A) ABSTRACT / HEADNOTE

This Supreme Court judgment in Official Liquidators, U.P. Union Bank Ltd. v. Shri Rameshwar Nath Aggarwal, 1960 SCR (2) 189, is pivotal in interpreting the scope of landlords’ rights in recovering rent from companies undergoing liquidation. The case centers on whether the Official Liquidators of a wound-up bank, who had vacated operational control of a rented premise but left part of it occupied by trespassers, were liable to pay rent during the post-liquidation period. The Allahabad High Court had allowed the landlord’s claim for full rent citing Rule 97 of the Companies (Court) Rules. However, the Supreme Court overturned this, holding that unless the liquidators retained possession of the premises for liquidation purposes, rent during the period post-liquidation does not qualify as a priority debt under Section 230 of the Indian Companies Act, 1913. The judgment reinforced that the landlord’s claim must either fall within the statutory definition of “costs and expenses of winding up” or remain an ordinary unsecured debt. The case further discussed the limited scope of judicial discretion under Section 193 and ruled out any expansive reading of Rule 97 that would override legislative intent. This decision aligns Indian jurisprudence with English precedents such as In re Oak Pits Colliery Co., (1882) 21 Ch D 322. The ruling thus safeguards the statutory distribution scheme in insolvency while clarifying the burden of rent liabilities in liquidation.

Keywords: Company Liquidation, Priority of Payment, Landlord’s Rent Rights, Indian Companies Act 1913, Rule 97 Company Rules, Official Liquidator’s Liability.

B) CASE DETAILS

i) Judgement Cause Title:
Official Liquidators, U.P. Union Bank Ltd. v. Shri Rameshwar Nath Aggarwal

ii) Case Number:
Civil Appeal No. 28 of 1958

iii) Judgement Date:
10 November 1959

iv) Court:
Supreme Court of India

v) Quorum:
P.B. Gajendragadkar, K. Subba Rao, and J.C. Shah, JJ.

vi) Author:
Justice J.C. Shah

vii) Citation:
AIR 1960 SC 504; 1960 SCR (2) 189

viii) Legal Provisions Involved:

• Section 230, 193, 171, 232, 230A of the Indian Companies Act, 1913

• Rule 97 of the Allahabad High Court Company Rules

• Section 45B of the Banking Companies Act

ix) Judgments overruled by the Case (if any):
No prior judgment expressly overruled

x) Case is Related to which Law Subjects:
Company Law, Banking Law, Insolvency Law, Landlord-Tenant Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

This case arose out of a dispute between a landlord and the Official Liquidators of a defunct bank over liability for rent accruing after the order of winding up. The U.P. Union Bank Ltd., once a tenant in the premises of respondent Shri Rameshwar Nath Aggarwal, was ordered to be wound up by the Allahabad High Court in 1949. The Official Liquidators removed the bank’s operational equipment and stopped business in the premises. However, due to trespassers occupying part of the premises, the landlord refused to retake possession. The question emerged whether rent due post-liquidation, despite the absence of business activity or use for liquidation, could be treated as a priority expense. The High Court decided in favor of the landlord, granting him full rent. The Supreme Court reviewed whether such a claim merited priority under statutory liquidation procedures, examining relevant company law provisions and interpreting Rule 97 of the Allahabad High Court Company Rules in light of statutory limits.

D) FACTS OF THE CASE

The U.P. Union Bank was a tenant of premises owned by Shri Rameshwar Nath Aggarwal. After a winding-up order dated 13 September 1949, the bank ceased operations and vacated the premises by 10 September 1949. Yet, part of the building remained under occupation by trespassers. The landlord was requested to take back possession, but he refused unless the property was vacated completely. On 30 November 1950, he applied for arrears of rent. Justice Mootham of the High Court adjudicated that rent was payable from October 1, 1949, until vacant possession was returned. An execution attempt was made based on this order, and a Civil Judge ordered the attachment of ₹12,000 lying in the bank account of the Official Liquidators. The liquidators challenged this in the High Court, which quashed the execution order citing lack of requisite court sanction. However, on appeal, the High Court restored the landlord’s claim, holding rent to be due in full and preferential. The matter reached the Supreme Court through a certificate of appeal.

E) LEGAL ISSUES RAISED

i. Whether rent accruing post-liquidation can be treated as “costs and expenses of winding up” under Section 193 or 230 of the Indian Companies Act, 1913.
ii. Whether Rule 97 of the Allahabad High Court Company Rules confers priority for rent payment to landlords.
iii. Whether the premises were retained for liquidation purposes, thereby justifying priority in rent.
iv. Whether the High Court exceeded its authority under Section 246 by creating a new category of priority payment not found in Section 230.

F) PETITIONER/ APPELLANT’S ARGUMENTS

i. The counsels for the Appellants argued that Rule 97 does not create any priority in favor of the landlord. It only preserves the right to claim rent but does not elevate it above other unsecured creditors.
ii. They contended that Section 230 exhaustively lists debts entitled to priority, and landlord’s rent is not among them. Judicial interpretation cannot override legislative classification.
iii. They emphasized that the premises were not used for the purposes of liquidation. Therefore, the rent liability did not fall within the “costs and expenses of winding up” as envisioned under Sections 193 and 230(3).
iv. The appellants cited In re Oak Pits Colliery Company, (1882) 21 Ch D 322, where the English court denied full rent recovery when the liquidators neither used nor disposed of the property.
v. They further argued that the decision of Justice Mootham was declaratory and not enforceable without proof of debt, nor did it discuss the matter of priority.

G) RESPONDENT’S ARGUMENTS

i. The counsels for Respondent submitted that the landlord was entitled to rent until he was given legal possession that could terminate the tenancy.
ii. They relied heavily on the proviso to Rule 97, which states that if the liquidator remains in occupation, it would not affect the landlord’s right to claim rent.
iii. They argued that Justice Mootham’s order, made with consent under Section 45B of the Banking Companies Act, gave them a right to full recovery.
iv. They claimed that the liquidators’ failure to give up complete possession and failure to disclaim tenancy led to continued liability.
v. They disputed the necessity of proving priority since, in their view, retention alone entitled them to full rent without parity with other creditors.

H) RELATED LEGAL PROVISIONS

i. Section 230, Indian Companies Act, 1913: Lists debts entitled to priority. Rent is not included.
ii. Section 193, Companies Act, 1913: Grants courts the discretion to prioritize costs and expenses of winding up.
iii. Rule 97, Allahabad High Court Company Rules: Preserves landlord’s right to claim rent during official liquidator’s occupation.
iv. Section 45B, Banking Companies Act: Used by the respondent to assert the binding nature of the earlier High Court order.
v. Section 171 and 232, Companies Act, 1913: Requires court permission for proceedings against Official Liquidators.
vi. Section 246, Companies Act, 1913: Limits rule-making powers to procedural matters.

I) JUDGEMENT

a. RATIO DECIDENDI

1. The Supreme Court held that Rule 97 does not confer priority, only affirms the right to claim rent.
2. The Court ruled that the landlord’s claim did not qualify as a debt incurred during liquidation for the purpose of winding up.
3. The Court emphasized that under Section 230, rent is not prioritized unless it falls under “costs and expenses of winding up,” which it did not in this case.
4. It reaffirmed the principle from English law in In re Oak Pits Colliery Co., holding that mere inaction or passive retention does not make the landlord eligible for priority.

b. OBITER DICTA

i. A rule framed by the High Court cannot override a statutory enactment such as Section 230.
ii. The Court noted that had the premises been used for liquidation or had the liquidator explicitly disclaimed the lease, the situation would have differed.

c. GUIDELINES

• Retention must be for liquidation purpose to treat rent as liquidation expense.

• Rule 97 only protects claim rights, not payment priority.

• Courts cannot expand statutory priority categories beyond Section 230 via procedural rules.

• Debt proof is necessary even after declaratory orders.

J) CONCLUSION & COMMENTS

The Supreme Court wisely restricted the scope of judicial overreach in insolvency proceedings. It reinforced the sanctity of statutory prioritization under Section 230, thereby upholding the equitable treatment of unsecured creditors. The Court’s interpretation of Rule 97 keeps judicial rule-making within procedural boundaries. By rejecting an expansive landlord claim based on mere physical possession, the judgment protects liquidator discretion and aligns Indian law with the English doctrine of purposeful occupation. It curtails opportunistic claims against companies’ limited assets during liquidation and offers certainty for corporate insolvency.

K) REFERENCES

a. Important Cases Referred
i. In re Oak Pits Colliery Company, (1882) 21 Ch D 322.
ii. In re Silkstone and Dodworth Coal and Iron Company, (1881) 17 Ch D 158.
iii. In re Levy & Co., (1919) 1 Ch D 416.

b. Important Statutes Referred
i. Indian Companies Act, 1913, Sections 230, 193, 246, 171, 232, 230A
ii. Banking Companies Act, Section 45B
iii. Allahabad High Court Company Rules, Rule 97