‘Funds available in liquidation proceedings cannot be directed for payment of unearned income due to large number of claims’; SC dismisses DDA’s plea in lease matter

Supreme Court: In a civil appeal by the Delhi Development Authority (‘DDA’) against Delhi High Court’s Division Bench decision, wherein it refused to direct the funds available in liquidation proceedings for payment of unearned income on large number of claims, the Division Bench of Abhay S. Oka* and Ujjal Bhuyan, JJ. dismissed the appeal and refused to interfere with the impugned decision.

Further, the Court held that the first respondent was not entitled to either ownership or leasehold rights in respect of the said plot and could not claim to be a lessee as the lease in terms of the lease agreement entered into by the DDA was never executed.

Background

The DDA entered into an agreement of lease (‘the lease agreement’) in 1957 concerning the plot in question in favour of Mehta Constructions. In 1972, Mehta Constructions agreed to sell with Pure Drinks Private Limited (‘the second respondent’). A registered sale deed cum Assignment was executed by Mehta Constructions in favour of the second respondent. Pursuant to the Delhi High Court Company Judge’s order, the Registrar of the High Court lodged the sale deed for registration in the office of the Sub-Registrar, Delhi. When the second respondent went into liquidation, the plot was sold to the first respondent- S.G.G. Towers (P) Ltd. in the auction.

When the first respondent applied for confirmation of the sale made in the auction, DDA appeared in the said proceedings and filed a reply and contended that at no point of time had Mehta Constructions acquired any interest in the plot, and therefore, the plot could not have been sold in the auction. The Single Judge allowed the application filed by the first respondent and confirmed the auction sale. In appeal by the DDA before the Division Bench, the same was dismissed vide the impugned decision.

Analysis and Decision

The Court perused the lease agreement and noted that a lease in terms of the lease agreement was never executed. The Court also perused the affidavit filed by the Provisional Liquidator of the second respondent and noted that it was stated therein that out of the amount deposited by the first respondent towards confirmation of sale, amounts of Rs.70,49,036/- and Rs.14,00,579/- were invested in fixed deposits. The Court noted that the liquidator stated that several parties had made claims against the second respondent, including the Income Tax Department. The Court said that when the High Court is seized of liquidation proceedings, and as there were other creditors of the second respondent, it would not be appropriate to direct that a part of the amount paid towards consideration by the first respondent be appropriated towards unearned income payable to the DDA.

The Court pointed out that it was an accepted position that the lease was never executed by the DDA in favour of Mehta Constructions, and no rights, title, and interest were created in favour of Mehta Constructions in respect of the said plot. Therefore, the Court stated that at the highest, the second respondent, by virtue of the sale deed executed by Mehta Constructions, could claim benefits under the lease agreement, provided in law, the second respondent is entitled to it in accordance with law.

Regarding the auction conducted in the liquidation proceedings of the second respondent, the Court said that the notice of proclamation itself recorded that the sale of the said plot was on “as it is basis”. Moreover, the order passed by the Company Judge recorded that- “In this manner, it can be safely held that the present applicant has acquired whatever the lessee rights were acquired either by Mehta Construction or by Pure Drinks (New Delhi) Ltd.”

Therefore, the Court held that the first respondent was entitled to only those rights which Mehta Constructions had under the lease agreement, provided the rights can be claimed at this stage. The Court also noted that the Division Bench of the High Court had observed that the auction would not amount to sale of the said plot. On the question of unearned income, the Court held that the Division Bench was right in not passing any order on that behalf, as the funds available in liquidation proceedings cannot be directed for payment of the unearned income in large number of claims.

Hence, the Court dismissed the appeal stating that if the first respondent desires to get the transaction regularised, it is for them to apply to the DDA to accept unearned income or any other amount.