Companies Act Case Law M/s.Sait Nagjee Purushotham & Co.Ltd. Vs Vimalabai Prabhulal & Ors.

CASE NO.:
Appeal (civil) 1113 of 2003

PETITIONER:
M/s.Sait Nagjee Purushotham & Co.Ltd.

RESPONDENT:
Vimalabai Prabhulal & Ors.

DATE OF JUDGMENT: 04/10/2005

BENCH:
ARUN KUMAR & A.K. MATHUR

JUDGMENT:
J U D G M E N T
A.K. MATHUR, J.

 

This appeal is directed against the order passed by the
Division Bench of the High Court of Kerala whereby the Division
Bench by its order dated 9.11.2001 has affirmed the finding of the
appellate court directing eviction of the tenant under Section 11(3) of
the Kerala Buildings (Lease and Rent Control) Act, 1965 (hereinafter
referred to as the “Act “) and denying eviction to the landlord under
Sections 11 (4) (i) and 11(4)(ii) of the Act and dismissed both the
revision petitions.

Brief facts which are necessary for disposal of this appeal
are that the building in question was owned by a joint Hindu family of
which Nagjee Amarsee was the senior most member. He had a
younger brother, Purushotham Amarsee. Nagjee Amarsee had a son,
Jayananthan Amarsee. Purushotham Amarsee had three sons, one
of whom died at the age of 20. He had two surviving sons namely,
Naranjee and Makeklal. There was a partnership firm consisting of
the members of the joint family. The building in question was let out
to the firm. The firm was the tenant and later on it was converted into
a private limited company. In a partition, the major portion of the
building was allotted to the group represented by the landlords.
Gradually, the interest of the landlords in the company was taken
over by the members of the family representing the tenant’s group.
The property scheduled to the rent control petition was a major
portion of the building which was admittedly set apart to the share of
the branch of the family represented by the landlords. The landlords
filed a suit for eviction on the ground that the respondent Nos.5,6 & 9
(herein) had completed their education and were sitting idle and they
wanted to start business of their own in the scheduled building and
they needed the scheduled building for their own occupation at
Calicut. Therefore, they claimed eviction of the tenant under Section
11(3) of the Act. They also pleaded the ground of sub-letting to a
tailor who was impleaded as a party in the rent control proceedings. It
was pleaded that sub-letting was unauthorized and without the
consent of the landlords. Hence, the landlords were entitled for
eviction under Section 11 (4) (i) of the Act. They also alleged material
alteration in building and sought a decree under Section 11 (4) (ii) of
the Act. The tenant resisted the eviction petition and pleaded that he
was perpetual lessee and could not be evicted by the landlords. He
also denied the bona fide need of plaintiffs and denied alteration in
the premises in question. It was also pleaded that the tenancy has
commenced prior to 1940. As such, the tenant could not be evicted
on the ground of bona fide need by virtue of Section 11(17) of the
Act. The tenant contested that the landlords were not entitled to an
order of eviction. The parties led evidence before the Rent Controller.
The Rent Control Court held that the landlords were not entitled to an
order of eviction either under Section 11(3) of the Act or under
Section 11(4)(i) of the Act. The landlords preferred an appeal before
the appellate authority. The appellate authority on re-appraisal of the
relevant evidence came to the conclusion that the landlords had
made out a claim for eviction under Section 11(3) of the Act on the
ground of bona fide need for their own occupation but they could not
substantiate their claim for eviction under Sections 11(4) (i) & 11(4)
(ii) of the Act. Thus, the appellate authority partly allowed the appeal
filed by the landlords and granted a decree of eviction on the ground
of bona fide need under Section 11(3) of the Act while the plea of
sub-letting and material change in premises under Sections 11(4) (i)
& 11(4) (ii) of the Act was declined. Both the landlords and the tenant
filed revision petitions i.e. the landlords’ revision petition was for
decree of eviction on the ground of sub-letting and alteration in
premises under Sections 11(4) (i) & 11(4) (ii) of the Act and the
tenant filed the revision petition against the eviction on the ground of
bona fide need of the landlords under Section 11(3) of the Act.
Hence, both the revision petitions were clubbed together and were
disposed of by the Division Bench of the High Court by its order dated
9.11.2001. Hence, the present appeal against the aforesaid order
passed by the High Court.

Learned counsel for the appellant challenged the finding
of the appellate authority as well as the High Court with regard to the
bona fide need of the landlords and secondly he also sought
protection under Section 11(17) of the Act that the appellant- tenant
had been in possession of premises since 1940, therefore, appellant
is entitled to protection under Section 11(17) of the Act.

First of all we shall take up the question of bona fide need
of the landlords. So far as the partition of the property and the
present premises coming to the share of the landlords are
concerned, there is no dispute that the portion of the building has
come to the share of the landlords and they are the owners as a
result of the partition of the family properties. But the question is
whether the landlords who are the owners of the portion of the
building have substantiated the allegation with regard to the bona fide
need or not. We have gone through the findings of the trial court as
well as that of the appellate authority and the High Court and after
closely scrutinizing the same, we do not think that the finding
recorded by appellate court and the High Court can be interfered by
this Court on the ground of being perverse or without any basis. The
landlords have led evidence to show that one of their sons who had
requisite qualification for starting a computer institute wants to
establish the same at Calicut and others for extension of their
business.. The trial court as well as the first appellate court and the
High Court examined the statements of P.Ws.2 & 3 and after
considering their evidence, the appellate court reversed the finding of
the trial court and held that the need of the respondent- landlords to
start business at Calicut, is bona fide & genuine. It was held that it
cannot be said that a person who is already having business at one
place cannot expand his business at any other place in the country. It
is true that the landlords have their business spreading over Chennai
and Hyderabad and if they wanted to expand their business at Calicut
it cannot be said to be unnatural thereby denying the eviction of the
tenant from the premises in question. It is always the prerogative of
the landlord that if he requires the premises in question for his bona
fide use for expansion of business this is no ground to say that the
landlords are already having their business at Chennai and
Hyderabad therefore, it is not genuine need. It is not the tenant who
can dictate the terms to the landlords and advise him what he should
do and what he should not. It is always the privilege of the landlord to
choose the nature of the business and the place of business.
However, the trial court held in favour of tenant-appellant. But the
appellate court as well as the High Court after scrutinizing the
evidence on record, reversed the finding of the trial court and held
that the need of establishing the business at Calicut by the landlords
cannot be said to be lacking in bona fide.

Learned counsel for the appellant submitted that in fact
this plea of either starting business or expanding it at Calicut is
nothing but sham and it was also pointed out that some of the sons
have multifarious activities and are already established in some other
business and one of the sons i.e. respondent No.9 had already gone
to United States of America and he has settled there. Therefore, the
need is not bona fide. We fail to appreciate that when two sons are
there and if they want to expand their business at Calicut then it
cannot be said that the need is a sham one. It is not possible for the
landlords and their sons to wait till the disposal of the case. They
have to do something in life and they cannot wait till the appellant is
evicted from the premises in question. It is common experience that
landlord tenant disputes in our country take long time and one cannot
wait indefinitely for resolution of such litigation. If they want to
expand their business, then it cannot be said that the need is not
bona fide. It is alleged that one of the sons of the landlords has
settled in the U.S.A.. That does not detract from the fact that the other
sons of landlords want to expand their business at Calicut. Indian
economy is going global and it is not unlikely that prodigal sons can
return back to mother land. He can always come back and start his
business at Calicut. On this ground we cannot deny the eviction to
the landlords.
In support of the plea of bona fide requirements by the
landlords, learned senior counsel for the respondents sought to
support the same by placing reliance on the decisions of this Court, in
case of Ramkubai (Smt.) deceased by LRs & Ors. v. Hajarimal
Dhokalchand Chandak & Ors. reported in (1999) 6 SCC 540, it was
observed that B was unemployed on the date of filing of the suit but
in the meanwhile started some business and in that context, their
Lordships held that it cannot be expected to idle away the time by
remaining unemployed till the case was finally decided. It was held
that if the eldest son was carrying on business along with his mother
that does not mean that his need has not been established for
starting his own business.

In the case of Pratap Rai Tanwani & Anr. vs. Uttam Chand &
Anr. reported in (2004) 8 SCC 490, it was held that the bona fide
requirement of the landlord has to be seen on the date of the petition
and the subsequent events intervening due to protracted litigation will
not be relevant. It was held that the crucial date is the date of petition.
Their Lordships further observed that the normal rule is that the rights
and obligations of the parties are to be determined on the date of the
petition and that subsequent events can be taken into consideration
for moulding the reliefs provided such events had a material impact
on those rights and obligations. It was further observed by their
Lordships that it is a stark reality that the longer is the life of the
litigation the more would be the number of developments sprouting
up during the long interregnum. Therefore, the courts have to take a
very pragmatic approach of the matter. It is the common experience
in our country that specially landlord- tenant litigation prolongs for a
long period. It is true that neither the person who has started the
litigation can sit idle nor the development of the events can be
stopped by him. Therefore, the crucial event should be taken as on
the date when the suit for eviction was filed unless the subsequent
event materially changed the ground of relief.

In the case of Gaya Prasad vs. Pradeep Srivastava
reported in (2001) 2 SCC 604, their Lordships observed that the
landlord should not be penalized for the slowness of the legal system
and the crucial date for deciding the bona fide of the requirement of
the landlord is the date of his application for eviction. Their Lordships
also observed that the process of litigation cannot be made the basis
denying the landlord relief while litigation at least reaches the final
stages. However, their Lordships further added that subsequent
events may in some situations be considered to have overshadowed
the genuineness of the landlord’s need but only if they are of such
nature and dimension as to completely eclipse such need and make
it lose significance altogether.

Thus, we are of opinion that the view taken by the first
appellate court as well as by the High Court appears to be justified
and there is no reason to take a contrary view of the matter.

So far as the finding of the first appellate court and that of
the High Court with regard to the eviction of the tenant on the ground
of sub-letting & material change in premises under Section 11(4)(I )
& (ii) is concerned, that has been held against the landlords and there
is no cross-appeal before us. Therefore, we need not go into merits of
the findings of the courts below. However, another argument which
has been very seriously contended by learned counsel for the
appellant was that the premises in question were in the possession
of the tenant prior to 1940. Therefore, the appellant is entitled to
protection under section 11(17) of the Act. Relevant provisions of the
Act read as under :

“Section 11 (17) Notwithstanding anything
contained in this section a tenant who has been in
continuous occupation of a building from 1st April
1940 as a tenant, shall not be liable to be evicted
for bona fide occupation of the landlord or of the
occupation by any members of his family
dependent on him, provided that a landlord of a
residential building shall be entitled to evict such a
tenant of that building if the landlord has been
living in a place outside the city, town or village in
which the building is situated for a period of not
less than five years before he makes an
application to the Rent Control Court for being put
in possession of the building, and requires the
building bona fide for his own permanent residence
or for the permanent residence of any member of
his family or the landlord is in dire need of a place
for residence and has none of his own.
Explanation  In computing the period of
continuous occupation from 1st April, 1940, the
period if any, during which the landlord was
residing outside the city, town or village in which
the building is situate shall be excluded.”

In order to appreciate this submission of learned counsel for the
appellant, we have to go back to the history about the business.
Learned counsel took us to the background history and invited our
attention to the evidence led in the present case and he also invited
our attention to a decision of this Court in an Income-tax matter of the
appellant firm and wanted us to take judicial notice of the facts
pleaded therein. Just to recapitulate a few facts about the origin of
this firm, the firm Sait Nagjee Purshotham and Co. was started in the
year 1902 and carried on business in banking and piece-goods and
yarn. It was reconstituted by an agreement of partnership dated
December 6, 1918. There were six partners, of whom five were
members of a family and the sixth was an outsider. The agreement
provided that the partnership could not be dissolved by a change in
the constitution thereof. About 1932, the firm started the manufacture
and sale of soap. It had also started the manufacture and sale of
umbrellas. One of the partners died and another retired, and on
January 2, 1934, the remaining four partners executed an instrument
varying some of the terms of the agreement of 1918 but providing
however that subject to the variations the earlier agreement was to
remain effective. Thereafter, on May 30, 1939, two agreements of
partnership were executed of which the first recited that the
manufacture and sale of soaps and umbrellas was carried on by the
three partners along with a fourth partner with effect from October-
November, 1937; and the second deed recited that the three partners
continue to carry on the business in banking, piece-goods and yarn.
This deed further recited that the agreement dated 1918 was revoked
and that the affairs of the firm would be regulated by the new
agreement. Later, by an instrument dated October 30, 1943, after the
retirement of certain partners and admissions of new partners, the
parties thereto agreed to carry on as one single partnership the
business carried on by the two partnerships constituted under the
deeds dated May 30, 1939. Ultimately, under an agreement dated
February 7, 1948 the business was taken over by a company with
effect from November 13, 1947. But the question before us is when
the new company came to be constituted in 1948 it had old partners
or not and what is the nature of this company. We were also taken
through necessary evidence of the tenant to substantiate that all the
old members of the firm continued when the new firm was constituted
in 1948. But after going through the evidence it does not transpire
that in fact all the old members of the earlier partnership firm
continued to be the directors of the newly constituted company i.e.
M/s. Sait Nagjee Purushotham & Co. Ltd. a private limited company
which was incorporated under the Indian Companies Act, 1930. The
appellant failed to substantiate that the old firm which was
subsequently converted into a private limited company had all the
directors who were the partners of the old partnership firm. We could
not persuade ourselves from the evidence which were led in this suit
that the said firm which was the partnership firm and subsequently
converted into a private limited company had the same directors.
The appellant did not lead any categorical evidence to show that the
same firm which was there in 1918 was later on converted into a
private limited company with the same Directors. Therefore, the
evidence in the present case is totally lacking. We insisted learned
counsel for the appellant to satisfy us that the old firm which was
there prior to 1948, converted into a private limited company with
the same directors but learned counsel for the appellant failed to
satisfy us. In fact, this question seems to have not been seriously
raised either before the trial court, or the appellate court or before the
High Court. It was observed by the trial court with regard to the
protection under Section 11(17) of the Act that in order to prove that
the firm is continuing in the tenanted building from 1940, it is admitted
by the tenant that prior to the formation of the tenant- company the
business was conducted by the partnership firm. It is apparent from
Ext.B-6 that the tenant company came into existence in 1948 and
memorandum and article of association clearly shows that the
company was incorporated on 6.2.1948. Therefore, it was held that it
is a separate legal entity from the date of incorporation. It was held by
the trial court that the tenant company could not claim any tenancy
right of partnership because the newly constituted separate legal
entity had come into existence on 6.2.1948. Therefore, it was
observed by the trial court that the very important ingredient of
Section 11(17) is lacking in this case. Similarly, the appellate court in
paragraph 25 of its order also held that the tenant company has not
produced any document to show that it was in possession of the
building as such before 1940. In fact, the private limited company
came into existence in 1948. Therefore, the first appellate court also
affirmed the finding of the trial court. Likewise, the High Court
affirmed the findings of the courts below and observed that both
the Rent Control Court and the Appellate Authority rightly held that
tenancy commenced only in the year 1948 and hence the tenant
cannot claim the protection of Section 11(17) of the Act. In view of
this concurrent finding by all the Courts below there was hardly any
scope to pierce the corporate veil. However, learned counsel very
strenuously urged that the facts given in the earlier decision of this
Court with regard to this firm in an Income-tax matter may be taken
into consideration de hors the actual evidence led in the civil suit.
We cannot consider the facts pleaded in another case with regard to
the firm but in order to substantiate that the same firm was occupying
the premises on 1.4.1940, the tenant has to lead specific evidence
so as to claim protection under Section 11(17) of the Act in this suit.
We have ourselves gone through the evidence adduced in this case
to find out whether any evidence has been led by the tenant to show
that the same partnership firm continued when it was converted into
the private limited company registered under the Companies Act with
the same Board of Directors. But we regret to say that there is none
in this case. This is a civil suit and party has to plead and prove in
this case. We cannot look into the facts appearing in other case
pertaining to this case.

Learned counsel has invited our attention to a decision of
this Court in the case of Madras Bangalore Transport Co.(West) vs.
Inder Singh & Ors. reported in (1986) 3 SCC 62. In this case, on
examination of the facts this Court found that the company was an
alter ego or corporate reflection of the tenant-firm and the two were
one for all practical purposes having substantial identity and
therefore, in that context their Lordships held that there was no
subletting, assignment or parting with possession of the premises by
the firm to the company so as to attract Section 14(1)(b) of the Delhi
Rent Control Act, 1958. Therefore, this case was decided on the
peculiar facts and it was found that the tenant-company was having
no new but the same partners. Therefore, their Lordships held that
the new company cannot mean to be a sub-lessee. Therefore, in view
of the peculiar facts, it was held that the new identity of the company
was the same as was the old one. Therefore, this case is
distinguishable on its facts.

In the case of Vishwa Nath & Anr. vs. Chaman Lal
Khanna & Anr. reported in AIR 1975 Delhi 117, learned Single
Judge of the Delhi High Court examined the concept of formation of a
new concern with the same members. It was observed that if an
individual takes the premises on rent and then converts his sole
proprietorship concern into a private limited company in which he has
the controlling interest, he cannot be evicted from the premises. After
examining the facts, learned Single Judge took the view that the
earlier company and the successor one are identical in all respect. In
this connection, learned Single Judge examined large number of
English cases also. In Chaplin v. Smith [ (1926) 1 KB 198] the Court
of Appeal held that no interest in the demised premises passed to the
companies or either of them and that there had been no breach of the
lessee’s covenant not to part with the possession of the premises or
any part thereof. In this case, the whole question turned on the
question of fact and it was observed in paragraph 41 as follows :

” 41. To sum up: on the facts,
proved Vishwa Nath was the tenant. He took the
premises on rent in November 1962 in his own
name. In 1964 he formed a company in which he
had a controlling interest and of which he is the
chief executive and the managing director. He is in
possession of the premises. His sons and wife are
the other share-holders with him. In my opinion
there is no subletting or parting with possession.”
As against this learned counsel for respondent has invited
our attention to a recent decision of this Court in the case of Singer
India Ltd. vs. Chander Mohan Chadha & Ors. reported in (2004) 7
SCC 1 wherein the decision in Madras Bangalore Transport
Co.(West) (supra) was also considered. This Court after considering
the aforesaid decision observed as follows:

” This case has been decided purely on
facts peculiar to it and no principle of law has been
laid down.”

Their Lordships also observed that in order to find out the real
identity of the new firm or private limited company, one has to lift the
corporate veil and examine whether the same partners continue or
not.

In this connection, learned counsel for respondent invited
our attention to another decision of this Court in the case of Electrical
Cable Development Association vs. Arun Commercial Premises
Cooperative Housing Society Ltd. & Anr. reported in (1998) 5 SCC
396. In this case, the claim of the appellant was that an
association which was an unregistered body known as Indian Cable
Makers’ Association was inducted in the year 1969 as a tenant in the
premises Room No.503, 5th Floor, Arun Chambers, Tardeo, Bombay
by respondent No.2 under an agreement termed as ” leave and
licence” dated 23.9.1969 at a rental of Rs.1500/- per month out of
which Rs.1000/- was towards the premises and rent of Rs.500/- per
month was payable towards furniture and fixtures. The name of the
appellant was changed from Indian Cable Makers’ Association into
M/s. Electrical Cable Development Association. It was registered in
the year 1972. In that context, the question arose whether M/s.
Electrical Cable Development Association is the successor of the
Indian Cable Makers’ Association and their Lordships after examining
the memorandum of association and articles of the appellant-
Company and after reviewing the matter found that it was not the
same. It was observed that articles and the memorandum of
association only provided that a member of Electrical Cable
Development Association as of right be admitted subject to certain
conditions. It does not say that all those members in the
unregistered association become members of the association much
less any resolution was produced before the Court of the Electrical
Cable Development Association to show that they were converting
themselves into an incorporated body. Therefore, in that context,
their Lordships held that the Electrical Cable Development
Association is not the real successor of M/s. Indian Cable Makers’
Association and they are not the same. Therefore, on this question of
fact their Lordships found that it was distinctly separate legal entity
and not the successor of the unregistered firm and the decree of
eviction was affirmed.

In the case of G.Sridharamurti vs. Hindustan petroleum
Corporation Ltd. & Anr. reported in (1995) 6 SCC 605, the
provisions of the Karnataka Rent Control Act, 1961 came into
consideration and in this case a distinction was made between
voluntary formation of company and in-voluntary formation of the
company. In-voluntary formation of company means if by virtue of a
statute law, a company is taken over then in that case the
successor company will not become a sub-tenant and in case, it is a
voluntary formation of company then in that case necessary evidence
will have to be led to show that for all purposes it is same. In this
case, ESSO a private oil company was merged by virtue of Section 7
of the Esso (Acquisition of Undertakings in India) Act, 1974. On
coming into force of this Act, the pre-existing tenancy rights held by
Esso Company with the appellant initially stood transferred and
vested in the Central Government and thereafter it became a
Government company known as Hindustan Petroleum Corporation
Limited. In that context, their Lordships held that the premises were
occupied by Esso which has been acquired by the Central
Government under the enactment of the Parliament and therefore it
will not become a sub-tenant.

In the case of Janki Devi (Smt.) & Anr. vs. G.C.Jain
reported in (1994) 5 SCC 337(II), the premises were let out for being
used as a school under the name and style of Tagore School by a
society registered under the Registration of Societies Act. The
respondent landlord sought to evict lessee on the ground of
subletting in favour of the society. The appellant was the secretary of
the society. But the school was run by different management. Their
Lordships observed that the test to determine a sublease is whether
original lessee has the right to include and exclude others. Once she
is merely a secretary, this test is not answered. Therefore, their
Lordships found that the premises were subleased.

In the case of Cox & Kings Ltd. & Anr. vs. Chander
Malhotra (Smt.) reportd in (1997) 2 SCC 687, the premises in
question was demised to Cox & Kings (Agents) Limited, a company
incorporated under the United Kingdom Companies Act. On account
of certain problems the company wound up and had assigned under
agreement the leasehold interest in the demised premises to the
Indian company which carried on the business in the tenanted
premises without obtaining written consent of the landlord. This was
challenged by the respondent on the ground that this amounted to
subletting under the Delhi Rent Control Act. Their Lordships after
examining the matter answered the question that since the foreign
company was leased out to an Indian company that amounts to
voluntary transfer and the Indian company became a sub-tenant
without the consent of the landlord. Their Lordships answered the
question against the tenant and held that this amounts to sub-leasing
within the meaning of Section 14(1)(b) of the Delhi Rent Control Act.

On review of all these cases it clearly transpires that the
appellant- tenant has failed to substantiate that the private limited
company which was formed in the year 1948 carried the same
partners on the Board of Directors as were there prior to 1948.

In view of the ratio laid down by this Court in the aforesaid
decisions, various tests were laid down obtaining in the facts of each
case. But the common ratio which runs in all these cases is that if
there is voluntary transfer by the company to a newly incorporated
company then in that case one has to plead and prove that all the
members of the old firm continued in the new firm and it is essentially
the same. The only exception which has been made is that the
transfer of the old company to a new one is under the statute or law.
Therefore, in the present case after verifying the records of the case,
we have found that all the three courts have consistently observed
that the benefit of Section 11(17) of the Act cannot be extended to
the appellant in this case and we are of opinion that the view taken by
the courts below is correct and there is no ground to interfere in this
appeal.

Hence, as a result of our above discussions we are of
opinion that there is no merit in this appeal and the same is
dismissed. However, since the appellant had been in possession for
long time and it is private limited company we grant nine months time
to it to deliver the possession to the respondent- landlords. The
appellant will furnish an undertaking before the Rent Controller to the
above effect within four weeks from today and in case the appellant
does not file any such undertaking, then it will be open to the
respondents to execute this order as a decree and get vacant
possession of the premises in question with the help of Police. There
would be no order as to costs.

 

 

 

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