2014 (1) TMI 1573 - HC - Companies Law

Court rules merger of body corporate terminates tenancy upon amalgamation order. Prohibitory provisions apply.

The court held that the original tenant, a body corporate, lost its status as a tenant after merging with another company by virtue of an Order of ... Tenancy of property - Petitioner Company did not vacate tenanted premises even after amalgamation - Petitioner paid rents to the landlords whereas landlords would contend, although rent was paid by Petitoner, they did not recognize them as tenant because landlords continued to issue rent receipts in the name of Standard Pharmaceuticals Limited, the original tenant - Held that:- Standard Pharmaceuticals Limited 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 Limited a non-existent Company. In an Order of Amalgamation, the shareholders at large as well as the transferee company in their wisdom would decide 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. 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 sub-letting, 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 - Decided against Petitioner. Issues Involved:1. Whether the original tenant, a body corporate, retains its status as a 'tenant' after merging with another company by virtue of an Order of Amalgamation.2. Applicability of the Apex Court's decision in the case of M/s. General Radio and Appliances Company Limited v. M.A. Khader.3. Whether the conduct of the parties created a fresh tenancy in favor of the transferee company.4. Interpretation of specific clauses in the tenancy agreement regarding subletting and successors.5. Effect of the Order of Amalgamation on the tenancy.Detailed Analysis:1. Status of Original Tenant Post-Amalgamation:The court examined whether Standard Pharmaceuticals Limited, after merging with Ambalal Sarabhai Enterprises Limited and dissolving, could still be considered a tenant. The transferee company did not inform the landlord about the merger contemporaneously. The landlords continued to issue rent receipts in the name of the dissolved company, Standard Pharmaceuticals Limited, and did not recognize Ambalal as the tenant.2. Applicability of Apex Court Decision:The appellant argued that the Apex Court's decision in M/s. General Radio and Appliances Company Limited v. M.A. Khader was not applicable as the case did not involve a voluntary transfer. The court, however, found this precedent applicable, emphasizing that the order of amalgamation constituted a voluntary transfer of assets and liabilities, making the tenancy vulnerable under prohibitory provisions of tenancy law.3. Creation of Fresh Tenancy by Conduct:The appellant contended that the conduct of the parties, particularly the payment of rent by Ambalal, established a fresh tenancy. The court rejected this argument, stating that mere payment of rent does not create a tenancy. The lack of explicit consent from the landlord and the absence of any agreement to deal with the amalgamation nullified the claim of a new tenancy.4. Interpretation of Tenancy Agreement Clauses:The court interpreted Clauses 5 and 11 of the tenancy agreement. Clause 5 restricted subletting without prior consent, while Clause 11 allowed sister concerns to occupy the premises. The court held that the agreement did not permit a new transferee company, unrelated to the original tenant before the merger, to occupy the premises. The recital part of the agreement, which included successors and assigns, was deemed nugatory when in conflict with Clauses 5 and 11.5. Effect of Order of Amalgamation:The court concluded that the order of amalgamation did not protect the tenancy. Once Standard Pharmaceuticals Limited was dissolved, the tenancy perished. The order of amalgamation, rendered at the instance of the shareholders, did not bind the landlord, who was not informed or taken into confidence. The tenancy, being a non-transferable object, could not extend to others without explicit contract or statutory support.Conclusion:The appeal was dismissed, affirming the lower court's judgment that the defendants must vacate the premises. The court emphasized that voluntary acts of the tenant making its position vulnerable have no bearing on the landlord, and mere payment of rent does not establish a tenancy.