2007 (10) TMI 606 - SC - Indian Laws

Tenant's Appeal Dismissed, Eviction Decree Upheld with Costs. Constitutional Validity Confirmed.

The appeal was dismissed with costs, affirming the eviction decree against the tenant. The courts upheld the constitutional validity of Section 3(1)(b) of ... Constitutional validity of classification under rent control legislation - Paid up share capital as a jurisdictional fact - Distinction between jurisdictional fact and adjudicatory fact - Effect of subsequent events on accrued rights - Suspension of proceedings under SICA and its limited effect - Discretionary equitable relief under Article 136Constitutional validity of classification under rent control legislation - Validity of clause (b) of Section 3(1) of the Maharashtra Rent Control Act excluding companies with paid up share capital of Rs.1 crore or more from protection - HELD THAT: - The Court held that the challenge to clause (b) was squarely covered by the Division Bench decision in M/s Crompton Greaves Ltd., which upheld the vires of the provision as a matter of legislative policy to balance landlords' and tenants' interests and to encourage construction of rental housing. The classification based on objective criterion of paid up share capital was not shown to be arbitrary, capricious or lacking reasonable nexus to the statute's object. The Trial Court did not press the vires point in view of the High Court ruling. The courts below therefore correctly declined to treat the provision as constitutionally invalid and proceeded to decide the suit on merits. [Paras 12, 13, 14, 15, 16]Clause (b) of Section 3(1) is valid and the courts below were justified in deciding the matter on merits.Paid up share capital as a jurisdictional fact - Distinction between jurisdictional fact and adjudicatory fact - Whether the paid up share capital being Rs.1 crore or more is a jurisdictional fact and whether that fact existed when tenancy was determined and suit instituted - HELD THAT: - The Court recognised that paid up share capital is a jurisdictional or preliminary fact which conditions the court's competence to apply the Rent Act. Authorities were cited distinguishing jurisdictional facts from adjudicatory facts. On the material before the courts, the tenant-company had paid up share capital exceeding Rs.1 crore on the date the tenancy was determined (31.3.2001) and when the suit was instituted. The resolution purportedly reducing share capital to below Rs.1 crore was not approved by BIFR and no order was produced to show the reduction had legal effect. The Trial Court and High Court examined the documents (including the company's annual report) and correctly concluded that the jurisdictional fact existed, so the Rent Act did not apply. [Paras 24, 25, 31, 32, 33]Paid up share capital being Rs.1 crore or more is a jurisdictional fact; it existed when tenancy was determined and suit filed, and hence the courts rightly proceeded excluding the Rent Act.Suspension of proceedings under SICA and its limited effect - Whether pendency of company rehabilitation under SICA (and Section 22) barred eviction proceedings - HELD THAT: - Relying on precedent including Shree Chamundi Mopeds Ltd., the Court held that eviction proceedings by a landlord against a company alleged to be 'sick' under SICA were maintainable and Section 22 did not operate as an absolute bar to such proceedings. The Trial Court had directed that mesne profits recovery would require BIFR permission, but that did not invalidate the decree for possession. The courts below therefore correctly entertained and decided the eviction suit despite SICA proceedings. [Paras 17, 18, 19]SICA pendency under Section 22 does not preclude eviction proceedings; courts may proceed while leaving certain monetary recoveries subject to BIFR's permission.Effect of subsequent events on accrued rights - Whether subsequent unilateral reduction of paid up share capital by the tenant-company (not approved by BIFR) could defeat landlord's accrued right arising on date of termination - HELD THAT: - The Court reviewed authorities on subsequent events and held that rights are to be judged as on the relevant date (date of institution/termination). A unilateral act after accrual of landlord's right cannot defeat that right absent legally effective change. The purported resolution to reduce share capital lacked BIFR approval and therefore did not alter the legal position; the landlord's accrued right to possession on the date of termination could not be set at naught by the tenant's subsequent unilateral resolution. [Paras 38, 39, 40, 41, 44]Subsequent unilateral reduction of share capital without requisite approval did not defeat the landlord's accrued right; courts correctly ignored the ineffective subsequent event.Discretionary equitable relief under Article 136 - Whether this Court should grant discretionary equitable relief under Article 136 in view of tenant's conduct, including prolonged non-payment of rent/mesne profits - HELD THAT: - The Court exercised its discretionary jurisdiction and noted that the tenant had not paid rent for many years and had failed to make further payments after interim orders and leave being granted, with the landlord having withdrawn the deposited security. Given the tenant's default and the absence of equitable conduct, the Court found no basis to grant relief in exercise of Article 136 jurisdiction. [Paras 5, 45]Discretionary relief under Article 136 refused; conduct of the tenant disentitled it to equitable relief.Final Conclusion: The appeal is dismissed with costs. The courts below rightly upheld the eviction decree: clause (b) of Section 3(1) of the Maharashtra Rent Control Act is validly applied, the tenant's paid up share capital constituted the requisite jurisdictional fact at the relevant time, SICA did not bar the eviction proceedings, subsequent unilateral reduction of share capital without statutory approval did not defeat the landlord's accrued right, and discretionary relief under Article 136 is refused in view of the tenant's conduct. Issues Involved:1. Constitutional validity of Section 3(1)(b) of the Maharashtra Rent Control Act, 1999.2. Jurisdictional fact regarding the tenant's paid-up share capital.3. Applicability of Section 22 of the Sick Industrial Companies Act, 1985.4. Consideration of subsequent events.5. Equitable considerations.Detailed Analysis:1. Constitutional Validity of Section 3(1)(b) of the Maharashtra Rent Control Act, 1999:The tenant contended that the suit filed by the landlord was not maintainable due to the pending question of the constitutional validity of Section 3(1)(b) of the Maharashtra Rent Control Act, 1999. The courts below, however, proceeded to decide the matter on merits, referencing the decision in M/s. Crompton Greaves Ltd. v. State of Maharashtra, which upheld the validity of the provision. The courts noted that the Act exempts premises let to companies with a paid-up share capital of rupees one crore or more. The tenant, being a Public Limited Company with a paid-up share capital exceeding rupees one crore, fell within this exemption.2. Jurisdictional Fact Regarding the Tenant's Paid-Up Share Capital:The tenant argued that the fact of having a paid-up share capital of rupees one crore or more is a 'jurisdictional fact' necessary for the court to proceed. The courts found that the tenant's paid-up share capital was indeed more than rupees one crore when the notice was issued and the suit was filed. The tenant's subsequent resolution to reduce the share capital was not approved by the Board for Industrial and Financial Reconstruction (BIFR), and thus, the courts held that the Rent Act did not apply.3. Applicability of Section 22 of the Sick Industrial Companies Act, 1985:The tenant claimed that being a 'sick company' under the Sick Industrial Companies Act, 1985 (SICA), all proceedings against it should be suspended under Section 22 of the Act. The courts, however, relied on the precedent set in Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association, which held that eviction proceedings could proceed against a sick company. Thus, Section 22 of SICA did not bar the eviction proceedings in this case.4. Consideration of Subsequent Events:The tenant argued that the courts should consider subsequent events, such as the resolution to reduce the paid-up share capital. The courts held that the rights of the parties should be determined based on the date of the institution of the suit. The landlord's right to possession accrued when the tenancy was terminated, and subsequent unilateral actions by the tenant could not nullify this right. The courts referenced the decision in Gajanan Dattatraya v. Sherbanu Hosang Patel, which supported the view that subsequent events should not affect the accrued rights of the landlord.5. Equitable Considerations:The courts also considered equitable factors, noting that the tenant had not paid rent or mesne profits for over ten years. Even after approaching the Supreme Court, the tenant made only a partial payment and failed to deposit further amounts as ordered. The courts concluded that the tenant did not deserve equitable relief under Article 136 of the Constitution due to its continued non-payment and lack of compliance with court orders.Conclusion:The appeal was dismissed with costs, affirming the eviction decree against the tenant. The courts upheld the constitutional validity of Section 3(1)(b) of the Maharashtra Rent Control Act, confirmed the jurisdictional fact of the tenant's paid-up share capital, allowed the eviction proceedings despite the tenant's status as a sick company, and rejected the consideration of subsequent events and equitable relief due to the tenant's conduct.