DELHI HIGH COURT HOLDS THAT IN CASE OF NON-PAYMENT OF CHARGES, THE LESSOR HAS THE RIGHT OF POSSESSION OF LEASED PROPERTY

A single Judge Bench of Delhi High Court comprising of Justice Dharmesh Sharma passed an Order dated 28.05.2024 in Harmuny Entertainment Pvt Ltd v. Mahuaa Media Pvt Ltd. CO.PET. 213/2012 wherein the High Court held that in case of non-payment of lease charges and resultant termination of sub-lease by lessor, the latter retains the right of possession of the leased property and not creditors, in whose favour the leased property is mortgaged by the lessee.

Facts

The Applicant- Infinity Infotech Parks Limited (IIPL) moved an Application bearing CO.APPL. 517/2018 under Section 535 of the Companies Act, 1956 (Disclaimer of onerous property in case of a company which is being wound up) before the High Court, wherein the Applicant prayed as follows-

(i) Leave to the Official Liquidator to disclaim the office space situated on the 15th Floor of the Building “Infinity Benchmark”, on the land bearing No. G-1, Block No. EP & GP, Sector V, Bidhannagar District, North – 24 Parganas, Salt Lake City, Kolkata (Sub-Demised Office Space) and further direct the Official Liquidator to hand over the possession of the said premises to the Applicant.

The Applicant later filed another Application bearing CO. APPL. 60/2022 under Sections 446 (Suits stayed on winding up order) of the Companies Act 2013 (Act) and 456 of the Act (Custody of company’s property) and prayed as follows –

1) Direction to Official Liquidator to hand over the peaceful, vacant and khas possession of the Sub-Demised Office Space to the Applicant.

2) Direction to Respondent-Company i.e. Mahua Media Private Limited to pay outstanding amounts i.e. Rs. 99,34,879/- along-with mesne profits to the Applicant.

The said Sub-Demised Office Space was leased to the Respondent Company, by way of an Indenture of Sub-Lease dated 11.12.2009, executed between the Applicant and the Respondent Company (in liquidation).  That as per the terms and conditions of the Indenture of Sub-Lease and Supplementary Indenture of Sub-Lease, the Respondent Company was contractually obligated to pay various monthly charges to the Applicant on account of lease rent, electricity charges, air conditioning charges, common service and maintenance charges and such other charges as enumerated therein. The Applicant raised several invoices for the same, but the Respondent Company did not pay the requisite monthly rents and other applicable charges.

It was contended by the Applicant that a sum of Rs. 84,78,292/- was due and payable by the Respondent Company for the period upto 30.05.2012 and the same was intimated to the Respondent Company vide Letters dated 01.03.2012 and 08.03.2012 sent by the Applicant. The Applicant also stated that if the said amount is not repaid, the Indenture of Sub-Lease would stand terminated.

But the Respondent Company did not pay or reply to the Applicant and thus the Applicant terminated the Indenture of Sub-Lease and also became entitled to take over the Sub-Demised Office Space along-with parking space. The Applicant issued a statutory Notice dated 03.08.2013 under Section 434 of the Act (Transfer of certain pending proceedings), calling upon the Respondent Company to repay the outstanding amount, along with interest @ 18% per annum.

The Respondent Company replied vide Letter dated 21.08.2013, whereby it was stated that the Company had closed its office in October, 2011, and further admitted that it was willing to pay the sum due on account of Lease Rent, Maintenance Charges and Car Parking Charges, however that it would not pay all other charges. But, contrary to their submissions, the Respondent Company did not pay any amount to the Applicant.

The Applicant was also apprised of the fact that the Respondent Company took loans from Punjab National Bank (Bank) and the loans were not repaid back to the Bank, therefore, the Bank took symbolic possession of the Sub-Demised Office Space and also sought physical possession under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). (Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset).

The Applicant also claimed that the Sub-Demised Office Space is a “Onerous Property[1]” under Section 535 of the Companies Act 1956 (Disclaimer of onerous property in case of a company which is being wound up).

Subsequently, the Applicant filed a Petition for winding up of the Respondent Company and the said Petition was accompanied by several other winding up petitions by several creditors of the Respondent Company. An Official Liquidator was appointed to take charge and possession of the assets and properties of the said Company vide Order dated 27.02.2017.

The Status Report bearing OL Report No. 279/2017 filed by the Official Liquidator provided that that the Official Liquidator had taken possession of the Sub-Demised Office Space, and that the said premises had been locked and sealed.

Issues

A) Whether the Official Liquidator should be granted leave to disclaim the Sub-Demised Office Space?

B) Whether Applicant-IIPL is entitled to peaceful possession of the Sub-Demised Office Space and payment of outstanding amount?

C) Whether the Sub-Demised Office Space qualifies as “onerous property” under Section 535 of the Companies Act, 1956?

Decision by the High Court

The High Court held that the Winding Up Order came to be passed on 27.02.2017 and thereby, possession of the Sub-Demised Office Space was taken by Official Liquidator. Further, much prior to the said date, the Applicant-IIPL-Lessor had exercised its option of terminating the sub-lease on account of non-payment of rent and other charges.

The High Court also relied on the judgement of Stressed Assets Stabilization Fund v. West Bengal Small Industries Development Corporation Ltd. (2019) 10 SCC 148 wherein the Supreme Court held that the rights of a mortgagee are not greater than the rights of a lessee in terms of the lease of deed.

Therefore, the Hon’ble High Court held that the PNB cannot claim any right over the Sub-Demised Office Space during the subsistence of the sub-lease rights of the Applicant-Lessor.

Thus, by allowing the Application filed by the Applicant, the High Court directed the Official Liquidator to disclaim the entire Sub-Demised Office Space, as the Applicant-Lessor had the right over the said property post-termination of sub-lease. Moreover, the Official Liquidator was directed to re-enter the premises and make an inventory of all furniture, fixtures, fittings, make necessary valuation thereof and the same be sold or be removed from the premises within four weeks and handover the possession to the Applicant-IIPL.

The demand of the Applicant of Rs. 99,34,879/- on account of lease rent, electricity charges, water connection etc. upto 08.05.2012, together with mesne profit, was left to be adjudicated by the Official Liquidator. Lastly, the Applicant was directed to pay security and any incidental charges that may be incurred by the Official Liquidator in safeguarding and protecting the Sub-Demised Office Space.

Conclusion

The Hon’ble High Court held that the Applicant was justified in terminating the indenture of sub-lease with the Respondent Company as it failed to pay charges and rent to the Applicant. Moreover, as the Sub-Demised Office Space was vacant for a long period of time, granting the possession to the Applicant was justified. The Hon’ble Court also provided that the Sub-Demised Office Space was to be considered as a “Onerous Property”. As a result, the Application filed by the Applicant-Lessor was allowed and the Official Liquidator was directed to handover the possession of the Sub-Demised Office Space to the Applicant.

 

ARJAV JAIN

ASSOCIATE

THE INDIAN LAWYER & ALLIED SERVICES

 

[1] Onerous Property is any property comprised in the estate of the bankrupt which is unsaleable or not readily saleable