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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

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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

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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

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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 \026 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

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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

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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

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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

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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 \026landlord 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

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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.