Bombay High Court
Nandini J.Shah vs Life Insurance Corporation Of ... on 12 October, 2012
Bench: N.M. Jamdar
1/16 LPA 181/2012
S.H.HADAP
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
LETTERS PATENT APPEAL NO.181 OF 2012
IN
WRIT PETITION NO.4337 OF 2012
1. Nandini J.Shah
an Indian Inhabitant of Mumbai,
having her office at East & West
Building, 3rd Floor, 49-55,
Bombay Samachar Marg,
Fort, Mumbai 400 023.
2. M/s.Jayant P.Shah Shhipping
Tax Counsels,
A partnership firm, having its
office at East & West
Building, 3rd Floor, 49-55,
Bombay Samachar Marg,
Fort, Mumbai 400 023. .. Appellants
V/s
1. Life Insurance Corporation of India
a Corporation established under the
Central Act XXXI of 1956 and having
its Western Zonal office at
"Yogekshema", Jeevan Bima Marg,
Mumbai 400 021.
2. State Street Capital Finance Inc.
East & West Building,
3rd Floor, 49-55,
Bombay Samachar Marg,
Fort, Mumbai 400 023.
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2/16 LPA 181/2012
3. State Street Capital Finance Pvt.Ltd.
East & West Building,
3rd Floor, 49-55,
Bombay Samachar Marg,
Fort, Mumbai 400 023.
4. State Street Securities Pvt.Ltd.
East & West Building,
3rd Floor, 49-55,
Bombay Samachar Marg,
Fort, Mumbai 400 023. .. Respondents
Mr.P.K.Dhakephalkar, Senior Advocate with Ms.Sonal i/by Pillai &
Co. for the Appellants.
Mr.Harihar Bhave for the Respondents.
CORAM: MOHIT S.SHAH, C.J. &
N.M.JAMDAR, J.
DATE OF RESERVING JUDGMENT: 28 SEPTEMBER 2012
DATE OF PRONOUNCING JUDGMENT: 12 OCTOBER 2012
JUDGMENT : (PER 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-
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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.
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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
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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.
6/16 LPA 181/2012
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
7/16 LPA 181/2012
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 others1, 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
1 128 (2006) DLT 24
8/16 LPA 181/2012
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 India1 dated 26 April
2012, 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
1 2012 (4) Bom.C.R.1
9/16 LPA 181/2012
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. & Another1. 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 (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 Securities2 (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
(supra), were not correct. The petitions relating to orders passed
under Public Premises Act were being entertained by the Division
1 2010 (4) Bom.C.R.807
2 2012 (4) Bom.C.R.1
10/16 LPA 181/2012
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.
11/16 LPA 181/2012
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
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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
13/16 LPA 181/2012
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
14/16 LPA 181/2012
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.
15/16 LPA 181/2012
23. The Division Bench of Delhi High Court in the case of
Premlata Bhatia1 (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
1 128 (2006) DLT 24
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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.
CHIEF JUSTICE
(N.M.JAMDAR, J.)
