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Petitioner: CHANDPUR MILLS VS Respondent: THE OFFICIAL LIQUIDATOR, ECONOMIC AID CORPORATION LTD
P L D 1960 Dacca 308
P L D 1960 Dacca 308
Before Rahman, J
CHANDPUR MILLS‑Petitioner
versus
THE OFFICIAL LIQUIDATOR, ECONOMIC AID CORPORATION LTD. (in Liquidation)‑Opposite‑Party
Matter No. 12‑A of 1956, decided on 22nd March 1957.
(a) Contract Act (IX of 1872), S. 56‑Frustration, doctorine of‑When applicable‑Whether applicable to demise of land -Seizure or sealing by police of tenancy premises as result of unlawful action of party to contract‑Doctrine not invocable.
"Frustration may be defined as premature' determination of an agreement between parties, lawfully entered into and in course of operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstances so fundamental as to be regarded by the law both as striking at the root of the agreement and as entirely beyond what was contemplated by the parties when they entered into the agreement. If therefore, the intervening circumstance is one which the law would not regard as so fundamental as to destroy the basis of the agreement there is no frustration. Equally if the terms of the agreement show that the parties contemplated the possibility of such an intervening circumstance arising frustration does not occur. Neither of course, does it arise where one of the parties has deliberately brought about the supervening event by‑ his own choice."
Thus in order to invoke the doctrine of frustration the first and the most important condition is to show that such an interfer ence, by some authority or circumstance beyond the control of the parties, has taken place as to have made it impossible to continue with the contract by destroying the very basis of the contract itself or striking at its root. But if the supervening difficulty or event has been deliberately brought about by the choice of one of the contracting parties, there is no room for the invocation of the doctrine of frustration.
Cricklewood Property and Investment Trust Limited v. Leighton's Investment Trust Limited L R 1945 A C 221 ref.
Whether or not, the doctrine applies to demise of land, if during the subsistence of a contract of tenancy, the premises are seized by the police during the pendency of a prosecution s and the seizure by the police is brought about by the misdeeds of the tenant, the contract of tenancy cannot be said to have been frustrated on account of the seizure.
Ram Kumar Agarwalla v. P. C. Roy & Co. (India) Ltd. 83 C L J 357 ; Mungeeram Bangur & Co. v. Satyabrata Ghose and another A I R 1951 Cal. 332 ; Sachindra Nath Basu v. Gopal Chandra Ghose A I R 1949 Cal. 240 ; Sm. Sakhisona Dasi v. Gour Hari Jana A I R 1952 Cal. 567 and Tarabai Jivanlal Parekh v. Lala Padam Chand A I R 1950 Bom. 89 ref.
(b) Companies Act (VII of 1913), S. 175‑Appointment of liquidator‑Effect of, on subsisting contract between a company and third party.
The appointment of a liquidator does not automatically terminate all contracts entered into between the company under liquidation and a third party.
Reid v. The Explosives Company (1887) 19 Q B D 264 ref.
(c) Landlord and tenant‑Position of liquidator in respect of leases entered into by company under liquidation and third party- Companies Act (VII of 1913), S. 230 (3).
Where a company under liquidation has entered into a contract of tenancy, so far as arrears of rent from the commence ment of the winding‑up are concerned, the landlord is, entitled to it, if the liquidator continues to remain in possession of the premises. Thus even if he retains the premises for storing the assets of the Company which he intends to sell he must be taken to have retained the possession of the premises for the purpose of the winding‑up for that would be for the benefit of the Company.
In re : Silkstone and Dodworth Coal and Iron Company L R (1881) 17 Chan. Div. 158 and In re: Levi & Company Limited L R (1919) 1 Chan. Div. 416 ref. '.
In re: Oak Pits Colliery Company L R (1882) 24 Chan. Div. 322 and In re : Lundy Granite Company L R 6 Ch. D 462 rel.
Rameshwar Nath v. U. P. Union Bank Ltd. A I R 1956 All. 586 distinguished.
Mazhar Hasnain for Petitioner.
A. Hossain for the Official Liquidator.
Syed A. B. Mahmud Hussain for the Registrar, Joint Stock Companies.
JUDGMENT
This is, an application by the Chandpur Mills, Ltd, a Company having its registered office at Chandpur in East Pakistan, for directions on the Official liquidator of the Economic Aid Corporation, Ltd. (in liquidation), inter alia, to make payments of certain arrears of rent with effect from 17‑3‑55, that is to say, the date of the commencement of the winding‑up proceedings of the aforesaid Economic Aid Corporation, Ltd. (in liquidation). It is not necessary for me to make any mention of the other direc tions sought, as they have not been pressed.
2. It appears that the aforesaid Economic Aid Corporation, Ltd. (in liquidation), by. a registered lease, rented two g9downs from the petitioner Company herein for a period of five years commencing from the 17th of October 1953, at the rental of Rs. 2,000 per mensem.
3. The petitioner Company also claims that the aforesaid Economic Aid Corporation, Ltd. (in liquidation,) also verbally took a monthly lease of a bungalow belonging, to the petitioner Company at the rate of Rs. 75 per mensem with effect from the 22nd of September 1953.
4. The petitioner Company, it appears, instituted a suit, being Money Suit No. 4 of 1954, in the Court of the 3rd Sub ordinate Judge, Comilla, for recovery of certain arrears of rent in respect of the leased premises, as also for the price of certain goods said to have been sold to the Economic Aid Corporation Ltd., and, on the 5th of March 1955, obtained a decree against the said Corporation for a sum of Rs. 30,880. Its efforts, however, to execute the decree were rendered infructuous by the winding‑up of the above‑mentioned Corporation, which commenced from the 17th of March 1955.
5. An application made by the petitioner Company for leave under section 177 of the Companies Act to proceed' with the execution of the aforesaid decree was disposed of by me on the 13th of July 1956, wherein I refused such permission.
The present claim ' is for the recovery of arrears of rent from the date of such commencement of the winding‑up and the petitioner Company claims that it is entitled to claim this rent under subsection (3) of section 230 of the Companies Act as being neces sary. costs and expenses ‑for the purpose of winding‑up, as the Official Liquidator has not as yet disclaimed the said lease‑hold interest of the Corporation under section 230‑A of the said Act, in spite of notice given to the Official Liquidator by the petitioner Company on the 5th of December 1953, which clearly requested the Official Liquidator to do so, as also indicated that in the event of the possession of the premises being made over, the petitioner Company would forego prospective liabilities which might accrue under the said lease.
6. The petitioner Company, it appears, has also filed a claim for arrears of rent accrued due from the first of November 1954, to the date of the commencement of the‑ winding‑up with the Official Liquidator.
7. The present application was heard by me on .the 11th of January 1957, when I reserved the passing of orders but, on the following day, the learned counsel for the Official Liquidator informed me that the Official Liquidator had since come into possession of further new facts which would throw new light on the tenancy in question and requested me to postpone further the passing of orders so that he might be able to put the new materials that have since come into his possession. I indicated then that, if new materials were sought‑to be brought in at this stage, a formal application should be made for that purpose. A formal petition was thereupon filed on the 25th of January 1957, but, as no summons was taken out for the said purpose, the matter could not be heard. Since the summons has been taken out on the 26th of February 1957, the petitioner Company bar duly opposed the said application by filing an affidavit‑in- opposition affirmed on the 6th of March 1957, and the Official Liquidator ‑has also filed an affidavit‑in‑reply affirmed on the 8th of March 1957. I heard the application on the last‑mentioned date and allowed the Official Liquidator to put in the additional fact which he desired to do.
8. The additional facts so disclosed consist only of copies of two letters, one said to have been received from the Deputy Inspector‑General of Police on the 17th of January 1957, and the other said to be a report made by one of the employees of the Official Liquidator on the 18th of January 1957.
9. The letter of the Deputy Inspector‑General of Police purports to give the information that the premises in question were searched and seized on the 21st of November 1953, and the godowns and the articles' so seized were placed in the jimba of one Mr. S. A. Faruqui who is the Chairman of the Board of Directors of the petitioner Company. Hence there was no question of locking the said godown or of sealing the same by the police. The report of the employee of the Official Liquidator has been put in to show that the bungalow in question was never seized by the police and that the police did not make over possession of the same to the Official Liquidator.
10. It may be mentioned here that the documents now disclosed do not, as claimed on behalf of the Official Liquidator, disclose any new fact relating to the godowns in question, for, in the letter of the 5th of December 1955, written by the petitioner‑Company to the Official Liquidator, it was stated that there was a police raid at the said premises when the police seized the premises with all tools and implements of the Weaving Factory belonging to the Economic Aid Corporation, Ltd., and, after sealing the lock, kept the same with the Chairman of the Board of Directors against a security bond executed by the said Chairman. This clearly indicated that the premises were left in the jimba of the said Chairman of the Board of Directors.
11. The Official Liquidator, however, seeks to resist this application of the petitioner Company on various grounds. His first contention is that since the police seized the assets of the Economic Aid Corporation, Ltd., including the premises said to have been rented from the petitioner Company on the 9th of October 1953, the tenancy became frustrated and the petitioner Company was no longer entitled in law to claim any rent as from the said date.
12. Secondly, it is urged that since the godowns did not, until the 21st of December 1956, come into the possession of the Official Liquidator, no question either of disclaimer or of incurring expenses in the winding‑up in respect of the said premises could be said to arise and neither the Official Liquidator nor the Economic Aid Corporation, Ltd, (in liquidation), could be held to be liable for rents up to the said period.
13. Thirdly that the decree obtained by the petitioner Company in Money Suit No. 4 of 1954 had been obtained fraudulently and that the Official Liquidator was contemplating filing a suit for having the same set aside and lastly that, in any event, the petitioner Company had, according to the Official Liquidator, been paid much in excess of the rent to which it could claim to be entitled and, hence, there was no question of making any further payment to the petitioner Company. In fact, the Official Liquidator suggests that he might have to take steps to recover moneys from the petitioner Company.
14. There can be no manner of doubt or dispute that there was such a lease under which the. Economic Aid Corporation, Ltd., now in liquidation, entered into occupation of the two godowns mentioned by the petitioner Company on the 1st of October 1953 and that the said godowns came to be searched and seized by the police either on the 9th of October 1953, as alleged by the Official Liquidator, or on the 21st of November 1953, as stated by the Deputy Inspector‑General of Police in his letter No. 7000 A/B, dated the 17th of January 1957, and it continued to so remain in the custody of the police through its jimbadar, the Chairman of the Board of Directors of the petitioner Company, until the 21st of December 1956; when possession thereof was made over to the Official Liquidator after breaking the locks of the premises in the presence of a Magistrate, as evidenced by the copy of the report of taking over and making over of charge filed as an annexure to the affidavit‑in -opposition of the petitioner Company, dated the 6th March 1957. There can also be no dispute that an application for the winding- up of this Economic Aid Corporation was presented on the 17th March 1955, and the commencement of the winding‑up must, therefore, be` deemed to have taken place as from the said date, although the winding‑up order was actually made on the 23rd of June 1955, when the Official Receiver of this Court was appointed the Official Liquidator of the above‑mentioned Economic Airs Corporation, Ltd. Thereafter the petitioner Company, by its letter of the 5th December 1955, duly demanded the arrears of rents and offered that, if the Official Liquidator vacated the premises, it would forego its future claims for rent.
15. It further appears that, after taking over possession on the 21st of December 1956, from the police, the Official Liqui dator kept the other movable assets taken possession of by him in a portion of one of the said godowns occupying, according to the Official Liquidator, a floor space of about 300 to 400 square feet and vacated the other godown, as also opened the main gate of the godowns. This will appear from the letter of the Official Liquidator himself written on the 26th December 1956. I am, however, now verbally informed that the Official Liquidator has since also vacated the other godown and removed the said assets to some other place.
16. It is on these facts that I now propose to examine the contentions raised on behalf of the Official Liquidator.
17. With regard to the first contention that the tenancy entered into by the Economic Aid Corporation Ltd., became frustrated by reason of the seizure by the police of the premises in question, the learned counsel, appearing on behalf of the Official Liquidator, has sought to build up his case on the analogy of a requisitioning by the Government. According to him, such sealing or seizure constituted an interference by a lawful authority in the same manner as the requisitioning of a premises does and, therefore, if where premises are requisitioned for emergency purposes by the Government, a frustration of the tenancy can arise, then, for similar reasons in the present case also, there was a frustration of the tenancy itself.
18. I must compliment the learned Counsel for the industry he has displayed in building up such a novel and, if I may say so, extraordinary proposition of law. But I venture to say that the authorities which he has cited before me do not purport to extend the doctrine of frustration of a contract to each and every kind of interference.
19. It appears to me that until very recently it was universally accepted even in England that the doctrine of frustra tion did not extend to the case of demise of land and it was only when this principle came to be doubted by the House of Lords in the case of Cricklewood Property and Investment Trust Limited v. Leighton's Investment Trust Limited (LR1945AC221) that the question became re‑opened. Even in this case, two of the noble Law Lords expressed a dissent but, nevertheless, whether the doctrine of frustration can also be applied to the case of a demise of land or not I cannot imagine that such a temporary interference with a contract, as a temporary, sealing or seizure by the police during the pendency of a criminal prosecution must inevitably be, can ever be taken to amount‑ to frustration of the tenancy itself. It may be worthwhile quoting from the judgment of the learned Lord Chancellor Lord Simon what he said about the doctrine of frustration even when extended to a demise of land and as to the principles upon which the theory of frustration itself is built up:
"Frustration may be defined as premature determination of an' agreement between parties, lawfully entered into and in course of' operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstances so fundamental as to be regarded by the law both as striking at the root of the agreement and as entirely beyond what was contemplated by the parties when they entered into the agreement. If, therefore, the intervening circumstance is one which the law would not regard as so fundamental as to destroy the basis of the agreement, there is no' frustration. Equally if the terms of the agreement show that the parties contemplated the possibility of such an inter vening circumstance arising frustration does not occur. Neither, of course, does it arise where one of the parties has deliberately brought about the supervening event by his own choice."
20. Thus it is clear that in order to invoke the doctrine of frustration the first and the most important condition is to show that such an interference, by some authority or circumstance beyond the control of the parties, has taken place as to have made it impossible to continue with the contract by destroying the very basis of the contract itself or striking at its root.
21. So far as the application of this doctrine to a tenancy or demise of land is concerned, the view in the Indian High Courts also is hot uniform. The learned counsel placed strong reliance upon a decision of the Calcutta High Court, in support of his view, in the case of Ram Kumar Agarwalla v. P. C. Roy & Co. (India) Ltd. (83 C L J 357), where Chatterjee, J., sitting singly, held that, `since frustration is a developing concept, its categories are never closed, but are as wide as the categories of human conduct" and thus, in the case before him, it could be said that the Government Notifications and orders issued under the Defence of India Rules for the regulation of the export of rice from Bihar and of the supply of railway wagons as also an order of .requisition of 12,500 maunds of rice lying at the, business premises of the plaintiff in the district of Purnea, Bihar, had frustrated the contract entered into for the purchase of 2,500 maunds of the said rice. This, however, was not a case of a lease or a demise of land but, even otherwise, the wide principle enunciated by Chatterjee, J., was not accepted by the Court of Appeal when this case went up on appeal. Unfortunately, the learned counsel overlooked the decision of the Court of Appeal which is reported in the same volume at page 397. There Chief Justice Harries, sitting with S. B. Singh, J., reverse the decision of Chatterjee, J., and held that, in any event, in that case the doctrine of frustration did not apply because the non‑availability of wagons did not make the performance of the contract impossible. Secondly, the requisitioning not having taken place during the period of perfor mance, there could be no frustration. Lastly, if there was any frustration at all, it was a self‑imposed frustration which did not excuse the performance of the contract.
22. The other decision relied upon by the learned counsel in the case of Mungeeram Bangur cfc Co. v: Satyabrata Ghose and another (A I R 1951 Cal. 332), was also not a case of demise of land but it was there held that the doctrine of frustration can be applied to contracts for the sale of lands. In that case, Das Gupta and Lahiri, JJ., held that the requisitioning of land contracted to be sold after development by construction of roads did constitute a complete frustration of the enterprise and, therefore, also of the contract for the sale of the land in that area. But their Lordships were careful to point out that the contract contemplated by the parties in that case was such that if the parties had thought that such a requisition of lands of the scheme would take place, they would have said that if this happens the contract will be at an end.
23. On the other hand, however, in the case of Sachindra Nath Basu v. Gopal Chandra Ghose (A I R 1949 Cal. 240), Henderson, J., took the view that frustration in the legal sense occurred only in those circumstances where it could be implied that the discontinuance or interference was of such a nature as altogether to upset the purpose of the contract and, on this principle, held that a contract for the lease of a premises for the purpose of a restaurant expressly stipulated to subsist so long as British troops remained in the locality was not frustrated when the locality was declared out of bounds for British troops by the Military authorities. Similarly in the case of Sm. Sakhison Dasi v. Gour Hari Jana (A I R 1952 Cal. 567), S. N. Guha Roy, J., held that in the case of a contract for lease under which the tenant had been put into possession but, during the continuance of the tenancy, the Government had requisitioned the lands of the lease for Military purpose, the doctrine of frus tration did not apply. The same view was also taken by the Bombay High Court in the case of Tarabai‑Jivanlal Parekh v. Lala Padamchand (A I R 1950 Born. 89).
24. Whether, the doctrine of frustration does or does no apply to the case of a demise of land, I am fortunately not called upon to decide in the present case, for, of this I have no doubt that even if it does, there is, in the facts of the present case, no possible scope for the invocation of the doctrine of frustration. If by the temporary seizure or sealing of the premises due to police action during the pendency of a prosecution, .a contract of tenancy can be said to have been frustrated, then I must observe that this novel doctrine is neither supported by principle nor by authority. It may well be argued next that if a person is arrested during the subsistence of his tenancy of the premises in which he happens to be a tenant then that tenancy will also become frustrated upon the same principle. It can, by no stretch of imagination, in my view, be said that the sealing or the seizure of the premises by the police was of such a nature as to make performance of the contract of lease for five years impossible or that it was of such a kind that had it been in the contemplation of the parties they would definitely have provided for the termination of the contract in the event of such a thing happening.
25. There is one other very good reason for which I cannot hold that the seizure by the police can ever amount to frustration. Under the principles of the administration of criminal justice, according to which we fortunately work no one is supposed to be proceeded against by, the police unless he has committed some crime or some act which is contrary to law. In such an event, the seizure can well be said to have been induced by an action of one of the contracting parties himself and to such a case the doctrine of frustration has never applied. As I have already attempted to point out from the dicta of the learned Lord Chancellor that if the supervening difficulty or event has been deliberately brought about by the choice of one of the contracting parties, there is no room for the invocation of the doctrine of frustration. In the present case, too, the seizure must be taken to have been brought about by the misdeeds of the tenant, namely, the Economic Aid Corporation, Ltd., and there fore, the Official Liquidator, who is in control of the affairs of the Company, cannot now turn round and say that the same tenancy had been frustrated.
26. The next question and the most important question in the present case is as to what is the effect of the appointment of a liquidator on subsisting contract entered into between the Company under liquidation, and a third party. Of course, the learned counsel, appearing on behalf of the Official Liquidator, has taken up the extreme view that all such contracts are terminated and come to an end in the same manner as they would do when a Receiver or a Manager of properties is appointed. In support of this contention, the learned counsel has referred me to various cases. Unfortunately, all of these cases deal with Receivers or Managers. But in one of the said cases, namely, in the case of Reid v. The Explosives Company ((1887) 19 Q B D 264), it appears that Lord Esher, Master of the Rolls, did suggest that there might be some difference in the position of a liquidator, and a person who was appointed a Receiver or a manager and Lord Justice Fry in that very case clearly stated that he did not propose "to lay down any rule as to what a liquidator may or may not do, for, the question did not arise" in that case. Hence, I cannot regard these decisions as authorities for the proposition that…
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