Case Note & Summary
The dispute arose out of the winding up of U. P. Union Bank Ltd. The bank was a tenant in a building owned by the respondent landlord. After the winding up order, the Official Liquidators removed the bank's offices from the premises and called upon the landlord to take possession. The landlord refused because part of the premises was occupied by trespassers. The Official Liquidators did not use the building for any purpose connected with the winding up thereafter. The landlord claimed the entire rent from the date of the winding up order until the date the Official Liquidators would give him vacant possession, asserting priority over other creditors based on the proviso to Rule 97 of the Company Rules framed by the Allahabad High Court under the Indian Companies Act, 1913. The High Court held that in view of the proviso, the landlord was entitled to recover the entire rent claimed and not merely a pro-rata share with other creditors. The Official Liquidators appealed to the Supreme Court on a certificate granted by the High Court. The core question was whether the landlord could claim priority in the payment of rent during the period after the winding up order when the Official Liquidators neither used the premises for winding up nor remained in actual occupation. The appellant liquidators contended that the proviso did not confer priority; the respondent landlord argued that it protected his right to full rent as a preferential claim. The Supreme Court construed the proviso to Rule 97, which stated 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 rights 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.' The Court held that this proviso merely affirms the landlord's right to claim payment of rent accruing due since the winding up, but it does not deal with or grant any priority in payment. Consequently, the landlord's claim for rent is an ordinary debt and must be paid rateably with other unsecured creditors under Section 230 of the Indian Companies Act, 1913. The appeal was allowed, and the landlord was not entitled to priority.
Headnote
A) Company Law - Winding Up - Landlord's Claim for Rent - Priority of Payment - Indian Companies Act, 1913 Sections 193, 230, 230(3) and Company Rules (Allahabad High Court) Rule 97 Proviso - The Official Liquidators, after winding up of the bank, called upon the landlord to take possession and ceased using the premises for winding up. The landlord claimed rent from the date of winding up and sought priority over other creditors. The Supreme Court held that the proviso to Rule 97 affirms the right to claim rent but does not deal with priority; therefore, the rent claim is an ordinary debt, and the landlord is not entitled to priority of payment. (Paras 1-2)
Issue of Consideration
Whether the landlord of a company in liquidation is entitled to priority payment of rent for the period after the winding up order when the Official Liquidator has not used the premises for winding up and called upon the landlord to take possession?
Final Decision
The Supreme Court held that the landlord was not entitled to claim priority in payment of rent. The proviso to Rule 97 merely affirms the right to claim rent but does not deal with priority. The rent claim is an ordinary debt payable pro-rata with other creditors under Section 230. The appeal was allowed.
Law Points
- Proviso to Rule 97 of the Company Rules (Allahabad High Court) affirms the landlord's right to claim rent but does not confer priority of payment
- rent claim in winding up is an ordinary debt payable pro-rata
