Liquidator Cannot Retain Unused Tenanted Premises Without Justifiable Need: Bombay High Court Orders Handover of Flats to Landlord

Tenancy Rights Are Not Assets of a Company in Liquidation, Possession Cannot Be Retained Without Purpose - Bombay High Court, in a significant judgment on March 12, 2025, directed the Official Liquidator to hand over vacant possession of two flats to their rightful landlords, ruling that tenancy rights are not assets of a company in liquidation and cannot be held indefinitely without genuine need. The Court rejected the liquidator’s justification that the premises were required for storing company records, finding that there was no credible evidence to support this claim.

Declaring that “the mere assertion of need by the liquidator cannot be accepted as gospel truth”, the Court ordered the Official Liquidator to handover possession within four weeks.

"Tenancy Rights Are Not Assets in Liquidation – Official Liquidator Cannot Cling to Unused Premises"

The dispute arose after Jaikishan Narang, HUF, through its Karta Mr. Kiran Deepak Nagpal and others, sought possession of Flat Nos. 4 and 5 in Jaitirath Mansion, Mumbai, which had been leased to Surendra Engineering Corporation Ltd., a company now in liquidation. The landlords argued that the company had ceased to use the premises, and since tenancy rights are not assets of a company under liquidation, the Official Liquidator had no right to retain possession.

The company was ordered to be wound up on February 16, 2018, and the Official Liquidator took symbolic possession of the flats. However, despite repeated requests from the landlords, physical possession was not taken until May 19, 2023. The landlords contended that the premises were lying vacant and were not required for liquidation purposes, making the liquidator’s possession unlawful.

The Court relied on the Supreme Court’s ruling in Nirmala R. Bafna vs. Khandesh Spinning and Weaving Mills Co. Ltd. (1992) 2 SCC 322, which held that tenancy rights of a company cannot be treated as assets for liquidation. Referring to Modella Woollens Ltd. vs. Official Liquidator (2006), the Court reiterated that a company in liquidation has no legal right to continue possession of leased premises unless it serves a liquidation purpose.

"Claim That Premises Are Needed for Record-Keeping is an Afterthought" – High Court Rejects Liquidator’s Argument

The Official Liquidator opposed the petition, stating that the flats were required for storing company records, books, and files. The Court, however, found this argument unsupported by any evidence, observing that the liquidator had already taken possession of two additional flats in the same building, which could have been used for the same purpose.

Referring to its previous ruling in Metal Tubes and Rolling Mills vs. Official Liquidator (2018 SCC OnLine Bom 2192), the Court held that: "The mere assertion by the Official Liquidator that premises are required for the winding-up process is insufficient. The need must be strictly construed and supported by clear evidence. In the absence of any justification for holding the flats, the liquidator has no right to retain possession."

The Court also noted that the Official Liquidator’s own report from 2022 stated that there were no records or books stored in these flats, further proving that the claim was a mere pretext to hold on to the property.

"Landlords Cannot Be Forced to Bear the Financial Burden of Unused Premises"

The Court observed that the liquidator had defaulted on rent payments and was unnecessarily increasing the liabilities of the liquidation estate. Rejecting the liquidator’s attempt to indefinitely hold onto the premises, the Court ruled: "Continued possession of these premises would impose an unjust financial burden on the company’s liquidation process and deprive the landlords of their rightful use of the property. This Court will not permit such an unreasonable and unjustifiable act."

The Court also clarified that its ruling applied only to Flat Nos. 4 and 5 and did not preclude the landlords from pursuing claims over Flat Nos. 1 and 2, which were also leased to the company.

"Official Liquidator Must Surrender the Flats Within Four Weeks"

Ordering the immediate release of the premises, the Bombay High Court ruled: "Since no valid justification exists for retaining possession, the Official Liquidator shall hand over quiet, vacant, and peaceful possession of Flat Nos. 4 and 5 in Jaitirath Mansion, Mumbai, to the landlords within four weeks."

This ruling underscores the principle that tenancy rights are not liquidation assets and that liquidators cannot indefinitely hold onto leased premises without a clear and valid justification. By ensuring that landlords are not deprived of their property without legal grounds, the judgment reinforces the balance between liquidation proceedings and the rights of property owners.

Date of decision: 12/03/2025