Bombay High Court
M/S. Depe Global Shipping Agencies Pvt. … vs M/S. Mather And Platt (India) Ltd on 4 October, 2024
2024:BHC-AS:39344
Neeta Sawant CRA-719-2023-FC
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
CIVIL REVISION APPLICATION NO. 719 OF 2023
M/s. Depe Global Shipping Agencies
Pvt. Ltd., a private company
Incorporated under Companies Act, 1956
And having its registered office at
Hamilton House, J. N. Heredia Marg,
Ballard Estate, Mumbai - 400 038. } ...Applicant
(Original Plaintiff)
-Versus-
M/s. Mather and Platt (India) Ltd.
A private limited company incorporated
Under Companies Act, 1956,
And having its registered office at
Hamilton House, J. N. Heredia Marg,
Ballard Estate, Mumbai - 400 038. } ...Respondent
(Original Defendant)
__________________________________________________________
Mr. Haresh Jagtiani, Senior Advocate with Mr. Yashpal Jain,
Mr. Suprabh Jain, Mr. Pushpvijay Kanoji, Ms. Jahnavi Vora,
Mr. Siddhesh Jadhav and Ms. Aashna Punjabi i/b Haresh Jagtiani &
Associates, for the Applicant.
Mr. Prasad Dani, Senior Advocate with Ms. Jai Kanade, Ms. Sonal
Doshi and Mr. Ishvendra Tiwari i/b Sonal Doshi & Co., for the
Respondent.
__________________________________________________________
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CORAM : SANDEEP V. MARNE, J.
Reserved On : 11 September 2024.
Pronounced On : 4 October 2024.
JUDGMENT :
–
A. ISSUE FOR CONSIDERATION 1) The issue involved in the Revision Application is
permissibility to seek restoration of protection of rent control
legislation by an entity, which has once lost the same. Section 3(1)(b)
of the Maharashtra Rent Control Act, 1999 (MRC Act) excludes the
entities enumerated therein from application of the Act. Accordingly
a public or private limited company having paid up share capital of
rupees one crore or more is excluded from protection of its tenancy
under the MRC Act. The issue that this Court is tasked upon to
decide is whether a company which had paid up share capital in
excess of Rs. 1 Crore as on the date of coming into effect of MRC
Act (31 March 2000) and had lost the rent control protection, can
resume the lost rent control protection on account of subsequent
reduction of its paid up share capital below Rs. 1 crore.
B. THE CHALLENGE 2) Applicant-lessor is aggrieved by dismissal of its Suit
seeking ejectment of Respondent and has accordingly invoked
revisionary jurisdiction of this Court under Section 115 of the Code
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of Civil Procedure, 1908 (Code) for setting up a challenge to the
Judgment and Order dated 11 August 2023 passed in P. Appeal No.
508 of 2016, by which the Appellate Bench of the Small Causes
Court has confirmed the decree dated 6 October 2016 passed by the
Small Causes Court dismissing the T.E. & R. Suit No. 198/211 of
2006.
C. FACTS 3) The building 'Hamilton House' situated at 8, J.N.
Heredia Marg, Ballard Estate, Mumbai 400 038 was earlier owned by
BP India Ltd, which had inducted Defendant-Company as monthly
tenant in respect of the preemies located on the entire second and
fourth floor. B.P. India Ltd. had filed RAE Suit No.244/515 of 1995
in the Small Causes Court for ejectment of the Defendant, which
was compromised, under which the Defendant handed over
possession of the fourth floor to BP India Ltd. and in turn
Defendant’s tenancy in respect of second floor was agreed not to be
terminated and accordingly, no further steps were to be taken for
recovery of possession of second floor. This is how Defendant
remained as a monthly tenant of B. P. India Ltd. in respect of entire
second floor admeasuring approximately 5000 sq.ft. in the building
Hamilton House (suit premises). Defendant was paying Rs. 13,865/-
towards rent in respect of the suit premises. Plaintiff purchased the
building Hamilton House and thus became Defendant’s
landlord/lessor in respect of the suit premises.
Page No. 3 of 77 4 October 2024 ::: Uploaded on - 05/10/2024 ::: Downloaded on - 06/10/2024 11:41:07 ::: Neeta Sawant CRA-719-2023-FC 4) According to Plaintiff, Defendant being a limited
company having paid up share capital of more than Rs. 1 crore as on
31 March 2000, is not entitled to claim protection under MRC Act
1999 and therefore provisions of Act are not applicable to it. Plaintiff
accordingly served termination notice dated 24 December 2002
calling upon Defendant to handover vacant possession of the suit
premises. Defendant replied the termination notice on 28 December
2002, to which Plaintiff sent a Rejoinder on 18 January 2003.
Treating Defendant as an unprotected tenant, Plaintiff filed eviction
suit under Section 41 of the Presidency Small Causes Act, 1888
(PSCC Act), being T.E. & R. Suit No. 198/211 of 2006.
5) Defendant filed Written Statement raising preliminary
objection about maintainability of the suit under Section 41 of the
PSCC Act and contended that tenancy between the Plaintiff and
Defendant is governed by provisions of MRC Act. Defendant has
further pleaded that its paid-up share capital was Rs.75,60,000/- as
on 31 March 2000 by relying on the Order dated 18 April 2001
passed by this Court in Company Petition Nos. 381 of 2000, 382 of
2000 and 383 of 2000 and certificate issued by Registrar of
Companies.
6) After the Defendant filed the Written Statement, Plaintiff
filed an application for amendment of plaint to incorporate
averments relating to Judgment and Order dated 18 April 2001
passed by this Court. The application was resisted by the Defendant.
The Small Causes Court allowed the application for amendment of
plaint on 2 November 2006. The order allowing amendment was
challenged before this Court by filing Writ Petition No. 213 of 2007.
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By Order dated 4 April 2011, this Court disposed of the petition by
granting liberty to the Defendant to file additional written statement.
Accordingly, Plaintiff amended the plaint and additional paragraph
7(a) was incorporated in the plaint. In the amended plaint, Plaintiff
pleaded that the alleged reduction of the share capital of the
Defendant-Company was not carried out in lawful manner and that
Defendant has fraudulently obtained Order dated 18 April 2000. In
the amended Plaint, Plaintiff pleaded details of device employed by
Defendant in voluntarily reducing its paid-up share capital from
Rs. 18.90 crores to Rs. 75.60 Lac by showing that transfer of its Fire
Safety and Fluid Divisions to its sister concerns Veedip Financial
Services Pvt. Ltd. (Veedip) and Datum Trading Pvt. Ltd. (Datum).
Plaintiff also pleaded that the order of this Court sanctioning the
scheme of arrangement and merger was a result of misrepresentation
made by the Defendant-Company.
7) Defendant filed additional Written Statement to the
amended plaint denying the contents of amended plaint and
objecting to the attempt on Plaintiff ‘s part to challenge order passed
by this Court in Small Causes Court. Additionally, Defendant
justified the necessity for seeking sanction for the Scheme of
Arrangement and De-merger.
8) On 15 March 2004, issues were framed. Plaintiff filed
application for recasting the issues in September 2011, in view of
substantial amendment in the plaint and filing of additional Written
Statement. The application was resisted by the Defendant. The Small
Causes Court by order dated 26 September 2011 rejected the
application, which was challenged before this Court by filing Writ
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Petition No. 8355 of 2011. By Judgment and Order dated 21 October
2011, this Court set aside the order of the Small Causes Court and
framed 3 additional issues. Accordingly, the Small Causes Court
framed 3 additional issues on 9 December 2014. Both the parties led
evidence in support of their respective claims. After considering the
pleadings and evidence on record, the Small Causes Court passed
Judgment and Decree dated 6 October 2016 and dismissed Plaintiff’s
suit on the ground that share capital of the Defendant-Company on
the date of institution of suit as well as on the date of termination
notice was less than Rs.1 crore and therefore Plaintiff ought to have
filed the suit under the MRC Act. The Small Causes Court also held
that Order dated 18 April 2000 passed by this Court was binding on
the Plaintiff and that Plaintiff failed to prove that the said order was
obtained fraudulently by the Defendant.
9) Plaintiff challenged the judgment and order of the Small
Causes Court by filing P. Appeal No. 508 of 2016 before the
Appellate Bench of the Small Causes Court. The Appellate Bench,
by Judgment and Order dated 11 August 2023, has dismissed the
Appeal and confirmed the Judgment and decree dated 6 October
2016 passed by the Small Causes Court. Aggrieved by the decisions
of the Small Causes Court and its Appellate Bench, Applicant-
Plaintiff has filed the present Revision Application.
D. SUBMISSIONS 10) Mr. Haresh Jagtiani, the leaned senior advocate
appearing for the Applicant and Mr. Prasad Dani, the learned senior
advocate appearing for Respondent, have canvassed extensive
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submissions in support of their respective contentions. They have
also filed written notes of arguments. The submissions canvassed are
briefly captured below.
D. 1 SUBMISSIONS ON BEHALF OF APPLICANT
11) Mr. Jagtiani would submit that Respondent, whose paid
up share capital was Rs.18.90 crores as on the date of coming into
effect of MRC Act, is clearly a ‘cash rich entity’ which stood
excluded from protection of rent control legislation. All the entities
referred to in Section 3(1)(b) of the MRC Act are deemed to be cash
rich entities and once protection qua them is removed, such entities
cease to be statutory tenants under the MRC Act and would be
treated as tenants governed by the provisions of the Transfer of
Property Act, 1882. That once the protection enjoyed prior to 31
March 2000 has been revoked by the legislation, the same cannot be
reinstated by voluntary act of the concerned entity by reducing its
paid up share capital to less than Rs.1 crore. That legislative object
and intent in enacting MRC Act must be borne in mind. The
legislature has consciously provided for exclusion of cash rich
entities from the protection of the MRC Act by including them in
Section 3(1)(b). The class of tenants enumerated in that provision are
treated by the legislature as entities who can fend for themselves and
negotiate with their respective landlords for payment of rent as per
prevalent market conditions. In support of his contention that
respondent is a cash rich entity, who could afford to pay market rent
as on 31 March 2000, Mr. Jagtiani would rely upon judgment of the
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Apex Court in Leelabai Gajanan Pansare and others Versus. Oriental
Insurance Company Limited and others1.
12) Mr. Jagtiani would further submit that paid up share
capital of a company is a criterion which is consciously included by
the legislature for removing protection of rent control legislation.
Relying upon judgment of this Court in Crompton Greaves Ltd.
Versus. State of Maharashtra and others2, he would submit that paid
up share capital of the company is its real worth and a factor which
rarely fluctuates. That once a Company is classified into cash rich
entity on the basis of its paid up share capital as on 31 March 2000,
there is nothing in the MRC Act which permits the company to
regain lost protection of rent control legislation. In fact, if the
legislature intended that the tenant may resume enjoying the
protection, it would have made a specific provision in the Act. He
would rely upon judgment of the Apex Court in Central Bank of
India Versus. National Rayon Corporation Limited 3 in support of the
contention that rent control protection once lost cannot be regained
by a tenant.
13) Mr. Jagtiani would further submit that the Respondent-
tenant lost the protection of MRC Act on 31 March 2000 and the
status of its paid up share capital as on the date of filing of the suit
becomes irrelevant. That there is marked difference in cause of
action for a landlord to seek eviction of tenant who has lost
protection under Section 3(1)(b) of MRC Act and the cause of action
1
(2008) 9 SCC 720
2
2002(2) Mh.L.J. 305
3
(2014) 13 SCC 291
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that arises under the provisions of Section 15 or 16 of the said Act.
That for former class of causes of action, there is no period of
limitation and it is for landlord to decide the day to seek eviction of
tenant who has lost protection under rent control legislation. In a
given case, the landlord may tolerate presence of tenant covered by
Section 3(1)(b) and subsequently choose to terminate his monthly
tenancy under Transfer of Property Act. That section 3(1)(b) uses the
word ‘having’ while referring to paid up share capital of a company
as on 31 March 2000 and therefore share capital of the company as
on the date of termination of tenancy becomes irrelevant. That there
is marked difference between causes of action under Section 16(1)(a)
to 16(1)(f) where the cause is complete on account of commission of
certain acts for eg. where tenant ‘has’ sublet the premises, as
contradistinct from use of the words ‘having’ share capital of Rs.1
crore or more. Relying upon judgment of the Apex Court in Carona
Ltd. Versus. Parvathy Swaminathan & Ors. 4, Mr. Jagtiani would
submit that subsequent act of a tenant in reversing the violation
giving rise to cause of action for eviction is irrelevant. He would
submit hat the judgment in Carona Ltd. fully covers the present case.
14) Mr. Jagtiani would further submit that by order passed by
this Court in case of present parties in Depe Global Shipping Agencies
Pvt. Ltd Versus. MPIL Corporation Ltd.5, a specific additional issue was
directed to be framed about company not enjoying protection of
MRC Act as on 31 March 2000 subsequently resuming such
protection on account of reduction of its share capital below Rs.1
crore. That both the Courts however failed to answer the said
4
(2007) 8 SCC 559
5
2012(2) Mh.L.J. 318
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additional issue in its right perspective. That all the submissions
canvassed before this Court were also canvassed before the learned
Judge as well as before the Appellate Bench of Small Causes Court,
both of whom have chosen to skirt the same.
15) Mr. Jagtiani would further submit that the unilateral and
voluntary attempt on the part of Respondent in reducing its paid up
share capital to less than Rs.1 crore under Sections 391 to 394 of the
Companies Act, 1956 can have no impact vis-à-vis the landlord who
is neither party to the same nor has any remedies in respect thereof.
That the scheme of demerger and amalgamation resulting into
reduction of paid up share capital has limited operation within the
boundaries and jurisdiction of the Companies Act and the order
sanctioning such demerger and amalgamation applies in personam
and not in rem. It is jurisprudentially valid in the area of corporate
law alone and cannot govern relationship of landlord and tenant
under the MRC Act. In support, Mr. Jagtiani would rely upon order
passed by the Company Law Board in Efirst Technologies Pvt. Ltd.
and Others. Versus. Hiferworld Cybertech Ltd. and Others 6. He would
also rely upon judgment of the Apex Court in M/s. General Radio and
Appliances Co. Ltd. and others Versus. M.A. Khader (Dead) by LRs 7,
wherein, according to Mr. Jagtiani, attempt on the part of the
Tenant-Company to merge with another Company was viewed by
the Apex Court as an act of subletting on the principle of merger
operating in personam and not in rem. Mr. Jagtiani would submit that
merely because Scheme is binding on statutory or regulatory
authorities such as Income Tax, Sales Tax, Reserve Bank of India,
6
2004 SCC OnLine CLB 46
7
(1986) 2 SCC 656
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SEBI etc. who are necessary parties under the provisions of Sections
391 to 394 and are mandatorily required to participate in the scheme
under Section 230(5) of the Companies Act, 2013 and Section
394(A) of the Companies Act, 1956, it cannot be contended that the
Scheme becomes binding on other entities, particularly the landlord.
16) Mr. Jagtiani would further submit that the appointed
date of 1 April 1999 for the Scheme sanctioned for the Respondent is
irrelevant and inconsequential to the rationale of Section 3(1)(b) of
the MRC Act as the said date has relevance only to the concerned
entity and its stakeholders. It cannot have any impact or significance
beyond the limits of operation of the scheme. In support, he would
rely upon judgment of the Apex Court in Hindustan Lever and
Another Versus. State of Maharashtra and Another8.
17) Mr. Jagtiani would further submit that applying the
scheme of arrangement to the landlord for the purpose of resuming
protection, which stood revoked as on 31 March 2000, would
tantamount to fraud on statute, which is impermissible. Fraud on
statute being a jurisprudential concept, the same need not be pleaded
so long as evidence before the Court sustains it. In support, he would
rely upon judgment of the Apex Court in Bhaurao Dagdu Paralkar
Versus. State of Maharashtra and Others9. That the principle of fraud
on statute would apply in the present case where the Scheme of
Arrangement sanctioned in accordance with object of one statute is
sought to be transported to frustrate the object of another statute. An
attempt to apply results of the Scheme outside its legitimate area of
8
(2004) 9 SCC 438
9
(2005) 7 SCC 605
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operation to another statute, enacted for altogether different purpose
is a fraud on statute. He would also rely upon judgment of the Apex
Court in Reserve Bank of India Versus. Peerless General Finance and
Investment Co. Ltd. and others10.
18) Mr. Jagtiani would further submit that apart from fraud
on statute, there is factual fraud involved in the present case where
the Respondent has deliberately interfered with the numbers while
seeking approval to the Scheme of Arrangement. That the net asset
value of Respondent’s Fire and Fluid Divisions was earlier indicated
as Rs.17.87 crores by the Auditor and the board resolution for the
Scheme was adopted after considering the said audit report. If the
said net value of Rs.17.87 crores of Fire and Fluid Division was to
be adjusted against the paid up share capital of Respondent of
Rs.18.90 crores, still a balance of Rs.1.03 crores would have
remained as paid up share capital of Respondent retaining its status
as cash rich entity. However, the figure of net asset value of Fire and
Fluid Divisions, was deliberately and artificially inflated by the
Respondent to Rs.19.88 crores in the Scheme submitted before this
Court by misleading and misrepresenting this Court for sole purpose
of retaining protection of the MRC Act. Mr. Jagtiani would rely
upon provisions of Section 44 of the Indian Evidence Act, 1872 in
support of his contention that fraud can be agitated in collateral
proceedings. Relying upon judgment of Division Bench of Calcutta
High Court in Ashwini Kumar Samaddar Versus. Banamali
Chakrabarty and ors.11 and of Delhi High Court in Seva International
Fashions & Anr. Versus. Employees’ Provident Fund Organization and
10
(1987) 1 SCC 424
11
AIR 1917 Cal 612(1)
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Ors.12, Mr. Jagtiani would submit without prejudice to his other
contentions that the entire Scheme of Arrangement has ultimately
resulted into redistribution of the paid up share capital of the sister
concerns requiring application of principle of lifting of corporate veil
by treating Respondent Veedip and Datum as unit of Respondent for
the purpose of application of provisions of Section 3(1)(b) of the
MRC Act. In support of his contention of lifting of corporate veil, he
would rely upon judgment of Apex High Court in Delhi Development
Authority Versus. Skipper Construction Co. (P) Ltd. and another 13 and
State of Rajasthan and Others Versus. Gotam Lime Stone Khanij Udyog
Private Limited and another14 and of Single Judge of the Delhi High
Court in Delhi Airport Metro Express Private Limited Versus. Delhi
Metro Rail Corporation Ltd.15
19) Lastly, Mr. Jagtiani would submit that in the event of
this Court accepting Applicant’s contention of application of
provisions of Section 3(1)(b) to the Respondent, the suit filed by the
Applicant be decreed instead of remanding the same before Small
Causes Court as the order of remand would cause enormous
hardship and delay to the applicant in obtaining reliefs.
D. 2 SUBMISSIONS ON BEHALF OF RESPONDENT
20) Mr. Dani would submit that the Scheme of the MRC
Act, which came into effect from 31 March 2000, is such that Section
2 thereof applies to premises on two parameters of ‘purpose of
12
2007 SCC OnLine Del 271
13
(1996) 4 SCC 622
14
(2016) 4 SCC 469
15
2023 SCC OnLine Del 1619
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letting’ and the ‘territorial area’ and Section 3 further seeks exempt
certain premises from its applicability notwithstanding their coverage
under Section 2. That therefore it is impermissible to expand the
scope of exempted categories enumerated under Section 3(1)(b).
Every exempted category specified under Section 3(1)(b) is a separate
and independent category which must be understood in the context
of its specific statutory wording as the said categories do not take
colour from each other. That ‘cash richness’ of entities is not the
determinative factor to identify entities covered under Section 3(1)(b)
as all cash rich entities are not exempted from application of the
MRC Act. He would rely upon judgment of this Court in Shetkari
Sahakari Sangh Ltd. Kolhapur Versus. Dilip Shankarrao Patil 16 wherein
this Court held that every cooperative society cannot be exempted
from application of MRC Act by applying the test of ‘affordability to
pay market rent.’ That since the language of Section 3(1)(b) is plain
and unambiguous, there is no scope for expanding the entities
enumerated in four categories of Section 3(1)(b).
21) Mr. Dani would further submit that the Legislature has
consciously used the word ‘having’ in Section 3(1)(b) instead of
using the word ‘has’ meaning thereby that only the entities who were
having paid up share capital in excess of Rs.1 crore as on the date of
termination of tenancy would stand excluded from application of the
MRC Act. If the legislature intended to exclude every company
which had paid up share capital of Rs.1 crore as on 31 March 2000
from applicability of the Act, it could have used the word ‘has’
instead of using the word ‘having’. Mr. Dani would further submit
that there is conscious use of the word ‘having’ and ‘has’ in various
16
Second Appeal No.126 of 2023 decided on 25 April 2024.
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provisions of the MRC Act. He would submit the grounds of
eviction under Section 16(1)(a) to (f) refer to the acts done in the past
whereas the ground of bonafide requirement under Section 16(1)(g)
requires continuation of the cause as on the date of filing of the suit.
This is the reason why conscious use of the word ‘having’ in Section
3(1)(b) must be given its proper grammatical meaning by interpreting
that only companies who qualify the requirement of having paid up
share capital in excess of Rs.1 crore on the date of termination of
tenancy would get exempted from application of the Act.
22) Mr. Dani would further submit that the crucial or
controlling date to determine the status of the company for
applicability of exemption under Section 3(1)(b) is the date on which
the landlord files the proceedings for eviction and not the date of
enactment of the Rent Act. He would rely upon judgment of the
Apex Court in MST. Subhadra Versus. Narsaji Chenaji Marwadi 17,
Vasudev Dhanjibhai Modi Versus. Rajabhai Abdul Rehman and others 18
and Nalanikant Ramadas Gujjar Versus. Tulasibai (Dead) by LRs and
others19. He also relies upon judgment in Carona Ltd., cited by Mr.
Jagtiani, in support of his contention that the Apex Court has
considered the jurisdictional fact of the share capital being in excess
of Rs.1 crore at the time when the proceedings were initiated against
the Company. He would submit that except to this limited extent, the
judgment in Carona Ltd. has no application where approval of BIFR
was not taken for reduction of share capital below Rs.1 crore and
therefore there was no reduction of share capital in the eyes of law.
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paid up share capital of the Respondent has taken effect from 1 April
1999 i.e. before the enactment of MRC Act on 31 March 2000 and
such reduction has taken place not only after following due
procedure under Sections 391 and 394 of the Companies Act, but
through an order passed by this Court. He would rely upon judgment
of this Court in New Era Fabrics Ltd., Mumbai Versus. Bhanumati
Keshrichand Jhaveri and others20 in which judgment of the Apex
Court in Carona Ltd. was considered and it was held that the relevant
date for ascertaining the authorized share capital of a Company is
the date of filing of the suit. He would rely upon judgment of this
Court in Pune Zilla Madhyawarti Sahkari Bank, Pune Versus. Smt.
Urmila Chandrakant Patil21 in support of his contention that it is
impermissible to enlarge the scope of Section 3(1)(b) by way of
interpretation.
24) Mr. Dani would further submit that Respondent took
commercial decision of demerger of its two business divisions and
adopted the legal procedure by approving the Scheme of
Arrangement and Demerger vide Resolution dated 29 October 1999,
much before coming into effect of MRC Act. Though the Scheme is
sanctioned by this Court by order dated 18 April 2001 the same has
come into effect from 1 April 1999 whereby Respondent’s paid up
share capital has been reduced from Rs.18,90,19,120/- to
Rs.75,60,000/- w.e.f. 1 April 1999. Therefore, even as on 31 March
2000, Respondent had share capital of less than Rs.1 crore. In any
20
2017(5) Mh.L.J. 781
21
2006(3) Mh.L.J. 53
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case, as on the date of service of termination notice on 24 December
2002, this Court had already sanctioned the scheme on 18 April 2001
and the suit for eviction under Section 41 of the Presidency Small
Causes Courts Act, 1882 was filed on 25 July 2003. Therefore, the
crucial date for determining paid up share capital of Respondent
would be the date of filing of the suit i.e. 25 July 2003. Mr. Dani
would further take me through the order of this Court sanctioning
the Scheme of Arrangement and Demerger. He would submit that
this Court had expressly reserved liberty to apply to the Court for any
directions by any person interested in the Scheme. That Petitioner
never challenged the order sanctioning the Scheme. That under the
provisions of Section 391 and 394 of the Companies Act, the order
of the Company Board sanctioning the scheme has legal effect and is
binding not only on the parties to the arrangement but also on third
parties. He would rely upon judgment of this Court in Sadanand S.
Vardhe & others Versus. State of Maharashtra & others 22 in this regard.
He would also rely upon judgment of the Apex Court in Marshall
Sons & Co. (India) Ltd. Versus. Income Tax Officer 23 holding that every
Scheme has to necessarily provide a date from which the Scheme
shall take effect and that where the Court does not prescribe any
specific date, but merely sanctions the Scheme, it should follow that
the date of amalgamation/transfer is the date specified in the
scheme. He would rely upon judgment of this Court in National
Organic Chemical Industries and another Versus. State of Maharashtra
and others24 delivered in the context of constitutional validity of
Section 33(c) of the Bombay Sales Tax Act, 1959 in which it is held
22
(2001) 1 Bom.C.R. 261
23
(1997) 2 SCC 302
24
2004 SCC OnLine Bom 1089
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that the status of the company as per the scheme sanctioned by the
Company Court cannot be altered by the State even in exercise of its
legislative power. He would also rely upon judgment of this Court in
Commissioner of Income-Tax Versus. Mather and Platt (I.) Ltd. 25 in
which, according to Mr. Dani, Division Bench of this Court has held
that the scheme of amalgamation comes into effect from the
appointed date specified in the scheme. In support of the same
contention, he would rely upon judgment of Division Bench of this
Court in Commissioner of Income-Tax, Pune-I Versus. Swastik Rubber
Products Ltd.26
25) Mr. Dani would further submit that since the scheme of
amalgamation specifying the date of demerger has been sanctioned
by judicial order of this Court, it is impermissible for either Small
Causes Court or for this Court to deny effect of such demerger even
in a collateral proceedings. That Small Cause Court is a Court of
limited jurisdiction and Section 19 of the PSCC Act provides that
express jurisdictional bar excluding its jurisdiction in respect of suits
concerning any act ordered or done by any Judge or Judicial Officer
or suits or judgment of any High Court.
26) So far as the ground of fraud on statute as well as the
fraud in fact sought to be canvassed by the Applicant, Mr. Dani
would submit that the allegations are not only vague but there are no
supportive pleadings in the plaint. It is well settled law that the fraud
must be both pleaded and proved and in support he would rely upon
judgment of Union of India and another Versus. K.C. Sharma and
25
1992 SCC OnLine Bom 625
26
1979 SCC OnLine Bom 254
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Company and others27. He would also rely upon judgment in Shrisht
Dhawan (SMT) Versus. M/s. Shaw Brothers 28 in support of his
contention that fraud is essentially a question of fact, the burden to
prove which is upon him who alleges it.
27) Mr. Dani would submit that both the Courts have
concurrently negatived the contentions raised by Applicant and in
absence of any glaring error in such concurrent findings, this Court
would be loathe in interfering with the same in exercise of its
revisionary jurisdiction. He would pray for dismissal of the Revision
Application.
E. REASONS AND ANALYSIS 28) The core issue involved in the present case is about
applicability of provisions of Section 3(1)(b) of the MRC Act to the
Respondent-Company who is the tenant of Revision Applicant. The
applicability of provisions of Section 3(1)(b) of the MRC Act to a
tenant results in loss of protection under the Act to such tenant. The
Revision Applicant contends that Respondent stands excluded from
protection of its tenancy under the MRC Act and that therefore the
tenancy has rightly been terminated under the provisions of Section
106 of the Transfer of Property Act and that therefore the Suit filed
under Section 41 of the PSCC Act ought to have been decreed by the
Small Causes Court. The Small Causes Court has however negatived
Revision Applicant’s contention and has held that Respondent is not
covered by Section 3(1)(b) of the MRC Act and that therefore
27
(2020) 15 SCC 209
28
(1992) 1 SCC 534
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termination of the tenancy is neither valid nor the Court had
jurisdiction to entertain the suit. The Appellate Bench of Small
Causes Court has dismissed the Appeal preferred by the Revision
Applicant and has confirmed the decree of the Trial Court
dismissing Applicant’s suit.
E. 1 STATUTORY SCHEME OF MRC ACT 29) For resolving the controversy at hand, it would be
necessary to make a quick reference to the statutory scheme of the
MRC Act. Section 2 of the Act provides that the Act shall apply to
premises let for the purpose of residence, education, business, trade
or storage in the areas specified in Schedule-I and Schedule-II.
Section 2 of MRC Act provides thus :
2. Application.
(1) This Act shall, in the first instance, apply to premises let for the
purposes of residence, education, business, trade or storage in the
areas specified in Schedule I and Schedule II.
(2) Notwithstanding anything contained in sub-section (1), it shall
also apply to the premises or, as the case may be, houses let out in
the areas to which the Bombay Rents, Hotel and Lodging House
Rates Control Act, 1947 or the Central Provinces and Berar
Letting of Houses and Rent Control Order, 1949 issued under the
Central Provinces and Berar Regulation of Letting of
Accommodation Act, 1946 and Hyderabad Houses (Rent,
Eviction and Lease) Control Act, 1954 were extended and applied
before the date of commencement of this Act and such premises or
houses continue to be so let on that date in such areas which are
specified in Schedule I to this Act, notwithstanding that the area
ceases to be of the description therein specified.
(3) It shall also apply to the premises let for the purposes specified
in sub-section (1) in such of the cities or towns as specified in
Schedule II.
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(4) Notwithstanding anything contained hereinabove, the State
Government may, by notification in the Official Gazette, direct that
–
(a) this Act shall not apply to any of the areas specified
in Schedule I or Schedule II or that it shall not apply to any
one or all purposes specified in sub-section (1);
(b) this Act shall apply to any premises let for any or
all purposes specified in sub-section (1) in the areas other
than those specified in Schedule I and Schedule II.
30) Thus, the MRC Act applies to all premises which are let
out for purposes specified in Section 2(1) as well as which are
situated in areas specified in Schedule-I and II of the Act. However,
Section 3 of the Act provides for exemption from application of
provisions of Act to the premises covered by Section 2. Section 3 of
MRC Act provides thus:
3. Exemption.
(1) This Act shall not apply —-
(a) to any premises belonging to the Government or a local
authority or apply as against the Government to any tenancy,
licence or other like relationship created by a grant from or a
licence given by the Government in respect of premises
requisitioned or taken on lease or on licence by the Government,
including any premises taken on behalf of the Government on the
basis of tenancy or of licence or other like relationship by, or in
the name of any officer subordinate to the Government authorised
in this behalf, but it shall apply in respect of premises let, or given
on licence, to the Government or a local authority or taken on
behalf of the Government on such basis by, or in the name of,
such officer;
(b) to any premises let or sub-let to banks, or any Public Sector
Undertakings or any Corporation established by or under any
Central or State Act, or foreign missions, international agencies,
multinational companies, and private limited companies and
public limited companies having a paid up share capital of more
than rupee one crore or more.
Explanation.- For the purpose of this clause the expression “bank”
means,-
(i) the State Bank of India constituted under the State Bank of
India Act, 1955;
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(ii) a subsidiary bank as defined in the State Bank of India
(Subsidiary Banks) Act, 1959;
(iii) a corresponding new bank constituted under section 3 of the
Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970 or under section 3 of the Banking Companies
(Acquisition and Transfer of Undertaking) Act, 1980; or
(iv) any other bank, being a scheduled bank as defined in clause
(e) of section 2 of the Reserve Bank of India Act, 1934.
(2) The State Government may direct that all or any of the
provisions of this Act shall, subject to such conditions and terms
as it may specify, not apply-
(i) to premises used for public purposes of a charitable nature or to
any class of premises used for such purposes;
(ii) to premises held by a public trust for a religious or charitable
purpose and let at a nominal or concessional rent;
(iii) to premises held by a public trust for a religious or charitable
purpose and administered by a local authority; or
(iv) to premises belonging to or vested in an university established
by any law for the time being in force.
Provided that, before issuing any direction under this sub-section,
the State Government shall ensure that the tenancy rights of the
existing tenants are not adversely affected.
(3) The expression “premises belonging to the Government or a
local authority” in subsection (1) shall, notwithstanding anything
contained in the said sub-section or in any judgment, decree or
order of a court, not include a building erected on any land held
by any person from the Government or a local authority under an
agreement, lease, licence or other grant, although having regard to
the provisions of such agreement, lease, licence or grant the
building so erected may belong or continue to belong to the
Government or the local authority, as the case may be, and such
person shall be entitled to create a tenancy in respect of such
building or a part thereof.
31) For the purpose of deciding the present Revision
Application, Clause (b) of sub-section (1) of Section 3 is relevant
which enumerates the entities for whom applicability of provisions
of MRC Act has been excluded. Section 3(1)(b) classifies such
entities in four categories as under :
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(i) Banks as defined under Explanation to S.3(1)(b).
(ii) Public Sector Undertakings or Corporations
established by or under any Central or State Act.
(iii) foreign missions, international agencies,
multinational companies,
(iv) private limited companies and public limited
companies having paid up share up capital of Rs.1
crore or more.
32) Respondent is a private limited company whose paid up
share capital was originally Rs.18,90,19,120/- and could thus have
been easily covered by the expression ‘having a paid up share capital
of rupees one crore or more’. However, in the unique facts of the
present case, the paid up share capital of Respondent-Company has
subsequently been reduced on account of order passed by this Court
on 18 April 2001 sanctioning the Scheme of Arrangement and
Demerger with effect from the appointed date of 1 April 1999.
Otherwise, when MRC Act came into effect on 31 March 2000, the
paid up capital of Respondent-Company was undoubtedly above
Rs.1 crore. Therefore, the issue for consideration is whether a tenant
who has lost protection of MRC Act on account of its paid up share
capital being in excess of Rs.1 crore as on the date of coming into
effect of MRC Act, can regain such protection on account of
subsequent reduction of its paid up share capital. In fact, this was the
precise issue framed by this Court by its order dated 21 October 2011
for being determined while deciding the suit. It would be apposite to
make reference to some of the observations made by this Court by
directing framing of the above additional issue. In paras-24 and 25 of
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the judgment in Depe Global Shipping Agencies Pvt. Ltd. (supra), this
Court held as under :
24. Before parting with this Judgment it is also necessary to note
that, based on the date of commencement of the 1999 Act, the
date of filing Company Petition for accepting scheme for
compromise and arrangement, the date of the order allowing the
said Petition on 18/4/2011 with retrospective effect on 1/4/1999
an issue of law also arises as to whether a company which is not
governed by the provisions of Section 3(1)(b) of the Maharashtra
Rent Control Act, 1999 at the commencement of the said Act as
on 31/3/2000 can cease to be governed by the said Section and
claim protection of the said Act on account of subsequent
reduction in the share capital prior to the filing of the Suit. Apart
from this additional issue No. 2 as suggested by the Petitioner also
needs to be recast. Mr. Madan alternatively submitted without
prejudice to his first contention that none of the two additional
issues arise from his pleadings, the issue cannot be framed so as to
cast burden on the Defendant. Mr. Madan is justified in pointing
out that the issue purported to place burden on the
Respondent/Defendant rather than placing the burden on the
Petitioner/Plaintiff.
25. Hence I pass the following order :
(a) The impugned Judgment and Order dated 26/9/2011 is
quashed and set aside. Apart from the additional issue No.1 as
suggested by the Petitioner, two more issues will have to be
framed by the Trial Court. Additional issue No. 2 as suggested by
the Petitioner will have to be slightly modified by placing burden
on the Plaintiff and issue of law as indicated above in addition to
the additional 2 issues will also have to be framed.
(b) The Additional issues will read thus :
(i) Does the plaintiff prove that the defendant has
fraudulently obtained the order dated 18th April 2001
reducing the paid up capital of the defendant ?
(ii)Does the Plaintiff prove that the order dated 18th April,
2001 is not binding on the plaintiff ?
(iii)Whether a Company which is not enjoying the
protection of the Maharashtra Rent Control Act, 1999 as
on 31/3/2000 being the date of commencement of the Act
can subsequently get protection on account of reduction of
its share capital below Rs. 1 Crore and whether Section
3(1)(b) of the said Act ceases to apply on account of such
reduction ?
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E. 2 BACKGROUND AND OBJECTIVE BEHIND EXCLUSION OF
‘CASH RICH ENTITIES’ FROM APPLICABILITY OF RENT
ACT
33) For deciding the issue of regaining protection of MRC
Act by a company subsequent to reducing its paid up share capital
below Rs.1 crore, it would be necessary to understand the
background in which the provision for exclusion of entities
enumerated under Section 3(1)(b) of the MRC Act is enacted. The
Bombay Rents, Hotel and Lodging House Rates Control Act, 1947
(Bombay Rent Act) governed the legislative field before enactment of
MRC Act. The Bombay Rent Act was enacted as a temporary
measure, which was to initially operate only for two years and its
application got extended from time to time until enactment of the
MRC Act on 31 March 2000. Section 4 of the Bombay Rent Act
provided for exemption from application of provisions of the Act,
but restricted the exemption clause only to the premises belonging to
Government or local authorities. There was no pari materia provision
under Section 4 of Bombay Rent Act for exclusion of entities which
are enumerated under Section 3(1)(b) of the MRC Act. The Bombay
Rent Act froze standard rent payable in respect of tenanted premises
and Section 7 thereof made demand of rent in excess of standard
rent illegal. Considering the issue involved in the present Revision
Application, it is not necessary to delve deeper into the standard rent
fixation provisions under the Bombay Rent Act and it is suffice to
observe that the Act virtually froze the standard rent in respect of
premises governed by it. The landlords were thus neither in a
position to hike the rent with passage of time nor were able to seek
ejectment of a tenant unless there was default in payment of rent
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under Section 12 or one of the grounds specified for eviction under
Section 13 was made out. Constitutional validity of provisions of
Sections 5(10), 11 and 12 of the Bombay Rent Act came to be
challenged initially before this Court and later before the Apex Court
in Malpe Vishwanath Acharya and others Versus. State of Maharashtra
and another29 by the landlords. The Apex Court was on the verge of
declaring the provisions of standard rent fixation under the Bombay
Rent Act as arbitrary and was about to set them aside in Malpe
Vishwanath Acharya. However, it was urged on behalf of the State
Government before the Apex Court that it was in the process of
replacing the Bombay Rent Act with a new Act and that all the
observations made by the Apex Court in the judgment would be duly
taken note of while enacting the new Rent Act for State of
Maharashtra. It would be apposite to make reference to observations
of the Apex Court in paras-27, 29, 31 and 32 of the judgment in
Malpe Vishwanath Acharya, which read thus :
27. It is true that whenever a special provision, like the rent control act,
is made for a section of the Society it may be at the cost of another
section, but the making of such a provision or enactment may be
necessary in the larger interest of the society as a whole but the benefit
which is given initially if continued results in increasing injustice to
one section of the society and an unwarranted largess or windfall to
another, without appropriate corresponding relief, then the
continuation of such a law which necessarily, or most likely, leads to
increase in lawlessness and undermines the authority of the law can no
longer be regarded as being reasonable. Its continuance becomes
arbitrary.
29. In so far as social legislation, like the rent control act is concerned,
the law must strike a balance between rival interests and it should try
to be just to all. The law ought not to be unjust to one and give a
disproportionate benefit or protection to another section of the society.
When there is shortage of accommodation it is desirable, nay,
necessary that some protection should be given to the tenants in order
to ensure that they are no exploited. At the same item such a law has
29
(1998) 2 SCC 1
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to be revised periodically so as to ensure that a disproportionately
larger benefit them the one which was intended is not given to the
tenants. It is not as if the government does not take remedial measures
to try and offset the effects of inflation. In order to provide fair wage to
the salaried employees the government provides for payment of
dearness and other allowances from time to time. Surprisingly this
principle is lost sight of while providing for increase in the standard
rent-the increase made even in 1987 are not adequate, fair or just and
the provisions continue to be arbitrary in today’s context.
31. Taking all the facts and circumstances into consideration we have
no doubt that the existing provisions of the Bombay Rent Act relating
to the determination and fixation of the standard rent can no longer be
considered to be reasonable. The said provisions would have been
struck down as having now become unreasonable and arbitrary but we
think it is not necessary to strike down the same in view of the fact that
the present extended period of the Bombay Rent Act comes to an end
on 31st march, 1998. The government’s thinking reflected in various
documents itself shows that the existing provisions have now become
unreasonable and, therefore, require reconsideration. The new bill is
under consideration and we leave it to the legislature to frame a just
and fair law keeping in view the interests of all concerned and in
particular the resolution of the State Ministers for Housing of 1992 and
the National Model law which has been circulated by the Central
Government in 1992. We are not expressing any opinion on the
provisions of the said Model law but as the same has been drafted and
circulated amongst all the States after due deliberation and thought,
there will, perhaps, have to be very good end compelling reasons in
departing from the said Model Law. Mr. Nargolkar assured us that
this Model law will be taken into consideration in the framing of the
proposed new Rent Act.
32. We, accordingly, dispose of these appeals without granting any
immediate relief but we hold that the decision of the High Court
upholding validity of the impugned provisions relating to standard rent
was not correct. We however refrain from striking down the said
provision as the existing Act elapses on 31.3.1998 and we hope that
new Rent Control Act will be enacted with effect from 1st April, 1998
keeping in view the observations made in this judgment in so far as
fixation of standard rent is concerned. It is, however, made clear that
any further extension of the existing provisions without bringing them
in line with the views expressed in this judgment, would be invalid as
being arbitrary and violative of Article 14 of the Constitution and
therefore of no consequence. The respondents will pay the Costs.
(emphasis added)
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34) It appears that L.C. Bill No. VI of 1993 was already
introduced in the Legislative Council on 27 July 1993, much before
delivery of judgment in Malpe Vishwanath Acharya and the Council
had adopted a Motion for reference of the Bill to a Joint Committee
of both the Houses. The Joint Committee had conducted series of
hearing but was yet to submit its final report by the time the
judgment in Malpe Vishwanath Acharya was delivered. The
Committee deliberated with the stakeholders by taking into
consideration the observations of the Apex Court in its judgment in
Malpe Vishwanath Acharya and submitted its report. The MRC Act
was accordingly enacted and brought into effect w.e.f. 31.3.2000 by
not extending the provisions of Bombay Rent Act. This is how the
journey of Bombay Rent Act got finally halted on account of
judgment of the Apex Court in Malpe Vishwanath Acharya. Thus,
MRC Act is a sequel to the judgment of the Apex Court in Malpe
Vishwanath Acharya which is also an observation of the Apex Court
in its judgment in Leelabai Gajanan Pansare (supra) in which it is held
in para-59 as under :
59. The above discussion is relevant because we must understand
the reason why Section 3(1)(b) came to be enacted. As stated
above, in our view, with the offer of an economic package to the
landlords, the legislature has tried to maintain a balance. The
provisions of the earlier Rent Act, as stated above, have become
vulnerable, unreasonable and arbitrary with the passage of time as
held by this Court in the above judgment. The legislature was
aware of the said judgment. It is reflected in the report of the Joint
Committee. In our view, the changes made in the present Rent
Act by which landlords are permitted to charge premium, the
provisions by which cash-rich entities are excluded from the
protection of the Rent Act and the provision providing for annual
increase at a nominal rate of 5% are structural changes brought
about by the present Rent Act, 1999 vis-à-vis the 1947 Act. The
Rent Act of 1999 is the sequel to the judgment of this Court
in Malpe Vishwanath Acharya.
(emphasis added)
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35) In Leelabai Gajanan Pansare the issue raised before the
Apex Court was whether Government Companies would be covered
by the expression ‘Public Sector Undertakings’ occurring in Section
3(1)(b) of the MRC Act. The Apex Court formulated the point for
determination in para-49 of the judgment as under :
Point for Determination:
49. Whether the High Court was right in holding that the words
“PSUs” in Section 3(1)(b) excluded Government Companies as
defined under Section 617 of the 1956 Act.
36) For giving purposive interpretation to Section 3(1)(b) of
the MRC Act, the Apex Court went into the history for ascertaining
the object behind enactment of the Bombay Rent Act and examined
whether there was any structural change made by the legislature in
the MRC Act vis-à-vis the Bombay Rent Act. More importantly, the
Apex Court analysed the provisions of the Bombay Rent Act for
examining the change in the economic conditions between 1947 and
31 March 2000 when MRC Act came into force. The Apex Court
thereafter held in para-56 as under :
56. Broadly, we may state that the twin objects for enacting the
1947 Act was tenancy protection and rent restriction. In 1947, the
economic scenario was different from the scenario that prevails
after 31.3.2000. In 1947 rent forming provided an important
source of unearned income to the landlords which led to the
landlords charging exorbitant rent in urban areas. Return on
investments at that time constituted considerable returns to the
landlords. At that time, it was worth investing in the business of
leasing. The cost of repairs was comparatively much less. The
purchasing power of the rupee was relatively higher than the
purchasing power of the rupee after 31.3.2000. However, by 1976,
with the rise in the cost of living index, the said investments made
in 1940’s started giving negative returns. Coupled with the price
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Greater Mumbai are in a dilapidated condition for lack of
resources. Therefore, in 1976, the Legislature enacted MHADA
1976 precisely to undertake repairs and constructions of old
dilapidated buildings for which cess was levied. However, with
the passage of time, it appears that the position deteriorated and
investments in this sector became negligible by 31.3.2000. With
the price rise and with the increase in the cost of construction,
certain provisions of the 1947 Act by which standard rent stood
pegged/frozen as on 1.9.1940 and the provision imposing a ban
on the landlords from receiving premium under Sections 18 and
19 of the 1947 Act became vulnerable to challenge as violative of
Article 14 of the Constitution. Those provisions, as discussed
above, were Sections 5(10), 11, 18 and 19. This position was
further compounded when large premises, particularly in South
Mumbai stood occupied by cash-rich entities like, statutory
corporations and corporate bodies who insisted on paying meager
standard rent under the 1947 Act.
37) The Apex Court in Leelabai Gajanan Pansare thereafter
made extensive reference to its judgment in Malpe Vishwanath
Acharya in para-57 of its judgment and held in paras-58, 70, 73, 74
and 76 as under :
58. Therefore, the legislature was required to keep in mind the
vulnerability of fixing standard rent as on 1.9.1940. At the same
time, the legislature had to keep in mind two aspects, namely,
tenancy protection and rent restriction. The problem arose on
account of economic factors. However, the legislature found the
solution by evolving an economic criterion. The legislature
evolved a package under which the prohibition on receiving
premium under Section 18 of the 1947 Act stood deleted. In other
words, landlords were given the liberty to charge premium. The
second package was to exclude cash-rich body corporates and
statutory corporations from the protection of the Rent Act. This
part of the economic package helps the landlords to enhance the
rent and charge rent to the entities mentioned in Section 3(1)(b)
who can afford to pay rent at the market rate. This was the second
item in the economic package offered to the landlords under the
present Rent Act. The third item of the Rent Act was to give the
benefit of annual increase of rent @ 5% under the present Rent
Act. All three items constituted one composite package for the
landlords. The underlying object behind the said economic
package is to balance and maintain the two-fold objects of the
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Rent Act is also to continue to give protection to tenants who
cannot afford to pay rent at market rate.
70. According to the respondents, the words ‘PSUs’ in Section
3(1)(b) has to be read with the words any corporation established
by or under Central or State Act. In other words, according to the
respondents, only those PSUs which are established by or under
any Central or State Act alone stand excluded from the protection
of the Rent Act. According to the respondents, PSUs which are
Government companies incorporated under Section 617 of the
1956 Act are entitled to the protection as they are not expressly
excluded under Section 3(1)(b). We do not find merit in this
submission. Firstly, it may be noted that several entities have been
enumerated in Section 3(1)(b), namely, banks, PSUs or statutory
corporations, foreign missions, international agencies,
multinational companies and private limited and public limited
companies having a paid up share capital of Rs. 1,00,00,000 or
more. As stated above, the said Rent Act, 1999 has brought about
structural changes in the legislation. In this case, it was open to
the legislature to opt for any of the tests, namely, test of origin, test
of public character of the functions performed by each of these
entities, test of public character of each of the undertakings, test of
agency or instrumentality, test of monopolistic status, test of
mobilization of resources etc. In the present case, we find that the
legislature has opted for an economic criteria, namely, entities
which are in a position to pay rent at market rates are to stand
excluded from Rent Act protection. This is the test of Financial
Capability. This is the golden thread which runs through Section
3(1)(a). Be it banks, PSUs. Statutory corporations, multinational
companies, foreign missions, international agencies and public
and private limited companies having a paid up share capital of
Rs. 1,00,00,000 or more stand excluded from the Rent Act
protection. This criteria has been selected by the legislature
knowing fully well that each of these entities including PSUs can
afford to pay rent at the market rates.
73. Moreover, if we are to hold that PSUs do not include
Government companies, as held by the High Court, we would be
disturbing the package offered by the Legislature of allowing
increase of rent annually at 5%, allowing the landlords to accept
premium and exclusion of certain entities from the protection of
the Rent Act under Section 3(1)(b). On the other hand, acceptance
of the arguments advanced on behalf of the respondents on the
interpretation of Section 3(1)(b) would make the Act vulnerable to
challenge as violative of Article 14 of the Constitution. Therefore,
we are of the view that on a plain meaning of the words ‘PSUs’ as
understood by the Legislature, it is clear that, India’s PSUs are in
the form of statutory corporations, public sector companies,
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word PSU is mentioned in Section 3(1)(b), the State Legislature is
presumed to know the recommendations of the various
Parliamentary Committees on PSUs. These entities are basically
cash-rich entities. They have positive net asset value. They have
positive net worths. They can afford to pay rents at the market
rate.
74. Thirdly, we are of the view that, in this case, the principle of
noscittur a sociisis clearly applicable. According to this principle,
when two or more words which are susceptible to analogous
meaning are coupled together, the words can take their colour
from each other. Applying this test, we hold that Section 3(1)(b)
clearly applies to different categories of tenants all of whom are
capable of paying rent at the market rates. Multinational
companies, international agencies, statutory corporations,
Government companies, public sector companies can certainly
afford to pay rent at the market rates. This thought is further
highlighted by the last category in Section 3(1)(b). Private limited
companies and public limited companies having paid up share
capital of more than Rs. 1,00,00,000 are excluded from the
protection of the Rent Act. This further supports the view which
we have taken that each and every entities mentioned in Section
3(1)(b) can afford to pay rent at the market rates.
76. As stated above, Section 3(1)(b) strikes a balance between the
interest of the landlords and the tenants; it is neither pro-landlords
nor anti-tenants. It is pro-public interest. In this connection, one
must keep in mind the fact that the said Rent Act, 1999 involves a
structural change vis-à-vis the Bombay Rent Act, 1947. As stated
above, with the passage of time, the 1947 Act became vulnerable
to challenge as violative of Article 14. As stated above, the
legislature has strike to balance the twin objectives of Rent Act
protection and rent restriction for those who cannot afford to pay
rents at the market rates.
(emphasis and underlining added)
38) Thus, in Leelabai Gajanan Pansare the Apex Court held
that the legislature evolved economic criterion while enacting the
provisions of the MRC Act by offering an ‘economic package’. It is
held that one of the facets of such economic package is to exclude
entities mentioned in Section 3(1)(b) who can afford rent at market
rate. The Apex Court further held that the entities enumerated in
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Section 3(1)(b) are all in a position to pay rent at market rates and are
therefore excluded from the Rent Act provisions. The test applied by
the legislature is the test of financial capacity and according to the
Apex Court, this is the golden thread which runs through Section
3(1)(b). Thus, ‘affordability to pay market rent’ is the golden thread
running through all the entities enumerated in Section 3(1)(b).
39) In my view therefore, while deciding whether
Respondent would be included in the list of entities enumerated
under Section 3(1)(b) of the MRC Act, the economic criterion of
‘affordability to pay market rent’ must be borne in mind. Though,
Mr. Dani has sought to suggest that all the entities enumerated in
Section 3(1)(b) are not cash rich entities or that cash-richness of
entities is a determinative factor, I am unable to agree with his
suggestion. This issue is already decided by the Apex Court
judgment in Leelabai Gajanan Pansare where it is expressly held that
the golden thread running through all the entities under
Section 3(1)(b) of the MRC Act is ‘affordability to pay market rent’.
Mr. Dani’s reliance on judgment of this Court in Shetkari Sahakari
Sangh Ltd. Kolhapur (supra) is inapposite as this Court has not
excluded cooperative societies from the purview of Section 3(1)(b) on
the criterion of ‘affordability to pay market rent’, but such societies
are held to be excluded from the purview of Section 3(1)(b) on
account of the fact that they are not established by or under any
Central or State Act. Therefore the judgment of Shetkari Sahakari
Sangh Ltd. Kolhapur offers little assistance for deciding the issue at
hand. In my view, ‘affordability to pay market rent’ being the golden
thread running through all the entities enumerated in Section 3(1)(b),
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the said economic criterion must be borne in mind while deciding the
issue involved in the present Revision Application.
E. 3 SANCTION OF SCHEME FOR ARRANGEMENT FOR
RESPONDENT
40) Having discussed the history and objective behind
enactment of Section 3(1)(b) of the MRC Act, it is time to revert to
the factual position of the present case. As observed above,
Respondent’s paid up share capital was undoubtedly
Rs.18,90,19,120/- as on 31 March 2000 when MRC Act came into
effect. It appears that before coming into effect of the MRC Act,
Respondent-Company had already initiated steps for implementation
of Scheme of Arrangement and Demerger. Respondent-Company
had two divisions (i) Fire and Security Engineering Division and (ii)
Fluid Engineering Division. Respondent sought to transfer and vest
the Fire and Security Engineering Division in its sister concern with
M/s. Veedip Financial Services Pvt. Ltd. and Fluid Engineering
Division in M/s. Datum Trading Pvt. Ltd. The paid up share capital
of Veedip was Rs.200/- divided into 20 equity shares of Rs.10/-.
The paid up share capital of Datum was Rs.2,000/- divided into 200
equity shares of Rs.100/- each. The reasons for doing so, as averred
by the Respondent in the Company Petition filed before this Court,
were that the market for Fire and Security Engineering Products as
well as for Fluid Engineering Products had become highly
competitive and the company was desirous of adopting dynamic and
forward looking growth strategy in order to sustain its leadership
position in its products relating to Fire and Security Engineering as
well as Fluid Engineering. As a part of this strategy, Respondent
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sought to create focused companies for Fire and Security
Engineering products and for Fluid Engineering products. This was
sought to be achieved through a process of demerger of the said two
divisions of the Respondent into two separate companies. The
Respondent averred in its Company Petition that both Veedip and
Datum were under same management as that of Respondent. The
Respondent-Company apparently procured a valuation report and
according to it, the net asset value of the two Divisions sought to be
demerged and vested in transferee company was Rs.17.87 crores. A
copy of the Scheme of Arrangement and Demerger has been placed
on record, in which appointed date is specified as 1 April 1999. The
Scheme provided for reduction of then existing equity share capital
of Respondent-Company from Rs.18,90,19,120/- to Rs.75,60,000/-
by reducing the value of paid up per share from Rs.10/- to Rs.0.40
paise per share and by transferring the balance of Rs.18,14,59,120/-
to reconstruction reserve account for absorbing the book value of
assets and liabilities of Fire Security Division and Fluid Engineering
Division transferred to Veedip and Datum respectively.
41) The proposed Scheme came to be filed alongwith the
Company Petition Nos. 381 of 2000, 382 of 2000 and 383 of 2000.
By judgment and order dated 18 April 2001, this Court considered
the objections to the Scheme filed by the objector and made the
Company Petitions absolute in terms of prayers made therein. This is
how on account of judgment and order dated 18 April 2001 passed
by this Court, the Fire and Security Engineering Division of
Respondent came to be merged with Veedip and Fluid Engineering
Division merged with Datum resulting in reduction in paid up share
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capital of Respondent from Rs.18,90,19,120/- to Rs.75,60,000/- and
corresponding increase in the paid up share capital of Veedip from
Rs.200 to Rs.3.40 crores and of Datum from Rs.2,000/- to Rs.11.34
crores.
42) Respondent contends that since the appointed date in the
sanctioned Scheme of Arrangement is 1 April 1999, the reduction in
its paid up share capital took effect from 1 April 1999 i.e. before
coming into effect of the MRC Act. There is a great deal of debate
between the parties about the binding nature of the Scheme
sanctioned by this Court on the Applicant-landlord. While Mr. Dani
submits that once the Scheme is sanctioned by this Court, it becomes
binding for all purposes on all persons and entities, including the
landlord, it is the contention of Mr. Jagtiani that such Scheme
operates only within the sphere of corporate law and binds merely
the entity and its stakeholders in addition to its regulatory authorities
without having any impact outside the provisions of the Companies
Act, particularly on a landlord with reference to the provisions of the
MRC Act.
43) It would be apposite make reference to the provisions of
Sections 391 and 394 of the Companies Act, 1956 which provide
thus:
391. Power to compromise or make arrangements with creditors and
members.-
(1) Where a compromise or arrangement is proposed –
(a) between a company and its creditors or any class of them ; or
(b) between a company and its members or any class of them,
the [Tribunal] may, on the application of the company or of any creditor
or member of the company, or, in the case of a company which is beingPage No. 36 of 77
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Neeta Sawant CRA-719-2023-FCwound up, of the liquidator, order a meeting of the creditors or class of
creditors, or of the members or class of members, as the case may be, to
be called, held and conducted in such manner as the [Tribunal] directs.
(2) If a majority in number representing three-fourths in value of
the creditors, or class of creditors, or members, or class of members, as
the case may be, present and voting either in person or, where proxies are
allowed under the rules made under section 643, by proxy, at the
meeting, agree to any compromise or arrangement, the compromise or
arrangement shall, if sanctioned by the [Tribunal], be binding on all the
creditors, all the creditors of the class, all the members, or all the
members of the class, as the case may be, and also on the company, or in
the case of a company which is being wound up, on the liquidator and
contributories of the company :
Provided that no order sanctioning any compromise or
arrangement shall be made by the [Tribunal] unless the [Tribunal] is
satisfied that the company or any other person by whom an application
has been made under sub-section (1) has disclosed to the [Tribunal], by
affidavit or otherwise, all material facts relating to the company, such as
the latest financial position of the company, the latest auditor’s report on
the accounts of the company, the pendency of any investigation
proceedings in relation to the company under sections 235 to 251, and
the like.
(3) An order made by the [Tribunal] under sub-section (2) shall
have no effect until a certified copy of the order has been filed with the
Registrar.
(4) A copy of every such order shall be annexed to every copy of
the memorandum of the company issued after the certified copy of the
order has been filed as aforesaid, or in the case of a company not having
a memorandum, to every copy so issued of the instrument constituting or
defining the constitution of the company.
(5) If default is made in complying with sub-section (4), the
company, and every officer of the company who is in default, shall be
punishable with fine which may extend to [one hundred] rupees for each
copy in respect of which default is made.
(6) The [Tribunal] may, at any time after an application has been
made to it under this section, stay the commencement or continuation of
any suit or proceeding against the company on such terms as the
[Tribunal] thinks fit, until the application is finally disposed of.
394. Provisions for facilitating reconstruction and amalgamation of
companies.-
(1) Where an application is made to the [Tribunal] under section
391 for the sanctioning of a compromise or arrangement proposed
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between a company and any such persons as are mentioned in that
section, and it is shown to the [Tribunal] –
(a) that the compromise or arrangement has been proposed for the
purposes of, or in connection with, a scheme for the
reconstruction of any company or companies, or the
amalgamation of any two or more companies ; and
(b) that under the scheme the whole or any part of the
undertaking, property or liabilities of any company concerned in
the scheme (in this section referred to as a “transferor-company”)
is to be transferred to another company (in this section referred to
as “the transferee-company”) ;
the [Tribunal] may, either by the order sanctioning the compromise or
arrangement or by a subsequent order, make provision for all or any of
the following matters :-
(i) the transfer to the transferee-company of the whole or any part
of the undertaking, property or liabilities of any transferor-
company;
(ii) the allotment or appropriation by the transferee-company of
any shares, debentures, policies, or other like interests in that
company which, under the compromise or arrangement, are to be
allotted or appropriated by that company to or for any person ;
(iii) the continuation by or against the transferee-company of any
legal proceedings pending by or against any transferor-company ;
(iv) the dissolution, without winding up, of any transferor-
company;
(v) the provision to be made for any persons who, within such
time and in such manner as the 1 [Tribunal] directs, dissent from
the compromise or arrangement ; and
(vi) such incidental, consequential and supplemental matters as
are necessary to secure that the reconstruction or amalgamation
shall be fully and effectively carried out :
Provided that no compromise or arrangement proposed for the
purposes of, or in connection with, a scheme for the amalgamation of a
company, which is being wound up, with any other company or
companies, shall be sanctioned by the [Tribunal] unless the 1 [Tribunal]
has received a report from the Registrar that the affairs of the company
have not been conducted in a manner prejudicial to the interests of its
members or to public interest:
Provided further that no order for the dissolution of any transferor-
company under clause (iv) shall be made by the [Tribunal] unless the
Official Liquidator has, on scrutiny of the books and papers of the
company, made a report to the [Tribunal] that the affairs of the company
have not been conducted in a manner prejudicial to the interests of its
members or to public interest.
(2) Where an order under this section provides for the transfer of
any property or liabilities, then, by virtue of the order, that property shall
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Neeta Sawant CRA-719-2023-FCand become the liabilities of, the transferee-company; and in the case of
any property, if the order so directs, freed from any charge which is, by
virtue of the compromise or arrangement, to cease to have effect.
(3) Within thirty days after the making of an order under this
section, every company in relation to which the order is made shall cause
a certified copy thereof to be filed with the Registrar for registration.
If default is made in complying with this sub-section, the
company, and every officer of the company who is in default, shall be
punishable with fine which may extend to [five hundred] rupees.
(4) In this section –
(a) “property” includes property rights and powers of every
description; and “liabilities” includes duties of every description ;
and
(b) “transferee-company” does not include any company other
than a company within the meaning of this Act; but “transferor-
company” includes any body corporate, whether a company
within the meaning of this Act or not.
WHETHER SCHEME OF ARRANGEMENT FRAUDULENT?
44) Before proceeding to examine the issue of binding
nature of Scheme of Arrangement, it would be necessary to first deal
with the contention of Revision Applicant that implementation of
the Scheme by Respondent is a fraudulent act. Mr. Jagtiani has
sought to raise doubts about the modus operandi in which Scheme is
implemented by increasing the share capital of Veedip from Rs.200/-
to Rs.3.40 crores and Datum from Rs.2,000/- to Rs.11.34 crores. It is
contended by Revision Applicant that the net asset value of crores of
Fire and Fluid Divisions was determined by Respondent’s Auditor as
Rs.17.87 and that if the same was to be adjusted against the paid up
share capital of Respondent of Rs.18.90 crores, still a balance of
Rs.1.03 crores would have remained as paid up share capital of
Respondent retaining its status as ‘cash rich entity’. It is contended
that though the Board resolution was adopted by considering the said
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net asset value as Rs.17.87, the figure of net asset value of Fire and
Fluid Divisions was later deliberately and artificially inflated by
Respondent to Rs.19.88 crores in the Scheme submitted before this
Court by misleading and misrepresenting this Court for sole purpose
of retaining protection of the MRC Act. Mr. Jagtiani has relied upon
provisions of Section 44 of the Indian Evidence Act, 1872 in support
of his contention that fraud can be agitated in collateral proceedings.
45) In my view, considering the limited remit of inquiry
involved in the present Revision Application, it is not really
necessary to decide the contention of alleged fraud in getting the
Scheme sanctioned by Respondent. The Scheme has attained finality
and has taken effect on all stakeholders. For deciding the limited
issue of applicability of Section 3(1)(b) of the MRC Act to
Respondent, it is not necessary to conduct in-depth inquiry into the
correctness of Scheme, which has been sanctioned by this Court.
The issue involved in the Revision Application can otherwise be
decided without going into the allegations of fraud. Also, since the
Scheme is accepted by this Court, it would not be prudent to
question genuineness of the Scheme in a collateral proceeding
arising out of MRC Act.
46) It must also be borne in mind that this Court is
exercising revisionary jurisdiction under Section 115 of the Code of
Civil Procedure, 1908 and examining whether any palpable error is
committed by the Small Causes Court and/or by its Appellate
Bench. It was otherwise difficult for the said two Courts to institute
an inquiry into correctness of order sanctioning the Scheme passed
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by this Court. So what could not have been done by the Trial and
Appellate Court, cannot be expected to be done by this Court in
exercise of revisionary jurisdiction. I am therefore not impressed by
the submissions canvassed on behalf of the Applicant that the entire
Scheme for Arrangement and Demerger is not bonafide. Apart from
the fact that it would be inappropriate for this Court to go into
correctness of the Scheme sanctioned by this Court in a collateral
proceeding, it is also a matter of fact that this is not the first time that
the Respondent-Company has undertaken the exercise of Scheme of
Arrangement. From the judgment cited by Mr. Dani in
Commissioner of Income-Tax Versus. Mather and Platt (I.) Ltd. (supra),
it appears that the Respondent-Company had also implemented a
scheme for amalgamation on 20 February 1979 with M/s. Mather &
Platt, UK under which the UK Company transferred its entire
business and undertaking in India to the Respondent-Company.
Also, this is a choice exercised by the Company and its shareholders
to voluntarily reduce its paid up share capital by halving the same
into two sister concerns by transferring the businesses in Fire and
Security Engineering Products to Veedip and Fluid Engineering
Products into Datum. It appears that Veedip is later renamed as
‘Mather and Platt Pumps Ltd.’ and Datum is renamed as ‘Mather
and Platt Fire Systems Ltd.’ It therefore appears that instead of
doing business through common Respondent-Company, the two
businesses are sought to be conducted through specialized companies
dealing into pumps and fire systems. In absence of any material on
record, it would not be prudent to question the genuineness of
exercise undertaken by the Respondent-Company. I am therefore not
inclined to go into the allegations of fraud sought to be urged on
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behalf of the Revision Applicant and therefore it is not necessary to
discuss ratio of the judgments in Aswini Kumar Samaddar (supra),
Seva International Fashion (supra) and Bhaurao Dagdu Paralkar
(supra). Similarly, it is not necessary to go into the issue of
requirement for pleading and proving fraud by discussing ratio of
judgments in Shrisht Dhawan (Smt) (supra) and Union of India Versus.
K. C. Sharma and Company (supra). For the same reasons, it is not
necessary to examine the contention about applicability of provisions
of Section 19 of the PSCC Act excluding jurisdiction of Small
Causes Court in respect of suits concerning any act ordered or done
by any Judge or Judicial Officer or suits or judgment of any High
Court
E. 4 EFFECT OF SCHEME OF ARRANGEMENT SANCTIONED
UNDER COMPANIES ACT ON TENANCY OF
RESPONDENT-COMPANY AND WHETHER IT BINDS
LANDLORD ?
47) Coming back to the issue of operation of Scheme of
Arrangement for governing the landlord-tenant relationship under
the MRC Act, Mr. Dani has relied upon several judgments in support
of his contention that the Scheme once sanctioned by a Company
Court under the provisions of Sections 391 and 394 of the
Companies Act, binds all persons and entities for all purposes. In
Sadanand S. Varde (supra), Division Bench of this Court has held in
para-124 as under :
124. Even assuming that the petitioners are entitled to urge the
contention that Chapter XX-C applies to the transfer of the
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consideration of the detailed provisions of Chapter XX-C of the
Income Tax Act, we are inclined to take the view that Chapter
XX-C is not intended to apply to situation of transfer of
immovable property consequent upon an amalgamation scheme
being sanctioned by an order of the Court. Once the scheme is
sanctioned, it has the imprimatur of the Court and operates by the
combined force of the statute and the Court’s authority. The
scheme as such ceases to be in the realm of an ‘agreement’ as
contemplated under Chapter XX-C of the Income Tax Act. We
are, therefore, of the considered view that Chapter XX-C could
not have applied to the transfer of the concerned plot at Bandra
from the sixth respondent to the ninth respondent as a
consequence of the scheme of amalgamation sanctioned by the
Company Court by its order dated 3rd February 1993.
48) In Marshall Sons and Co. (India) Ltd. (supra), the Apex
Court has held in para-14 as under :
14. Every scheme of amalgamation has to necessarily provide a
date with effect from which the amalgamation/transfer shall take
place. The scheme concerned herein does so provide viz. 1-1-1982.
It is true that while sanctioning the scheme, it is open to the Court
to modify the said date and prescribe such date of
amalgamation/transfer as it thinks appropriate in the facts and
circumstances of the case. If the Court so specifies a date, there is
little doubt that such date would be the date of
amalgamation/date of transfer. But where the Court does not
prescribe any specific date but merely sanctions the scheme
presented to it – as has happened in this case – it should follow that
the date of amalgamation/date of transfer is the date specified in
the scheme as “the transfer date”. It cannot be otherwise. It must
be remembered that before applying to the Court under Section
391(1), a scheme has to be framed and such scheme has to contain
a date of amalgamation/transfer. The proceedings before the court
may take some time; indeed, they are bound to take some time
because several steps provided by Sections 391 to 394-A and the
relevant Rules have to be followed and complied with. During the
period the proceedings are pending before the Court, both the
amalgamating units, i.e., the Transferor Company and the
Transferee Company may carry on business, as has happened in
this case but normally provision is made for this aspect also in the
scheme of amalgamation. In the scheme before us, clause 6(b)
does expressly provide that with affect from the transfer date, the
Transferor Company (Subsidiary Company) shall be deemed to
have carried on the business for and on behalf of the Transferee
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Company (Holding Company) with all attendant consequences. It
is equally relevant to notice that the Courts have not only
sanctioned the scheme in this case but have also not specified any
other date as the date of transfer amalgamation. In such a
situation, it would not be reasonable to say that the scheme of
amalgamation takes effect on and from the date of the order
sanctioning the scheme. We are, therefore, of the opinion that the
notices issued by the Income Tax Officer (impugned in the writ
petition) were not warranted in law. The business carried on by
the Transferor Company (Subsidiary Company) should be
deemed to have been carried on for and on behalf of the
Transferee Company. This is the necessary and the logical
consequence of the court sanctioning the scheme of amalgamation
as presented to it. The order of the Court sanctioning the scheme,
the filing of the certified copies of the orders of the court before the
Registrar of Companies, the allotment or shares etc. may have all
taken place subsequent to the date of amalgamation/transfer, yet
the date of amalgamation in the circumstances of this case would
be 1-1-1982. This is also the ratio of the decision of the Privy
Council in Raghubar Dayal v. The Bank of Upper India Ltd.
49) In National Organic Chemical Industries Ltd. (supra),
Division Bench of this Court has held in para-34, 45 and 46 as
under:
34. A company gets corporate personality or becomes a legal
entity as per the provisions contained in the Companies Act, 1956.
Similarly, a company loses its corporate personality or is deemed
to be destroyed on amalgamation from a date declared by the
competent authority under the Companies Act. There can be no
dispute that the High Court is one of the competent authority
under the Companies Act to approve the scheme of amalgamation
from any specified day as it deems fit. Therefore, once the court
under the Companies Act declares that the amalgamation of the
companies shall be effective from a particular date, then, from that
date the corporate personality of the amalgamated companies
ceases to exist for all purposes. From that day the corporate
personality of the amalgamated company is destroyed completely.
Before the court approves the scheme of amalgamation, it may be
open to the Legislature to declare that for the purposes of sales
tax, the transferor-company carrying on business as a trustee or
agent of the transferee-company is a separate identity distinct from
the transferee-company and, therefore, liable to tax in respect of
the transactions between the two companies up to the date on
which the scheme of amalgamation is approved by the court. We
are not considering that issue. However, in all cases where the
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court on perusal of the scheme of amalgamation and in public
interest after taking into account the rights and liabilities of all the
interested parties has declared that the effective date of
amalgamation of the companies shall be from a date anterior to
the date of sanctioning the scheme of amalgamation, then, from
the effective date of amalgamation declared by the court the
corporated personality of the amalgamated company is destroyed
completely.
45. It is true, by declaring that the amalgamation shall take place
from a particular date, the company court is not giving any
direction to the sales tax authorities. But once the court declares
that the corporate personality of a company shall be destroyed
from a particular date, the corporate personality of that company
cannot be restored by the State Legislature as it amounts to
usurping the judicial power.
46. Although the amalgamation is the voluntary act of the parties
in deciding to amalgamate from the appointed date that voluntary
act acquires legal status and in law the transferee-company ceases
to exist from the appointed date declared by the court. Such a
legal status which flows from the High Court order cannot be
altered by the State Government.
50) In Commissioner of Income-Tax, Pune-I Versus. Swastik
Rubber Products Ltd. (supra), Division Bench of this Court held that
legal effect of order sanctioning the Scheme of Amalgamation was
that the provisions of the Scheme would come into operation on the
appointed date. It is also held in para-8 that for the purpose of
income tax, what is crucial is the date on which the assets and
liabilities vested in the transferee company. In case involving
Respondent-Company itself in Commissioner of Income-Tax Versus.
Mather and Platt (I.) Ltd. Division Bench of this Court has followed
the judgment in Swastik Rubber Products Ltd. and has held in para-7
as under :
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7. The amount of capital for the purpose of surtax is to be
computed as on the first date of the accounting year. In the
present case, this would be July 1, 1978. The scheme of
amalgamation is with effect from July 1, 1978, and hence the
shares worth Rs. 89,50,000, which were required to be issued
under the scheme of amalgamation, which came into operation on
July 1, 1978, formed part of the capital as on July 1, 1978. In the
case of CIT v. Swastik Rubber Products Ltd., [1983] 140 ITR 304, a
Division Bench of this court held that the order of the court
sanctioning the scheme of amalgamation in that case clearly
provided that the entire undertaking and the business and the
property of the assessee-company would stand transferred to the
transferee-company with effect from the appointed date in the
scheme of amalgamation which, in that case, was July 1, 1971.
After referring to the provisions of sections 391 and 394 of the
Companies Act, 1956, the court said that the legal effect of the
order sanctioning the scheme of amalgamation was that the
provisions of the scheme would come into operation from the
appointed date.
51) Thus this Court held that once a Scheme of
Amalgamation and Demerger is sanctioned, it has an imprimatur of
the Court and operates by combined force of statute and Court’s
authority. It no longer remains a mere agreement and transforms into
a legally binding arrangement by authority of the Court, which
would ideally bind everyone. Faced with this situation, Mr. Jagtiani
has submitted that the judgments cited by Mr. Dani are in relation to
the binding nature of the Scheme, vis-à-vis regulatory authorities
such as Income Tax, etc and that the same does not bind a landlord,
who is neither party to the Scheme nor is entitled to challenge the
same. He has relied upon provisions of Section 394A of the
Companies Act, 1956 which mandates the Company Court to give
notice of every application made to it under Sections 391 or 394 to
the Central Government. He also relies upon provisions of Section
230(5) of the Companies Act, 2013, under which it is mandatory to
give notice to Central Government, Income Tax Authorities, Reserve
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Bank of India, SEBI etc. He would submit that since such
Regulatory Authorities are necessary parties before the Court
sanctioning the Scheme, the Scheme would obviously bind them and
that therefore none of the judgments relied upon by Respondent
would have application to the present case. He has relied upon
judgment of Company Law Board in Efirst Technologies Pvt. Ltd.
(supra) which in turn relies upon judgment of the Delhi High Court
in Harish Bansal Versus. Moti Films Pvt. Ltd. 30 in which the Delhi
High Court, while dealing with provisions of Section 433 of the
Companies Act, has held that a winding up order is not a judgment
in rem and is not binding on strangers. Applying the analogy, the
Company Law Board has held that even order under Section
391/394 of the Companies Act is not an order in rem to bind
outsiders.
52) Mr. Jagtiani has also relied upon judgment of the Apex
Court in M/s. General Radio and Appliances Co. Ltd. (supra) in which
the issue before the Apex Court was about subletting of premises by
a Tenant-Company in favour of the merged company. In case before
the Apex Court, General Radio was the tenant who merged with
National Ekco Radio & Engineering Co. Ltd. and the merged
company was put in possession of the tenanted premises. In the
above factual background, the Apex Court held in para-10 as under :
10. … There is no express provision in the said Act that in case of
any involuntary transfer or transfer of the tenancy right by virtue
of a scheme of amalgamation sanctioned by the court by its order
under Sections 391 and 394 of the Companies Act as in the
present case, such transfer will not come within the purview of
Section 10(ii)(a) of the said Act. In other words such a transfer of
30
(1984) 25 DLT 92Page No. 47 of 77
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Neeta Sawant CRA-719-2023-FCtenancy right on the basis of the order of the court will be immune
from the operation of the said Act and the transferee tenant will
not be evicted on the ground that the original tenant transferred its
right under the lease or sublet the tenanted premises or a portion
thereof. It is important to note in this connection the definition of
tenant as given in Section 2(ix) of the said Act which provides
specifically that a tenant does not include a person placed in occupation
of a building by its tenant. On a plain reading of this provision 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,
Appellant 2 i.e. National Ekco Radio & Engineering Co. Ltd., the
transferee company who has been put in possession of the
tenanted premises by the transferor tenant General Radio &
Appliance Co. (P) Ltd. cannot be deemed to be 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.
In my view, the judgment of the Apex Court in M/s. General Radio
and Appliances Co. Ltd. is rendered in the context of allegation of
subletting and therefore cannot be cited in support of an absolute
proposition that the Scheme of Merger is to be ignored altogether for
all purposes and would not bind third parties at all.
53) In Hindustan Lever (supra), the Apex Court has
examined the scope of jurisdiction exercised by the Company Court
while sanctioning a Scheme under Sections 391 and 394 of the
Companies Act, while examining the issue of payment of Stamp
duty on order of amalgamation passed by Company Court. The
Apex Court has held in paras-9, 10, 11, 12, 17 and 18 as under :
9. Section 394 provides that application and order of amalgamation
under Section 394 is based on compromise or arrangement which has
been proposed for the purpose of amalgamation of two or more
companies. The amalgamation scheme, which is an agreement between
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Neeta Sawant CRA-719-2023-FCappropriate order sanctioning the compromise or arrangement. The
foundation or the basis for passing an order of amalgamation is
agreement between two or more companies. Under the scheme of
amalgamation, the whole or any part of the undertaking, properties or
liability of any company concerned in the scheme is to be transferred to
the other company. The company whose property is transferred would be
the transferor company and the company to whom property is transferred
would be considered as the transferee company. The scheme of
amalgamation has its genesis in an agreement between the prescribed
majority of shareholders and creditors of the transferor company with
the prescribed majority of shareholders and creditors of the transferee
company. The intended transfer is a voluntary act of the contracting
parties. The transfer has all the trappings of a sale. The transfer is effected
by an order of the court. The proposed compromise or arrangement is
subject to verification by the court as provided therein. First is that the
scheme of compromise or arrangement proposed for the purposes of
amalgamation or in connection therewith, shall not be sanctioned unless
the court has received a report from the Company Law Board or the
Registrar that the affairs of the company have not been conducted in a
manner prejudicial to the interest of its members or to public interest; and
secondly, that the order of resolution of transfer of the company shall not
be made unless official liquidator on scrutiny of the books and papers of
the company makes a report to the court that the affairs of the company
had not been conducted in a manner prejudicial to the interest of its
members or to public interest.
10. By virtue of provisions of Section 391 of the Companies Act a
scheme sanctioned by the court is statutorily binding on all its
shareholders and creditors including those who dissented from or were
opposed to the scheme being sanctioned. Since by law a procedure has
been prescribed by which every shareholder and creditor in the absence
of individual agreement, gets bound by the scheme, which would
otherwise be necessary to give its validity, the two provisos have been
introduced casting a duty on the court to satisfy itself that the affairs of
the company were/are not being conducted in a manner prejudicial to
the interest of its members or to the public interest. The basic principle
underlying these provisos is none other than the broad and general
principle inherent in any compromise or settlement entered into between
the parties, the same being that it should not be unfair, contrary to the
public policy, unconscionable or against the law. There is no adjudication
as such. Any modification proposed by the court in the scheme is also
subject to its being accepted by the transferor and the transferee company.
If any one of them objects to the modifications suggested by the court
then the scheme would not be sanctioned. The scheme would be
sanctioned only if there is an acceptance to the modification proposed by
the court to the scheme by the transferor as well as the transferee
company. On acceptance of the same it gets incorporated in the
compromise or arrangement arrived at between the two companies.
Modification in the scheme becomes a part of the compromise or
arrangement arrived at between the parties.
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11. While exercising its power in sanctioning a scheme of agreement, the
court has to examine as to whether the provisions of the statute have
been complied with. Once the court finds that the parameters set out in
Section 394 of the Companies Act have been met then the court would
have no further jurisdiction to sit in appeal over the commercial wisdom
of the class of persons who with their eyes open give their approval, even
if, in the view of the court a better scheme could have been framed. This
aspect was examined in detail by this Court in Miheer H. Mafatlal v. Mafatlal
Industries Ltd. [(1997) 1 SCC 579] The Court laid down the following
broad contours of the jurisdiction of the Company Court in granting
sanction to the scheme as follows: (SCC pp. 597-98 & 601-02, para 29)
1. The sanctioning court has to see to it that all the requisite
statutory procedure for supporting such a scheme has been
complied with and that the requisite meetings as contemplated by
Section 391(1)(a) have been held.
2. That the scheme put up for sanction of the Court is backed
up by the requisite majority vote as required by Section 391 sub-
section (2).
3. That the meetings concerned of the creditors or members
or any class of them had the relevant material to enable the voters
to arrive at an informed decision for approving the scheme in
question. That the majority decision of the class of voters
concerned is just and fair to the class as a whole so as to
legitimately bind even the dissenting members of that class.
4. That all necessary material indicated by Section 393(1)( a) is
placed before the voters at the meetings concerned as
contemplated by Section 391 sub-section (1).
5 . That all the requisite material contemplated by the proviso
of sub-section (2) of Section 391 of the Act is placed before the
Court by the applicant concerned seeking sanction for such a
scheme and the Court gets satisfied about the same.
6. That the proposed scheme of compromise and arrangement
is not found to be violative of any provision of law and is not
unconscionable, nor contrary to public policy. For ascertaining the
real purpose underlying the scheme with a view to be satisfied on
this aspect, the Court, if necessary, can pierce the veil of apparent
corporate purpose underlying the scheme and can judiciously x-
ray the same.
7. That the Company Court has also to satisfy itself that
members or class of members or creditors or class of creditors, as
the case may be, were acting bona fide and in good faith and were
not coercing the minority in order to promote any interest adverse
to that of the latter comprising the same class whom they
purported to represent.
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8. That the scheme as a whole is also found to be just, fair and
reasonable from the point of view of prudent men of business
taking a commercial decision beneficial to the class represented by
them for whom the scheme is meant.
9. Once the aforesaid broad parameters about the
requirements of a scheme for getting sanction of the Court are
found to have been met, the Court will have no further jurisdiction
to sit in appeal over the commercial wisdom of the majority of the
class of persons who with their open eyes have given their
approval to the scheme even if in the view of the Court there
would be a better scheme for the company and its members or
creditors for whom the scheme is framed. The Court cannot refuse
to sanction such a scheme on that ground as it would otherwise
amount to the Court exercising appellate jurisdiction over the
scheme rather than its supervisory jurisdiction. It is the
commercial wisdom of the parties to the scheme who have taken
an informed decision about the usefulness and propriety of the
scheme by supporting it by the requisite majority vote that has to
be kept in view by the Court. The Court has neither the expertise
nor the jurisdiction to delve deep into the commercial wisdom
exercised by the creditors and members of the company who have
ratified the scheme by the requisite majority. Consequently the
Company Court’s jurisdiction to that extent is peripheral and
supervisory and not appellate. The Court acts like an umpire in a
game of cricket who has to see that both the teams play their game
according to the rules and do not overstep the limits. But subject
to that how best the game is to be played is left to the players and
not to the umpire. The supervisory jurisdiction of the Company
Court can also be culled out from the provisions of Section 392.
Of course this section deals with post-sanction supervision. But
the said provision itself clearly earmarks the field in which the
sanction of the Court operates. The supervisor cannot ever be
treated as the author or a policy-maker. Consequently the
propriety and the merits of the compromise or arrangement have
to be judged by the parties who as sui juris with their open eyes
and fully informed about the pros and cons of the scheme arrive at
their own reasoned judgment and agree to be bound by such
compromise or arrangement.
12. Two broad principles underlying a scheme of amalgamation which
have been brought out in this judgment are:
1. that the order passed by the court amalgamating the
company is based on a compromise or arrangement arrived at
between the parties; and
2. that the jurisdiction of the Company Court while
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proposed scheme of compromise or arrangement is not violative
of any provision of law, unconscionable or contrary to public
policy. The court is not to exercise the appellate jurisdiction and
examine the commercial wisdom of the compromise or
arrangement arrived at between the parties. The role of the court
is that of an umpire in a game, to see that the teams play their role
as per rules and do not overstep the limits. Subject to that how best
the game is to be played is left to the players and not to the
umpire.
Both these principles indicate that there is no adjudication by the court
on the merits as such.
17. It was contended by the learned counsel appearing for the appellants
that an order of amalgamation under Section 394 is not an order
simpliciter of transfer of property by an act of parties with imprimatur of
the court. It is an order made by the court after judicial scrutiny and
transfer of the property under such an order would not be an act of
parties to which the court puts its seal of approval. Stamp duty can be
levied on “documents” or “instruments”. The order of the court in
exercise of its judicial functions is not “a document” or an “instrument”.
Once the court passes an order or a decree, it is required to be
implemented or executed as such. The same cannot be subjected to stamp
duty otherwise the orders passed by the courts would become subject to
interference by the Revenue Authorities and would not be admissible in
evidence unless the stamp duty is paid.
18. It is difficult to subscribe to the view propounded by the learned
counsel for the appellants. As stated earlier, the order of amalgamation is
based on a compromise or an arrangement arrived at between the two
companies. No individual living being owns the company. Each
shareholder is the owner of the company to the extent of his
shareholding. By enacting Sections 391 to 394 a method has been devised
to give effect to the will of the prescribed majority of
shareholders/creditors. Even in the absence of individual agreement by
all the shareholders and creditors the decision of the majority prescribed
in Section 391(2) binds all the creditors and the shareholders. The scheme
after being sanctioned by the court binds all its creditors, members and
shareholders including even those who were opposed to the scheme being
sanctioned. It binds the company as well. While exercising its power in
sanctioning the scheme of amalgamation, the court is to satisfy itself that
the provisions of statute have been complied with. That the class was
fairly represented by those who attended the meeting and that the
statutory majority was acting bona fide and not in an oppressive manner.
That the arrangement is such as which a prudent, intelligent or honest
man or a member of the class concerned and acting in respect of the
interest might reasonably take. While examining as to whether the
majority was acting bona fide, the court would satisfy itself to the effect
that the affairs of the company were not being conducted in a manner
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prejudicial to the interest of its members or to public interest. The basic
principle underlying such a situation is none other than the broad and
general principle inherent in any compromise or settlement entered into
between the parties, the same being that it should not be unfair, contrary
to public policy and unconscionable or against the law.
(emphasis added)
54) Thus, as held by the Apex Court in Hindustan Lever, the
foundation or basis for passing an order of amalgamation under
Sections 391 and 394 of the Companies Act, is ‘agreement’ between
two or more companies. The intended transfer is a voluntary act of
the contracting parties, which has all trappings of a sale. The Scheme
is binding on all shareholders and creditors of the Company
including those who dissented from or were opposed to the Scheme.
It is further held that when the Court sanctioned the Scheme it does
not conduct any adjudication by sitting in Appeal over commercial
wisdom of the persons who give their approvals to the Scheme. That
the jurisdiction of the Company Court while sanctioning the Scheme
is supervisory in nature as the Court acts merely as an umpire
without any adjudication on merits. In Hindustan Lever, the Apex
Court rejected the contention that order of amalgamation under
Section 394 is not an order simpliciter of transfer of property by an
act of parties with imprimatur of the Court and that the same is an
Order passed by the Court. The Apex Court therefore upheld levy of
stamp duty on Scheme of Amalgamation sanctioned by Court. Mr.
Jagtiani has sought to read the judgment in Hindustan Lever to mean
that the Scheme sanctioned under Section 391 and 394 does not bind
anyone apart from shareholders and creditors.
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Demerger under the provision of Sections 391 and 394 of
Companies Act is based on agreement between two or more
companies and is an outcome of a commercial decision taken by its
shareholders. The landlord obviously is not a party to the Scheme.
The landlord may not even be aware about sanctioning of such
Scheme as he is not a necessary party to the Scheme. Though
Mr. Dani has sought to suggest that this Court had granted liberty to
‘any person’ to apply to this Court for any direction, as rightly
indicated by Mr. Jagtiani, such person referred to in the order of this
Court would obviously be a person interested in the Scheme. It
would be apposite to reproduce the relevant portion of the Scheme in
this regard :
AND THIS COURT DOTH FURTHER ORDER that the parties
to the arrangement embodied in the Scheme of Arrangement
sanctioned herein or any other person or persons interested
therein shall be at liberty to apply to this Honourable Court for
any directions that may be necessary with regard to the working of
the arrangement embodied in the Scheme of Arrangement
sanctioned herein and set forth in the Schedule hereto.
(emphasis added)
56) In my view, it is difficult to accept that a landlord would
be covered by the expression ‘any other person or persons interested
therein’. It therefore cannot be contended that the landlord could
have objected to the Scheme even after its sanction by applying to
this Court in pursuance of the above mentioned liberty. Even
otherwise, considering the limited role of acting as umpire by a
Company Court without undertaking any exercise of adjudication, it
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by shareholders of the three companies for their better management
only on account of grouse of the landlord relating to tenancy in
respect of the tenanted premises.
57) Therefore though in ordinary circumstances, the Scheme
sanctioned under Sections 391 and 394 of the Companies Act would
effect transfer of business and reduction and increase of share capital
of transferor and transferee companies for all practical purposes, the
same would essentially apply in the sphere of corporate law and
would not impact the right already created in favour of the landlord.
In other words, a company having capacity to afford market rent as
on 31 March 2000 and hence excluded from application of MRC Act
would not be able to regain such protection on account of voluntary
act of redistribution of its business and share capital amongst sister
concerns through Scheme of Amalgamation and Demerger under
Sections 391 and 394 of the Companies Act. The Scheme under
Sections 391 and 394 of the Companies Act effecting reduction of
paid up share capital to less than a crore of rupees would have a
limited operation within the boundaries and jurisprudence of the
Companies Act and an order permitting such reduction would
operate in personam binding only the parties to the Scheme, the
Company and its stakeholders such as shareholders, creditors, and
contributories. The Scheme would not operate in rem so as to bind
landlord qua rights and obligations between the landlord and
transferor company in its capacity as tenant.
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IMPERMISSIBILITY TO REGAIN THE LOST PROTECTION
BY VOLUNTARY REDUCTION OF PAID UP SHARE
CAPITAL
58) Even if contention of Respondent about applicability of
the sanctioned Scheme by this Court for all purposes, including the
purpose of governance of landlord-tenant relationship under the
MRC Act, is to be accepted, there is another angle from which the
issue can be examined. For examining that angle I momentarily
proceed by assuming the position that even for the purposes of
application of provisions of Section 3(1)(b) of the MRC Act, the
paid up share capital of Respondent-Company stood reduced to
Rs.75,60,000/- on account of sanction of the Scheme by order of
this Court passed on 18 April 2001. There is no doubt to the position
that reduction of the paid up share capital by Respondent-Company
is a voluntary act. It had lost the protection of rent control legislation
on 31 March 2000 and seeks restoration of such protection on
account of its voluntary act of reduction of its paid up share capital.
The issue for consideration is whether an entity which gets covered
by provisions of Section 3(1)(b) of MRC Act and loses the protection
of Rent Act, can regain such protection on account of happening of
a subsequent event. In the present case Respondent’s paid up share
capital was undoubtedly over Rs.1 crore as on 31 March 2000 when
MRC Act came into effect and accordingly Respondent lost
protection of Rent Act on 31 March 2000. Its Scheme of
Arrangement and Demerger was sanctioned by this Court
subsequently on 18 April 2001. Thus, during the period from 31
March 2000 to 17 April 2001, Respondent was covered by provisions
of Section 3(1)(b) of the MRC Act and had lost the protection of the
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Act qua its tenancy. In such circumstances, whether subsequent
sanction of Scheme by this Court on 18 April 2001 resulting in
reduction of paid up share capital below Rs.1 Crore would enable
Respondent-Company to regain the lost protection of MRC Act, is
the issue that arises for consideration.
59) As observed earlier, the issue needs to be decided by
bearing in mind the history and objective behind incorporation of
Section 3(1)(b) in MRC Act. Since ‘affordability to pay market rent’
is the economic criterion adopted by the Legislature while listing
entities in Section 3(1)(b), the issue of regaining lost protection of
Rent Act also needs to be decided by applying the test of
‘affordability to pay market rent’. In the present case, as on 31 March
2000, Respondent-Company had paid-up share capital of
Rs.18,90,19,120/- in addition to cash reserves of Rs.45 odd crores.
Thus, Respondent was undoubtedly a ‘cash rich’ entity as on 31
March 2000. It had lost protection of Rent Act on account of its
inclusion in the listed entities under Section 3(1)(b) of the MRC Act.
What has been done by the Respondent-Company through the
Scheme of Arrangement and Demerger is only rejig of its business
activities by redistributing its Fire and Security products into Veedip
and Fluid Engineering products into Datum. Both Veedip and
Datum are sister concerns of Respondent, who are subsequently
renamed as Mather and Platt Pumps Lt59d. and Mather and Platt
Fire Systems Ltd., respectively. The business has thus remained with
the same management with internal distribution thereof into sister
companies. Therefore, the issue is whether Respondent, who was
once a cash rich entity and had already lost rent control protection
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can be permitted to regain the same on account of such voluntary
rejig effected in respect of its businesses.
60) Once the history and objective behind enactment of
Section 3(1)(b) of the MRC Act is borne in mind, in my view, there
appears to be no scope for an entity, who has made exit from rent
control provisions on account of its cash richness to make a re-entry
into the sphere of rent protection by doing a voluntary act of
reduction of paid-up share capital. If such re-entry is permitted, the
same would not only frustrate the entire legislative object of
excluding cash rich entities from ambit of rent control protection, but
would then open a pandora’s box for companies to devise
mechanisms for the purpose of regaining the lost protection of rent
control legislation. The legislative intent is such that if an entity can
afford to pay market rent, it should be excluded from the ambit of
rent protection. The statute has consciously not made any provision
for re-entry of the entity, who has once lost rent control protection
for having acquired the status of cash richness.
61) Much is argued by the parties on use of the term ‘having’
in Section 3(1)(b) of the MRC Act. It is sought to be argued by
Respondent that if the legislature wanted to intend one time exit
(without re-entry) from rent control provisions, it would have used
the word ‘has’ in Section 3(1)(b) of the Act. It is sought to be
suggested that the Legislature has consciously used the words
‘having’ and ‘has’ at different places in the Act for different purposes.
It is contended that while seeking decree for eviction on grounds
specified under Section 16(1)(a) to 16(1)(e), past events are
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contemplated therein by using the word ‘has’, for eg. (a) tenant ‘has’
committed act contrary to Section 108(o) of the Transfer of Property
Act, (b) tenant ‘has’ erected permanent structure, (c) tenant ‘has’
been guilty of conduct which is nuisance or annoyance, (d) tenant
‘has’ given notice to quit, and (e) tenant ‘has’ unlawfully sublet. It is
therefore sought to be contended that since the word used in Section
3(1)(b) is ‘having’, what is contemplated is a present event, referable
to the date of termination of tenancy or date of filing the suit. I am
unable to agree. If the Legislature was to use the words ‘has’ or ‘had’
in Section 3(1)(b), the provision could have become a one-time
exercise of determining eligibility of entities for exclusion of
protection under the MRC Act, which is not the legislative intent.
Since the test of ‘affordability to pay market rent’ is the economic
criterion for exclusion of entities from rent control protection, all
entities who would fit into the criterion prescribed under
Section 3(1)(b) after 31 March 2000 would also get covered by the
said provision. To illustrate, if a company which has domestic
operations as on 31 March 2000 and was protected under MRC Act,
decides to open offices abroad and becomes multinational company
in the year 2005, the intention of the Legislature is to take such
company into the sweep of Section 3(1)(b). In a similar manner, a
company, whose paid up share capital was less than Rs.1 crore as on
31 March 2000 and which enjoyed protection of tenancy under
MRC Act, grows with passage of time and increases its paid up share
capital in excess of Rs.1 crore subsequently, will have to be
necessarily included in Section 3(1)(b) of the Act by applying the
economic criterion of ‘affordability to pay market rent’. This is
because both the types of entities discussed above become capable of
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affording market rent as per the criterion fixed by the Legislature, the
moment they either became multinational or increased the paid up
share capital beyond Rs.1 crore. They can fend for themselves and
negotiate with the landlord for fixation of fair market rent and afford
to pay the same.
62) If the contention of Mr. Dani is to be accepted, the same
would reduce the exercise of exclusion of cashrich entities as a one-
time measure by freezing the applicability of provision as on 31
March 2000 thereby resulting in absurd situation where companies
subsequently growing and achieving affordability to bear market rent
would still continue to enjoy protection under MRC Act, which
definitely is not the legislative intent. At the same time, this principle
cannot be applied in a converse situation where an entity which was
once able to pay rent at market rate and had lost protection under
MRC Act, would regain such protection by either reducing paid up
share capital or converting itself from multinational to domestic
company. Permitting regaining of lost protection in such cases would
be against the entire legislative objective.
63) In my view therefore, once an entity gets covered by
provisions of Section 3(1)(b) and loses protection in respect of its
tenanted premises under the MRC Act, it can never regain the same
irrespective of any subsequent event resulting in change of its
character or status. In short, once an exit is made from the provisions
of MRC Act, re-entry therein is impermissible. The exit door
however remains open for entities to qualify in the criterion laid
down under Section 3(1)(b) subsequent to 31 March 2000. This
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would be the correct interpretation of provisions of Section 3(1)(b) as
the same seeks to fulfil the legislative object. Permitting re-entry in
rent control sphere to an entity who has once lost it, would defeat the
legislative objective and is therefore required to eschewed.
64) It would also be necessary to deal with Mr. Dani’s
submission that the reduction of paid up share capital has not taken
place on 18 April 2001, but the same has been effected from the
appointed date i.e. 1 April 1999. Thus, a peculiar situation is created
in the present case where Respondent-Company’s Scheme of
Arrangement resulting in reduction of its paid-up share capital has
been brought into effect retrospectively from 1 April 1999. In my
view, such retrospective reduction in paid-up share capital is wholly
irrelevant once it is found that the Respondent was actually and
factually covered by Section 3(1)(b) on 31 March 2000 and had lost
the protection of MRC Act. The landlord could have issued notice
for termination of tenancy and filed a suit for eviction during the gap
period from 1 April 2000 till 17 April 2001 and such suit would have
been perfectly maintainable without having any effect thereon on
account of subsequent event in the form of sanctioning of the
Scheme on 18 April 2001. I have discussed and answered much
broader issue of permissibility to regain lost protection of MRC Act
on account of subsequent events and once it is held that it is
impermissible to regain such lost protection, the issue of
retrospective sanction of the Scheme from the appointed date of
1 April 1999 takes a backseat, and in that sense, becomes otiose.
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(supra), in my view, provides necessary guidance for answering the
issue involved in the present case. In case before the Apex Court, the
Appellant therein was a tenant in respect of premises located at
Chembur, Mumbai and while defending decree for eviction passed
by the Small Causes Court, the Appellant-tenant contended that its
paid up share capital had substantially eroded and was less than one
crore rupees, when the proceedings were initiated by the landlord. It
appears that a resolution was passed by the Board of the Appellant
company to decrease the share capital from Rs.8.20 crores to Rs.41
lakhs and that this ‘jurisdictional fact’ of reduction of paid up share
capital was in existence at the time when eviction proceedings were
initiated against it. Thus in Carona Ltd., paid up share capital of the
company was Rs.8.20 crores as on 31 March 2000. The only
difference between the facts of the case in Carona Ltd. and that of the
present case is that, the paid up share capital in Carona Ltd.
continued to be in excess of Rs.1 crore even on the date of
termination of tenancy whereas in the present case it had reduced to
less than Rs. 1 crore as on the date of termination of Respondent’s
tenancy. Another difference is that BIFR had not approved reduction
of paid up share capital in Carona Ltd. In my view, however the said
difference is inconsequential for the purpose of application of ratio
of the judgment in Carona Ltd. to the present case. The Apex Court
considered its judgment in Gajanan Dattatraya Versus. Sherbanu
Hosang Patel31 in which contention was raised that use of the
expression ‘has sublet’ under Section 13(1)(e) of Bombay Rent Act
was in past perfect sense requiring occurrence of event in the present
31
(1975) 2 SCC 668
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time since the word ‘had sublet’ was not used. The Apex Court had
negatived the said contention in Gajanan Dattatray. Similar argument
was raised before the Division Bench of the Gujarat High Court in
Maganlal Narandas Thakkar Versus. Arjan Bhanji Kanbi32 and in para-
49 of judgment in Carona Ltd., the Apex Court has reproduced the
findings of Division Bench of Gujarat High Court in Maganlal
Narandas Thakkar and in para-50 of its judgment applied the said
ratio in Carona Ltd. as well. The Apex Court held in paras-48, 49 and
50 as under :
48. The Court approved the view taken by the High Court of Gujarat
in Maganlal Narandas Thakkar v. Arjan Bhanji Kanbi [(1969) 10 Guj LR
837]. In Maganlal [(1969) 10 Guj LR 837] the High Court of Gujarat had
an occasion to consider a pari materia provision under the Saurashtra
Rent Control Act, 1951 [ Clause (e) of sub-section (1) of Section 13 of the
Act reads as under:”13. (1)(e) that the tenant has, since the coming into
operation of this Act, unlawfully sub-let the whole or part of the premises
or assigned or transferred in any other manner his interest therein;”
49. A similar argument was advanced before the Court. However,
considering the scheme of the Act, the Court refuted the contention. The
Division Bench observed:
“So far as the first point is concerned, Mr Desai laid great stress,
and relied very heavily, on the grammatical meaning of the words
‘has sub-let’. His argument is that the meaning of the words ‘has
sub-let’ includes the element that the sub-letting must be
continuing on the date when the plaintiff filed his suit. He stated,
and there is no dispute on the point, that the words ‘has sub-let’ do
not use the verb ‘sub-let’ in the present perfect tense. He referred
to p. 61 of Handbook of English Grammar by R.W. Zandvoort. In
Para 140 of this book it is stated that when a verb is used in
present perfect tense, it denotes “a completed past action
connected, through its result, with the present moment”. The
argument of Mr Desai was that the sub-letting which started
sometime after 1951, that is after the Act came into operation,
must be connected with the present moment through its result;
and his argument was that once the sub-tenancy was created, it
must be connected with the present moment–the date of filing
the suit–by its result by the sub-tenant continuing in possession of
32
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Neeta Sawant CRA-719-2023-FCthe premises up to that date. Mr Desai thus urged before us that
unless a sub-tenant were in possession of the property sub-let on
the date of the suit it cannot be said that the tenant ‘has sub-let’
the premises, even though a sub-tenancy was in fact created by the
tenant. In our opinion if this interpretation were to be accepted,
the result would be that a tenant can with impunity put some
other person in possession of the premises as a sub-tenant and
avoid an order for delivery of possession against him by seeing to
it that the sub-tenant departs from the property before the plaintiff
files a suit. Having regard to the scheme of the Rent Control Act,
particularly the scheme of Sections 12 and 13 of the Act and the
context in which the words ‘has sub-let’ are used, it appears to us
that that is not the way in which the meaning of the words ‘has
sub-let’ should be gathered. If the Rent Control Act were not in
force and the parties were left to their ordinary rights under the
Transfer of Property Act, the landlord will have a vested right to
recover possession in him as soon as he terminates the tenancy of
the tenant in the manner provided in the Transfer of Property Act.
After terminating the tenancy he can immediately call upon the
tenant to hand over possession to him. By enacting Section 12 of
the Rent Control Act, the landlord’s right to terminate the tenancy
is not affected, but the enforcement of his right to recover
possession immediately thereafter from the tenant is affected. The
provisions of Section 12 prevent a landlord from recovering
possession of the property from a tenant even after a lawful
termination of his tenancy, provided the tenant fulfils the
conditions mentioned in Section 12. Section 12 does not take
away the right of the landlord to recover possession of the
premises but merely postpones the enforcement of this right of the
landlord so long as the tenant fulfils the conditions laid down in
that section. Having put this impediment in the enforcement of the
right of possession of the landlord or in other words, having
clothed the tenant with an immunity from dispossession, the
legislature proceeds in Section 13 to lay down those conditions on
the fulfilment of which the landlord is entitled to recover
possession of the premises from the tenant. Section 13, therefore,
provides for those contingencies on proof of which the tenant
loses the immunity from dispossession under Section 12. Some
discussion took place on the question whether the tenant has a
right of possession or whether he has merely an immunity from
being dispossessed. Whether it be called an immunity from
dispossession or whether it be called a personal right of
possession, the fact remains that by Section 13, the legislature has
provided for dispossession of tenant, despite provisions of Section
12, if the court is satisfied that any one of the grounds mentioned
in Section 13 does exist. One of such grounds is the sub-letting of
the premises or a part thereof by the tenant. In view of this scheme
of the provisions in Sections 12 and 13 of the Act, it is necessary
for us to construe the meaning of the words ‘has sub-let’ keeping
in mind that the verb ‘sub-let’ is used in the present perfect tense.
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First, it must be a completed past action, that is the sub-letting
must be completed. A sub-letting is complete as soon as the sub-
tenant is put in possession of the premises given to him on sub-
lease. Now, this completed act of sub-letting must have a result.
What would be that result in the context of Sections 12 and 13 of
the Act? The result of sub-letting would be removal of the
impediment in the way of the landlord to recover possession of the
premises. In other words, the result of sub-letting would be to take
away that personal right of possession which the tenant enjoyed
under the provisions of the Rent Act. Now, this result must be
connected with the present moment. The present moment will be
the moment when the suit is filed. How is this result connected
with the filing of the suit? The answer is quite obvious. It is this
removal of the impediment in the way of the landlord’s recovery
of possession which induces him to go forthwith to the court and
file a suit for possession. Therefore, the words ‘has sub-let’ mean
that a sub-letting has taken place and as a result of that sub-letting
the impediment in the way of the landlord to recover possession
has been removed, thus, inducing him to go to court and ask for
recovery of possession. It is the result of the completed act i.e. the
removal of the impediment in his way, which permits the landlord
to go to the court and ask for a decree for possession. It is not
necessary, therefore, that sub-letting must continue, it is enough if
the premises have been sub-let sometime after the coming into
operation of the Act. The provisions of Section 15 of the
Saurashtra Rent Control Act make sub-letting unlawful.
Therefore, any sub-letting by the tenant after the Act came into
operation immediately removes the impediment in the way of the
landlord to recover possession and entitles him immediately to go
to the court and ask for recovery of possession. In order to convey
the correct meaning of the words ‘has sub-let’ it is not necessary to
show that the sub-letting was in existence on the date of suit. It is
enough that the sub-letting has taken place sometime after the Act came
into operation; it does not matter that the sub-letting came to an end
before the landlord gave notice or before the landlord filed a suit.”
50. In our opinion, the ratio laid down in the above cases applies to the
present case as well. Admittedly, on the date the tenancy was terminated,
the tenant (public limited company) was having a paid-up share capital of
rupees more than one crore. Under Clause (b) of Section 3(1) of the Act,
therefore, the provisions of the Act were not applicable to the suit
premises. It is true that a resolution was passed by the company to reduce
the paid-up share capital to less than rupees one crore, but the said
resolution was never approved by BIFR. But even otherwise, once it is
proved that the tenancy was legally terminated and the Act would not
apply to such premises, a unilateral act of tenant would not take away the
accrued right in favour of the landlord. Unless compelled, a court of law
would not interpret a provision which would frustrate the legislative
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intent and primary object underlying such provision. We, therefore, see
no infirmity in the conclusions arrived at by the courts below.
(emphasis and underlining added)
66) Though there is some factual difference in Carona Ltd.
and the present case, the ratio of the Apex Court is that a unilateral
act of tenant would not take away the accrued right in favour of the
landlord. It is further held by the Apex Court that unless compelled,
a Court of law would not interpret a provision which would frustrate
the legislative intent and primary object underlying such provision.
In my view, the judgment in Carona Ltd. completely answers the issue
at hand and as has been observed above, interpretation of Section
3(1)(b) of the MRC Act permitting re-entry of an entity in the realm
of rent protection, which has once been lost, would completely
frustrate the legislative object and this Court would therefore avoid
accepting such interpretation. On the contrary, prohibiting such re-
entry would fulfil the legislative intent, as well as the primary object
underlying the provisions of Section 3(1)(b).
67) In Crompton Greaves Ltd. (supra), Division Bench of this
Court has decided the issue of constitutional validity of Section
3(1)(b) of the MRC Act. The challenge was mounted on the premise
of invidious distinction between companies having paid up capital of
Rs.1 crore and other commercial ventures and that classification of
companies on the basis of paid up share capital was not reasonable
and did not have nexus with the object of the legislation. While
repelling to challenge to the constitutional validity of Section 3(1)(b)
of the MRC Act, the Division Bench held in para-31, 32 and 33 of its
judgment as under :
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31. Turning then to the provisions of section 3(1)(b) of the present
Act, the legislature has decided not to afford protection of the
Rent Act to certain categories of tenants mentioned therein. It has
been stated that under the Bombay Rent Act, the rents which were
payable were frozen on the basis of what was known as a
“standard rent” formulae which landlords contended caused
tremendous hardship to them as the same resulted in inadequate
returns to the landlords. The legislature felt the need of the Rent
Act to bring in the necessary balance between the interest of
tenants and the landlords. To bring this balance, the Rent Control
Bill, when it was introduced in the State Legislature, made a
deviation from the existing provisions of the rent laws and
introduced an exemption provision under the new Act whereby
premises let to foreign missions, international agencies,
multinational companies and public limited companies having a
paid up share capital of more than Rs. 1 crore were exempted
from the Act. When the bill was referred to the Joint Committee
of both the Houses of Legislature, the Joint Committee held as
many as fifty sittings to consider and discuss the provisions of the
Bill. The committee held prolonged discussions and heard views
on the proposed provisions in the Rent Control Bill of the
representatives of tenants and landlords before making its
recommendations. It is thus seen that the legislature had applied
to mind to the problem of housing and control of rents and
suggested certain measures. It did not proceed on the basis that
rent control legislation was meant only for the benefit of the
tenants but it wanted to strike a balance between the interests of
the landlord and tenants. Therefore, it cannot be said that the
provisions of section 3(1)(b) have got no nexus with the object
which is sought to be achieved.
32. It is urged that no reason has been given as to why only
corporate tenants have been singled out for exclusion and why
other tenants similarly situated i.e. having capacity to pay, are also
not excluded/exempted. Even within commercial ventures no
reason is discernible as to why partnership firms, HUFs and
proprietory concerns having economic/financial capacity to pay
are protected by the Act, whilst private and public limited
companies are excluded. Therefore, there is violation of Article 14
of the Constitution. We are unable to accept these contentions. It
is no doubt true that Article 14 ensures non-discrimination in State
action both in the legislative and the administrative spheres in the
democratic republic of India. This, however, cannot mean that all
laws must be general in character and universal in application. As
pointed out in Chiranjitlal Chowdhari v. Union of India, (1950) SLR
659, the State in the exercise of its governmental powers must
necessarily make laws operating differently on different groups or
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Neeta Sawant CRA-719-2023-FCdistinguishing and classifying persons or things subject to such
laws. Further it is equally well settled that legislation enacted for
the achievement of a particular object or purpose need not be all
embracing. It is for the legislature to determine what categories it
should embrace within the scope of legislation and merely because
the categories which would stand on the similar footing are not
covered by the legislature would not render the legislation which
has been enacted in any manner discriminatory and violative of
the fundamental right guaranteed by Article 14 unless it is
palpably arbitrary or amounts to total denial of equal protection
laws. (see Sakhawant Ali v. State of Orissa, AIR 1955 SC 166).
Besides there are obvious distinctions between a company
incorporated under the Companies Act on one hand and
partnership firm or HUF on the other hand. It is not necessary to
examine the same in detail. Suffice it to say that even for the
purpose of Rent Act, a partnership firm and a company do not
stand on the same footing. For example if partners in a
partnership firm sell their shares to a third party, it would amount
to subletting within the meaning of the Rent Act whereas in a case
of a limited company whose shares are transferred may not result
into sub-letting and forfeiting of tenancy since the entity remains
the same. We see nothing illegal or unfair in the classification
adopted by the impugned provision.
33. We also do not find any substance in the submission that the
criteria of paid up share capital is arbitrary and violative of Article
14 of the Constitution. The paid up capital of a company is the
capital that it has invested into the business from its own sources.
It is not necessarily the money with which it was born. Even the
money credited to the paid up capital like bonus shares forms a
part of the paid up capital of the company. The companies which
have paid up share capital of more than Rs. 1 crore by their very
nature are substantial organisations. The paid up share capital of a
company is a factor which rarely fluctuates, unlike other factors
like net worth which are applied while determining the financial
status of a company. It is a factor which is insisted upon by
various agencies, such as banks while granting loans as also for
the purpose of listing on the stock exchanges. The paid up share
capital also reflects the confidence which the public at large has in
a particular company. It is also a fact that the paid up share capital
cannot be reduced unless the procedure prescribed by the
Companies Act is followed and without prior permission of the
Company Court as envisaged by the provisions of the Company
Act. It is therefore not possible to hold that criteria of paid up
capital is wholly irrelevant. The lack of perfection in a legislative
measures does not necessarily imply its unconstitutionality. To
quote the words Venkatachaliah J. as His Lordship then was, in
“Ashwathanarayana Shetty v. State of Karnataka, 1989 Supp. (1) SCC
696 (at page 723)….” no economic measure has yet been devised
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which is free from all discriminatory impact and that in such a
complex arena in which no perfect alternatives exist, the Court
does well not to impose too rigorous a standard of criticism, under
the equal protection clause reviewing fiscal devices”.
(emphasis added)
68) The Division Bench in Crompton Greaves Ltd. thus not
only upheld the criterion of paid up share capital, but also
highlighted the importance of paid up share capital of a company
which rarely fluctuates. Mr. Dani has sought to read observations of
the Division Bench in para-33 of the judgment about permissibility
to reduce paid up share capital after following of procedure and with
prior permission of Company Court. However, in my view, the issue
of effect of such subsequent reduction of share capital on exclusion
of Rent Act protection was not before the Division Bench and
therefore the judgment cannot be read in support of a proposition
that in cases where there is reduction in the paid up share capital by
an order of a court, such company would be able to regain
protection of Rent Act.
69) Reliance by Mr. Dani on the judgment of Single Judge
of this Court in New Era Fabrics Ltd., Mumbai (supra) has no
application to the present case. The judgment is rendered in facts of
that case where the paid up share capital of the tenant therein was
above Rs.1 crore even on the date of filing of the suit. The
controversy before this Court was about factual dispute about paid
up share capital, which, according to the tenant was actually
Rs.93,74,000/- whereas this Court arrived at the conclusion that the
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same was above Rs.1 crore. The Judgment therefore would have no
application to the issue at hand.
70) Mr. Dani has relied upon judgment of Single Judge of
this Court in Pune Zilla Madhyawarti Sahakari Bank (supra) in
support of his contention that Court cannot enlarge scope of Section
3(1)(b) by interpretation. The case before this Court involved
determination of status of co-operative bank not covered by
explanation under Section 3(1)(b) and it was sought to be contended
that since share capital of the company was in excess of Rs.1 crore, it
was covered by Section 3(1)(b). This Court repelled the contention
holding that since the tenant was a Bank, it was necessary to prove
that it was covered by explanation to Section 3(1)(b). The bank was
not a public or private limited company and therefore its share
capital was irrelevant. Thus the judgment has no application to the
present case.
71) Thus entry by an entity in rent control sphere is not
permissible once such entity has already lost the protection of Rent
Act.
E. 6 RELEVANCE OF CHANGED STATUS OF TENANT ON THE
DATE OF FILING OF SUIT
72) Another debate sought to be created by the Respondent is
about its status on the date of filing of the suit. It is sought to be
contended that as on the date of filing of the suit i.e. on 25 July
2003, the paid up share capital of the Respondent had admittedly
reduced to less than Rs.1 crore. In my view, since broader issue is
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answered in the present judgment about impermissibility to regain
lost protection of MRC Act on account of happening of subsequent
events, this debate sought to be raised on behalf of the Respondent is
rendered unnecessary. Even otherwise, it is unfathomable that the
landlord who becomes entitled to seek eviction of tenant, who is
taken out of purview of MRC Act, would lose such right merely
because he tolerates presence of the tenant for some time, during
which the tenant unilaterally changes its status and claims regaining
of protection under MRC Act. As observed above, in the present
case, Revision Applicant could have filed suit for Respondent’s
ejectment during 1 April 2000 till 17 April 2001 (when the Scheme
was sanctioned by this Court) and in that event, Respondent would
not have been in a position to raise the defence of reduction of its
paid up share capital. As rightly contended by Mr. Jagtiani, loss of
protection of Rent Act is an event which occurred on 31 March 2000
and such event created right in favour of the Plaintiff-landlord to seek
ejectment of the Defendant-tenant by serving notice under Section
106 of the Transfer of Property Act. Mere action of the Plaintiff in
tolerating Respondent’s presence in the suit premises would not
result in permanent loss of that right. In this connection, reliance of
Mr. Jagtiani on judgment of the Apex Court in Central Bank of India
Versus. National Rayon Corporation Limited (supra) appears to be
apposite. In case before the Apex Court, eviction notice was issued
on 26 June 2007 after the tenant had lost rent act protection on 31
March 2000 on account of tenant’s paid up share capital being in
excess of Rs.1 crore. In the light of this position, the Apex Court has
held in para-7 as under :
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7. As far as the present action initiated by Central Bank of India is
concerned, the notice to evict was issued on 26-6-2007, much after
the Maharashtra Rent Control Act came into force on 31-3-2000.
This Act clearly lays down that it shall not apply to public limited
companies having a paid-up share capital of rupees one crore or
more. Section 3(1)(b) of the Act reads as follows:
“3. Exemption.–(1) This Act shall not apply
(a) ***
(b) to any premises let or sub-let to banks, or any public
sector undertakings or any corporation established by or
under any Central or State Act, or foreign missions,
international agencies, multinational companies, and
private limited companies and public limited companies
having a paid-up share capital of rupees one crore or
more.”
73) Since it is held that it is not permissible to regain lost
protection of MRC Act on account of occurrence of subsequent
event, reliance by Mr. Dani on judgments in MST. Subhadra (supra)
and Vasudev Dhanjibhai Modi (supra) is not relevant to the issue at
hand which judgment seeks to deal with the issue of material date
for ascertaining occurrence of an event.
E. 7 LIFTING OF CORPORATE VEIL 74) Mr. Jagtiani has urged this Court to lift the corporate
veil and to treat the three entities viz. Respondent, Veedip and
Datum as a single entity for the purpose of application of provisions
of Section 3(1)(b) of the MRC Act. He has relied upon judgment of
the Apex Court in Delhi Development Authority (supra) in which it is
held in para-28 as under :
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Neeta Sawant CRA-719-2023-FCpeople. Where, therefore, the corporate character is employed for the
purpose of committing illegality or for defrauding others, the court would
ignore the corporate character and will look at the reality behind the
corporate veil so as to enable it to pass appropriate orders to do justice
between the parties concerned. The fact that Tejwant Singh and members
of his family have created several corporate bodies does not prevent this
Court from treating all of them as one entity belonging to and controlled
by Tejwant Singh and family if it is found that these corporate bodies are
merely cloaks behind which lurks Tejwant Singh and/or members of his
family and that the device of incorporation was really a ploy adopted for
committing illegalities and/or to defraud people.
75) Reliance is also placed on judgment of Delhi High Court
in Delhi Airport Metro Express Private Limited (supra) in which the
Delhi High Court has referred to the decision of the Apex Court in
Balwant Rai Saluja Versus. Air India Ltd.33 as well as the judgment in
Delhi Development Authority. In my view, it is not really necessary to
delve deeper into the issue of lifting of corporate veil once this Court
has held that it is impermissible to regain lost protection of MRC Act
on account of subsequent change of status. However, as observed
above, the case does not involve erosion of paid up share capital on
account of any economic constraints. On the other hand, the
reduction of share capital of Respondent-Company appears to have
been undertaken for strengthening the company’s business by
distributing the same to two sister concerns. By sanction of the
Scheme, the Respondent-Company and its sister concerns have
gained strength and have not really lost status as a ‘cash rich entity’
or has become a ‘cash poor entity’. To this limited extent, if the
corporate veil is lifted and the real Arrangement of the Scheme is
appreciated, in the context of the objective behind enacting Section
3(1)(b), it can hardly be said that after sanction of the Scheme,
33
(2014) 9 SCC 407
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Respondent, who was able to afford market rent became incapable of
doing so. In my view, therefore even if the principle of
impermissibility of regaining lost protection of MRC Act on account
of subsequent change of status was not to be applied to the present
case, the nature of the Scheme between Respondent and its sister
concerns is such that the test of ‘affordability to pay market rent’
would still be satisfied. Respondent is otherwise occupying entire
second floor of the building located in Ballard Estate area of
Mumbai City admeasuring 5000 sq. ft which are used for its business
purposes. Though the paid up share capital is distributed, ultimately
the same management continued the same business through Veedip
and Datum. It is also a matter of fact that subsequently, Veedip is
later renamed as ‘Mather and Platt Pumps Ltd.’ and Datum is
renamed as ‘Mather and Platt Fire Systems Ltd.’ Thus both Veedip
and Datum are later given Respondent’s brand name ‘Mather and
Platt’. This is not a case that a new management took over Veedip or
Datum and that Respondent’s management ceased to do business in
Fire and Security Engineering products or well as for Fluid
Engineering products. In that view of the matter, mere internal
arrangement made by the management for strengthening its business
thereby resulting in reduction of paid-up share capital of Respondent
would not bring back the lost protection of rent control legislation.
Therefore the corporate veil is required to be lifted for inferring
affordability on the part of the management of Respondent to pay
market rent for inclusion of Respondent under Section 3(1)(b) of
MRC Act.
Page No. 74 of 77 4 October 2024 ::: Uploaded on - 05/10/2024 ::: Downloaded on - 06/10/2024 11:41:08 ::: Neeta Sawant CRA-719-2023-FC F. CONCLUSIONS 76) The conspectus of the above discussion is that once
protection under the Rent Act is lost by a company on account of its
paid up share capital exceeding Rs. 1 crore, mere voluntary
reduction of such paid up share capital below Rs. 1 crore by it would
not result in regaining the lost Rent Act protection. By applying the
economic criterion of ‘affordability to pay market rent’, it is held that
Respondent is a ‘cash rich entity’ and is able to fend for itself,
negotiate with premises owner and pay rent at market rates. The
Small Causes Court and its Appellate Bench have committed
palpable error in not appreciating the statutory scheme of MRC Act
in its right perceptive. Both the Courts ought to have appreciated that
Respondent had paid up share capital of Rs. 18.90 and cash reserves
of Rs. 45 crores as on 31 March 2000, when the MRC Act came into
effect. Respondent is thus a ‘cash rich entity’ excluded from
provisions of MRC Act, under Section 3(1)(b) thereof.
G. PLAINTIFF’S ENTITLEMENT TO SEEK RECOVERY OF
POSSESSION OF SUIT PREMISES
77) Having held that Respondent is covered by Section 3(1)(b)
of the MRC Act as on date of filing of the suit, and on that count,
was not entitled to protection of its tenancy under provisions of Act,
the next issue is whether Applicant-Plaintiff is entitled to decree for
eviction against Respondent-Defendant. Once Respondent loses
protection under rent control legislation, its tenancy becomes
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terminable by issuance of notice under Section 106 of the Transfer of
Property Act. In the present case, Applicant has issued notice of
termination of tenancy to Respondent on 24 December 2002. The
only defence taken by Respondent to the said termination notice was
its protection under the provisions of MRC Act. In my view
therefore, since tenancy of Respondent is held to be not protected by
provisions of the MRC Act, termination of its tenancy by notice
dated 24 December 2002 would be valid. Since termination of
tenancy of Defendant is valid, Plaintiff is entitled to seek recovery of
possession of suit premises from Defendant. In my view therefore
there would be no point in remanding the suit for deciding the issue
about validity of termination of Defendant’s tenancy and Plaintiff ‘s
entitlement to seek recovery of possession of suit premises. In fact,
the Trial Court has framed and answered the issue relating to validity
of termination of tenancy of the Defendant against Plaintiff and in
favour of Defendant. The findings recorded on the said issue both by
the Trial and the Appellate Court are clearly erroneous. The said
issue is answered against Plaintiff only on account of Defendant
being held covered by provisions of MRC Act. If Trial and Appellate
Court were to hold that Defendant is covered by provisions of
Section 3(1)(b) of the Act, I am sure both the Courts would not have
hesitated in passing decree of eviction against Defendant. No other
defect is otherwise pointed out by the Defendant in notice of
termination of tenancy. It is accordingly held that notice of
termination of tenancy is legal and valid and accordingly Plaintiff is
entitled to decree of eviction against Defendant.
Page No. 76 of 77 4 October 2024 ::: Uploaded on - 05/10/2024 ::: Downloaded on - 06/10/2024 11:41:08 ::: Neeta Sawant CRA-719-2023-FC H. ORDER 78) I accordingly procced to pass the following order :
i) Judgment and Decree dated 6 October 2016 passed by
Court of Small Causes at Mumbai in T.E. & R. Suit No.
198/211 of 2003 as confirmed by the judgment and order
dated 11 August 2023 passed by Appellate Bench of Small
Causes Court in P. Appeal No. 508 of 2016 are set aside.
ii) T.E. & R. Suit No. 198/2011 of 2003 is decreed with
costs.
iii) Defendant shall handover vacant and peaceful possession
of suit premises to the Plaintiff by 31 December 2024.
iv) Plaintiff shall be entitled to inquiry under Order XX Rule
12(C) of the Code as to mesne profits w.e.f. date of
termination of tenancy.
79) With the above directions, Civil Revision Application is
allowed.
Digitally
signed by SANDEEP V. MARNE, J.
NEETA
NEETA SHAILESH
SHAILESH SAWANT
SAWANT Date:
2024.10.05
14:43:08
+0530
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