2019 (2) TMI 2099 - HC - Indian Laws

Company remains liable for obligations despite name change and complete shareholding transfer under Section 21

State of West Bengal and Ors Versus Gopi Vallabh Solutions Private Limited and Ors

The HC dismissed an appeal regarding company name change under Section 21 of the Companies Act, 1956. The court held that when a company changes its name, ... Change in name under the provisions of Section 21 of the Companies Act, 1956 - new company coming into existence or not - liability to pay permission/transfer fees - HELD THAT:- It is correct that a company is a juristic entity separate from its share holders. The company functions of itself through its board of directors while the share holders are only entitled to participate in the elections and receive dividend. All the share holders jointly cannot be said to be the company as defined under Section 3 of the Companies Act, 1956. The share holders are also free to transfer their shares at will, however, of course subject to statutory restrictions and compliance. Even with the entire transfer of share holding the company continues to exist by its name and is liable for any breach of the agreements entered into by it. In the instant case, even if the transfer of entire share holding of BNK had been transferred in 2009 it did not amount to a new company coming into existence which is different from BNK, in fact BNK continued to be liable as a sub lessee even after transfer of its entire share holding. Any action as to breach of any covenant of the sub lessee ought to have been brought against BNK till its change in name irrespective of who held what shares of and in the said BNK. It is found that there is virtually no change between the two which could have created a doubt in our mind that BNK and GVSPL are different companies. This is also not a case where the corporate veil has to be lifted to probe into or hold transfer of the lease hold interest with the transfer of shares. There are no infirmity and/or perversity therein which requires to be interfered with in an Intra-Court Mandamus Appeal - appeal dismissed. Issues:1. Interpretation of lease deed terms regarding subletting and name change2. Determination of transfer of leasehold interest due to change in company name3. Requirement of permission/transfer fee for change in company nameAnalysis:Issue 1: Interpretation of lease deed terms regarding subletting and name changeThe case involved a lease deed granted by the State of West Bengal to Webel, allowing subletting for electronic industries. Webel subleased to BNKe Solutions Private Limited, later renamed Gopi Vallabh Solutions Private Limited (GVSPL). The deed permitted subletting with prior consent. BNK requested a name change to GVSPL, contested by the appellants demanding transfer fees. The court examined the lease terms and sublease, noting the obligations incorporated in the sublease deed. The change in name was challenged as not constituting a transfer of leasehold interest, emphasizing compliance with lease conditions.Issue 2: Determination of transfer of leasehold interest due to change in company nameThe appellants argued that a change in shareholding constituted transfer of lease, justifying permission fees. GVSPL contended that the company and shareholders are distinct entities, with the company remaining liable for prior actions. The court analyzed precedents and lease clauses, distinguishing cases where name changes did not result in new entities. It emphasized that the change in name under the Companies Act did not create a new company, maintaining the original company's obligations. The court rejected the claim that share transfer in 2009 led to a new entity, affirming the company's continuity despite changes in shareholding.Issue 3: Requirement of permission/transfer fee for change in company nameThe court considered the appellants' argument for transfer fees based on a Supreme Court judgment, contrasting it with the Companies Act provisions and prior legal decisions. It highlighted that a change in name did not alter the company's identity, warranting only rectification of lease deeds without additional fees. The court emphasized that the company's existence transcends shareholder changes, maintaining liability for contractual obligations. Ultimately, the court dismissed the appeal, upholding the writ petitioner's position on the absence of transfer of leasehold interest due to a name change and rejecting the demand for permission fees.Overall, the judgment clarified the legal implications of a company name change on leasehold interests, emphasizing the continuity of obligations despite corporate alterations and underscoring the distinction between company identity and shareholder changes in lease agreements.