| CASE NAME | Pacific Convergence Corpn. Ltd. v. Data Access (India) Ltd. |
| CITATION | (2024) 3 HCC (Del) 766 |
| COURT | Delhi High Court |
| PETITIONER | Pacific Convergence Corpn. Ltd. |
| RESPONDENTS | Data Access (India) Ltd. |
| DECIDED ON | 5 July, 2024 |
INTRODUCTION
Pacific Convergence Corp Ltd. v. Data Access (India) Ltd. raises important legal issues surrounding corporate liquidation, property rights and the movement of property during the insolvency process. In this case, the petitioner, Pacific Convergence Corp Ltd. is seeking directions from the Court regarding the property which was once leased to Data Access (India) Ltd. which is now in liquidation. This case demonstrates some of the intricacies of corporate law in general and the rights of landlords and the responsibilities of the liquidator’s ability to control the assets of an insolvent company. This dispute highlights the tensions that often arise when corporate insolvency collides with private property rights. What seems at first to be a simple landlord–tenant issue quickly becomes complicated once liquidation proceedings come into play. The case also underscores the important role of the Official Liquidator in balancing the interests of creditors while respecting lawful ownership. At the same time, it shows how documentation and clarity in transactions can make or break a party’s claim in court. Most importantly, the ruling serves as a reminder that even in insolvency, legitimate ownership rights cannot be overlooked.
FACTS
- Parties Involved:
- Petitioner: Pacific Convergence Corp Ltd, who purchases the land from the previous owner, Jasai Exports Private Limited, and claims that it is entitled to take possession of the land over which the Official Liquidator is presently in control
- Respondent: Data Access (India) Ltd. (DAIL), the company in liquidation that leased the property in question.
- Background of the Property:
- The property was purchased by the petitioner for ₹ 1,35,00,000 which is located at Plot No. 43/6, Block No. E, Okhla Industrial Area Phase-II, New Delhi through a registered sale deed dated March 14, 2005.
- The property was leased to DAIL pursuant to a License Deed between DAIL and the petitioner, dated June 2, 1999 for use of certain parts of the premises for the business of DAIL.
- Winding Up Proceedings:
- In respect of DAIL, a winding-up petition was filed, and a Provisional Liquidator took over on October 26, 2004. On November 18, 2005, the Court ordered the winding up of the company and also appointed the Official Liquidator to manage the assets of the company.
- The Official Liquidator took possession of the property and sealed the same because the company’s records and assets remained located in the property.
- Claims by the Petitioner:
- The petitioner argues that he has the legal entitlement of the property as the new owner and is requesting the court to direct the Official Liquidator to vacate the property.
- The petitioner also requests for damages due to being dispossessed from the property when the Official Liquidator was in possession of the property.
- Official Liquidator’s Pleadings:
- The Official Liquidator contended that the petitioner has shown no support for the allegations made, and that the property is included in the liquidation proceedings. The Liquidator contended that there has been no compensation for the property because the petitioner has not lodged the requisite documentation.
- Further Claims:
- Canara Bank, as a secured creditor of DAIL filed a reply saying that the application brought by the petitioner is not maintainable on the ground of failure to provide supporting documents, and that the lease/license deed is not registered and therefore there is issue with the standing of the Petitioner.
ISSUES
- Who Has the Right to Possession? Can the petitioner show there is a possessory right to the property, and can the Official Liquidator be ordered to vacate the property?
- Leased/Hotels License. Was the lease/license between DAIL and the former owner, valid/enforceable notwithstanding the bankruptcy proceedings involving their previous owner?
- Whether there are claims for compensation: Is it possible for the petitioner to stake a claim for compensation for the time period the property was in the control of the Official Liquidator?
- Petitioner’s status. Based on the company’s prior financial history it is unclear what legal status the petitioner has in respect of establishing ownership and/or taking possession of the property.
- Corporate Veil. Should the court pierce the corporate veil to look at the transactions and relationship between DAIL and the petitioner, specifically concerning the allegedly fraudulent transfers?
CONTENTIONS FROM BOTH SIDES
PETITIONER’S CONTENTIONS
- Legal ownership: The petitioner asserts it has legal ownership of the property with a registered sale deed with a right to possess the property.
- Possession doesn’t attach in the liquidation: The petitioner argues the Official Liquidator’s possession of the property is unlawful in that the property should not have been part of the liquidation since it has been sold pre-winding up order.
- Entitlement to Compensation: The Petitioner asserts that it is entitled to compensation for the loss of access to the petitioner’s asset since the property is in the possession of the Official Liquidator which is preventing it from accessing the asset.
- Lack of Documentation: The petitioner insists that the Official Liquidator’s claims about missing documents do not weaken their ownership rights.
- No Deceitful Intent: The applicant says it acquired the property legitimately, and it had no deceitful intention to taint the rights of the creditors, and therefore, it rejects any assertion that the transaction was fictitious.
RESPONDENT’S CONTENTIONS
- Court’s Authority: The Official Liquidator states that the property is subject to the orders of the court and because that property is the subject of liquidation, the liquidator has the authority to manage it. Therefore the Petitioner’s entitlement is not maintainable because of the official capacity of the Official Liquidator in this process.
- No supporting documentation: The Official Liquidator states that no documentation for the sales and lease commitments exist which speaks to the legitimacy of the petitioner’s claim.
- No Basis for Claiming Compensation: The official liquidator claims that the petitioner has no basis for making a claim for compensation because the use of the property was always associated with DAIL’s operation, which is now also under liquidation.
- Possible Fraudulent Transactions: Canara Bank stated that the property purchase was possibly made with funds diverted from DAIL, meaning that Canara Bank made the insinuation that there was something wrong with respect to the transactions of that property.
- Corporate Veil Issues: The Respondents are seeking to have the corporate structure, and any dealing of the petitioner and DAIL, explored, with the Respondents asserting that DAIL is a shell company to avoid liabilities.
JUDGMENT
- Right to Possession Recognized: The court held that the petitioner demonstrated entitlement to possess the property in question through the registered sale deed. The court expressly ordered the Official Liquidator to vacate the premises and to hand back possession of it to the petitioner.
- Lease Validity Take Into Account: The Court held that the lease with DAIL was valid when the winding-up proceedings commenced but did not disturb the petitioner’s ownership rights arising from a purchase.
- Compensation Awarded: The Court awarded compensation to the petitioner for the time he was prevented from taking possession based on the evidence that the Official Liquidator’s acts financially impacted the petitioner’s ability to maintain his business functions.
- Documentation Requirements – The court strongly stressed the importance of documentation in demonstrating what each party claims with regard to ownership and leasing ownership, and it ordered the production of all documents relevant to this ownership and leasing determination.
- Corporate Veil Not Lifted: The court was not inclined to lift the corporate veil at this time. There were questions about each of the transactions, however, the purpose for which it was seized was for possession and ownership rights.
- Future matters: The court reserved future hearings to deal with any unresolved issues arising from the alleged transactions that may occur due to apparent fraudulent activity and the implications for creditors including Canara Bank.
CONCLUSION
The case of Pacific Convergence Corp Ltd. v. Data Access (India) Ltd. illustrates the complications in corporate liquidation as well as the nuance with respect to property rights. The ruling in this case provides clarity to the recognition of ownership rights, when a company goes bankrupt, as long as there is adequate evidence supporting that ownership. This case will be a key precedent in Corporate Law, particularly regarding property owner rights in liquidation. This case also stresses adequate evidence to support ownership rights. This case shows some of the complexities of corporate law in general and specifically with respect to landlords’ rights and the role of the liquidators in controlling the assets of an insolvent company record-keeping during corporate transactions to guard against disputes in an insolvency situation. As the case unfolds, it will probably provide some further clarification on the duties of liquidators and the rights of creditors in similar circumstances.
‘This article has been written by Tamanna Jain from University Five Year Law College, University of Rajasthan.’
