Companies Act and the respondent was
entitled to payment according to the tenor of the order which is
that he should be paid in full.
.
/
(Shah, J.~How can a decree drawn up as a result of that
order be executed? The amount has to be proved.]
H. N. Sanyal, Additional Solicitor-General of India, and
N. C. Sen, in reply.
Mootham, J's order simply purports to
declare the liability of the liquidators but does not decide the
question of priority.
1959.
November 10.
The Judgment of the Court
was delivered by
v.
R. N. Agga1wal
SHAH J.-The U. P. Union Bank Ltd. (which will
sli.,.h J.
hereinafter be referred to as the Bank) was in . occupation as a tenant of a building in Agra town belonging
to the respondent. at a monthly rental of Rs. 325 and .
Rs. 10 as municipal taxes.
The Bank made default
in paying the rent accruing due and the respondent
filed suit No. 810 of 1949 in the court of the Munsiff
l92
SUPREME COURT REPOHTS [1960 (2)]
69S9
at Agra for a decree for rent for three months and
Official
obtained an order of attachment before jurlgment on
Liq14idators, u. P. the movable property of the Bank. The Munsiff by
Union Bank Ltd. his decree dated December 2, 1949, decreed the suit and
v.
confirmed the order of attachment before judgment.
R.N. Aggarwal In the meanwhile, on a petition dated September 13,
• Shah].
1949, the Bank was orderPd to be wound up by the
High Court of Judicature at Allahabad and the appellants were appointed liquidators of the Bank. The
employees of the Bank had vacated the premises on
September 10, 1949, but the property of t.he Bank
which was attached was with the consent of the
respondent stored by the Commissioner appointed by
the Munsiff's court in the Banking hall which was
sealed by that officer.
A part of the premises was, it
appears, occupied by some trespassers. The Official
Liquidators called upon the respondent to take possession of the premises, but the latter declined to do so
unless vacant possession of the entire premises was
given to him. On November 30, 1950, the respondent
applied to the High Court for permission to file a suit
for ejectment and for arrears of rent due since September 30, 1949. Mr. Justice Mootham, who heard the
application declined to grant permission holding that
the claim which the respondent intended to put forward against the Official Liquidators in the comse of
the proposed suit may be adjudicated upon in the
winding up proceeding, and with the consent of parties,
the learned Judge proceeded to decide that claim. By
order dated August 30, 1951, Mr. Justice l\footham
directed as follows :
"In the result ......... , I hold that the petitioner is entitled to recover rent from the Bank at
the rate of Rs. 325 per mensem from 1st October,
1949, upto the date on which the Official Liquidators
give the petitioner (the landlord) such possession of
the premises as will, in Jaw, terminate the Bank's
tenancy."
·
• Against this order, the Official Liquidators preferred
an appeal being special appeal No. 17 of 1952, to a
Division Bench of the High Court.
'
•
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•
-
j.
,
8.0.R.
SUPREME COURT REPORTS
193
On April 23, 1953, the· respondent applied to the
I959
Joint Registrar of the High Court to issue a certifiGate
of non-satisfaction and to transfer the order to the L'
·aOfficialu P
f h C. 'l J d
f All h b d
£
•
iqui ators,
• ·
court o t e
LVL
u ge o
a a a
1or execution. Union Bank Ltd.
The Joint Registrar issued a certificate of non-satisv.
faction of the order and directed that the same be R. N. Aggarwal
transmitted to the District Judge, Allahabad, for
execution. The respondent filed an application for
Shah J.
execution in the court of the Civil Judge, Allahabad,
and obtained an order for attachment of an amount
of Rs. 12,000 lying to the credit of the Official Liquidators in the Allahabad Bank. The Official Liquidators
thereupon applied to the High Court praying that the
execution proceedings pending in the court of the Civil
Judge, Allahabad, be declared void and the order of
attachment of the fund in the account of the Official
Liquidators passed by the Civil Judge be quashed.
Mr. Justice Brij Mohan Lall, who heard the application
held that the proceeding commenced against the Official
Liquidators, without the sanction of the court under ·
ss. 171and232, cl. 1 of the Indian Companies Act, 1913,
and the attachment ordered thereunder were void and
directed that the certificate of non-satisfaction be
recalled .. Against this order, the respondent preferred
a special appeal to the High Court being appeal No. 20
of 1954.
Appeals Nos. 17of1952 and 20 of 1954 were
then heard. Appeal No. 17 of 1952 was dismissed and
by an order passed on April 17, 1956, the High Court
partially modified the order of Mr. Justice Brij Mohan
Lall, and directed the Official Liquidators to pay.to the
respondent in full the amount that had fallen due to
him after October 1, 1949.
The High Court was of the view that .the Official
Liquidators having retained the Bank's premises in
their occupation, by virtue of the proviso to r. 97
framed by Lhe High Court, the respondent was entitled
to receive the rent due to him in full and was not
liable to share the assets of the Bank pro rata with
the other ordinary creditors. Against the order passed
by the High Court, this appeal has been preferred with
the certificate of the High Court.
25
194
SUPREME COURT REPORTS [1960 (2)]
r959
By his order Mr. Justice Mootham, merely declared
Official
the liability of the Bank to pay the rent accrued due
Liquidato,,, u.P. since October l, 1949: there is no direction for payUnion Bank Ltd. ment of the amount, and ·it is not necessary to
v
consider the plea raised by counsel for the respondent
R. N. Agga•wal that the order being virtually one under s. 45-B of the
Shah].
Banking Companies Act, the respondent was entitled
to payment according to the tenor of the order.
The
order in terms declares the liability and does not
decide any question of priority between the respondent and other creditors of the Bank.
Bys. 647 of the Companies Act No. I of 1957, the
winding up of the Bank having commenced before
that Act was enacted, the provisions with respect to
the winding up contained in the Indian Companies
Act No. VII of 1913, continue to apply to the Bank
in the same manner and in the same circumstances as
if Act I of 1957 had not been passed.
By s. 230 of
the Indian Companies Act, 1913, provision is made
for payment of specified categories of debts in the
winding up in prfority to all other debts ; but rent
due to the landlord is not one of such debts to which
priority is given by s. 230. The High Court held that
in as much as by r. 97 of the Company Rules, it was
provided,
"When any rent or other payment falls due at
stated periods, and the order or resolution to wind up
is made at any time other than one of such periods
the persons entitled to the rent or payment may
prove for a proportionate part thereof up to the date
of the winding up order or resolution as if the rent
or payment grew due from day to day:
-
Provided that where the Official Liquidator
remains in occupation of premises demised to a
company which is being wound up, nothing herein
contained shall prejudice or affect the right of the
landlord of such premises to claim payment by the
company, or the Official Liquidator of rent during
the period of the company's or the Official Liquidator's occupation;"
for the rent accruing due in respect of the premises
which remained in the occupation of the Official
..
'
•
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,
;-
•
. I
S.G.R.
SUPREME COURT REPORTS
195
Liquidators, the respondent was entitled 'to preferenz959
tial payment. The operative part of the rule deals
Offi . 1
with the rent or other payment in arrears till the date Liquidat;;; u.P.
of winding up. By the proviso, it is declared that the union l3ank Ltd.
right of the landlord to· claim payment by the comv.
pany of the rent accruing due thereafter is not to_ be R. N. Aggarwal
prejudiced. The proviso merely affirms the right of
the landlord to claim payment of rent accruing due
since the date of winding up. It does not deal with
any question of priority in payment of debts. By
s. 246 of the Indian Companies Act, 19~3, power is
conferred upon the High Court to makerules consistent with the Act and the Code of 'Civil Procedure
concerning the mode of proceedings to be had for
winding up of the company and certain other ~atters.
The Legislature has by s. 230 prescribed that certain
specified categories o~ debts shall rank for priority
over other debts due by the company and it is not
within the competence of the High Court to prescribe
by rule a category for priority 'in payment which is
not included in that section. By s. 193 of the Act,
the court has, in the event of the assets being insuffiicient to satisfy the liabilities, indisputably power to
make an order for payment out of the assets, of the
costs, charges and expenses incurred in the winding
up in such order of priority as the court thinks fit,
and in exercise of the power conferred by s. 230 subcl. 3, the court may direct the company to retain such
sums as may be necessary for the costs and expenses
of the winding up of the company before discharging
even the debts inrespect of which priority is
prescribed by s. 230. If therefore, there is a debt
which may reasonably fall within the description of
costs and expenses of winding up of the company,
the court may provide for priority in payment of that
debt as it thinks just.
In the winding up of the company, it is open to the
liquidators to disclaim land burdened with onerous
covenants, of shares or stock in companies, of unprofitable cont'racts or of any other property that is
unsaleable or not readily saleable. The disclaimer
operates to determine as from the date· of disclaimer
Shah].
x959
Official
Liquidators, U.P.
Union Bank Ltd.
v.
R. N. Aggarwal
Shah J.
"
196
SUPREME COURT REPORTS [1960(2)]
the rights, interests and liabilities of the company and
the property of the company, in or in respect of the
property disclaimed. By 8. 230-A, cl. 4, liberty is
reserved to persons interested in the property requiring the liquidator to decide whether he will or will
not.disclaim. It is also open to the court under
sub-s. 5 of s. 230-A on the application of any person
entitled to the benefit or subject to the burden of a
contract made with the company to make an order
rescinding the contract on such terms as to payment
of damages for non-performance of contracts. It is
evident that on ~he winding up outstanding contracts
of the company do not become ipso facto inoperative.
The contracts remain binding until disclaimed or
rescinded in the manner provided by s. 230-A; but
the liability incurred under these contr.acts is mere,ly
an ordinary debt which ranks for claim to payment
pro rata along with other creditors. If the debt be
regarded reasonably as falling within the description
of costs and expenses of winding up of the company,
it is open to the court to direct that preferential
payment in respect thereof be made ; otherwise the
debt will be claimable out of the assets of the
company pro rata with other ordinary creditors.
Distinction has been made by the courts in England
where the relevant provisions of the Companies Act
are substantially the same that if the liquidator
continues in possession of leaseholds for the purpose
of the better realization of assets, the lessor will be
entitled to payment of the rent in foll, as part of the
expenses properly incurred by the liquidator; but as
observed by Lord Justice Lindley, In re Oak Pits
Colliery Companys (' ).
" No authority has yet gone the length of deciding
that a landlord is entitled to dist.rain for or be paid
in full rent accruing since the commencement of the
winding up, where the liquidator has done nothing
except abstain from trying to get rid of the property
which the company holds as lessee."
Evidently a distinction is made between property
which remains in the occupation of the liquidator
(1) t882 Ch. D. 321, 331.
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...... ·
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--
S.O.R.
SUPREME COURT REPORTS
197
after the winding up when .the occupation is shown
I959
te be for the purpose of liquidation and property
Offi . 1
w.hich merely remain with the liquidator, ·he having Liquidat:;:, u.P.
abstained from trying to get rid of the same and it union Bank Ltd.
does not appear or is not shown that the property was
v.
used for the purpose of winding up.
R. N. Aggarwal ].
The High Court held on the fact that the liquidators
Shah 1.
had remained in occupation of the premises not for the
purpose of winding up but " because they could not
think of any suitable method of getting rid of the
premises in spite of all their desire to do so. " It was
pointed out that the Bank had closed its business and
the liquidators were not carrying on any business after
the winding up and the properties were not used by
the liquidators for the purpose of liquidation. This
conclusion of the High Court on the evidence has not
been challenged. The property not having remained
with the liquidators for the purpose of liquidation,
unless the court passes an order holding that the debt
im:mrred was part of the costs and expenses of liquidation, the rent accruing due since the date of the winding cannot be claimed in priority over other ordinary
debts.
We are therefore unable to agree with the High
Court that under r. 97 of the Company Rules, if the
premises remained in the occupation of the liquidators,
not for the purpose of winding up, the landlord is
entitled to priority in respect of payment of rent. On
the view taken by us, the appeal will be allowed, the
order passed by the High Court set aside and the order
passed by Mr. Justice Brij Mohan Lall restored with
costs in this Court and in the High Court.
Appeal allowed.
•