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Judgment
AR. Lakshmanan, J.—The Official Liquidator of this Court was appointed as Official Liquidator of the applicant company. He had filed
C.A. No. 692 of 1982 for quashing the order of the 1st respondent/Secretary to Government, Revenue Department, Government of Tamil Nadu,
in respect of a declaration made for the company''s land as surplus and applied for exemption of the provisions of the Tamil Nadu Urban Land
(Ceiling and Regulations) Act (hereinafter referred to as the Act). When the matter came up for hearing before me, the learned Advocate General
representing the State of Tamil Nadu submitted that the Government had issued a Government Order under which the companies in liquidation and
which were indebted as in insolvency would be given exemption in relation to the land held by them under the power to exempt to the extent
necessary to pay off their debts to the creditors and workmen and other employees. Pursuant to the said statement, by my order dated 12.7.1991,
I directed the Official Liquidator to apply for exemption before the Government of Tamil Nadu. The Official Liquidator applied for exemption to
the Government of Tamil Nadu for exemption under the Act. By that order, I directed the Government to dispose of the representation of the
Official Liquidator for exemption on merits within three months from the date of receipt of the representation from the Official Liquidator.
According to the learned counsel appearing for the Official Liquidator, the provisions of the Act about vesting of excess vacant land in Government
do not apply to a land which comes under the custody of this Court in the winding up of a company by Court. It is submitted on behalf of the
Official Liquidator, that he has applied for exemption on the following grounds:
i) The parties who have to be paid off their debts and liabilities by the Official Liquidator is a class of the community and this class of community
has a pecuniary interest or some interest in the landed property of the company in liquidation. Hence, there is public interest involved. If the
exemption sought for is not granted, then, the ultimate sufferers are the public and their legal rights are affected by non-granting of exemption u/s 21
of the Act.
ii) The debts and liabilities of the company in liquidation could be cleared off only by the sale of land in question at the present market price. The
parties who are anticipating the payment of the debts and liabilities by Court through Official Liquidator are innocent persons of the community.
Refusal to grant exemption to the vacant lands in question would result in a situation where such innocent persons are deprived of their lawful dues
and such refusal to grant exemption would cause injustice and undue hardship to then.
The Government of Tamil Nadu rejected the above application of the Official Liquidator by G.O.Ms. No. 199, Revenue, dated 21.2.1992 on
the fresh application dated 22.11.1991 of the Official Liquidator on the ground that the request for exemption u/s 21 of the Act has already been
examined by the Government in detail and the Government rejected the request of the Official Liquidator in G.O.Ms. No. 2322, Revenue, dated
21.10.1981. Further, the excess vacant lands have already been vested in the Government and the Official Liquidator has no right over the excess
vacant land just to clear off the debts and liabilities of the innocent persons of the society.
I am of the view, the Government while considering the Official Liquidator''s fresh application dated 22.11.1991, which has been filed pursuant
to the orders of this Court dated 12.7.1991, have totally ignored the orders of this Court and have not applied their mind on the issues involved.
The Government have simply relied on a technical issue namely, that by virtue of the Gazette Notification, the property in question has vested in the
Government. In other words, they have refused to open their mind on the issues involved and see the merits of the case de-hors the Gazette
Notification. If my order dated 12.7.1991 can be construed that it impliedly stayed the operation of the Gazette Notification at least as an interim
measure to enable the Government to consider the Official Liquidator''s pleas for exemption. However, the Government seem to have ignored the
purport of my order in the matter and states that the property in question has vested in Government and that the company has ho right u/s 11(3) of
the Act. Under these circumstances, the Official Liquidator has filed the present application for the following orders:
i) Direct the 1st respondent to quash and to set aside his impugned order dated 21.2.1992 and to grant exemption sought for in favour of the
applicant;
ii) in permit the Official Liquidator to sell the land of the company liquidation, more fully described in Annexure C to the report, as per the
directions of this Court and to pay off the creditors and workmen of the company;
iii) Direct that the cost of this application to come out of the assets of the company.
I am of the view that the power to exempt under the Act is a power coupled with a duty and wherever circumstances exist and facts justify a
situation which requires and calls for the exercise of the discretionary power, such discretionary power should be exercised in favour of the
persons applying for such exemption, which is a well settled principle known and stated in very many cases. The Government must have applied
their mind afresh and used the discretion for the advancement of the purpose of the Act and the powers given to them to exempt u/s 21 of the Act,
without being influenced by the prior orders of thee Government. It has been held by a Bench of the Andhra Pradesh High Court in Katya Co-
operative Building Society Limited and Others Vs. Government of Andhra Pradesh and Others, and Muppavarapu Siva Ramakrishnaiah Vs. State
of Andhra Pradesh and Others, garding the exercise of discretion, which has also been followed by the Supreme Court in numerous decisions. I
am, therefore, of the view, that the Government ought to have exercised its discretion, which should have been used in favour of the company in
liquidation, for whose benefit the Government Order is intended. It is also to be seen that the land and other assets of the company in liquidation
are vested in the Court and no action can be taken by any statutory authority without the leave of the Court u/s 446 of the Companies Act, and in
respect of the properties which vest in Court by virtue of Section 456 of the Companies Act, 1956, only the Court is empowered to give direction
u/s 457 of the Companies Act and the Court may exercise that power under the said Section by quashing the impugned order dated 21.2.1992
and permit the Official Liquidator to sell the land. However, at the time of hearing, it was suggested by all that instead of this Court quashing the
impugned order dated 21.2.1992, again direct the Government to review its own order and grant the exemption sought in view of the
developments mentioned in the present review petition F. No. 352/76/AR IV Val. III dated 12.2.1993 of the Official Liquidator.
It is also to be noticed by the Government that at the time of winding up, there was no Urban Land Ceiling and Regulation Act. The Tamil Nadu
Urban Land Ceiling and Regulation Act, 1978 (Act 24 of 1978) came into force only in 1978. It was published in the Fort St. George Gazette on
17.5.1978 and parts of it were deemed to come into force retrospectively from 3.8.1976. The retrospectivity came into force only from 1976,
long after the order of winding up. The Act prescribes ceiling on urban land holding and prohibits transfer of excess vacant land and declares them
null and void. Provision is made for filing returns and declaration of surplus by the appropriate authority. The payment of amount, which is very
nominal, in respect of the acquired land is also provided for. Section 15 provides for reference to High Court. Section 20 holds certain lands held
by certain Governments and institutions, though vacant, as not coming under the mischief of the Act. For industrial undertakings, 2,000 sq. meters
is the prescribed limit. Vacant land is defined in such a manner as to exclude land on which construction of buildings is not permitted under the
building regulations. u/s 5(4), in case of a firm, unincorporated institutions or body of individuals, the parties and members are also taken into
account in calculating the extent of vacant land held by such persons. This implies that in an unincorporated body, every person has a share in the
land held by him. So far as a company is concerned, even though it is deemed to be a legal person and continues to retain its legal personality till it
is dissolved, nevertheless when a company is under winding up, the liquidator may in distributing the assets of the company remaining after payment
of debts, distribute the same in specie to the contributories.
u/s 456 of the Companies Act, 1956, whenever a winding up order has been made, the liquidator should take the properties and assets under
his custody and control, but unlike in the case of Insolvency Act where they do vest in the Official Assignee, in the case of companies, all the
properties and effects shall be deemed to be in the custody of the Court from the date of the order of winding up. u/s 457 of the Companies Act,
1956, among the powers of the liquidator, the power to sell immovable and movable properties is specifically given u/s 457(1)(c), and this power
is to be exercised with the sanction of the Court. Section 458 of the Companies Act, 1956, gives power to the Court to permit the liquidator to
exercise this power without the sanction or intervention of the Court, if the Court thinks fit. Section 475 of the Companies Act enables the Court to
adjudicate the rights of contributories and to distribute surplus among the persons entitled to it. Section 529 of the Companies Act makes
Insolvency Rules applicable to the winding up of insolvent companies. The presumption of law is that every company that is ordered to be wound
up is insolvent unless the contrary is proved. Unless there is a surplus, the company wound up on the ground that it is unable to pay its debts is
deemed to be insolvent.
The general law is, subject to the provisions of the Act as to preferential payments, the assets of the company shall be applied in satisfaction of
its liabilities pari passu and subject to the said application shall, unless the articles otherwise provide, be distributed among the members according
to their rights and interests in the company. All companies in their articles make a provision for distribution of surplus in a winding up in specie to its
members/contributories. Section 467 of the Companies Act also empowers the Court to collect the assets of the company and apply the same in
discharge of its liabilities and the assets of the company include immovable properties. Under Rule 233 of the Companies (Court) Rules, 1959, the
Official Liquidator is deemed to be a receiver appointed by the Court for the property of the company. Payment of dividend and return of capital
in a winding up may take the form of the money in specie or by way of property. u/s 391 of the Companies Act, any scheme or compromise or
arrangement with the creditors and members of any company liable to be would up. the Court has power to distribute the property of the company
in specie.
Among the powers of the Company Court in winding up, is the power to distribute among the members in specie of any property of the
company or any proceeds of sale or to dispose of any property of the company. However, the Court can, in a winding up, sanction a distribution
in specie as also u/s 391, whether in a winding up or otherwise.
Pursuant to the Act, the Official Liquidator had filed a return. The Liquidator asked for exemption, which was rejected by the 2nd
respondent/Asst. Commissioner of Urban Land Tax by G.O. No. B-2/3967/78 dated 8.12.1980 and by the 3rd respondent/ Commissioner of
Land Reforms by G.O. No. RCJ2- 6103/81 dated 23-10-1981. As against the order, an application has been filed before this Court in CA. Nos.
692 and 693 of 1982 for quashing the order of the 2nd respondent and for exempting the same. This Court, on the basis of the submissions made
by the learned Advocate General and counsel for the Official Liquidator, passed an order dated 12.7.1991, by which the Official Liquidator was
directed to apply for exemption afresh u/s 21 of the Act. This order was made in view of the submission made by the learned Advocate General
that the Government in G.O.Ms. No. 824, Revenue, dated 31.5.1991, made provisions for exemption in genuine cases. Pursuant to the above
order, the Official Liquidator made an application to the Special Commissioner and Secretary to Government setting out the above facts and
asking for exemption. However, the said application was rejected and the plea for exemption was not granted.
The object of the Act is to impose a ceiling on vacant land and to regulate the construction of building thereon with a view to prevent the
concentration of urban land in a few hands and to prevent speculation and profiteering in such lands apart from the object of achieving equitable
distribution of land to subserve common good. Section 21 of the Act empowers the Government to exempt any vacant land in public interest and
also in cases where such exemption is considered necessary to avoid undue hardship to any person. It is to be noticed that the power to exempt
u/s 21 of the Act is a power coupled with a duty and when the facts so warrant or exist, the discretion must be used and the authority cannot
refuse to exercise the power of discretion. It is now well settled that the words which are permissive in character will become obligatory where the
thing to be done is for public benefit or in advancement of public justice.
It is to be noticed by the Government that the debts and liabilities of the company in liquidation can be cleared off only by the sale of the vacant
land in question at the present market price. The company in question is not in possession of any assets to clear off the debts and liabilities
amounting to more than Rs. 3,34,60,686/-. The parties who are anticipating payment of their debts and liabilities by Court through the Official
Liquidator are innocent persons of the community. Refusal to grant exemption to the vacant land in question would result in a situation where such
innocent persons are deprived of their lawful dues and such refusal to grant exemption would cause injustice and undue hardship to them.
The dominant purpose of the legislation is to prevent concentration of urban land in a few hands and to prevent speculation and profiteering in
such lands apart from the object of achieving equitable distribution of land to subserve common good. By giving the exemption sought for from
holding the excess vacant land and for sale of the same, the dominant purpose of the legislature is not at all defeated. Unless a fair value at current
market price is realised for the vacant lands of the company, it would become impossible to pay those creditors even a fraction of the amount due
which will cause them considerable hardship. The large body of creditors comprising of workmen, employees, traders and persons who had
advanced loans belonging to different walks of life are eagerly looking forward to receive at least a portion of the debt due to them and granting
exemption for direct sale of the vacant land would only meet the ends of equity and social justice. In the above circumstances and in order to clear
off the debts and liabilities due to workmen, traders, other creditors and innocent persons of the society, exemption u/s 21 of the Act is the only
way to solve the situation. Hence, I direct the Government of Tamil Nadu to review its earlier order in G.O.Ms. No. 199, Revenue, dated
21.2.1992 in the light of the circumstances mentioned above and pass appropriate and suitable orders within a period of two weeks. The learned
Advocate General will use his good offices and advise the Government in this regard. Mr. R. Swaminathan, learned Addl. Govt. Pleader (Civil
Suits), who is of very great assistance to this Court, will also pursue this matter with the Government in person with the advice and guidance of the
learned Advocate General, taking into consideration of the public interest, particularly the interest of the workmen and others mentioned above.