Ambalal Sarabhai Enterprises Ltd. vs Rajeev Daga and Another

Ashim Kumar Banerjee, Actg. C.J.

Backdrop:

The short question involved herein as to whether the original tenant being a body corporate, incorporated under the Companies Act, 1956, could still be considered as "tenant" despite having merged with the transferee company by virtue of an order of amalgamation. The facts brought in a narrow compass would find Standard Pharmaceuticals Ltd., a company incorporated under the provisions of the Companies Act, 1956, becoming a tenant under the erstwhile landlord. In 1983, the Standard Pharmaceuticals Ltd., stood merged and/or amalgamated with Ambalal Sarabhai Enterprises Ltd., defendant No. 1 above named. By virtue of the order of amalgamation, Standard Pharmaceuticals Ltd., stood dissolved and after dissolution, the company lost its existence. The transferee company did not inform the landlord contemporaneously. Since November 1988, the present landlords being the respondents for the first time came to know, the company started describing themselves as a division of Ambalal Sarabhai. Ambalal contended, they paid rents to the landlords whereas landlords would contend, although rent was paid by Ambalal they did not recognise them as tenant. The landlords continued to issue rent receipts in the name of Standard Pharmaceuticals Ltd., the original tenant.

In this backdrop, the present landlords being respondents Nos. 1 and 2 issued a notice to quit on Ambalal as well as its sister concern occupying the premises. The tenants being the appellant disputed the allegation of subletting and declined to vacate, that gave rise to the litigation. The learned judge by the judgment and order dated July 15, 2013, appearing at pages 245-289 of the paper book decreed the suit and asked the defendants to vacate hence, this appeal at the instance of the tenant.

Contentions:

Mr. Shyama Prasad Sarkar, learned senior counsel appearing for the appellant contended as follows:

(i) The learned judge failed to construe the agreement for tenancy that would include successor and assigns moreover, the sister concerns were also allowed to enjoy the tenancy along with the original tenant.

(ii) The proposition of law laid down by the apex court in the case of General Radio and Appliances Co. Ltd. and Others Vs. M.A. Khader (Dead) by Lrs., would not be applicable as it was not a case of voluntary transfer.

(iii) Assuming the original tenant was dissolved by virtue of the order of amalgamation, the landlord would not be entitled to get a decree for possession as by conduct of parties creation of fresh tenancy in favour of Ambalal was established.

Cases cited:

To support his contention Mr. Sarkar cited the following decisions:

(a) Applicability of ratio:

(1) Delhi Administration (Now N.C.T. of Delhi) Vs. Manohar Lal,

(2) Sanjay Singh and Another Vs. U.P. Public Service Commission, Allahabad and Another,

(3) Dharappa Vs. Bijapur Co-operative Milk Producers Societies Union Ltd.,

(4) Sumtibai and Others Vs. Paras Finance Co. Regd. Partnership Firm Beawer (Raj.) Thru Smt. Mankanwar Chordia (Dead) and Others,

(b) Interpretation of particular clause/document:

(1) Girdhari Lal and Sons Vs. Balbir Nath Mathur and Others,

(2) G. Sridharamurthi Vs. Hindustan Petroleum Corporation Ltd. and another,

(c) Definition of "successor":

(1) Sathyaprema Manjunatha Gowda (Smt) Vs. Controller of Estate Duty, Karnataka,

(d) Creation of tenancy by conduct:

(1 Ram Kumar Das Vs. Jagadish Chandra Deb Dhabal Deb and Another,

(2) Sm. Durgesh Nandini Devi Vs. Aolad Shaikh,

Per contra, Mr. Jishnu Saha, learned counsel appearing for the present landlord being respondents Nos. 1 and 2 would strenuously contend, the principle decided by the apex court in General Radio and Appliances Co. Ltd. and Others Vs. M.A. Khader (Dead) by Lrs., would be squarely applicable as there could be no distinction on factual scenario. He contended, although the appellant took a defence of common management to get the protection of clause 11 of the agreement, the same could not be proved as would be apparent from the evidence. Mr. Saha would support the decision of the learned single judge. According to him, the consent to sublet must be explicit, mere payment of rent would not create any tenancy.

Cases cited:

Mr. Saha would rely upon the two apex court decisions on the subject issue:

(1) South Asia Industries Private Ltd. Vs. S. Sarup Singh and Others,

(2) Shalimar Tar Products Ltd. Vs. H.C. Sharma and Others,

On the issue of "assignment" Mr. Sana cited the following decisions:

(1) v Cox and Kings Ltd. and Another Vs. Chander Malhotra (Smt),

(2) Singer India Ltd. Vs. Chander Mohan Chadha and Others,

(3) Bhagwati Prasad Khaitan and Others Vs. Turner Morrison and Company Limited,

Cases discussed:

Let me deal with the cases cited at the bar on topic wise.

Applicability of a ratio:

Mr. Sarkar relied on four apex court decisions on the issue, three reported in 2007 Supreme Court Cases and the other one in 2002. In the case of Delhi Administration (Now N.C.T. of Delhi) Vs. Manohar Lal, the apex court in paragraph 5 observed, the High Court and all other courts would be obliged to follow the law declared by the apex court, however, it would be the responsibility of the subordinate court to apply the ratio considering the facts and circumstances involved in them. The apex court also observed, the court must consider the special circumstances noticed, before applying a ratio decided by the apex court. In the case of Sanjay Singh and Another Vs. U.P. Public Service Commission, Allahabad and Another, the apex court observed, every judgment of the superior court would have three segments:

(i) Facts and points at issue

(ii) Reasons

(iii) Final order

The reason for the decision or the ratio decendi is not the final order that could be applied. Considering the facts involved in a given case, similar view was expressed in Dharappa Vs. Bijapur Co-operative Milk Producers Societies Union Ltd., and Sumtibai and Others Vs. Paras Finance Co. Regd. Partnership Firm Beawer (Raj.) Thru Smt. Mankanwar Chordia (Dead) and Others, The apex court considered one of its earlier decisions and observed, the ratio of any decision must be understood in the background of the facts of that case.

On a combined reading of the aforesaid decisions the view of the apex court so consistently held, would suggest, the precedent could only be applied when facts would tally, any significant difference would make a ratio not applicable.

Interpretation of document:

Mr. Sarkar relied on two decisions, one of the apex court and the other of the Karnataka High Court on the issue. In the case of Girdhari Lal and Sons Vs. Balbir Nath Mathur and Others, the apex court considered a clause in the tenancy agreement. The apex court observed (page 1505): "There is no magical form in which the consent is to be given nor any charmed form in which the notice is to be sent. As we said, the essence of the matter is that the consent to the sub-tenancy and the notice of sub-tenancy in respect of the premises must be evidenced by writing signed by the landlord and the tenant or the sub-tenant". In the case of G. Sridharamurthi Vs. Hindustan Petroleum Corporation Ltd. and another, the Division Bench of the Karnataka High Court while dealing with the point in issue observed (page 257): "...clause 4(a) of the lease deed only enables the tenant to licence or sub-let the demised premises or any part thereof to any local dealer or agent for use for all or any of the purposes mentioned in the lease deed without any consent of the landlord; but not in favour of a company which is neither a local dealer nor an agent of the original tenant". Considering such clause the Division Bench held in the scenario, the tenant did not sublet. In the present case, clause 11 would permit the appellant to permit its sister concerns also to occupy that would not include a new transferee company, that did not have any relation with the original tenant before the merger.

Effect of the order of amalgamation:

The decision in the case of General Radio and Appliances Co. Ltd. and Others Vs. M.A. Khader (Dead) by Lrs., would hold the field. In addition Mr. Sana relied on three more decisions, two of the apex court and one of this court. In General Radio and Appliances Co. Ltd. and Others Vs. M.A. Khader (Dead) by Lrs., the apex court considered section 14 of the Andhra Pradesh tenancy law that would clearly debar a subletting. Similar provision prohibiting subletting is also available in most of the State laws including Bombay and Delhi as considered by the apex court. The apex court held, order of amalgamation was nothing but a voluntary transfer of assets and liabilities by one juristic entity to the other. Since transfer of tenancy is a voluntary act that would be clearly hit by the prohibitory provision of the tenancy law. In the case of Cox and Kings Ltd. and Another Vs. Chander Malhotra (Smt), the apex court in paragraph 7 considered the ratio decided in General Radio and Appliances Co. Ltd. and Others Vs. M.A. Khader (Dead) by Lrs., and ultimately came to a finding, the facts involved therein would suggest a voluntary transfer. The apex court observed (page 693 of Cox and Kings Ltd. and Another Vs. Chander Malhotra (Smt), ): "...there was a clear assignment between the foreign company and the Indian company of the demised premises without any written consent of the respondent-landlord, it is a case of ''sub-letting'' within a meaning of section 14(1)(b) of the Act". Similar view was taken in the case of Singer India Ltd. Vs. Chander Mohan Chadha and Others, and Sikha Roy Chowdhury (supra).

Creation of fresh tenancy-consent must be explicit:

Mr. Sarkar would rely upon two decisions to suggest, the parties by their conduct proved a fresh tenancy whereas Mr. Saha would rely upon two apex court decisions to support his contention, the consent must be explicit. We want to deal with these two issues at a time. In the case of Ram Kumar Das Vs. Jagadish Chandra Deb Dhabal Deb and Another, the apex court observed, the contract to the contrary, as contemplated u/s 106 of the Transfer of Property Act, 1882, need not be an express contract, it may be implied. In the case of Sm. Durgesh Nandini Devi Vs. Aolad Shaikh, the parties intended to create a permanent lease, however, the lease was not executed. The tenant came in possession, started paying rent, hence the tenancy was proved. In the case of Shalimar Tar Products Ltd. Vs. H.C. Sharma and Others, the apex court observed, to constitute subletting there must be parting of the legal possession, i.e., possession with the right to include and also right to exclude others. Here also section 14 of the Delhi Tenancy Act was considered.

Our view:

On a combined reading of the principle of law so decided in the precedents referred to above and the statute law relevant for the purpose, our understanding of the law is as follows:

(i) Interpretation of a document would depend upon the purpose for which it was executed and how the parties understood the same and acted upon it.

(ii) When a tenant would claim protection under the tenancy law prevalent at the relevant period, it would have the restrictions imposed in the said law including section 14 of the West Bengal Premises Tenancy Act, 1956, that would make a tenancy vulnerable in case of transfer of tenancy without the knowledge and consent of the landlord.

(iii) A body corporate being a tenant would not be entitled to claim immunity in case of amalgamation without the knowledge and consent of the landlord.

(iv) Mere payment of rent by itself would not create any tenancy in favour of the payee.

In the present scenario we do not find any distinction of the facts involved herein with General Radio and Appliances Co. Ltd. and Others Vs. M.A. Khader (Dead) by Lrs.,

Mr. Sarkar made a frantic effort that, however, could not impress us. Mr. Sarkar tried to interpret the agreement by contending the landlord by the said agreement permitted Standard Pharmaceuticals to allow its sister concerns to occupy the premises. Moreover, the recital part of it would also include successor and assigns.

Clause 5 would impose a restriction on the tenant from subletting any portion without prior consent. However, exception was provided in clause 11 where the companies under the same management were permitted to occupy. It is an admitted position, Standard Pharmaceuticals Ltd., stood dissolved long ago that was not in the knowledge of the landlord hence, they continued to issue rent receipts in the name of the original tenant. Ambalal, although paid rent, did not inform about the change. They also did not protest and accepted rent receipts issued in favour of Standard Pharmaceuticals Ltd., a non-existent company. In an order of amalgamation, the shareholders at large as well as the transferee company in their wisdom would deride to merge one with the other, as a consequence of merger the assets and liabilities of the transferor would automatically vest unto the transferee and the transferor would become a non-existent entity and in course of time would get dissolved. Same is the situation here; once the company stood dissolved the tenancy would automatically perish. The order of amalgamation, although an order in rem, is rendered at the instance of the shareholders of both the companies including the transferor tenant hence, the order of amalgamation would not protect the tenancy.

It is true, the recital part of the agreement did provide, tenant would include its successors and assigns however, on a close reading of the said agreement, the recital part being contrary to the specific clause being clauses 5 and 11 would be nugatory when it would come in conflict with clauses 5 and 11.

When the law would prevent subletting and the parties decided to contract otherwise such contract must be explicit. In the present case, the shareholders of the transferor company decided to merge with Ambalal. It was their wisdom that would have no bearing on the landlord who was not taken in confidence. Be it assignment, be it transfer, be it subletting, the tenancy is a non-transferable object that could only extend to others either by an explicit contract or by a clear statute. In the present case, neither there is any statute law to support transfer of tenancy on amalgamation nor any agreement executed between the landlord and the tenant to deal with such eventuality. Voluntary act of the tenant making its own position vulnerable would have no bearing on the landlord.

Mr. Sarkar lastly contended, the parties created a new tenancy by conduct. We fail to reason. Mere payment of rent would not create any tenancy. Apart from payment of rent by Ambalal, we do not get any other evidence in support of the appellant. On the contrary we would find, the order of amalgamation was never served upon the landlord. The landlord was not taken in confidence at any point of time hence, such contention would not be tenable in law.

Result

The appeal thus fails and is hereby dismissed. There would be no order as to costs.

Debangsu Basak J.

I agree.