AI Structured Summary
Not yet generated for this judgment
Judgment
Sujata Manohar, J.—This judge''s summoned is taken out by 28 applicants against the official liquidator of Sreeniwas Cotton Mills Ltd. in liquidation.
A company petition for winding up of sreeniwas Cotton Mills Ltd. was presented in this court on October 24, 1983. During the pendency of this petition on February 9, 1984, the company entered into tenancy agreements with each of the applicants, giving to the applicants on tenancy basis various portions of a godown belonging to the company and situated at Lower Parel on terms and conditions set out in the agreements to tenancy all dated February 9, 1984. The total area so let out by the company to the applicants taken together admeasures around 20,000 sq.ft. Under the agreements, an extremely low monthly rent was fixed. Each of the tenants was, however, required to give a substantial security deposit. The company agreed to return the scrutiny deposit without interest to the tenant concerned on the tenant handing over vacant and peaceful possession of the tenanted premises to the company .The total amount of security deposit so received by the company was Rs. 40 lakhs.
On July 25, 1984, the company was ordered to be wound up. An appeal from the order of winding up was dismissed by a Division Bench of this court on March 6, 1985.
In September, 1987, the official liquidator made an application being Company Application No. 271 of 1987 u/s 536 of the companies Act in order to avoid the transactions of tenancy in favour of the applicants. u/s 536(2), it is provided as follows :
"536 (2). In the case of a winding up by the or subject to the supervision of the court, any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.
The tenancy agreements were clearly entered into after the commencement of winding up. Hence, under an order dated July 5, 1988, a learned single judge of those court who heard the application made the judge''s summons absolute and directed the applicants to hand over possession of the said premises to the official liquidator. Appeals from this order were carried before the Division Bench of those court and the supreme court. Even a review petition was filed and carried up to the Supreme Court. But every court upheld the order of July 5, 1988.
On March 10, 1989, the applicants have taken out the present judge''s summons praying that it may be declared that the official liquidator is not entitled to evict the applicants from the said premises unless the official liquidator first pays to them an aggregate amount of Rs. 40 lakhs which was received by the company from the applicants under the said agreements of February 9, 1984. under an order of this court dated August 31, 1989, the applicants were directed to first hand over possession of the premises to the official liquidator without prejudice to their claim for refund of Rs. 40 lakhs. Accordingly, in the first week of September, 1989, the applicants have handed over possession of the siad premises to the official liquidator.
The only question which now survives is the question of return of the security deposits amounting to Rs. 40 lakhs under the said agreements of February 9, 1984. Mr. J.I. Mehta, learned counsel for the applicants, relies upon section 65 of the of the Contract Act under which, when a contract becomes void, any person who has received any advantage under such contract is bound to restore it, or to make compensation for it, to the person from whom he received it. Mr. MEhta submits that since the company received the benefit of security deposits amounting to Rs. 40 lakhs under agreements which have now been declared void, these amounts should be returned to the applicants. He relies upon a decision in the case of Mundakath Mathu v. Chalora Illath Sankaran Nambudripad, AIR 1932 Mad 303, under which is is held that the principle on which section 64 and 65 of the contract act, 1872, rest is no confined to cases expressly included by him so as to resume the property which he parted with under it and at the same time keep the money or other advantages which he has obtained under it." The rule is applied as a rule of equity and good conscience .He also relied upon the observations of a division bench of those court in the case of S.P.s Khanna v. S.N. Ghosh [1976] Tax LR 1740, to the effect that jurisdiction u/s 536(2) of the companies act has to be exercised in the interest of justice. There is force in what Mr. Mehta submits.
In the case, however,m of a company in winding up, one has to consider the position of a person who claims such restitution. It is contended by Mr. Mehta for the applicants that since the claim of the applicants is an equitable claim for restitutions, it must be discharged in preference to other claims. But the claims of a person whop demands the return of security deposit paid by him to the company is the claim of an ordinary creditor of the Company. His right to obtain such refund may be a right in equity. But, there is no provision under the companies act which gives such a claim any priority over the claims of other creditors. It is pointed out by Mr. S.H. Doctor, learned counsel for the official liquidator ,that the amounts paid by the applicants to the company in trust for the applicants. These were monies which were paid to the company on condition that as and when the agreement comes to an end and possession is handed over by the tenants to the company , the amount would be returned .There was no provision under the agreement of to keep these monies separate or earmarked for the benefit of the tenant concerned. In fact, it is the case of the applicants that the amounts paid by them were utilised by the company for payment to the workers and also to discharge the company''s liabilities to the bank and for other purposes of the company. The monies were, therefore, treated as belonging to the company. The agreements do not provide for return of the deposit with interes.t But looking to the very low rent which was fixed under the agreements, this cannot be considered as any indication that the amounts were to be held in trust by the company for the benefit of the tenants .For the return of the deposit, therefore, the applicants are in the same position as other unsecured creditors of the company.
In the case of Rai Bahadur Seth Jessa Ram Fatechchand v. Om Narain Tankha [1967] 37 comp cas 204, the supreme court considered whether a security deposit by a selling by agent was required to be repaid by the official liquidator in preference to the claims of other creditors. The Supreme Court held that the question whether the security deposit in a particulate case can be said to be impressed with a trust will have to be decided on the basis of the terms of the agreements and the facts ans circumstances of each case, without learning one way or the other on the fact that the money was given as a security deposit. When the terms of the agreements do not clearly indicate any trust, the court will have to consider the facts of the case along with the terms of the agreement to decide whether in fact, something in the nature of a trust was impressed on the security deposit. In such a case, the fact that there was no segregation provided for and the fact that interest was to be paid, would be circumstances pointed out above, there is nothing to indicate that there was any trust in favour of the applicants in respects of these amounts.
In the case of In Re: Manekji Petit Manufacturing Co. Ltd., also, the question of deposit made by a selling agent was considered and the court came to a conclusion after examining the circumstances that no fiduciary relationship had been created. The fact that the contract has been held to be void u/s 536(2) of the companies act can make no difference to the legal position. The restitution to which the applicants are entitled is the nature of a return of the deposit amount paid by them. They stand on the same footing as other ordinary creditor.
There is also a dispute between the parties as to whether the amount of security deposit was in fact paid by the applicants to the company or not. According to the applicants, the payment of these amounts is reflected in the books of accounts of the company. Learned counsel for the official liquidator, however, has raised some doubt on this question. In these circumstances, it will be open to the applicants to file their claims for return of deposit made under the said agreements before the official liquidator. The official liquidator shall examine these claims. The claims, if established, shall be paid on the same footing as the claims of other unsecured creditors.
It is ordered accordingly. There will be no other order on the judge''s summons.