Letters Patent Appeal No.181 of 2012,Writ Petition No.4337 of 2012

12th October, 2012

Petitioner Counsel: Mr. P.K. Dhakephalkar,Ms. Sonal
Respondent Counsel: Mr. Harihar Bhave

Cases Cited:
Mrs.Premlata Bhatia Vs. Union of India and others, 128 (2006) DLT 24 [Para 11,23]
M/s.Prakash Securities Private Limited Vs. LIC of India, 2012(7) ALL MR 771 (F.B.)=2012 (4) Bom.C.R.1 [Para 13,14]
Nusli Neville Wadia Vs. New India Assurance Co.Ltd. & Another, 2010(5) ALL MR 851=2010 (4) Bom.C.R.807 [Para 14]

JUDGMENT

-N.M.JAMDAR, J. :- This appeal takes exception to the order passed by the learned Single Judge confirming the order of eviction passed against the appellants by the Estate Officer under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 in favour of the Respondents-Life Corporation of India.

2. The Respondent - Life Insurance Corporation has sought eviction of the appellants on the ground that the recorded tenant-Smt.Vilasben Shah who was the mother of appellant No.1 had sublet the premises in favour of three private limited companies and the appellant No.2 partnership firm.

3. The premises in question is an office admeasuring 258 sq.ft. The building in which it is situated is almost 100 years old. The building belongs to Respondent-Corporation. The premises have been in the use of the family of the appellants as a tenant for last several decades. Since prior to 1937, P.T.Shah, the grand-father of appellant No.1 was the tenant of the premises. P.T.Shah was practising as an Income Tax Consultant. His son, Jayant P.Shah, assisted him in the consultancy. After P.T.Shah expired the consultancy was continued by Jayant P.shah and the tenancy rights of the premises devolved upon him. Jayant P.Shah expired on 6 July 1959 leaving behind his widow Smt.Vilasben Shah (Vilasben), three sons and three daughters as his heirs and legal representatives.

4. After the death of Jayant P.Shah, Smt.Vilasben, who had a masters degree in economics, continued the consultancy. Pursuant to an application dated 5 November 1968 made by Vilasben the Respondent-Life Insurance Corporation (the Corporation) treated Smt.Vilasben as tenant of the premises. The present Appellant No.1 Ms.Nandini Shah (Ms.Nandini) is the daughter of Vilasben, who was brought on record as heir of Vilasben after Vilasben expired during the pendency of the present proceedings.

5. On 17 September 2004, the Corporation through their Advocate issued a notice of eviction to Vilasben. The Corporation alleged that Vilasben had sublet the premises in favour of a partnership firm - M/s. Jayant P.shah Shipping Tax Counsels (Appellant No.2) (the firm) and three private limited companies, i.e. (1) State Street Capital Finance Inc. (2) State Street Capital & Finance Private Limited and (3) State Street Securities Pvt.Limited (the companies). Notice was replied by Vilasben vide letter dated 12 October 2004, and she denied the charge. The Corporation thereafter filed an application before the Estate Officer appointed under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 (Public Premises Act) seeking eviction of Vilasben, the three Companies and the Firm. The Corporation contended that Vilasben being tenant of the premises had no right to assign any interest in the premises in favour of the Firm and the Companies without permission of the Corporation. She had thus committed breach of the terms upon which she was granted tenancy rights.

6. The Estate Officer issued notices on the application filed by the Corporation to Vilasben, the Companies and the Firm, who were arrayed as opponents. The notices were duly served. The opponents filed their written statement. The Companies did not independently participate in the proceedings before the Estate Officer. The Estate Officer decided to proceed ex-parte against the Companies. Vilasben expired on 19 May 2006 during the proceedings before the Estate Officer and Ms.Nandini, her daughter, was brought on record as heir and legal representative. Before the Estate Officer both the Corporation and Opponents filed voluminous documentary evidence. Parties also examined witnesses in support of their case.

7. After going through the documents on record and after considering the submissions made by the counsel appearing for the parties, the Estate Officer allowed the application by his order dated 5 December 2011. The Estate Officer came to the conclusion that Vilasben had unauthorisedly sublet the premises to the Companies and the Firm and the opponents were liable to be evicted on the ground of subletting. The Estate Officer also directed the opponents to pay damages to the Corporation at the rate of Rs.48,142/- p. m.from 1 December 2004 to 31 December 2011 and further damages at the same rate alongwith interest at the rate of 9% p.a.till possession.

8. Ms.Nandini and the firm - M/s. Jayant P.Shah filed Misc.Appeal No.121 of 2011 in the City Civil Court, Bombay challenging the decision of the Estate Officer. The City Civil Court held that the Appellant No.2 firm was essentially formed only of Vilasben and her daughter Ms.Nandini being the partners and therefore creation of this firm did not amount to subletting. As regards the Companies, the City Civil Court came to the conclusion that there was nothing to show that the Companies were belonging to Vilasben. The City Civil Court held that the action of Vilasben in assigning her rights in favour of the Companies which were operating from the said premises, amounted to subletting. The City Civil Court accordingly dismissed the Misc Appeal by its judgment and order dated 3 April 2012.

9. The decision of the Estate Officer and the City Civil Court were challenged by Ms.Nandini and the firm M/s.Jayant P.shah, by way of Writ Petition No.4337 of 2012. In the petition, the learned Single Judge came to the conclusion that the said three Companies were distinct and different legal entities and Vilasben had sublet the premises in favour of these Companies without any permission of the Corporation. Accordingly the learned Single Judge was pleased to dismiss the writ petition by order dated 14 August 2012. The learned Single Judge confirmed the order of eviction and payment of compensation. Thus the appellants are before us in this Letters Patent Appeal.

10. We have heard Ms.Sonal learned Advocate with Mr.P.K.Dhakephalkar, learned Senior Advocate for the appellants and Mr.Harihar Bhave, learned Advocate for the Respondents.

11. The learned counsel for the appellants contended:

The finding of the City Civil Court that creation of Appellant No.2- Firm did not amount to subletting was not challenged by the Corporation. The said finding which is in favour of the Appellants has become final. As regards Companies, they were merely family concerns formed by close family members of Vilasben. Only shareholders and directors of the Companies were Ms.Nandini- daughter; Jyotindra Ramanlal Shah - son in law; and Harshal Shah - grand-son of Vilasben. This being the composition of the Companies, it could not be said that Smt.Vilasben Shah had sublet the premises. The company - State Street Capital Finance was not even incorporated and did not come into existence. The Estate Officer and the Courts below should have lifted the corporate veil to appreciate the true nature of these companies before passing a drastic order of eviction. These Companies were created merely to carry out the family business/ profession more effectively. Apart from creating these Companies consisting of family members, there is no other breach alleged by the Corportion. The appellants are in occupation of the premises for the last almost 80 years and great hardship would be caused if they are evicted from the premises. Judgment of the Division Bench of Delhi High Court in the case of Mrs.Premlata Bhatia V/s.Union of India and others, 128 (2006) DLT 24, is squarely applicable to the facts of the case, where in similar circumstances the Court set aside the order of eviction passed on the ground of subletting.

12. On the other hand learned counsel on behalf of the Corporation contended:

The Letters Patent Appeal is not maintainable. On merits, inspite of the repeated opportunities, the appellants did not produce any material on record before the authorities below to show that the Companies consisted only of family members. Even assuming the composition of the Companies is accepted, it will not take the case of the appellants any further as the Companies are separate legal entities. Once the rights were assigned in favour of the Companies, which are separate legal entities, without the permission of the Respondent Corporation, Vilasben committed breach of the tenancy agreement and the appellants are thus liable to be evicted. The argument in respect of prejudice is not available to the appellants as they are continuing in breach of the terms of the tenancy and are not entitled to any protection in law.

13. Firstly we will deal with the contention regarding maintainability of this Letters Patent Appeal. Learned counsel for the Respondents urged that earlier writ petitions challenging the orders passed in proceedings under the Public Premises Act were being entertained by the Division Bench and after the decision of the Full Bench of this Court in the case of M/s.Prakash Securities Private Limited V/s.LIC of India, 2012 (4) Bom.C.R.1 dated 26 April 2012 : [2012(7) ALL MR 771 (F.B.)], they are now being placed before the Single Judge. He contended that if the appeal is entertained from the orders passed by the learned Single Judge in such petitions, then the object of amending rules for hearing of such petitions by the Single Judge for expeditious disposal will be lost. Learned counsel for appellants on the other hand has drawn our attention to the memo of the petition and the impugned order of the learned Single Judge wherein it is mentioned that the petition is filed and was entertained under Articles 226 & 227 of the Constitution of India, and contended that therefore the appeal is maintainable.

14. It is true that the petitions arising out of the order passed under the Public Premises Act were being heard by the Division Bench. This was being done due to observation of the Division Bench of this Court in the case of Nusli Neville Wadia V/s.New India Assurance Co.Ltd. & Another, 2010 (4) Bom.C.R.807 : [2010(5) ALL MR 851]. However by an order dated 15 November 2011, another Division Bench of this Court expressed doubt about the correctness of the observation made in the case of Nusli Neville Wadia, [2010(5) ALL MR 851] (supra) and referred the issue as to whether the petitions arising out of the orders passed under the Public Premises Act should be heard by the division Bench or Single Judge, to the Full Bench for consideration. The Full Bench in the case of Prakash Securities, [2012(7) ALL MR 771 (F.B.)] (supra) found that clause 3 of Rule 18 of Chapter XVII of the Bombay High Court Appellate Side Rules 1960 was wide enough to include orders passed by any quasi-judicial authority under any enactment, even if such explanation is not covered by clause 1, 2, 4 to 43 of Rule 18. The Full Bench found that the order passed by quasi-judicial authority under the Public Premises act is also covered by Rule 18 (3) so as to indicate that the petitions under Articles 226 & 227 of the Constitution of India challenging such orders are to be heard and decided by the Single Judge. Reference was accordingly disposed of by the Full Bench by its judgment dated 26 April 2012. The Full Bench held that the Appellate Side Rules as they stand, provide that the petitions challenging the orders passed under the Public Premises Act are required to be heard by the learned Single Judge and therefore the observations made in the case of Nusli Neville Wadia, [2010(5) ALL MR 851] (supra), were not correct. The petitions relating to orders passed under Public Premises Act were being entertained by the Division Bench when the rules provided that they should be entertained by the Single Judge. Therefore there was no conscious decision to remove the petitions arising from orders passed under the Public Premises, from Division Bench and to place them before Single Judge. In fact Full Bench found that these petitions were being wrongly entertained by the Division Bench.

15. In the judgment of the Full Bench there is no indication that Letters Patent Appeal arising out of the orders passed by the Single Judge in proceedings under the Public Premises Act will not be maintainable. If Letters Patent Appeals are otherwise maintainable, judgment of the Full Bench does not take away that right in respect of petitions challenging the orders passed under Public Premises Act. Therefore the argument advanced by the learned counsel on maintainability of the appeal on this ground cannot be accepted. Maintainability was not contested on any other ground. In the present case, the petitioner has invoked both Articles 226 and 227 of the Constitution of India. The learned Judge also has referred to the said Articles in the impugned order. Furthermore, the Respondent-Corporation is itself amenable to writ jurisdiction of this Court, being a public corporation. There is therefore no substance in the preliminary objection raised by the learned counsel for the Respondent that the appeal is not maintainable and that it should be dismissed at the thresh-hold without looking at the merits of the matter.

16. On merits, the controversy is very narrow. As regards the ground of subletting in favour of Appellant No.2 - M/s.Jayant P.Shah - the partnership firm, it is concluded by the judgment and order passed by the City Civil Court dated 3 April 2012. The City Civil Court while disposing of the Misc.Appeal, categorically observed that M/s.Jayant P.Shah Shipping Tax Counsels was the firm of Vilasben and creation of this partnership firm did not amount to subletting. This finding has not been challenged by the Corporation and it has become final.

17. Therefore the ground on which the eviction of appellants is being sought is that Vilasben transferred premises or part thereof to the three Companies. The learned counsel for the Corporation vehemently contended that the courts below have concurrently found that these Companies were separate legal entities and the assignment of interest in favour of these Companies without permission of the Corporation was in clear breach of the terms and conditions of the tenancy. The learned counsel for the appellants-tenants submitted that even assuming such interests were created in favour of these Companies, the Courts below ought to have lifted the corporate veil to find out true nature of the Companies, as such course is permitted in law. According to the learned counsel these Companies were close family concerns and there was no assignment in favour of a stranger, nor has original tenant lost control over the premises.

18. We have perused the documents which are produced on record. Before the Estate Officer, the appellants had produced several documents. Amongst these were copies of annual returns filed by Vilasben, including documents in respect of State Street Capital & Finance Limited which showed the names of directors and the total shareholding to be of immediate family members of Vilasben. The annual returns of State Street Capital & Finance Pvt.Limited were also produced on record. The composition of directors was placed on record which demonstrates that Harshal Jyotindra Shah - grand-son; Ms.Nandini Jyotindra Shah - daughter; Jyotindra Ramanlal Shah - son-in-law; and Smt.Vilasben Jayantilal Shah - mother (recorded tenant) were the directors and shareholders. In view of these documents produced on record, we do not find that the observation of the learned City Civil Court while dismissing the appeal that no documents were produced on record to show the composition of the directors and shareholders of the Companies, was justified.

19. The question then arises is when a Private Limited Company is found to be operating from the tenanted premises, whether the decree of eviction on the ground of subletting should automatically follow. It is no doubt true that the company incorporated under the Companies Act, 1956 is an independent and distinct legal entity. The Company can sue and can be sued in its independent capacity. However when an allegation of subletting is made in respect of a Company, it is permissible to look at the composition of the directors and shareholding of a company to find out what is the exact relation of the Company with the tenant. It is permissible for a tenant to place on record material to demonstrate that the Company is nothing but an alter-ego of the tenant and is incorporated only for the purpose of carrying out business more efficiently. It is permissible for the tenant to demonstrate that even though a company is incorporated and operates from the tenanted premises, the tenant has controlling interest in the Company and tenant has remained in possession, though it is the company which is carrying on the business. It is not the position of law that moment a Company is found to be operating from tenanted premises, no other inquiry is necessary.

20. For this purpose the well established principle of 'lifting the corporate veil' can be employed. The Courts have used this principle to find out the composition of shareholding and directorship so as to ascertain the true controlling interest behind the company. In cases of subletting it is also open for a tenant to request the Court to lift the corporate veil. A tenant can demonstrate from the composition of the company that the tenant has the controlling interest. In the course of running a business, trade or profession, a person may feel a need to incorporate a private limited company to carry on the activity more successfully. There are several reasons why business persons and professionals form a company to facilitate effective business transactions.

21. A tenant while retaining the control of the business may include close relatives as son, daughter, husband to form private limited company. Such company do have an independent juristic entity. For the purpose of ascertaining the charge of subletting in the context of landlord-tenant relationship, however the parameters are different. It is settled law that if the tenant remains in possession and retains control over the premises then the tenant cannot be evicted on the ground of subletting. If the tenant incorporates private limited company with his close family members and is able to demonstrate that he has controlling interest in the said company and he has not parted with possession, then he cannot be evicted from the premises only on the factum of registration of the company.

22. In the present case the tenant - Vilasben was director in the company along with her daughter, son-in-law and grand-son. Looking at the composition of the company it cannot be said that she relinquished control of the premises or parted with possession to a stranger. The directors of the companies were her immediate family members. The premises were in occupation of the family since the time of their great grand-father and continued to be within the family even after formation of these three companies. The family business/profession was relating to tax and financial services and continued to be so. In a changing commercial scenario she found formation of partnership firm and private limited companies was more effective way of conducting the tax and financial services. This was nothing but extension of existing business activity to remain in tune with the changing financial environment. Thus by employing the principle of lifting corporate veil and looking at the true nature of the Companies we find that Vilasben had not relinquished the control of premises by creating these three companies and there was no subletting.

23. The Division Bench of Delhi High Court in the case of Premlata Bhatia, (supra) in similar facts situation undertook the exercise of lifting the corporate veil to examine the charge of subletting. In this case the Petitioner Premlata was allotted a shop by the Union of India. Clause 8 of the licence deed therein prohibited the licensee from transferring or alienating her interest in the premises without permission of the Union of India. Premlata incorporated a company along with her husband holding 97.93% shares. The Union of India instituted the proceedings under the Public Premises Act on the ground of subletting. The Estate Officer ordered eviction of Premlata and her challenge was negatived by the Single Judge. Smt.Premlata thereafter filed appeal before the Division Bench of Delhi High Court. The Division Bench allowed the appeal by holding that the corporate veil ought to have been lifted to ascertain the true nature of the company and found that there was no subletting.

24. In the present case, the tenanted premises are in occupation of the appellants for several decades. All that Vilasben had done was to create three Companies with her son, daughter-in-law and grand-son. Eviction of the appellants from the premises in the circumstances will be unjust. Once we have come to the conclusion that there was no subletting in the first place, there is no question of appellants paying any amount of compensation as ordered by the impugned orders.

25. Accordingly, the appeal is allowed. The impugned orders passed by the Estate Officer, the City Civil Court and the order passed by the learned Single Judge are quashed and set aside. No order as to costs.

Appeal allowed.