Official Liquidator Taking Over Third Party Property Under Liquidating Company's Possession Must Pay Rent As Costs Of Winding Proceedings: Karnataka HC

A single judge bench of Justice Suraj Govindaraj while allowing the company application filed by one N R Ravi, whose premises were taken into possession by the the Official Liquidator on 15.07.2014 without payment of rent said,

"The Official Liquidator in such cases would step into the shoes of the Company in liquidation and occupy the role of a tenant in respect of the said premises. The Official Liquidator would have had two options, to return the property to the landlord or to continue in occupation. In the event of continuing in occupation, the Official Liquidator would be required to make payment of the rentals to the landlord. In the event of returning the property, there would be no further obligation on part of the Official Liquidator to make payment of any amount to the landlord."

The Official Liquidator contended that it cannot be directed to make payment of the rentals but the claim of the Applicant would be treated as a preferential claim with the Applicant required to stand in the Queue along with the other creditors of the Company.

The bench noted that the claim now made towards the first floor is only on account of the Applicant not being able to rent out the first floor premises on account of the entire premises being locked up at the instance of the Official Liquidator and the Secured Creditor.

It said, "In such circumstances, I am unable to appreciate the rejection of the claim of the landlord as regards the rentals due to the first floor, if not for the Official Liquidator and the Secured Creditor, locking of the entire premises, the landlord would have been free to let out the said property to any third party. Whether the landlord would have been successful in it or not, the question still remains that the landlord was restrained from doing so or obstructed from doing so, on account of the locking of the premises."

Thus, the Court held that the rentals for the first floor from 15.07.2014 till the handing over of the said possession on 31.05.2017 would have to be paid.

Referring to sections 430, 429A and 476 of the Companies Act 1956, the bench said, "The amount payable by the Company in liquidation as rental due to the landlord until the Official Liquidator takes possession is only a preferential claim. On the Official Liquidator stepping into the shoes of the tenant and the Official Liquidator continuing in possession, the amounts payable would be the cost of winding up."

Further it held,

"Whenever an Official Liquidator is appointed and takes over possession, the Official Liquidator would have to be given at least a period of three months to ascertain whether the Official Liquidator is required to continue in possession or not. This being so for the reason that as on the date on which the Official Liquidator takes possession he is not aware of the requirement or otherwise of the property or otherwise, the inventory of the properties of the Company in liquidation and whether any storage facilities are available to store the movables and records of the Company in liquidation."

Accordingly it allowed the application in part petition and said, "The Official Liquidator is directed to make payment of rentals from 15.07.2014 till the date of handing over, i.e., 30.04.2017 in respect of ground floor and 31.05.2017 in respect of the first floor as costs of winding up within a period of Eight weeks from day from and out of the funds available to the credit of the company in liquidation, if necessary by recovering the said amount from the Secured Creditor."

The rentals payable prior to 15.10.2014, the same would have to be treated as a preferential debt.

Case Title: N R RAVI v. THE OFFICIAL LIQUIDATOR OF M/S. SEM INDIA SYSTEMS PRIVATE LIMITED.

Case No: COMPANY APPLICATION NO. 8 OF 2016

Citation: 2022 LiveLaw (Kar) 277

Date of Order: 30TH DAY OF JUNE, 2022

Appearance: Advocate DEEPAK & SRI RAJESH S for applicant; Advocate K S MAHADEVAN., FOR OL; Advocate P L VIJAYAKUMAR, FOR SBI

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