UNITED BANK OF INDIA versus THE OFFICIAL LIQUIDATOR AND ORS.

Citation: [1993] SUPP. 3 S.C.R. 1 · Decided: 06-10-1993 · Supreme Court of India · Bench: KULDIP SINGH · Disposal: Appeal(s) allowed

Judgment (excerpt)

UNITED BANK OF INDIA 
A 
v. 
THE OFFICIAL LIQUIDATOR AND ORS. 
OCTOBER 6, 1993 
[KULDEEP SINGH AND S.P. BHARUCHA, JJ.] 
B 
" 
Cdmpanies Act, 1956, Section 535-lntent and meaning of-To protect 
the creditors of the company in liquidation-Onerous covenants imposing 
heavy burden upon company-Court to satisfy itself about the existence of c 
such covenants before granting leave to disclaim them-Purchaser claiming 
dinnmition in price on ground of defect in title or description of property-Not 
to be allowed--Official liquidator sells property under orders of court-He 
does not hold out any guarantee or warranty in respect of such property 
The appellant-Bank filed a suit against a company in liqudation for D 
a decree in the sum of Rs. 1,81,07,623.64 owed to it by the company with 
interest. Upon the application of the appellant the official liquidator was 
appointed receiver of the goods, stock and assets hypothecated by the 
company in liqudation to the Bank and all immoveable property including 
the said land the factory premises which stood upon it, which had been E 
mortgaged to the Bank. 
The High Court in the winding up proceedings, directed the sale of 
the property and assets of the company in liquidation. The sale was to be 
r 
effected by the official liquidator as directed by the Court. Public adver-
• 
tisements were issued consequent upon such directions and sealed offers F 
were received. The Trust, being the lessor of the said Land opposed the 
sale and took out a Judge's summons asking the High Court to direct the 
official liquidator under Section 535 of the Companies Act to disclaim the 
said land because it as burdened with onerous covenants. The Company 
Judge directed the official liquidator to return the offers to the parties who G 
had made them. The Company Judge further made the Judge's summons 
absolute and directed the official liquidator to disclaim the said land and 
hand over possession thereof to the Trust. 
;I. 
The appeal preferred by the Bank was dismissed by the Division 
Bench. 
H 
1 
2 
SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R. 
A 
Being aggrieved by the High Court's decision the appellant-Bank 
preferred the present appeal. 
Allowing the appeal, this Court 
HELD: 1.1 The intention of Section 535 of the Companies Act, 1956 
. B is to protect the creditors of the company in liquidation and not mulct 
them by reason of onerous covenants. The power under Section 535 is not 
to be lightly exercised. Due care and circumspection have to be bestowed. 
It must be remembered that an order permitting disclaimer, while it frees 
the company in liquidation of the obligation to comply with covenants, puts 
C the party in whose favour the covenants are to serious disadvantage. The 
Court must, therefore, be fully satisfied that there are onerous covenants, 
which impose a heavy burden upon the company in liquidation, before 
giving leave to disclaim them. [10-A-C] 
1.2. In the instant case, the High Court ought to have appreciated 
D that it was rather unlikely that the party who had the benefit of onerous 
covenants would apply for disclaimer and ought to have viewed the official 
liquidator's application to disclaim made pursuant to the Trust's letter to 
him in that behalf in that light. It is difficult to see how such a large area 
of land leased to the company in liquidation for 99 years with the option 
E 
of renewal for a further 99 years for the meagre rent of Rs.1200 per annum 
,..,- can be said to be land burdened with onerous convenants. The High Court 
was not justified in debating and holding in proceedings under Section 535 
that the lease of the said land had been validly terminated so that the 
official liquidator became liable to pay mesne profits to the Trust; and that 
this coupled with arrears of rent, in five figures, made the lease onerous. 
F 
The Bank's offer to pay the arrears of rent to the Trust should have been 
accepted by the High Court. The Bank to protect and keep alive its 
security, had put official liquidator in funds in regard to other matters .. 
and was eager to meet this liability. Had this been done, valuable property 
of the comp~ny in liquidation could have been retained so that its under-
G 
~king, which stood on the said land, could have been sold as a running 
concern, as has been done upon intervention of this court, for the benefit 
of its creditors. [10-C-FJ 
2. When the official liquidator sells the property and assets of a 
-C' company in liquid

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