STRESSED ASSETS STABILIZATION FUNDversusWEST BENGAL SMALL IND. DEVELOPMENT CORPORATION LTD. AND ANR.

                        [2019] 13 S.C.R. 1083                            1083


          STRESSED ASSETS STABILIZATION FUND                             A
                                  v.
         WEST BENGAL SMALL IND. DEVELOPMENT
              CORPORATION LTD. AND ANR.
                   (Civil Appeal No. 4139 of 2008)                       B
                        OCTOBER 21, 2019
           [ARUN MISHRA, VINEET SARAN AND
                S. RAVINDRA BHAT, JJ.]
       Companies Act, 1956 – s. 535 – Sick Industrial Companies
                                                                         C
(Special Provisions Act) 1985 – s. 20 – Second respondent, a
company was allotted Industrial premises by the State on lease –
The company secured advances from IDBI through equitable
mortgages of the leasehold property – Then the company went into
liquidation – Pursuant thereto, the High Court appointed a official
liquidator – IDBI, through a deed of assignment, unconditionally         D
transferred all loans and advances granted by it, to Stressed Assets
Stabilization Fund (SASF), including the loans and securities in
relation to the second respondent, the company in liquidation – On
the other hand, the premises and properties in question were assigned
to the first respondent-WBSIDC by the State – WBSIDC sought
                                                                         E
possession of the properties and filed application for the same before
the High Court – Single Judge of the High Court held that WBSIDC
was entitled to possession in view of the lease conditions, which
automatically applied, because the original lessee (second
respondent) had ceased to use the properties for the purpose
originally contemplated i.e. manufacturing activity – Since the          F
conditions of lease had not been complied with, as far as cessation
of industrial or manufacturing activity went, the leasehold rights
were terminated and as a result, properties were held to be excluded
from the winding up process – Appeal preferred by SASF was rejected
by the Division Bench of the High Court – On appeal, held: The
                                                                         G
observations made in Phatu Rochiram Mulchandani v. Karnataka
Industrial Areas Development Board (2015) 5 SCC 244:[2014] 3
SCR 710 apply to the facts of this case – The WBSIDC acted within
the bounds of law – The finding that since the exercise by the lessor
(WBSIDC) of its right to determine the lease attained finality, the
                                                                         H
                                1083
1084           SUPREME COURT REPORTS                     [2019] 13 S.C.R.


 A     mortgagee (represented by the appellant) could not claim rights
       superior to that of the lessee, is in consonance with settled law –
       The reasoning and conclusion of the High Court requires no
       interference.
             Dismissing the appeal, the Court
 B            HELD: 1. This court is of the opinion that the reasoning
       and conclusion of the High Court do not call for interference.
       The finding that since the exercise by the lessor (WBSIDC) of
       its right to determine the lease attained finality, the mortgagee
       (represented by the appellant) could not claim rights superior to
 C     that of the lessee, is in consonance with settled law.
       [Para 10][1087-F-G]
             2. There can be no dispute, nor was it contended that a
       donee or a grantee (as the status of the lessee company in
       liquidation as in this case) can have no rights in excess of that
 D     possessed by the donor or the grantor. The mortgagee (whose
       shoes SASF has stepped into) of the lessee (second respondent)
       can have no right greater or better than that of the lessee in
       terms of the deed of lease. The observations in Phatu Rochiram
       Mulchandani apply to the facts of this case. [Para 11][1090-H;
       1091-A-B]
 E
             Phatu Rochiram Mulchandani v. Karnataka Industrial
             Areas Development Board (2015) 5 SCC 244 : [2014]
             3 SCR 710 – relied on.
                             Case Law Reference
 F     [2014] 3 SCR 710              relied on               Para 8
             CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4139
       of 2008.
             From the Judgment and Order dated 16.10.2007 of the High
       Court at Calcutta in A.P.O. No. 255 of 2007.
 G
              Ms. Jasmine Damkewala, Sidhartha Barua, Advs. for the
       Appellant.
              Bhaskar P. Gupta, Sr. Adv., Kunal Chatterji, Ms. Maitrayee
       Banerjee, Supratik Sarkar, Sanjoy Kumar Ghosh, Ms. Rupali S. Ghosh,
 H     Avijit Bhattacharjee, Advs., for the Respondents.
  STRESSED ASSETS STABILIZATION FUND v. WEST BENGAL SMALL                       1085
            IND. DEVELOPMENT CORPORATION LTD.


      The Judgment of the Court was delivered by                                A
      S. RAVINDRA BHAT, J.
       1. In this appeal by special leave, an affirming judgment of the
Calcutta High Court (dismissing the appeal, against an order allowing
the respondent’s application under Section 535 of the Companies Act,
1956 (hereafter “the Act”) has been questioned.                                 B

       2. The appellant (hereafter “SASF”) is a trust, constituted as a
special purpose vehicle (SPV) by the Central Government for acquiring
by transfer, the stressed assets of the Industrial Development Bank of
India (IDBI), to administer and manage the stressed assets and to recover
amounts due, by framing schemes of restructuring, settlement etc. with          C
borrowers. IDBI, through a deed of assignment, unconditionally
transferred all loans and advances granted by it, to SASF, including the
loans and securities in relation to the second respondent, the company in
liquidation.
        3. The facts are that Wellman Smith Owen Engineering                    D
Corporation, a company incorporated in the United Kingdom leased
immovable property, which it took possession of, on a lease rent of
Rs. 3600/- with effect from 1stApril, 1962. The assets and business of
Wellman were taken over, through an agreement dated 10th October,
1962 by Wellman Incandescent India Ltd (the second respondent,                  E
hereafter “Wellman”). Wellman entered into a fresh lease agreement
with the Government of West Bengal, for a term of 99 years, in respect
of one industrial property, i.e. Shed J-2 Howrah Industrial Estate,
measuring 30612 square feet with effect from 1st September, 1968. A
further lease was granted by the Government of West Bengal on
1st July, 1990 in respect of Shed J(i)/A measuring 260 square feet. On          F
6thMay, 1992, Wellman borrowed Rs. 10 crores from the IDBI which
entailed provision of security by way of hypothecation of movables and
mortgage of the premises and properties leased to it, by the Government
of West Bengal. A further advance of Rs.3 crores was obtained by
Wellman towards working capital; this was again on the strength of              G
equitable mortgage of the same immovable properties, including the said
leased premises, through deposit of title deeds. The memorandum of
entry in regard to this was carried out on 15th July, 1999. In the meanwhile,
on 5th December 1994, the premises and properties in question along
with several others, were assigned to the first respondent. Wellman’s
                                                                                H
1086             SUPREME COURT REPORTS                         [2019] 13 S.C.R.


 A     financial woes became acute; it approached the Board for Industrial
       Finance and Reconstruction (BIFR) under the Sick Industrial Companies
       (Special Provisions Act) 1985 (“SICA”). The proceedings attempting
       rehabilitation were to no avail; the BIFR on 24th September, 2002 held
       that reconstruction was not possible and concluded that the company
       had to be wound up. A reference was accordingly made to the Calcutta
 B
       High Court, under Section 20 of SICA. In the liquidation proceedings,
       the High Court directed the appointment of an Official Liquidator, requiring
       him to take charge of the company’s (Wellman’s) assets.
              4. The first respondent (hereafter “WBSIDC”) to whom the West
       Bengal state had assigned the rights of lease, in the meanwhile, determined
 C     the lease in terms of the allotment and the grant (of the lease) invoking
       the power reserved to the lessor (under the terms of the lease) as Wellman,
       the original allottee/lessee had ceased to carry on manufacturing activity
       beyond a stipulated acceptable period. The determination went
       unchallenged. WBSIDC approached the Calcutta High Court for
 D     restoration of possession of its properties which had been taken over by
       the Official Liquidator, in the meanwhile.
               5. The single judge by an elaborately reasoned judgment, upheld
       WBSIDC’s argument that as lessor, it was entitled to possession in view
       of the lease condition, which automatically applied, because the original
 E     lessee had ceased to use the properties for the purpose originally
       contemplated, i.e. manufacturing activity. The single judge also took notice
       of provisions of the West Bengal Government Premises (Tenancy
       Regulation) Act, 1976. It was further held that no manufacturing process
       had been carried out in the demised premises for over six months. The
       appeal preferred by SASF was rejected by the Division Bench by the
 F     impugned judgment.
              6. Ms. Jasmine Damkewala for SASF, relied on provisions of the
       lease to contend that the lessee could have validly mortgaged the property,
       as it did, to the erstwhile IDBI. She pointed out that the impugned
       judgment, if permitted to stand, would result in loss of public monies to
 G     the extent of substantial amounts, over Rs. 42 crores, which would not
       be in public interest. She also submitted that since the lease was for a
       substantial period of 90 years, the so-called violation should not have
       resulted in the inference of a drastic result, i.e. forfeiture of valuable
       property.
 H
 STRESSED ASSETS STABILIZATION FUND v. WEST BENGAL SMALL                        1087
  IND. DEVELOPMENT CORPORATION LTD. [S. RAVINDRA BHAT, J.]


       7. Mr. Bhaskar Gupta, learned senior counsel for WBSIDC,                 A
highlighted that the reasoning of the High Court is unexceptionable. He
emphasized that the lease forfeiture was never challenged by the lessee,
through the official liquidator. Instead, the appellant SASF, which was
only a mortgagee (of the leasehold rights) was seeking to question
WBSIDC’s right to forfeit the lease; when the lessor had no grievance
                                                                                B
in that regard. Clearly, a mortgagee could not have rights superior to the
mortgagor.
       8. Learned counsel relied on the decision in Phatu Rochiram
Mulchandani v. Karnataka Industrial Areas Development Board
(2015) 5 SCC 244 to say that the WBSIDC acted within the bounds of
law in approaching the court seized of company liquidation proceedings,         C
for release of property, having regard to the forfeiture of lease, which
remained unchallenged, and had attained finality.
       9. The above factual discussion would reveal that the company
(since under liquidation) was allotted industrial premises on two different
occasions. Acting in terms of the lease, it secured advances that it obtained   D
from IDBI through equitable mortgages of the leasehold property.
Wellman went into liquidation, since its sickness was irremediable despite
attempts made to revive its industrial activities under SICA. The official
liquidator appointed by the court took charge of the assets. WBSIDC’s
application seeking possession of the leasehold properties was allowed          E
concurrently. Both the learned Single Judge and the Division Bench,
upheld WBSIDC’s plea that since the conditions of lease had not been
complied with, as far as cessation of industrial or manufacturing activity
went, the leasehold rights were terminated. As a result, the properties
were held to be excluded from the winding up process.
                                                                                F
       10. This court is of the opinion that the reasoning and conclusion
of the High Court do not call for interference. The finding that since the
exercise by the lessor (WBSIDC) of its right to determine the lease
attained finality, the mortgagee (represented by the appellant) could not
claim rights superior to that of the lessee, is in consonance with settled
law. In Phatu Rochiram Mulchandani(supra) it was held by this court             G
as follows:
      “29.On 19-1-2002, the Board passed the orders terminating
      the lease in respect of both the plots. In this termination order,
      after giving the past history of events which have already
                                                                                H
1088      SUPREME COURT REPORTS                       [2019] 13 S.C.R.


 A     been noted above and mentioning that the Company had failed
       to construct the factory building and implement the industrial
       projects on the main land within the extended period and to
       execute lease agreement in respect of additional land,
       thereafter it was also stated that pursuant to the earlier
       resumption order, a writ petition was filed and because of the
 B
       stay orders passed therein the Board could not resume the
       land. This writ petition was dismissed on 14-9-1999
       [Ralectronics Ltd.v.Karnataka Industrial Area Development
       Board, WP No. 11957 of 1993, order dated 14-9-1999 (KAR)].
       Though the Board could act thereafter, however in the
 C     meantime the High Court of Karnataka had passed the order
       dated 10-4-2001 in Karnataka Industrial Areas Development
       Board v. Electromobiles (I) Ltd.[ OSA No. 11 of 1999, order
       dated 10-4-2001 (KAR)] holding that when the allotment is
       on lease-cum-sale basis and possession is delivered to the
       allottee in pursuance of the allotment, it becomes a lease
 D
       irrespective of the fact that whether a lease deed is executed
       or not. For this reason the Board did not attempt to resume
       the possession merely by cancelling the allotment without
       terminating the lease or taking action in accordance with law.
       It was for this reason that the Board was formally terminating
 E     the lease by the said notice dated 19-1-2002. The termination
       notice also mentioned that this was being done under Section
       34-B of the Karnataka Industrial Areas Development Act,
       1966.
                         ****************
 F                       ****************
       30. We have already held that the Company had committed
       clear breach in not completing the project and setting up the
       factory within the time given on the lease agreement or the
       time as extended by the Board. In such circumstances, the
 G     lease agreement gave a definite right to the Board to terminate
       the lease. We are, therefore, of the opinion that the Board
       was very well within its right to terminate the lease as provided
       in the lease agreement.
                         ****************
 H
                         ****************
STRESSED ASSETS STABILIZATION FUND v. WEST BENGAL SMALL               1089
 IND. DEVELOPMENT CORPORATION LTD. [S. RAVINDRA BHAT, J.]


   38.It is clear from the above that prior permission of the Court   A
   is required in respect of any attachment, distress or execution
   put in force or for sale of the properties or effects of the
   Company. We are of the opinion that the serving of
   cancellation notice simpliciter would not come within the
   mischief of this section as that by itself does not amount to
                                                                      B
   attachment, distress or execution, etc. No doubt, after the
   commencement of the winding up, possession of the land
   could not be taken without the leave of the Court. Precisely
   for this reason the Board had filed the application seeking
   permission. But according to us no such prior permission was
   required before cancelling the lease. In fact, it is only after    C
   the cancellation of the lease that the Board would become
   entitled to file such an application under Section 537 of the
   Act. Had the Board gone ahead further and taken the
   possession after the cancellation and then approached the
   Company Judge, the situation which occurred in Karnataka
                                                                      D
   State Electronics Development Corpn. Ltd.v.Official
   Liquidator[ OSA No. 31 of 2004, decided on 21-6-2005
   (KAR)] would have prevailed. On the other hand, it would
   have been premature on the part of the Board to approach
   the Company Judge for permission to resume the land without
   cancelling the lease in the first instance.                        E
                    ****************
                    ****************
   41. In view of our elaborate discussion above, we do not find
   action of the Board to be illegal or blemished. The land was       F
   allotted to the Company for a specified project which the
   Company failed to establish. Let us examine the scheme of
   the KIAD Act at this point of time. The KIAD Act is enacted to
   make special provisions for securing the establishment of
   industrial areas in the State and generally to promote the
   establishment and orderly development of industries therein        G
   and for that purpose to establish an Industrial Areas
   Development Board, and for purposes connected with such
   matters. Chapter II deals with the declaration and alteration
   of industrial areas. Chapter III deals with establishment and
   constitution of the Board. Chapter IV deals with functions         H
1090            SUPREME COURT REPORTS                        [2019] 13 S.C.R.


 A           and powers of the Board and Chapter V deals with finance,
             accounts and audit of the Board. Chapter VI deals with
             application of the Public Premises Act and non-application
             of the Karnataka Rent Control Act, 1961 to the premises of
             the Board. Chapter VII deals with acquisition and disposal
             of land. Chapter VIII contains the supplementary and
 B
             miscellaneous provisions. Section 13 in Chapter IV defines
             the functions of the Board as generally to promote and assist
             in the rapid and orderly establishment, growth and
             development of industries in industrial areas; and in particular,
             to develop industrial areas declared by the State Government
 C           and make them available for undertakings, to establish
             themselves; to establish, maintain, develop and manage
             industrial estates within industrial areas; and to undertake
             such schemes of programmes of works for the furtherance of
             the purposes for which the Board is established and for all
             purposes connected therewith.
 D
                               ****************
                               ****************
             42. Section 33 in Chapter VIII of KIAD Act provides that if
             the Board is satisfied that if a lessee of any land in an
 E           industrial area fails to provide any amenity or carry out any
             development of the land, the Board may after due notice in
             that behalf, may itself provide such amenity or carry out such
             development at the expense of the lessee. Section 34 provides
             for penalty for construction or use of land and building
 F           contrary to the terms of holding. Section 34-A provides for
             demolition or alteration of unauthorised construction or
             alteration. Section 35 of the Act enables a person authorised
             by the Board to enter upon any land for the purpose of
             inspection, survey, measurement, valuation or enquiry. Section
             41 enables the Board by notification to make regulations
 G           consistent with the Act and Rules thereunder to carry out the
             purposes of the Act with the previous approval of the State
             Government.”
             11. There can be no dispute, nor was it contended that a donee or
       a grantee (as the status of the lessee company in liquidation as in this
 H
 STRESSED ASSETS STABILIZATION FUND v. WEST BENGAL SMALL                     1091
  IND. DEVELOPMENT CORPORATION LTD. [S. RAVINDRA BHAT, J.]


case) can have no rights in excess of that possessed by the donor or the     A
grantor. The mortgagee (whose shoes SASF has stepped into) of the
lessee (Wellman) can have no right greater or better than that of the
lessee in terms of the deed of lease. The observations in Phatu Rochiram
Mulchandani(supra) apply to the facts of this case. The appeal,
therefore fails and is dismissed, without order as to costs.
                                                                             B

Ankit Gyan                                               Appeal dismissed.




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