Bombay High Court
Metal Box India Ltd vs M/S. S. F. Engineer on 3 December, 2024
2024:BHC-AS:46483
Neeta Sawant CRA-103-2024-FC
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
CIVIL REVISION APPLICATION NO. 103 OF 2024
Metal Box India Ltd.,
a Public Limited Company, having its
office at 3rd Floor, 62-A, Nepean Sea Road,
Mumbai-400 006. ... Petitioner
[Orig. Appellant in Appeal No.231/2016 and
Orig. Defd. In T.E. & R. Suit No.153/165 of
2001]
: Versus :
M/s. S.F. Engineer,
a Partnership Firm, duly registered under
The Indian Partnership Act, 1932
carrying on business from Noshirwan
Mansion, Henry Road, Mumbai-400 039. ....Respondent
[Orig. Resp. in Appeal No.231/2016]
__________
Mr. Anil Anturkar, Senior Advocate with Ms. Kashish Chelani, Mr.
Atharva Date, Mr. Aditya Mehta, Mr. Nishant Vyas, Ms. Niyomi Jariwala,
Ms. Anuja Jhunjhunwala and Ms. Nidhi Singh, i/by. M. Mulla Associates, for
the Applicants.
Mr. V.A. Thorat, Senior Advocate with Mr. Rohaan Cama and Mr. Ziyad
Madon i/by. Mr. Amit Mehta, for the Respondent.
______________
CORAM : SANDEEP V. MARNE, J.
Judgment Resd. On : 26 November 2024.
Judgment Pron. On : 3 December 2024.
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JUDGMENT :
1) The Civil Revision Application is filed challenging the
judgment and decree dated 16 January 2024 passed by the Appellate
Bench of the Small Causes Court dismissing Appeal No. 231 of 2016
filed by the Revision Applicant and confirming the judgment and decree
dated 28 March 2016 passed by the Small Causes Court decreeing T.E. &
R. Suit No. 153/165 of 2001. The Small Causes Court, while decreeing
the suit, has directed the Revision Applicant-Defendant to handover
vacant and peaceful possession of the suit premises to the Plaintiffs, with
further direction to conduct enquiry into mesne profits under the
provisions of Order 20 Rule 12 of the Code of the Civil Procedure, 1908
(the Code). Aggrieved by the concurrent decrees for eviction passed by
the Trial and the Appellate Courts, Defendant-Revision Applicant has
invoked revisionary jurisdiction of this Court under Section 115 of the
Code.
2) Two flats bearing Nos. 201 admeasuring 1850 sq. ft (carpet)
and 204 admeasuring 1810 sq.ft (carpet) in aggregate admeasuring 3660
sq.ft. of carpet area alongwith two enclosed garages admeasuring 171.25
sq.ft situated in a building known as ‘Marlow’ at 62-B, PW Road, Worli,
Mumbai-2 are the suit premises. Plaintiff-S. F. Engineer claims to be the
owner in respect of the suit premises. Defendant No.1 was inducted as a
monthly tenant in respect of the suit premises. Defendant No.1 is a
public limited company, whose paid-up share capital as on the date of
coming into force of Maharashtra Rent Control Act, 1999 (MRC Act)
was above Rs.1 crore. Plaintiff claimed that Defendant No.2-
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Bhagwandas V. Bhawnani was unlawfully occupying Flat No.201 as
illegal sub-tenant since 1989. In the above background, Plaintiff issued
notice to Defendant No.1 on 19 December 2000 terminating its monthly
tenancy and demanding compensation at the rate of Rs.1,50,000/- per
month. Defendant No.1 replied the notice on 22 December 2000 and
refused to vacate the suit premises. Plaintiff instituted T. E. & R. Suit
No.153/165 of 2001 before the Small Causes Court, Mumbai against
Defendant Nos.1 and 2 seeking recovery of possession of the suit
premises. The suit was premised on an assertion that the paid-up share
capital of Defendant No.1 was above Rs.1 crore and that therefore it was
not entitled to protect its tenancy under the provisions of Section 3(1)(b)
of the M.R.C. Act. Defendant No.1 filed Written statement inter-alia
contending that it was declared as sick industrial company on account of
its reduced paid-up share capital and claimed that it was not an exempted
entity under the provisions of Section 3(1)(b) of the Maharashtra Rent
Control Act. It appears that the suit was dismissed against Defendant
No.2 by order dated 6 September 2007 passed in Interim Notice No.
152/2007. Accordingly, the Revision Applicant continued as sole
contesting Defendant in the suit. Based on the pleadings of the parties,
the Small Causes Court framed following issues :
1. Whether the court has jurisdiction to try and decide/entertain the suit ?
2. Does plaintiff prove that, he has validly terminated the lease or tenancy
rights of defendants in respect of suit premises according to Section 105 of
Transfer of Property Act ?
3. Does defendant no.2 prove that, he is lawful sub-tenant or deemed
tenant or protected licensee of suit premises ?
4. Does defendant no.2 prove that, he is lawful sub-tenant or deemed
tenant or protected licensee of suit premises ?
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4. Is plaintiff entitled for decree of possession and money decree on
account of arrears of rent and mesne profits ?
5. What order and decree ?
2A. Whether the defendant Company which was not enjoying the
protection of MRCA 1999 as on date of filing of this suit i.e. dated
01.03.2001 can subsequently get protection on account of reduction of its
share capital below 1 Crore and whether under Section 3(1)(b) of said Act
ceases to apply on account of such reduction ?
2B. Whether the order dated 04.12.2007 passed by Appellate Authority for
Industrial and Financial Reconstruction in proceedings instituted by
defendant no.1 under The Sick Industrial Companies Act, 1985 is not
binding on the plaintiff ?
2C. Whether the plaintiff proves that, defendant no.1 has played fraud and
by suppression obtained order dated 04.12.2007 from the Appellate
Authority for Industrial and Financial Reconstruction under The Sick
Industrial Companies Act, 1985 and it operates retrospectively in this suit
w.e.f. 10.06.1996 ?
3) Both the parties led evidence in support of their respective
contentions. After considering the pleadings, documentary and oral
evidence, the Small Causes Court held that the Defendant was not
enjoying protection of MRC Act as on the date of filing of the suit and
could not subsequently secure such protection after reduction of its paid-
up share capital below Rs.1 crore. The Small Causes Court therefore held
that the Defendant was not entitled to protection of its tenancy under the
provisions of the MRC Act and proceeded to hold that Plaintiff validly
terminated its license/tenancy in accordance with the provisions of
Section 106 of the Transfer of Property Act. The Small Causes Court
accordingly decreed the suit directing the Defendant to handover vacant
and peaceful possession of the suit premises to the Plaintiff with further
direction to conduct an enquiry into mesne profits under the provisions
of Order 20 Rule 12 of the Code.
Page No.4 of 36 3 December 2024 ::: Uploaded on - 03/12/2024 ::: Downloaded on - 04/12/2024 01:10:01 ::: Neeta Sawant CRA-103-2024-FC 4) The Revision Applicant-Defendant preferred Appeal
No.231/2016 before the Appellate Bench of the Small Causes Court
challenging the eviction decree dated 28 March 2016. Plaintiff filed
cross-objections at Exhibit-9 to the limited extent of challenging the
Small Causes Court’s finding in para-25 of the judgment on the issue of
Defendant obtaining the order for reduction of its paid-up share capital
to less than Rs.1 crore by playing fraud upon the Board for Industrial and
Financial Reconstruction (BIFR) and Appellate Authority for Industrial
and Financial Reconstruction (AAIFR). The Appellate Bench, by its
judgment and decree dated 16 January 2024, has dismissed both the
Appeals preferred by the Applicant-Defendant as well as cross objections
filed by the Plaintiff-Respondent. The Appellate Bench has confirmed the
eviction decree dated 28 March 2016 passed by the Small Causes Court.
Aggrieved by the decree passed by the Appellate Bench of the Small
Causes Court on 16 January 2024 thereby confirming the eviction decree
passed by the Small Causes Court, the Applicant-Defendant has filed the
present Revision Application.
5) Mr. Anturkar the learned Senior Advocate appearing for the
Revision Applicant-Defendant would fairly submit that at the very outset
that the issue of availability of protection of the MRC Act to a public or
private limited Company, whose share capital was Rs.1 crore or more has
been decided by this Court in Depe Global Shipping Agencies Pvt. Ltd.
Versus. Mather and Platt (India) Ltd. 1. He would fairly submit that in the
judgment in Depe Global Shipping, this Court has held that once a public
1
2024 SCC OnLine Bom 3189
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or private limited company loses protection of MRC Act on account of
its paid-up share capital being above Rs.1 crores as on 31 March 2000,
subsequent voluntary act of reduction of paid-up share capital below
Rs.1 crore does not restore the lost protection of M.R.C. Act. Mr.
Anturkar would however canvass two broad propositions. Firstly, he
would submit that the judgment in Depe Global Shipping (supra) is not
applicable to the facts of the present case. Secondly and alternatively, he
would submit that even if it is held that the judgment applies to the facts
of the present case, some of the findings recorded therein are required to
be reconsidered in the light of this Court not considering paragraphs of
one Apex Court judgment and few other judgments not being brought to
the notice of this Court.
6) In support of his contention that the judgment in Depe
Global Shipping is not applicable to the facts of the present case, Mr.
Anturkar would submit that the case before this Court in Depe Global
Shipping involved implementation of Scheme of Arrangement
sanctioned under the provisions of Sections 391 and 394 of the
Companies Act and whether such Scheme would be binding on a
landlord. That this Court further held that while sanctioning the Scheme
of Arrangement under Sections 391 and 394, the High Court merely
exercises a supervisory jurisdiction and does not adjudicate any dispute
between the parties. That the present case does not involve reduction of
paid-up share capital on account of sanctioning of Scheme of
Arrangement under Sections 391 and 394 of the Companies Act but the
reduction in the paid-up share capital has essentially been effected on
account of the provisions of the Sick Industrial Companies Act, 1985
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(SICA) which has completely different effect than the provisions of the
Companies Act. That in Depe Global Shipping, the Scheme of
Arrangement was more by consent as the same was voluntary and
unilateral, whereas in the present case, reduction of paid-up share capital
is neither voluntary nor by consent. In support of his alternate plea of
reconsideration of the law laid down by this Court in Depe Global
Shipping, Mr. Anturkar would submit that this Court has ignored crucial
paragraph Nos. 37, 40 and 42 of the judgment in Carona Ltd. Versus.
Parvathy Swaminathan & Sons2. He would further submit that this Court
has not taken into account the ratio of the judgment of the Apex Court
in Pasupuleti Venkateswarlu Versus. The Motor & General Traders 3. Mr.
Anturkar would further submit that in Pasupuleti Venkateswarlu (supra),
it is held that the supervening events occurring during pendency of
litigation must be considered by Courts. He would also rely upon
judgment of this Court in R.S. Madireddy & Another. Versus. Union of
India and Ors.4 and of the Apex Court in R.S. Madireddy and Another
Versus. Union of India and Others 5 in support of his contention that the
supervening event of reduction of paid-up share capital of the
Defendant-Company during pendency of the suit would have effect of
restoration of protection of M.R.C. Act. He would submit that the view
taken by this Court that the crucial date for determining exclusion of an
entity under the provisions of Section 3(1)(b) of the MRC Act is the date
of coming into effect of the Act i.e. 31 March 2000 runs counter to the
judgments in Carona Ltd., Pasupuleti Venkateswarlu and R.S. Madireddy.
2
(2007) 8 SCC 559
3
(1975) 1 SCC 770
4
(2022) SCC OnLine Bom 2657
5
2024 SCC OnLine SC 965
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He would further submit that there is nothing in the Preamble of the Act
to indicate that there is any sacrosanct about the date of 31 March 2000
to be treated as sole the yardstick for determining the paid-up share
capital. That the date on which the Court gives justice to the tenant, who
is not in a position to pay the market rent on account of loss of cash rich
status, would be the relevant date for determining exclusion under
Section 3(1)(b) of the MRC Act. He would therefore submit that the view
taken by this Court virtually fossilizing the date of 31 March 2000 for
applying the yardstick of paid-up share capital is required to be
reconsidered by holding that the said yardstick would apply on the date
on which the Court proceeds to decide the suit. Mr. Anturkar would
further submit that fossilizing the date of 31 March 2000 would result in
a strange situation where the Company, who has paid-up share capital of
less than Rs. 1 crore as on 31 March 2000 would continue to enjoy
protection of M.R.C. Act notwithstanding the fact that on the date of
judgment of the suit, its paid-up share capital exceeds Rs.1 crores. That
therefore adopting the date of 31 March 2000 for applying the yardstick
of paid-up share capital is contrary to the legislative intent. Lastly, Mr.
Anturkar would submit that this Court in Depe Global Shipping has relied
upon paras-7 and 8 of the judgment in Central Bank of India Versus.
National Rayon Corporation Limited6. However, the case before the Apex
Court did not involve reduction of paid-up share capital to less than Rs.1
crore on account of non-voluntary act like passing of order under the
provisions of SICA. Mr. Anturkar would therefore submit that the view
taken by this Court in Depe Global Shipping requires reconsideration in
6
(2014) 13 SCC 291
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the event of this Court holding that the judgment applies to the facts of
the present case.
7) On the above broad submissions, Mr. Anturkar would
submit that the Defendant-Company is entitled to protection of its
tenancy under the provisions of the M.R.C. Act and that therefore the
suit, as filed by the Plaintiff, is not maintainable and ought to have been
dismissed. He would accordingly pray for setting aside the decree passed
by the Trial and as upheld by the Appellate Court.
8) The Revision Application is opposed by Mr. Thorat, the
learned Senior Advocate appearing for the Respondent-Plaintiff. He
would submit that the issue involved in the present Revision Application
is squarely covered by the judgment of this Court in Depe Global
Shipping. That the Revision Applicant cannot urge before this Court to
take a view different than the one taken in Depe Global Shipping since
this Court is not exercising review jurisdiction while deciding the present
Revision Application. Mr. Thorat would further submit that the
protection from rent escalation and eviction is created by the provisions
of the M.R.C. Act and therefore the date of coming into force of the Act
is relevant for the purpose of determining the entities who shall enjoy the
rent control protection. That there is nothing in the Act which seems to
suggest any date different from 31 March 2000 is suggested for the
purpose of applicability of provision of Section 3(1)(b) thereof. He
would rely on para-50 of the judgment in Carona Ltd. wherein the Apex
Court noted that the paid-up share capital of the Company therein was
more than Rs.1 crore on the date of termination of the tenancy. That in
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the present case, the tenancy was terminated on 19 December 2000
whereas the paid-up share capital of the Applicant-Defendant came to be
reduced below Rs.1 crore on 4 December 2007. He would take me
through paras-24 and 25 of the judgment of the Appellate Court to
demonstrate that the defence taken by the Defendant about the paid-up
share capital being reduced in accordance with the first scheme of 1996
has been expressly rejected and a finding of fact is recorded that the
Scheme became effective and operational only from 4 December 2007.
Lastly, Mr. Thorat would submit that the conduct of the Applicant-
Defendant is such that this Court would be loathe to entertain the
present Revision Application. He would submit that the Appellate Court
had passed order dated 23 March 2021 fixing the interim compensation
at the rate of Rs.5 lacs per month excluding the contractual rent and had
directed the Applicant-Defendant to deposit the arrears of rent from the
date of the decree and to continue to pay the same during pendency of
the appeal. That the Applicant-Defendant has failed to deposit the said
amount of interim compensation and that the total amount of interim
compensation payable from 28 March 2016 till date is Rs.5.2 crores.
Inviting my attention to para-51 of the judgment of the Apex Court in
Carona Ltd., Mr. Thorat would submit that this Court may not entertain
the present Revision Application considering the conduct of the Revision
Applicant. He would pray for dismissal of the Revision Application.
9) Rival contentions of the parties now fall for my consideration. Page No.10 of 36 3 December 2024 ::: Uploaded on - 03/12/2024 ::: Downloaded on - 04/12/2024 01:10:01 ::: Neeta Sawant CRA-103-2024-FC 10) Plaintiff instituted T.E. & R. Suit No.153/165 of 2001
seeking recovery of possession of the suit premises from the Defendant
on the ground that its monthly tenancy was terminated by notice dated
19 December 2000. Plaintiff ‘s suit is premised on an assertion that the
Defendant no longer enjoyed protection of its tenancy on account of it
being an excluded entity under the provisions of Section 3(1)(b) of the
MRC Act as its paid-up share capital exceeded Rs.1 crore. On the other
hand, it is the defence of the Defendant that its share capital has been
reduced to less than Rs.1 crore on account of the order dated
4 December 2007 passed by the AAIFR and the Defendant, not being a
cash rich entity, is entitled to rent control protection. Accordingly, the
Defendant contended that its tenancy can be determined and possession
of the suit premises could be secured by the Plaintiff-landlord either on
account of default in payment of rent under Section 15 or by making out
one of the grounds enumerated under Section 16 of the M.R.C. Act.
Defendant thus contended that it was impermissible to terminate its
protected tenancy by merely serving the notice. The moot point for
consideration before the Trial and the Appellate Courts was whether
Defendant enjoyed protection of its tenancy under the provisions of the
M.R.C. Act.
11) Section 3 of the M.R.C. Act provides for exemption from
application of the act to certain entities and 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 thePage No.11 of 36
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Neeta Sawant CRA-103-2024-FCGovernment 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;
(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.
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(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.
12) Thus, a public limited company or private limited company
having paid-up share capital of Rs.1 crore or more is excluded from
application of provisions of the MRC Act under Section 3(2)(b).
According to the Plaintiff, in Form-20B filed by the Petitioner under the
Companies Act 1956, its paid-up share capital was indicated as Rs.
20,23,40,000/-. There is no dispute to the position that as on the date of
coming into force of the MRC Act i.e. as on 31 March 2000, the paid-up
share capital of the Defendant-Company was over Rs.1crore. According
to the Applicant, it was declared as a sick industrial company by BIFR
under the provisions of Sick Industrial Companies (Special Provisions)
Act, 1985 on 27 May 1988 on account of negative net worth and wiping
out of the entire paid-up share capital. On 10 June 1996, the Scheme for
financial reconstruction of the Petitioner was sanctioned by the BIFR.
However, there is nothing on record to indicate any that reduction in the
Applicant’s share capital was effected under the 1996 Scheme. According
to the Applicant, the AAIFR modified and updated the Scheme for
rehabilitation of the Applicant in August 2000 and again there is nothing
on record to indicate that the said order effected any reduction in the
paid-up share capital of the Applicant-Company. The Delhi High Court
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passed order dated 16 July 2001 making the updated sanctioned scheme
for rehabilitation as prepared by the Operating Agency in October 2000
operative. The Sick Industrial Companies (Special Provisions) Repeal
Act, 2003 was enacted on 1 January 2004 and according to the
Applicant, the same was not enforced till 1 December 2016. According
to the Applicant, the AAIFR passed an order on 4 December 2007 by
which the paid-up share capital (both preference and equity) of the
Applicant-Company was reduced to Rs.2,23,000/- and the sanctioned
scheme for rehabilitation dated 10 June 1996 as modified by the AAIFR
in August 2000 prepared by the Operating Agency on 3 October 2000
and made operative by the Delhi High Court by order dated
16 July 2001. The order dated 4 December 2007 was passed by the
AAFIR in appeals filed inter-alia by the Applicant-Company challenging
the BIFR’s order dated 11 September 2006 passed during the course of
review hearing conducted by it to monitor implementation of the
sanctioned scheme. In the order dated 4 December 2007, the AAIFR
agreed that the suggestions made before it for updating the revival
scheme due to reduction of share capital, thereby paving way for
induction of funds for wiping out all accumulated losses. The AAIFR
accordingly directed revision and updating of the objections and allowed
the Appeal upholding the recommendations and updated the revival
scheme by directing reduction in existing paid-up share capital of the
Company by 99% of equity capital and 99% of preference share capital
in terms of Section 18(2)(f) of SICA. The relevant portion of the
direction of the AAIFR in paragraph-26(g) of the order reads thus:
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(g) The recommendation of the MA for reduction in the existing paid-
up share capital of Metal Box by 99% on equity capital and 99% on the
preference share capital, in terms of Section 18(2)(f) of SICA is
allowed and the scheme stands updated accordingly.
13) Thus, for the first time on 4 December 2007, the AAIFR
directed revival of the scheme by updating the same by reducing the
paid-up share capital of the Applicant-Company. The reduction in share
capital thus took place on/or after 4 December 2007.
14) After having held that the reduction in paid-up share capital
of the Applicant-Company got affected on/or after 4 December 2007,
the next issue for consideration is whether such reduction in the paid-up
share capital would have the effect of restoration of protection of M.R.C.
Act in respect of the demised premises. The issue is no more res-integra
and is squarely covered by the judgment delivered by me in Depe Global
Shipping (supra) wherein this Court was tasked upon to decide similar
issue. The issue before this Court in Depe Global Shipping has been
captured in para-1 of the judgment as under:
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 (M.R.C. 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 ont eh 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.
Page No.15 of 36 3 December 2024 ::: Uploaded on - 03/12/2024 ::: Downloaded on - 04/12/2024 01:10:01 ::: Neeta Sawant CRA-103-2024-FC 15) This Court considered the entire statutory scheme of the
MRC Act and also took note of the historical background in which the
MRC Act was enacted by making a detailed reference to the judgment of
the Apex Court in Malpe Vishwanath Acharya and others Versus. State of
Maharashtra and another7. This Court thereafter made reference to the
judgment of the Apex Court in Leelabai Gajanan Pansare and others
Versus. Oriental Insurance Company Limited and others8 and took note of
observations of the Apex Court that M.R.C. Act is a sequel to the
judgment in Malpe Vishwanath Acharya. This Court took note of the
observations recorded by the Apex Court in Leelabai Gajanan Pansare
that the Legislature evolved economic criterion while enacting the
provisions of the MRC Act while offering an economic package and that
one of the facets of such economic package was to exclude entities under
Section 3(1)(b) who can afford rent at market rate. This Court thereafter
held that the Scheme of Arrangement sanctioned under the provisions of
Sections 391 and 394 of the Companies Act would not bind the landlord
as the same does not operate in rem and does not affect rights and
obligations between the landlord and transferor company in its capacity
as tenant. This Court thereafter considered the issue as to whether there
was permanent loss of rent control protection and whether it is
permissible to regain the lost protection on account of reduction in the
paid-up share capital of a Company. This is the precise issue involved in
the present case. This Court answered the said issue by recording
following findings in paras-58 to 71 of the judgment:
7
(1998) 2 SCC 1
8
(2008) 9 SCC 720Page No.16 of 36
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Neeta Sawant CRA-103-2024-FCE. 5 Permanent Loss of Rent Act Protection and 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 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
Ltd. and Mather and Platt Fire Systems Ltd., respectively. The business has
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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 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 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
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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 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 onetime 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 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
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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.
65. Reliance by Mr. Jagtiani on the judgment of Carona Ltd. (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 v. Sherbanu Hosang Patel 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
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 v. Arjan Bhanji Kanbi 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 GLR
837]. In Maganlal [(1969) 10 GLR 837] the High Court of Gujarat had
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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 the 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
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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. 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 subtenant is put in possession of the
premises given to him on sublease. 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
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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 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 reentry 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.
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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:
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
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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 classes of persons and it possess for
that purpose large powers of distinguishing 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, (1954) 2 SCC 758 : 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
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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 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 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.
Page No.26 of 36 3 December 2024 ::: Uploaded on - 03/12/2024 ::: Downloaded on - 04/12/2024 01:10:01 ::: Neeta Sawant CRA-103-2024-FC 16) In Depe Global Shipping, this Court thereafter proceeded to
decide the issue of relevance of change in status of a tenant on the date
of filing of the suit and held that change in the status of the tenant on the
date of filing of the suit is irrelevant as it is impermissible to regain lost
protection of MRC Act on account of occurrence of subsequent events.
This Court held in paragraphs-72 and 73 as under :
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 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 v. 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:
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 companiesPage No.27 of 36
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Neeta Sawant CRA-103-2024-FChaving 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.
17) This Court answered the issue formulated in paragraph-1 of
the judgment by recording following conclusions:
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.
18) In my view, the judgment in Depe Global Shipping squarely
answers the issue involved in the present case. As on the date of coming
into effect of the M.R.C. Act, the paid-up share capital of the Defendant-
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Company was admittedly above Rs.1 crore. As observed above, the
reduction in the share capital as suggested before AAIFR came to be
approved and was directed to be effected by the order of the AAIFR
passed on 4 December 2007. Infact the factual situation in the present
case is worse than the one involved in Depe Global Shipping. In that case,
the paid-up share capital of the tenant-company was reduced below Rs.1
crore as on the date of filing of the suit. In the present case however,
even on the date of filing of the suit on 1 March 2001, the paid-up share
capital of the Defendant-Company was admittedly above Rs.1 crore.
19) It is faintly sought to be suggested that the AAIFR’s order
dated 4 December 2007 had the effect of application of updated
sanctioned scheme with retrospective effect from 10 June 1996 and by
virtue of that order, the paid-up share capital of the Petitioner also got
reduced retrospectively w.e.f. 10 June 1996. I am unable to agree. The
AAIFR in its order dated 4 December 2007 took note of certain steps
suggested by M.A. during the intervening period when revival scheme
was pending and suggested that share capital of the company be reduced.
The AAIFR sanctioned the recommendation for reduction of paid-up
share capital by 99% (both equity and preference) and accordingly
ordered updation of the Scheme. It therefore cannot be contended that
merely because the Scheme got updated by virtue of order dated 4
December 2007, the paid-up share capital of the Defendant got reduced
retrospectively from 10 June 1996. Infact similar plea was sought to be
raised in Depe Global Shipping where the Scheme of Arrangement got
sanctioned w.e.f. the appointed date which was before coming into effect
of the M.R.C. Act. This Court, however, rejected the contention that the
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paid-up share capital of the Company therein had reduced as on the date
of coming into effect of the M.R.C. Act.
20) Coming to the first submission canvassed by Mr. Anturkar
that the judgment of this Court in Depe Global Shipping is not applicable
to the facts of the present case, it is seen that the submission is essentially
premised on the methodology adopted by the two companies for
reduction of their paid-up share capital. In Depe Global Shipping, the
reduction of paid-up share capital was voluntary through sanction of
Scheme of Arrangement whereas in the present case, according to Mr.
Anturkar, the same is non-voluntary and was required to be effected only
for updating the scheme of revival. In my view, mere difference in
methodology by which reduction in paid-up share capital of a company
is effected would make no difference to the applicability of provisions of
Section 3(1)(b) of the M.R.C. Act. As held in Depe Global Shipping, the
legislative intention was to exclude cash rich entities who could fend for
themselves and negotiate rent at market rates as on 31 March 2000 got
excluded from rent control protection. Whatever may be the reason for
subsequent reduction of paid-up share capital of the Company, once the
Act become applicable as on 31 March 2000, it is impermissible for a
Company to regain such lost protection only on account of the fact that
subsequently the paid-up share capital got reduced below Rs.1 crore. The
issue is squarely answered by me in the judgment in Depe Global
Shipping. The submission made on behalf of the Revision Applicant that
the judgment in Depe Global Shipping is inapplicable to the facts of the
present case is therefore repelled.
Page No.30 of 36 3 December 2024 ::: Uploaded on - 03/12/2024 ::: Downloaded on - 04/12/2024 01:10:01 ::: Neeta Sawant CRA-103-2024-FC 21) The other alternate submission made by Mr. Anturkar is
about reconsideration of view taken in Depe Global Shipping. His
submission is essentially premised on failure on the part of this Court to
take into account the ratio of the judgment in paragraphs-37, 40 and 42
in Carona Ltd. and the judgment in Pasupulethi Venkateswarlu. It is also
urged that attention of this Court was not invited to the judgment of this
Court in R. S. Madireddy, as well as to the judgment of the Apex Court in
R.S. Madireddy.
22) Firstly, this Court is unable to appreciate the submission that
this Court considered only selected paragraphs of the judgment in
Carona Ltd. or that it ignored the findings in paragraphs-37, 40 and 42 as
sought to be suggested on behalf of the Revision Applicant. Merely
because the Court chooses to reproduce only selective paragraphs of a
judgment, it does not mean that it has not considered the other
paragraphs. When attention of a Court is invited to a judgment and
various paragraphs thereof are considered by it, it may happen that for
the purpose of reducing the length of the judgment, only necessary
paragraphs are reproduced in the body of the judgment. This however,
would not mean that the Court has ignored the other paragraphs of the
judgment. Secondly, even if the findings recorded by the Apex Court in
paragraphs-37, 40 and 42 are considered, in my view, there is no reason
to take a different view than the one taken in Depe Global Shipping. It
would be apposite to reproduce paragraphs-40, 41 and 42 of the
judgment in Carona Ltd. on which strenuous reliance is placed by Mr.
Anturkar :
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40. The learned counsel for the tenant then submitted that it was
obligatory on the courts below including the High Court to take into
consideration subsequent events. In support of the submission, our
attention has been invited by the counsel to a leading decision of this
Court in Pasupuleti Venkateswarlu v. Motor & General Traders [(1975) 1
SCC 770] . In that case, the plaintiff filed a suit for possession on the
ground of personal requirement for starting business. A decree for
possession was passed in his favour which was confirmed by the
appellate court. At the stage of revision, however, due to subsequent
event of acquisition of non-residential building by the plaintiff
landlord, an application for amendment was made by the defendant
tenant. The High Court allowed the amendment. The plaintiff
challenged the said order by approaching this Court. It was contended
that the High Court committed an error in taking cognizance of
subsequent event which was “disastrous”. This Court, however, held
that the High Court had not committed any illegality in doing so.
41. Referring to leading cases on the point, Krishna Iyer, J. stated:
(Pasupuleti case [(1975) 1 SCC 770] , SCC pp. 772-73, para 4)
“4. We feel the submissions devoid of substance. First about the
jurisdiction and propriety vis-à-vis circumstances which come
into being subsequent to the commencement of the proceedings.
It is basic to our processual jurisprudence that the right to relief
must be judged to exist as on the date a suitor institutes the legal
proceeding. Equally clear is the principle that procedure is the
handmaid and not the mistress of the judicial process. If a fact,
arising after the lis has come to court and has a fundamental
impact on the right to relief or the manner of moulding it, is
brought diligently to the notice of the tribunal, it cannot blink at
it or be blind to events which stultify or render inept the decretal
remedy. Equity justifies bending the rules of procedure, where
no specific provision or fairplay is violated, with a view to
promote substantial justice–subject, of course, to the absence
of other disentitling factors or just circumstances. Nor can we
contemplate any limitation on this power to take note of
updated facts to confine it to the trial court. If the litigation
pends, the power exits, absent other special circumstances
repelling resort to that course in law or justice. Rulings on this
point are legion, even as situations for applications of this
equitable rule are myriad. We affirm the proposition that for
making the right or remedy claimed by the party just and
meaningful as also legally and factually in accord with the
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current realities, the court can, and in many cases must, take
cautious cognizance of events and developments subsequent to the
institution of the proceeding provided the rules of fairness to both
sides are scrupulously obeyed.”
(emphasis supplied)
42. In our judgment, the law is fairly settled. The basic rule is that the
rights of the parties should be determined on the basis of the date of
institution of the suit. Thus, if the plaintiff has no cause of action on
the date of the filing of the suit, ordinarily, he will not be allowed to
take advantage of the cause of action arising subsequent to the filing of
the suit. Conversely, no relief will normally be denied to the plaintiff by
reason of any subsequent event if at the date of the institution of the
suit, he has a substantive right to claim such relief.
23) In paragraph-41 of the judgment in Carona Ltd., the Apex
Court has discussed the ratio of the judgment in Pasupuleti
Venkateswarlu. The above passages of the judgment in Carona Ltd. are
relied upon by Mr. Anturkar essentially in support of his contention that
the rights of the parties should be determined on the basis of date of
institution of the suit. Similar contention is already rejected by this Court
in Depe Global Shipping. However, so far as the present case is
concerned, even the proposition that rights of the parties should be
determined on the basis of date of institution of the suit, does not assist
the case of the Petitioner as its paid-up share capital was above Rs.1
crore even on the date of institution of the suit. Faced with this situation,
Mr. Anturkar submits that the status of parties on the date of delivery of
the judgment cannot be ignored by the Court and in support he would
rely upon the observations made by the Apex Court in para-4 of the
judgment in Pasupuleti Venkateswarlu In support of the same contention,
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Mr. Anturkar has relied on judgment of Division Bench of this Court in
R.S. Madireddy as confirmed by the Apex Court. In Pasupuleti
Venkateswarlu the Apex Court has held that the Court can, and in many
cases must, take cautious cognizance of events and developments
subsequent to the institution of the proceedings. In R.S. Madireddy
though Air India Limited was an Instrumentality of the State as on the
date of filing of the petitions, the Division of this Court held the Writ
Petitions to be not maintainable on account of subsequent privatization
of Air India Ltd. during pendency of the petitions. The view taken by the
Division Bench of this Court is approved by the Apex Court. By relying
on judgments in Pasupuleti Venkateswarlu and R.S. Madireddy, Mr.
Anturkar has contended that the supervening event of reduction in paid-
up share capital occurring on 4 December 2007 ought to have been taken
into consideration by the Small Causes Court for upholding restoration
of protection of Rent Control Act. I am unable to agree with the
submissions of Mr. Anturkar. In Depe Global Shipping, this Court has
held that the status of an entity as on the date of coming into effect of
the M.R.C. Act for the purpose of application of its provisions is relevant
and the legislative object behind incorporation of Section 3(1)(b) does
not permit regaining of lost protection of Rent Control Act on account
of subsequent reduction of paid-up share capital. Since this Court has
already taken such a view, it would be impermissible for this Court to
accept Mr. Anturkar’s contention that the supervening event of 4
December 2007 resulting in reduction of paid-up share capital of the
Defendant-Company would result in regaining lost protection of the
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Rent Control legislation. I am therefore not inclined to take a view
different than the one taken by me in Depe Global Shipping.
24) The conspectus of the above discussion is that the
Defendant-Company is that an entity covered by the provisions of
Section 3(1)(b) of the M.R.C. Act no longer enjoys protection from rent
escalation and eviction. Maharashtra Rent Control Act is a special
legislation enacted with the objective of offering protection from rent
escalation and eviction only to selected person and entities. There is
conscious legislative exclusion of entities like Defendant-Company from
applicability of protection from rent escalation and eviction. Since
Defendant-Company did not enjoy protection under the M.R.C. Act, its
monthly tenancy became terminable by issuance of notice under Section
106 of the Transfer of Property Act. The tenancy of Defendant has
rightly been terminated by the Plaintiff. Upon termination of its tenancy,
the Defendant had no right to remain in possession of the suit premises.
The Small Causes Court has rightly ordered eviction of the Defendant
and there is no error on the part of the Appellate Bench in upholding the
eviction decree. Infact, the Trial and Appellate Courts have rightly
recorded findings about impermissibility to regain lost rent control
protection on account of subsequent reduction of paid-up share capital
below Rs.1 crore, which law is subsequently expounded by this Court in
Depe Global Shipping. The findings recorded by the Trial and the
Appellate Courts are in consonance with the law enunciated by this
Court in Depe Global Shipping.
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concurrent findings recorded by the Small Causes Court and its
Appellate Bench. Revision Application is devoid of merits and is
accordingly dismissed.
Digitally
signed by [SANDEEP V. MARNE, J.]
NEETA
NEETA SHAILESH
SHAILESH SAWANT
SAWANT Date:
2024.12.03
16:38:14
+0530
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