1983 (12) TMI 244 - HC - Companies Law

Court rules no conveyance needed for partnership converted to company under Companies Act. Property automatically vests. Promoter's property can become company's. Defendant recognized as successor-in-interest. Plaintiffs' suit not maintainable.

The court dismissed the appeal, ruling that no conveyance is required when a partnership is converted into a company under the Companies Act. Property of ... Associations and partnerships exceeding certain numbers – Prohibition of, Prospectus – Registration of Issues Involved:1. Whether a conveyance is necessary to vest the property of a firm when the same was converted into a company.2. Whether such conveyance is necessary to claim title by the company in respect of property acquired by the promoter before its incorporation.3. Whether Exhibit A-1 is a permanent lease.4. Whether the rights under Exhibit A-1 are heritable but not transferable.5. Whether the transfer of the original lessee's interest to the firm is void.6. Whether the partnership entered into by the original lessee with more than 20 persons is illegal under the Indian Companies Act, 1913.7. Whether a conveyance is necessary to vest the property of the firm in the company upon conversion.8. Whether a conveyance is necessary for the company to claim title in the leasehold interest acquired by the original lessee.9. Whether the possession of the first defendant is that of a tenant holding over and terminable on quit notice.10. Whether the first defendant is liable to be evicted for breach of covenant for non-payment of rent and committing waste.11. Whether the plaintiffs are estopped from seeking eviction due to acquiescence.12. Whether the first defendant has perfected title by adverse possession.Detailed Analysis:Issue 1: Necessity of Conveyance for Vesting Property upon Conversion into a CompanyThe court held that no conveyance is necessary when a partnership is converted and registered as a company under Part 9 of the Companies Act, 1956 (Part 8 of the previous Act). Upon registration, all property of the firm vests in the company statutorily. This statutory vesting does not require a separate conveyance.Issue 2: Necessity of Conveyance for Claiming Title by the Company for Property Acquired by the PromoterThe court concluded that property acquired by a promoter before the incorporation of a company can become the property of the company upon its acceptance and adoption after incorporation. The promoter's declaration that the property is held for the company is sufficient to vest the property in the company without a separate conveyance.Issue 3: Nature of Exhibit A-1 LeaseThe court determined that Exhibit A-1 was a permanent lease, heritable and transferable. The terms of the lease and the conduct of the parties indicated an intention to create a permanent lease.Issue 4: Heritability and Transferability of Rights under Exhibit A-1The court found that the rights under Exhibit A-1 were both heritable and transferable. Section 108(j) of the Transfer of Property Act, 1882, which allows for the transfer of leasehold interest, was applicable.Issue 5: Validity of Transfer of Original Lessee's Interest to the FirmThe court held that the original lessee's interest was validly transferred to the firm. The partnership deed (Exhibit B-53) clearly indicated that the leasehold interest was brought into the partnership stock.Issue 6: Legality of the Partnership under the Indian Companies Act, 1913The court ruled that the partnership formed with more than 20 persons was not illegal under the Indian Companies Act, 1913, as the offending clauses making such partnerships illegal came into force only in 1936, after the formation of the partnership in question.Issue 7: Necessity of Conveyance for Vesting Property in the Company upon ConversionThe court reiterated that no conveyance is necessary for vesting property in a company upon conversion from a partnership. The statutory provisions under the Companies Act ensure automatic vesting of property.Issue 8: Necessity of Conveyance for Claiming Title in Leasehold InterestThe court held that the leasehold interest acquired by the original lessee and subsequently transferred to the company did not require a separate conveyance. The promoter's declaration and the company's acceptance were sufficient.Issue 9: Tenant Holding Over and Termination of TenancyThe court found that the first defendant was not a tenant holding over. The lease was permanent and heritable, and there was no valid termination of the lease. The acceptance of rent by the lessor did not create a new tenancy.Issue 10: Forfeiture of Lease for Non-Payment of Rent and WasteThe court concluded that there was no forfeiture of the lease due to non-payment of rent or waste. The rent was paid or deposited in court, and there was no evidence of material damage to the leased premises.Issue 11: Estoppel by AcquiescenceThe court held that the plaintiffs and their predecessors-in-title were estopped from seeking eviction due to acquiescence. The plaintiffs had accepted rent from the first defendant for several decades and treated the first defendant as the successor-in-interest of the original lessee.Issue 12: Adverse PossessionThe court determined that even if the assignment to the first defendant was invalid, the first defendant had perfected title by adverse possession. The first defendant's possession was continuous, exclusive, and to the knowledge of the plaintiffs for over the statutory period.Conclusion:The court dismissed the appeal, holding that the plaintiffs' suit for eviction was not maintainable. The first defendant was recognized as the successor-in-interest of the original lessee, and the leasehold interest was validly vested in the first defendant company. The plaintiffs were estopped from challenging the first defendant's title, and the first defendant had also perfected title by adverse possession. The appeal was dismissed without costs, and leave to appeal to the Supreme Court was granted due to the substantial question of law involved.