1986 (4) TMI 272 - SC - Companies Law

Voluntary amalgamation and vesting of leasehold amounts to unlawful transfer under section 10(ii)(a), transferee loses tenancy protection

General Radio & Appliances Co. Ltd. Versus MA Khader

SC held that the voluntary amalgamation and consequent vesting of the leasehold in the transferee company amounted to an unlawful transfer of the tenant's ... Voluntary Amalgamation and Transfer of Tenancy Rights - Eviction of the appellant-tenant - Whether the voluntary amalgamation of the first and second appellants companies amounts to a transfer of the first appellant's right under the lease within the meaning of section 10(ii)( a) of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960? Held that:- In the instant case, appellant No. 1, i.e., M/s. General Radio and Appliances Co. (P.) Ltd., is undoubtedly the tenant having taken lease of the premises in question from the respondent landlord by executing a rent agreement dated January 12, 1959, at a rental of Rs. 200 per month, the tenancy commencing from January 7, 1959. On the basis of the sanction accorded by the order of the High Court of Bombay made on March 27, 1968, sanctioning the scheme of amalgamation in Company Petition No. 4 of 1968, filed by the first appellant, all the property, rights and 'powers of every description including all leases and tenancy rights, etc., of the first appellant were transferred to and vested or deemed to be transferred and vested in the second appellant, M/s. National Ekco Radio and Engineering Co. Ltd. It is crystal clear that any person placed in occupation of a building by the tenant cannot be deemed or considered to be a tenant in respect of the premises in which the said person is to be in possession within the meaning of the said Act. Therefore, the second appellant, i.e., National Ekco Radio and Engineering Co. Ltd., the transferee company, who has been put in possession of the tenanted premises by the transferor tenant, General Radio and Appliances Co. (P.) Ltd., cannot be deemed to be a tenant under this Act on the mere plea that the tenancy right including the leasehold interest in the tenanted premises have come to be transferred and vested in the transferee company on the basis of the order made under sections 391 and 394 of the Companies Act. The first appellant company, the tenant has transferred their interest in the tenanted premises to appellant No. 2 company on the basis of the order made by the High Court of Bombay in Company Petition No. 4 of 1968 sanctioning the scheme submitted to it by the transferor company. Furthermore, the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960, which is a special Act, provides specific grounds for termination of a tenancy and eviction of the tenant in section 10(ii)(a ), i.e., on the ground of sub-letting and/or transferring the interest of the tenant either in whole or in part of the tenanted premises to another person. Thus, the Act prohibits in specific terms both sub-letting as well as the transfer or assignment of the interest of the tenant. The transferor company in this case has undoubtedly been dissolved and the company has ceased to exist for all practical purposes in the eye of law. All the interest of the transferor company including possession in respect of the tenanted premises have been transferred to the transferee company in contravention of the provisions of the said Act as well as in contravention of the terms and conditions of the said rent agreement thereby making the transferee company liable to be evicted from the tenanted premises. There has-been a transfer of the tenancy interest of appellant No. 1 in respect of the premises in question to appellant No. 2, subsequently renamed appellant No. 3, M/s National Radio Electronics Co. Ltd., in utter contravention of the provisions of section 10(ii)(a ) of the said Act as well as of the terms and conditions of clause 4 of the rent agreement dated January 12, 1959, executed by the first appellant, i.e., M/s General Radio and Appliances (P.) Ltd., in favour of the respondent landlord. Issues Involved:1. Whether the voluntary amalgamation of two companies amounts to a transfer of tenancy rights under Section 10(ii)(a) of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960.2. Whether the amalgamation constituted unauthorized sub-letting or assignment of tenancy rights.3. Whether there was willful default in the payment of rent.Detailed Analysis:Issue 1: Voluntary Amalgamation and Transfer of Tenancy RightsThe primary legal question was whether the voluntary amalgamation of the first and second appellant companies amounted to a transfer of the first appellant's lease rights under Section 10(ii)(a) of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960. The court examined the nature of the amalgamation, noting that it was sanctioned by the High Court of Bombay under sections 391 and 394 of the Companies Act, 1956. The court held that the transfer of assets and liabilities, including leasehold interests, occurred by virtue of the court's order, making it a voluntary transfer initiated by the first appellant company. This transfer was not considered involuntary as it was based on the company's application for amalgamation.Issue 2: Unauthorized Sub-letting or Assignment of Tenancy RightsThe court analyzed whether the amalgamation amounted to unauthorized sub-letting or assignment of tenancy rights. Clause 4 of the rental agreement explicitly prohibited sub-letting without the landlord's written consent. The court found that the first appellant company had transferred all its interests, including tenancy rights, to the second appellant company without the landlord's consent. This transfer was deemed a violation of Section 10(ii)(a) of the Act, which prohibits transferring lease rights or sub-letting without the landlord's consent. The court emphasized that the amalgamation resulted in the first appellant company ceasing to exist, effectively transferring possession to the second appellant company.Issue 3: Willful Default in Payment of RentThe court also addressed the issue of willful default in the payment of rent. The Rent Controller had initially found that there was willful default in rent payment from October 7, 1968, to April 7, 1969. However, the appellate court reversed this finding, stating that the landlord had refused to accept rent from the second appellant company. The Supreme Court did not delve deeply into this issue, focusing primarily on the legality of the amalgamation and transfer of tenancy rights.Conclusion:The Supreme Court affirmed the judgment of the High Court of Andhra Pradesh, holding that the amalgamation constituted a transfer of tenancy rights without the landlord's consent, in violation of Section 10(ii)(a) of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960. The appeal was dismissed, and the order for eviction was upheld, with no order as to costs.