P L D 1960 Dacca 308 (PLP)

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 even where a liquidator is appointed, all contracts become automatically terminated and it is not possible for the liquidator to continue the said contracts.

27. So far, however, as contracts of leases are concerned, the learned counsel has relied on two decisions to show that even for arrears of rent due from the commencement of the winding‑up, the liquidator is not liable, unless the tenancy is enjoyed or maintained by the liquidator for the purposes of the winding‑up. Of course, the learned counsel did not attempt to define what a winding‑up consists of but what I understood from his Argument was that merely storing assets of the Company under liquidation in rented premises for the purposes of selling them at a future date would not amount to winding‑up. Hence, expenses incurred for the rent of such premises in which the said assets were stored would not be expenses incurred for the winding‑up. The authorities relied upon by the learned counsel are the cases of In re : Silkstone and Dodworth Coal and Iron Company (L R (1881) 17 Ch. D 158) and In re: Levi & Company, Limited (L R (1919) 1 Ch. D 416).

28. The position of a liquidator in respect of leases entered into by the Company under liquidation have fallen to be con sidered in England in many cases. The most well‑known case of these is the case of In re : Oak Pits Colliery Company (L R (1882) 24 Ch. D 322), which has been cited and relied upon in all the other cases referred to by the learned Advocates for both sides. In this case, a colliery was demised to a Limited Company for a period of 25 years and, subsequently, another agreement was entered into between the landlord and the Company for a further demise of the said colliery and of the mining rights under another 163 acres of adjoining land, but no new lease was actually granted. In this state of affairs, the mortgagee of the Company took possession of the colliery but did not interfere with the adjoining lands. The Company was subsequently wound up and a liquidator was appointed to take possession of the colliery and the mines under the adjoining 163 acres of land. The liquidator, however, did not take possession either of the colliery or of the adjoining lands but certain plants and machinery which had been brought there by the Company to make trial pits continued to remain there. These items of machinery were later advertised for sale by the liquidator but thereupon the landlord took out a summons for leave to distrain on these plants and machinery and to take the sale‑proceeds thereof. Kay, J., who first heard the case held that the landlord must have his rent in full. On appeal, this order was modified by Lindley, Lord Justice, on the ground that in the facts of the case they were not satisfied that the liquidator had ever taken possession of any part of the colliery or of the minerals thereunder, for, the possession of the colliery remained with the mortgagee and, so far as the possession of the surface was concerned, that remained with the landlord, for, the Company never took any lease of this surface. The Company had only arranged to take possession of the minerals underneath the said 163 acres of adjoining lands but this the Company had not done.

29. In this judgment, however, the learned Lord Justice adumbrated the following principles :‑ "First, as to rent in arrear at the commencement of the winding‑up : (1) If the landlord is a legal creditor of the Company in respect of rent in arrear at the commencement of its winding‑up, he is not allowed to distrain for the arrears of rent but must prove his debt like any other creditor . . . . . ., (2) Moreover in a case of this kind the circumstances that the liquidator has retained possession and carried on the Company's work has been held not to entitle a landlord or mortgagee (with a power of distress as and for rent) to distrain .for rent in arrear in the winding‑up . . . . .. (3) If, however, the landlord is not a legal creditor of the Company not being his tenant, he is permitted to distrain even for rent in arrear at the commence ment of the winding‑up . . . . (4) And in such a case tie will be allowed to distrain although the liquidator offers to allow the arrears to be proved as a debt in the winding‑up

Secondly, as to rent accruing after the commencement of the winding‑up, (1) If the liquidator has retained possession for' the purpose of the winding-up, or if he has used the property for carrying on the Company's business, or has kept the property in order to sell it or to do the best he can with it, the landlord will be allowed to distrain for rent which has become due since the winding‑up . . . . . (2). But if he has kept possession by arrangement with the landlord and for his benefit as well as for the benefit of the Company, and there is no agreement with the liquidator that he shall pay rent, the landlord is not allowed to distrain." In the case of In re : Silkstone and Dodworth Coal and Iron Company, Fry, J quoted a passage from a judgment of Lord Justice James in the case of In re : Lundy Granite Company (LR6Ch.D462), (unfortunately this report is not available in this Court) to the following effect: "In some cases between the landlord and the Company, if the Company for its own purposes and with a view to the realisation of the property to better advantage, remains in possession of the estate, which the lessor is therefore not, able to obtain posses sion of, common sense and ordinary justice require the Court. to see that the landlord, receives the full value of the property, he must have the same rights as any other creditor, and if the Company choose to keep the estates for their own purposes they ought to pay the full value to the landlord; as they ought to pay any other person for anything else, and the Court ought to take care that he receives it."

30. In the case of In re : Levi and Company, Limited, the observation of Lord Justice Lindley in the case of In 're : Oak Pits Colliery Company was cited by Ashbury, J., and he pointed out that: "At the date of the liquidation three courses were open to the liquidators. They might have given up possession to the reversioners, or they might have sold the premises for the residue of the term and provided the reversioners with a new tenant competent to perform the covenants in the lease, or they might have retained possession of the premises under the lease for the purposes and for 'the benefit of the liquidation generally".

31. In this case, Ashbury, J., actually allowed the landlord to recover from the Company on the termination of the lease an expenditure of a sum of about 400 or 500 pounds said to have been incurred for the purposes of repairs under the repairing covenant in the lease.

32. Thus, from these authorities, it appears that so far as arrears of rent from the commencement of the winding‑up are concerned, the landlord is entitled to it, if the liquidator continues to remain in possession of the premises for the purposes of his winding‑up generally, as pointed out by Lord Justice Lindley. Thus even if he retains the premises for storing the assets of the Company which he intends to sell subsequently, he must, in my opinion, be taken to have retained the possession of the premises in question for the purposes of the winding‑up, for, surely that was for the benefit of the Company. In the present case, on the admission of the Official Liquidator himself, there were in the premises in question, assets of the Company which the Official Liquidator is even now trying to sell although they have been very recently removed from the godown of the petitioner Company to another godown in the same town at Chandpur. It is, therefore, clear upon these authorities that the petitioner Company is entitled to recover arrears of rent from the Official Liquidator which have accrued from the commencement of the winding‑up to the period of time that the Official Liquidator retained the said premises for the purposes of the winding‑up.

33. The only authority relied upon by the learned Advocate for the petitioner in support of his contention was a decision of the Allahabad High Court in the case of Rameshwar Nath v. U. P. Union Bank Ltd. (A I R 1956 All. 586), where Agarwalla and Upadhya, JJ., took the view that under the Company rules of the said Court they were bound to hold that the landlord was entitled to the rent from the Official Liquidator of the said Bank when it appeared that the Official Liquidator had not been able to make over possession of the entire premises to the landlord by reason of the fact that certain under7lessees inducted by the Company were refusing 'to vacate the premises. This case, therefore, does not support him very much, because, in our own Company rules, there is no corresponding provision.

34. Having come to this conclusion, I next take up for consideration as to what is the amount I should allow to this landlord. So far as the bungalow is concerned, it appears that there is a bona fide dispute as to whether this bungalow was in the possession of the Economic Aid Corporation, Ltd., for its purposes and whether the police also took possession of it. The Official Liquidator has already pointed out that the police never gave possession of the said bungalow to him. In these circum stances, I do not propose to allow the landlord petitioner Company the arrears of rent in respect of the bungalow. If the petitioner Company feels that it is entitled to such rent, it may, if it so desires, on a proper application, seek permission to proceed against the Official Liquidator by way of a suit for the realisation of rent in respect thereof.

35. With regard to the two godowns, however, in my view, on the authority of the, principles laid down in the cases, referred to by me earlier in this judgment, I should allow the petitioner Company arrears of rent at the rate agreed in the agreement of lease itself, namely, Rs. 2,000 per month as and from the 1st of July 1955, the date of the making of the winding‑up, order and the appointment of the Official Liquidator being the 23rd June 1955, upto the date on which the Official Liquidator has dis claimed or vacated the said premises. I fix the 1st of July 1955, as the date from which the rent is to be paid as, according to me, the Official Liquidator could not 'possibly have entered into possession of the said premises prior to the said date. The com mencement of the winding‑up for this purpose cannot in my view, be taken to be the date mentioned in section 168 of the Companies Act, for, it is manifest that the Official Liquidator could not possibly have utilised the premises .before he was appointed. Again the fact that the Official Liquidator did not actually take over possession from the police until the 21st December 1955, should not, in my view, be allowed to affect this question, for, this would amount: to placing the landlord in a worse position for no fault of his own and allowing the Official Liquidator to take advantage of his own default and neglect in not taking possession earlier.

36. If the Official Liquidator has not as yet formally dis claimed, I direct that the Official Liquidator do give notice terminating the tenancy immediately to the petitioner Company. As from the date of the expiry of the said notice, the tenancy will stand determined and the landlord will not be entitled to recover anything further from the Official Liquidator. I must also make it clear that if the premises have already been vacated and notice of the same given to the landlord, then the latter will not be entitled to receive any rent for any period after the said date under this order.

37. It seems, from the correspondence, that the petitioner Company also seeks to recover damages for late payment as also' certain amounts said to have been incurred for the salary of a durwan. The right of the landlord to rent, upheld by me, does not include these payments and if the petitioner Company thinks that it has any genuine case with regard to it, it may apply for permission to sue the Official Liquidator for the recovery of the said amounts.

38. This disposes of the first two grounds urged on behalf of the Official Liquidator and, with regard to his other two grounds, all that I need say is that the questions raised therein cannot be dealt with in this application. The Official Liquidator may, if he is so advised, apply for permission to sue the petitioner Company for having the decree obtained in Money Suit No. 4 of 1954 set aside and for the recovery of the amounts, if any, said to have been paid in excess to the petitioner Company by the Economic Aid Corporation, Ltd. (in liquidation).

39. The petitioner, however, will not, .in the special facts and circumstances of this case, be entitled to the costs of this application. The Official Liquidator will get only his out of pocket costs including fees actually paid to counsel from the assets of the Company. The Official Liquidator is also given the necessary permission to pay the aforesaid amount of rent allowed to the petitioner Company. K. B. A. Order accordingly.