Orissa High Court
M/S Paltronics Allied vs Union Of India & Ors. .... Opposite Party ... on 11 April, 2025
Author: S.K. Panigrahi
Bench: S.K. Panigrahi
Signature Not Verified
Digitally Signed
Signed by: BHABAGRAHI JHANKAR
Reason: Authentication
Location: ORISSA HIGH COURT, CUTTACK
Date: 15-Apr-2025 16:40:34
IN THE HIGH COURT OF ORISSA AT CUTTACK
W.P.(C) No.31692 of 2024
(In the matter of an application under Articles 226 and 227 of the
Constitution of India, 1950).
M/S Paltronics Allied .... Petitioner (s)
Industries Pvt. Ltd. & Anr.
-versus-
Union of India & Ors. .... Opposite Party (s)
Advocates appeared in the case through Hybrid Mode:
For Petitioner(s) : Mr. Manoj Kumar Mishra, Sr. Adv.
along with
Mr. Tanmay Mishra, Adv.
Mr. Subir Palit, Sr. Adv.
along with associate
For Opposite Party (s) : Mr. B.S. Rayaguru, CGC
Mr. Saswat Das, AGA
for O.Ps.3 & 4
CORAM:
DR. JUSTICE S.K. PANIGRAHI
DATE OF HEARING:-19.03.2025
DATE OF JUDGMENT: -11.04.2025
Dr. S.K. Panigrahi, J.
1. The Petitioners, in this Writ Petition, seek a direction from this Court to
the Opposite Parties to update the details in respect of the demised
Property so as to reflect the takeover of the demised Property by the
Petitioner No.1 Company. The Petitioners further seek direction to the
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Opposite Parties to recognize compromise decree and give effect to the
takeover agreement by making necessary changes in their records.
2. One Mr. Tejpal Singh, is said to be the sole proprietor of one `M/s
Paltronics Allied Industries' (hereinafter referred to as "Erstwhile
Entity"), which was duly registered as a Small-Scale Industry. The
Erstwhile Entity, entered into a duly registered Lease Deed dated
December 13, 1979 (hereinafter referred to as "Lease Deed") with the
Governor of the State of Orissa, in terms of which the Erstwhile Entity
became the lessee of the Landed Property Situated in Mouza Mouza -
Patia, bearing Plot No. 309/1694, under Khata No. 474/5, Area - Ac.
5.000 Dec. (hereinafter referred to as "Subject Property").
3. Under the terms of the Lease Deed, the Erstwhile Proprietor was put
into possession of the Subject Property 1979 onwards and has continued
as such. On 18.03.1994, the Petitioner No. 1 Company i.e. a private
limited company, was incorporated under the provisions of the
Companies Act, 1956. The Memorandum of Association of the
Company (hereinafter referred to as "MOA") states that one of the main
objects of the Company is "to take over the business including lease rights of
Paltronics Allied Industries, Bhubaneshwar" i.e. the Erstwhile Entity. The
subscribers to the MOA include the Erstwhile Proprietor i.e. the
Petitioner No. 2 herein.
4. The entire object and purpose of incorporating the Company, as is
borne out from inter alia the MOA, was to take over the assets, liabilities,
and business of the Erstwhile Entity, including the leasehold rights in
the Subject Property under the Lease Deed. The agenda/ minutes of the
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first meeting of the Board of Directors of Paltronics Allied Industries
Private Limited held on 19.03.1994 have been relied upon to show that
the same was the first agenda item which was taken up by the board of
directors.
5. It is stated that to this end, the Company and the Erstwhile Proprietor
also entered into an "Agreement for Take-Over of Business of Paltronics
Allied Industries by Paltronics Allied Industries Pvt. Ltd." dated 14.04.1994
(hereinafter referred to as "Takeover Agreement"). The Takeover
Agreement in its recitals provides for the transfer of the business of the
Erstwhile Entity along with its land, building, and other ancillary
equipment which includes the leasehold right in the subject property
under the lease deed from the Erstwhile Proprietor to the Company on
the terms as set out in the Takeover Agreement.
6. According to Clause 4 of the MOA and AOA of Petitioner No. 1
Company, the above noted subject Property which was initially owned
by Tejpal Singh, Proprietor of M/s Paltronics Allied Industries has been
taken over by the Petitioner No. 1 Company and as such on account of
this takeover, this Company is treated to be the absolute owner of the
demised Property for all legal purposes.
7. A Certificate of Amendment of the Constitution of the Unit from
proprietorship to Private Limited Company was issued by the
Directorate of Industries, Government of Odisha on 26.08.2006.
8. Pursuant to the Takeover Agreement, certain disputes and differences
arose between the Petitioner No. 1 Company on the one hand, and the
Erstwhile Proprietor i.e. the Petitioner No.2 herein, on the other hand.
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Contrary to their inter se understanding, the Petitioner No. 2 claimed
that the Subject Property continued to belong to the Erstwhile Entity /
the Erstwhile Proprietor, and that the same did not vest in the Petitioner
No. 1 Company, owing to certain monetary claims made by the
Erstwhile Entity / the Erstwhile Proprietor.
9. As a result of the above, the Petitioner No. 1 Company filed a Civil Suit
being C.S. No. 493 of 2013 before the Ld. Additional Senior Civil Judge,
Bhubaneswar against the Petitioner No.2 seeking, inter alia, a
declaratory relief that the Subject Property belongs to and vests in the
Petitioner No. 1 Company..
10.During the pendency of the 2013 Suit, the Petitioner No. 1 Company
and the Petitioner No. 2 reconsidered their positions, and an amicable
settlement was arrived at in terms of which both parties admitted and
accepted inter alia that:
a. The rights in the Subject Property under the Lease Deed
originally vested in the Erstwhile Entity.
b. The Erstwhile Proprietor, together with others, incorporated
the Company.
c. The Erstwhile Entity ceased to exist upon the incorporation
of the Petitioner No. 1 Company.
d. The Subject Property has, pursuant to the takeover
agreement between the parties vested free of any legal
encumbrance in the Petitioner No. 1 Company
11.Accordingly, the Petitioner No.1 Company and the Petitioner No.2
entered into a compromise and filed an application under Order 23 Rule
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3 of the CPC, which was filed before the Ld. Additional Senior Civil
Judge, Bhubaneswar in the 2013 Suit on 16.07.2024 which remained
pending since.
12. With the aforesaid backdrop the Petitioners herein have approached
this Court seeking a writ of mandamus directing the Opposite Parties to
take necessary steps in pursuance of the Takeover Agreement and
corresponding changes being made in the MOA and AOA.
I. PETITIONERS' SUBMISSIONS:
13. Ld. Sr. Counsels appearing for the Petitioners have jointly submitted
that the Property vests in and belongs to the Company, and not the
Erstwhile Proprietor and that the State is also ad idem as is evident from
the Certificate of Amendment of the Constitution issued by it. It has
also been submitted that the state cannot approbate and reprobate in
the same breath and must unquestionably recognise the legal position
of the petitioners herein.
14. It is further submitted that by refusing to update the governmental
Records in this regard, the opposite parties are in effect, depriving the
Company of its assets an provided in the agreement, which cannot be
effectively enjoyed by the Company and the same is in violation of
under Articles 19(1)(g) and 300-A of the Constitution of India.
15. The Ld. Sr. Counsels appearing for the Petitioners have strenuously
relied upon the Certificate of Amendment of the Constitution, issued by
the State as well as the terms of the original lease deed to buttress the
point that the same is permitted thereunder as well. It has been
Location: ORISSA HIGH COURT, CUTTACK
submitted that once the State has recognized that the Subject Property
vests in and belongs to the Petitioner No. 1 Company, the Opposite
Party No. 2 and 3 are left with only a formal task of updating the official
records to reflect the same appropriately.
16. It has been urged by the Ld. Counsels for the Petitioner that the
takeover of the Subject Property by the Petitioner No. 1 Company is
under the provisions of the 1956 Act by virtue of the incorporation of
the Company as recorded in the MOA, as also the Takeover Agreement,
as subsequently recorded in the Certificate of Amendment of the
Constitution. It has been contended that the Opposite Parties are in
dereliction of their duty and power.
17. Ld. Sr. Counsels for the Petitioners have contended although a
compromise had been arrived at between the Petitioners herein the Ld.
Court below has not passed any decree to that effect. In this regard they
submit that that the suit was ill-advised and that they be permitted to
urge the present petition having finally elected the appropriate remedy
in law. Additionally, the Ld. Sr. Counsels for the Petitioners have relied
upon certain judicial pronouncements which shall be dealt with
hereunder.
II. SUBMISSIONS BY OPPOSITE PARTIES:
18. It has been contended by the learned counsel for the Opposite Parties
that the present petition should not be allowed on the ground that
various proceedings under different statutes have been initiated with
regard to the property in question for a variety of reasons. It has been
submitted that a resumption case bearing Resumption Case No.1/2024
Location: ORISSA HIGH COURT, CUTTACK
arising out of Lease Case No.1019/1979 has been instituted by the
Tahasildar, Bhubaneswar in terms of the provisions of the under
Section 3B of the OGLS Act, 1962 and accordingly notice has been
issued to the Petitioner No.2 herein on 19.10.2024.
19. It is further submitted that a OLR 8 (A) Appeal Case No.15/2024 under
Section 58-A of OLR Act has been instituted in the Court of Addl.
District Magistrate Bhubaneswar challenging the order dated 30.04.2022
passed in Mutation Case No.7114 of 2022 by the Additional Tahasildar.
And accordingly, notice has been issued in the said appeal case to the
Petitioner No.2, Sri Tejpal Singh, Proprietor, Platronics Allied Industries
vide Notice No.6367 on 30.10.2024.
20. Strenuous reliance has been placed on Clause 4(ii) of the lease deed
which provides that "That upon breach or non-observation of any
condition of lease wherein granted, the lessor may declare the lease has been
determined and the Collector or any officer or person appointed on that
behalf by the Lessor shall be entitled to re-enter and take possession of the
demised land and buildings and other structure erected thereon and the
material thereof as well as stores and stock" It is submitted that a field
verification by the RI, Kalarahanga reported that the land is no more
used for the purpose for which the lease was sanctioned and
presently a multi-storied building is under construction.
21. It is further contended that the land which was granted for
industrial purpose was converted to Kisam `Gharabari' status and
the same has been utilised for construction of residential complex
which was contrary to the conditions of lease and the said matter is
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under enquiry by the Member, Board of Revenue. In the meantime,
Board of Revenue vide Letter No. 174 dt.04.02.2025 has requested to
allow another period of two months to complete the enquiry as the
Member, BOR has taken charges on 29.01.2025.
22. Lastly, it was submitted that in the suit for declaration between the
Petitioner Nos.1 & 2 is pending before the court of Civil Judge (Sr.
Div.) Bhubaneswar in C.S. No.493/2013 and no decree much less any
compromise decree has been passed therein thus the present petition
is not maintainable.
IV. ISSUES FOR CONSIDERATION:
23.In view of the aforesaid discussion this Court proceeds to formulate the
following sole issue that falls for consideration.
(A) WHETHER OR NOT THE PRESENT PETITIONERS HAVE A
LEGAL RIGHT IN THE FACTS AND CIRCUMSTANCES OF THE
CASE WHICH OUGHT TO BE RECOGNIZED AND
CONSEQUENTLY WHETHER OR NOT THE PRESENT
PETITION BE ALLOWED.
V. ANALYSIS AND REASONING BY THIS COURT:
24. The grievance of the petitioners is that despite the aforesaid legal
backdrop and the steps as contemplated in law having been taken by
them, the records of rights continue to erroneously reflect the name of
Tejpal Singh in place of Petitioner No.1 Company. The petitioners have
thus approached this Court to direct the opposite parties to update/
make necessary changes in their respective records with regard to the
status of the subject property in terms of the takeover that has taken
place.
Location: ORISSA HIGH COURT, CUTTACK
25. It has been strenuously submitted that the takeover agreement dated
14.04.1994 itself creates a legal right in the petitioners qua the opposite
parties herein. The opposite parties are within the meaning of "State" as
envisaged under Article 12 of the constitution.
26. It has been urged by the Ld. Sr. Counsels that the Petitioners have been
pursuing their legal remedies as such are protected under the
Limitation Act and that the petition does not suffer from delay and
latches whatsoever.
27. It has been submitted that the petitioner had elected a remedy which
caused the suit being filed before the Ld. Trial Court at the first instance.
Be that as it may, it is contended that this court under its extraordinary
jurisdiction has ample powers to recognise the legal right that flows
from the takeover agreement and creates rights and duties, inter se the
petitioner and opposite parties herein.
28. The takeover agreement forms the bedrock of the transaction which by
itself provides the grounding in law of a concluded contract. The right
of the parties are determined and are set in stone on the basis of the
sanctity of the said agreement. The fact that such a situation has been
envisaged by the original lease deed itself can be traced to the recitals
which, in fact, categorically provide for such a situation. The Petitioner
No. 1 Company is said to have taken over the entire business, assets,
and liabilities of the Erstwhile Entity pursuant to the takeover
agreement, the same is traced to the recital contained in the Lease Deed.
29. The subject land in question appears to have been allotted on an
application being made by one Tejpal Singh who is said to represent
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one M/s Paltronics Manufacturing Company which was registered as a
small scale industry. The said recommendation was made by the
District Industries Centre, Puri on 15.9.1979. It appears pursuant to the
recommendation dated 15.1979 a Lease Deed was entered into between
the then Collector of Puri and the aforesaid Tejpal Singh who is said to
be the sole proprietor of Paltronics Allied Industries vide a Lease Deed
dated 13.12.1979. A perusal of the Lease Deed dated 13.12.1979,
especially the proviso to Clause 2 provides that "provided that in case of
reconstruction of the lessee or amalgamation of the lessee with any new
company or corporation formed to take over the lease this covenant permits
transfer of the demised land to such reconstructed or new company or
corporation".
30. In view of such an unequivocal proviso, it is clear that the lessor and
the lessee therein where both cognizant of the fact that the lessee
therein, could in the future undergo any reorganization of business. In
order to meet such a situation the proviso specially carves out this
provision to state that the covenant will permit the transfer of the
subject land to the new entity that would be formed in the future or to a
new entity which would take over the lease of the lessee therein. In
view of such an unequivocal and clear recital in the original Lease Deed
there would be no impediment in law for the lessee therein (Petitioner
No.2 herein) to enter into any "takeover" as provided or contemplated
under the original Lease Deed. That being the case, as the sequence that
have unfolded and the subsequent transactions that have been entered
into are in consonance with the terms of the original Lease Deed itself.
Location: ORISSA HIGH COURT, CUTTACK
31. It appears while the matters stood thus, a new company by the name of
Paltronics Allied Industries Pvt Limited was incorporated and a
certificate of incorporation for the same was issued on 18.3.1994 by the
Registrar of Companies, Orissa. Further, a perusal of the Memorandum
of Association of the aforesaid company reveals that under the objects
to be pursued by the company on its incorporation clause 4 of the
memorandum of association provides that "to take over the business
including lease rights of Paltronics Allied Industries, Bhubaneswar".
Interestingly, the aforesaid Tejpal Singh has been described as one of
the founding promoters of the new company with substantial number
of equity shares having been subscribed by him right at the beginning
of the formation of the company. The said shareholding of Tejpal Singh
has also been reflected in the Articles of Association of the company.
Both the Memorandum of Association of the company as well as the
Articles of Association of the company have been executed on 25.2.1994.
32. A perusal of the minutes of the first meeting of the Board of Directors of
Paltronics Allied Industries Private Limited on 19.3.1994 shows that
Tejpal Singh remained present for the same. The agenda item for the
constitution of the board resolved that Tejpal Singh was inducted into
the Board of Directors. Further, one of the other Directors proposed the
name of the Tejpal Singh for the post of Managing Director and it was
resolved that Tejpal Singh be appointed as the Managing Director of the
company for a term of 5 years. Most importantly, an agenda item was
drawn up for taking over of business of Paltronics Allied Industries.
Under the same, Tejpal Singh impressed upon the members that the
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company was formed with the view to convert Paltronics Allied
Industries at Patia, Bhubaneswar a proprietorship concern to a private
limited company for expansion and to widen the area of activities. The
latest balance sheet of the concern was placed before the meeting. The
Directors, accordingly, decided to take over the business for a
consideration of 3000 numbers of equity shares of the company of Rs.
100 each to be allotted in due course to Sri Tejpal Singh and ₹20,000 to
be payable to Tejpal Singh, proprietor of Paltronics Allied Industries
and pass the following resolution.
"Resolved that consent of the board of directors be and is
hereby given for the acquisition of business of Paltronics
Allied Industries, Bhubaneswar as per Clause 4 of the
memorandum of association of the company for a
consideration of Rs. 20,000 and allotment of 3000 numbers
of equity shares of ₹100 each of the company amounting to
Rs. 3,00,000."
33. An agreement dated 14.04.1994 which has been described as an
agreement for takeover of business of Paltronics Allied Industries by
Paltronics Allied Industries Private Limited was executed by the
transferor i.e. Tejpal Singh described as Proprietor of Paltronics Allied
Industries and Petitioner No. 1 company through its Director described
as the transferee. It is stated therein that the transferee has offered to
take over the business of the transfer to which the transfer has agreed
on the terms as reproduced as hereunder;
"That the Transfer as the sole proprietor of Paltronics Allied
Industries will transfer the same along with its land
building and other ancillary equipments in favour of the
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Transferee at a consideration of Rs. 3,20,000 comprising of
Rs. 20,000 towards cost of land, Rs. 2,10,000 towards cost
of compound wall and existing building and Rs. 90,000
towards cost of electronic testing equipments and
furnitures. The said business will continue under the name
and style of Paltronics Allied Industries Private Limited
where in the transfer is a Promoter Director."
34. On 26.8.2006 a Certificate of Amendment of the Constitution of the unit
in question from proprietorship to private limited company has been
issued by the General Manager of the Directorate of Industries, District
Industries Centre which comes within the purview of the opposite
parties herein. The Ld. Sr. Counsels have vehemently contended that,
this in fact reflects the correct legal position which already stands
recorded in the records of the opposite parties and there should have
been no dispute with regard to the same. That being the case there is a
clear admission and it is in admitted position that the conversion of the
proprietorship to the private limited company has in fact been
recognised by the opposite parties. This certificate demonstrates that the
Petitioner No.1 Company is nothing but the new avatar of the Erstwhile
Entity, having taken over all its assets and liabilities as contemplated by
the Erstwhile Entity.This submission seems to have some merit. The
Opposite Parties themselves have acknowledge the same cannot now be
permitted to blow hot and cold.
35. The objections raised by the Opposite Parties herein involve issues
which admittedly according to themselves are subject matter of
challenge in various proceedings under different provisions of land
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laws. This court in the present petition is not concerned with any of the
issues or objections that were raised during the course of hearing.
Rather, the only question that falls for determination in the present case
has been framed as an "Issue A" [supra]. That apart no other challenge
has been raised by the Opp. Parties to the issue at hand in the present
petition.
36. One last factual aspect of the matter is that on 16.7.2024 the Petitioners
herein is stated to have entered into a compromise and filed an
application under Order 23 Rule 3 of the Code of Civil Procedure. The
said application is said to have remained pending since and no
compromise decree has been passed pursuant to the same.
37. Such being the factual backdrop of the case the legal position relating to
the subject matter needs to be adverted to. In the case of Vinayak
Purshottam Dube v. Jayashree Padamkar Bhat1 the Hon'ble Apex
Court dealt with the concept of a proprietorship form as hereunder;
"22. In this regard, it is necessary to discuss the
jurisprudential status of a proprietary concern. In a report
of the Insolvency Law Committee submitted in February
2020, the definition of "proprietorship firms" reads as
under:
"2. Definition of "Proprietorship Firms"
***
2.2. Proprietorship firms are businesses that are owned,
managed and controlled by one person. They are the most
common form of businesses in India and are based in
unlimited liability of the owner. Legally, a proprietorship is
not a separate legal entity and is merely the name under
(2024) 9 SCC 398 : 2024 SCC OnLine SC 212
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which a proprietor carries on business.
[Raghu Lakshminarayanan v. Fine Tubes [Raghu
Lakshminarayanan v. Fine Tubes, (2007) 5 SCC 103 :
(2007) 2 SCC (Cri) 455] .] Due to this, proprietorships are
usually not defined in statutes. Though some statutes define
proprietorships, such definition is limited to the context of
the statute. For example, Section 2(haa) of the Chartered
Accountants Act, 1949 defined a "sole proprietorship" as
"an individual who engages himself in practice of
accountancy or engages in services...". Notably,
"proprietorship firms" have also not been statutorily defined
in many other jurisdictions."
(emphasis in original)
[Source : Report of the Insolvency Law Committee, pp. 117-
118, Government of India (Ministry of Corporate Affairs,
February, 2020).]"
38. The Supreme Court in the case of Raghu Lakshminarayanan v. Fine
Tubes2, while distinguishing a juristic person such as a company, a
partnership or an association of persons from a proprietary concern, it
was observed that a person who carries on business in the name of a
business concern, but he being a proprietor thereof, would be solely
responsible for conduct of its affairs. A proprietary concern is not a
company. Further, a proprietary concern is only the business name in
which the proprietor of the business carries on the business.
39. The proposition laid down hereinabove is important to bear in mind
for the simple fact that in the present case the lease has been allotted to
one Mr Tejpal Singh who is the sole proprietor of a sole proprietorship
(2007) 5 SCC 103 : (2007) 2 SCC (Cri) 455]
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firm. The aforesaid discussion makes it amply clear that it was the
individual who, in fact, was the lessee and that a sole proprietorship is
interchangeable in legal status with the status of the proprietor himself.
It is this proprietor who has subsequently joined the subsequent new
company as a promoter director and taking shareholding in the newly
formed company. The board resolution as well as the takeover
agreement both make it clear that the sole proprietorship firm was no
longer in existence and that the company took over the assets and
liabilities of the sole proprietorship firm. It is also interesting to note
that the first board meeting itself makes it clear that the intention to
form the company has been stated to "convert" the sole proprietorship
firm into a company.
40. The fact that business is needed to reorganise themselves from time to
time by forming and extinguishing entities has been recognised and
discussed by the Gauhati High Court in the case of G.R. Engineering
Works Ltd. v. Oil India Ltd.3 the relevant portion of which is
hereunder;
"17. It may, now, be pointed out that when the owner of a
proprietary concern decides, in order to expand his business,
to form a partnership firm with some others, strictly
speaking, a new entity is born in the form of a firm. The
firm, which may be so born, could not have had any
experience in its own name. This does not mean that a
businessman would not take into consideration the earlier
experience of one of the partners of such a firm for the
purpose of determining the capability of the firm to execute
(2007) 3 Gau LR 899
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a contract if allotted to them. Similarly, a firm may consist
of two persons as partners and in order to expand their
business, they may bring in some new partners and a new
firm, in a new name, may be organised and formed. Though
the newly born firm may not have any experience in its own
name, would the experience of those, who had been carrying
on the business of the type, which the newly bom firm is
required to do, not be counted by a prudent businessman for
determining the technical experience of the newly born firm
to do the business ? It is not uncommon that a company, on
account of merger or amalgamation, undergoes a re-
organization and a tender may be submitted in the name of
such a reorganized company. Shall the experience of the
company, which has merged into re-organized company, not
be taken into consideration, because the tender has not been
submitted in the name of the company, which has merged,
but has been submitted in the name of a re-organized
company, which has no experience, in its own name ?
Similarly, there may be a split in a company and the
persons, who had been looking after a particular field of the
business of the company, may form a new company after
leaving the earlier company. The new company, though
have persons with experience in the field, may not have
experience in its own name; while the original company
would have experience in its own name, but it would lack
persons with experience, who had done work in the field.
The requirements, regarding experience, cannot mean that
the offer of the originaL company must be considered,
because it has experience, in its name, though it does not
have any experienced person with it to carry on the work
and ignore the offer of the new company on the ground that
it has no experience in its own name, though it has persons
having experience in the field and also capability to
undertake and execute the work. A tender process, in such a
case, is nothing, but a commercial transaction; The terms
and conditions of the bidding documents have to be,
therefore, construed, from the standpoint of a prudent
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businessman. When a businessman enters into a contract,
whereunder some work is required to be performed, he
would seek to assure himself about the credentials of the
person whom he has to choose for the purpose of
performance of the work. If such credentials are to be
examined from a commercial point of view, it logically
means that if the contract is to be entered into, a company,
as a prudent person in business, will look into the
background of the entity, be it a company or firm, and the
persons, who are in control of the same and capable to
execute the work. A businessman would not go by the name
of the company alone, but by the persons behind it, who
have experience to do the work. Similar has to be approach of
the State and its instrumentalities, while considering the
eligibility of a tenderer, as is the case at hand, for the
purpose of awarding the contract......."
41.These aspects of law have also been dealt with and succinctly explained
in New Horizon Ltd. v. Union of India4, , wherein the Apex Court
observed and laid down as under:--
"23. Even if it be assumed that the requirement regarding
experience as set out in the advertisement dated 22.4.1993
inviting tenders is a condition about eligibility/or
consideration of the tender, though we find no basis for the
same, the said requirement regarding experience cannot be
construed to mean that the said, experience should be of the
tenderer in his name only. It is, possible to visualize a
situation where a person having past experience has entered,
into a partnership and the tender has been submitted in the
name of the partnership firm which may not have any past
experience in its own name. That does not mean that the
earlier experience of one of the partners of the firm cannot be
taken into consideration. Similarly, a company incorporated
under the Companies Act having past experience may
(1995) 1 SCC 478
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undergo reorganization as a result, of merger or
amalgamation with another company which may have no
such past experience and the tender is submitted in the
name of the reorganized company. It could not be the
purport of the requirement about experience that the
experience of the company which has merged into the
reorganized company cannot be taken into consideration
because the tender has not been submitted in its name and
has been submitted, in the name of the reorganized company
which does not have experience in its name. Conversely
there may be a split in a company and persons looking after
a particular field of the business of the company form a new
company after leaving it. The new company, though having
persons with experience in the field, has no experience in its
name while the original company having experience in its
name lacks persons with experience. The requirement
regarding experience does not mean that the offer of the
original company must be considered because it has
experience in its name though it does not have experienced
persons with it and ignore the offer of the new company
because it does not have experience in its name though it has
persons having experience in the field. While considering
the requirement regarding experience it has to be borne in
mind that the said requirement is contained in a document
inviting offers for a commercial transaction. The terms and
conditions of such a document have to be construed from the
standpoint of a prudent businessman. When a businessman
enters into a contract where under some work is to be
performed he seeks to assure himself about the credentials of
the person who is to be entrusted with the performance of
the work. Such credentials are to be examined from a
commercial point of view which means that if the contract is
to be entered with a company he will look into the
background of the company and the persons who are in
control of the same and their capacity to execute the work.
He would go not by the name of the company but by the
persons behind the company. While keeping in view the past
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experience he would also take note of the present state of
affairs and the equipment and resources at the disposal of
the company. The same has to be the approach of the
authorities while considering a tender received in response
to the advertisement issued on 22.4.1993. This would
require that first the terms of the offer must be examined
and if they are found satisfactory the next step would be to
consider the credentials of the tenderer and his ability to
perform the work to be entrusted. For judging the
credentials past experience will have to be considered along
with the present state of equipment and resources available
with the tenderer. Past experience may not be of much help
if the machinery and equipment is outdated. Conversely lack
of experience may be made good by improved, technology
and better equipment."
42.In the case of SRSC Infra Private Ltd V S National Highway Authority
of India5 which while approving the principle of law laid therein only
distinguished the same on facts, as in that case the Business Transfer
Agreement would not concluded and thus was incapable of being
enforced. It was held therein as hereunder;
"58. In G.R. Engineering Works Ltd. v. Oil India
Ltd. (Supra), the business of the partnership was duly taken
over by the private limited company. All the assets,
liabilities, and dues became assets, liabilities and dues of the
private limited company. The partnership firm was
dissolved, the works order of the partnership firm were
modified as the works order with the private limited
company. In the present case, as already found in paras
above, the transactions required to fully effectuate the BTA
dated 03.08.2019 are yet to be completed."
2021 SCC OnLine Del 3640
Location: ORISSA HIGH COURT, CUTTACK
43.The High Court of Bombay in the case of Commissioner of Income-
Tax v. Texspin Engg. & Mfg.6, while dealing with a case where
partnership firm was being treated as a company under the statutory
provisions of the Companies Act, held that when a firm is treated as a
company, there is no conveyance of the property executable in favour of
the Limited Company. The vesting of property of firm in the Limited
Company was not incidental to a transfer, but statutory. Of course the
primary question there being whether the transaction would be
amenable to capital gains tax. It would be profitable to reproduce the
relevant part judgment hereinbelow;
"6...... Now, in the present case, it is argued on behalf of the
department before the Tribunal, for the first time, that in
this case, on vesting of the properties of the erstwhile Firm
in the Limited Company, there was a transfer of capital
assets and, therefore, it was chargeable to income-tax under
the head "Capital gains" as, on such vesting, there was
extinguishment of all right, title and interest in the capital
assets qua the Firm. We do not find any merit in this
argument. In the present case, we are concerned with a
Partnership Firm being treated as a company under the
statutory provisions of Part IX of the Companies Act. In
such cases, the Company succeeds the Firm. Generally, in
the case of a transfer of a capital asset, two important
ingredients are : existence of a party and a counterparty
and, secondly, incoming consideration qua the transferor. In
our view, when a Firm is treated as a Company, the said
two conditions are not attracted. There is no conveyance of
the property executable in favour of the Limited Company.
It is no doubt true that all properties of the Firm vests in the
Limited Company on the Firm being treated as a Company
(2003) 180 CTR 497 Bom
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under Part IX of the Companies Act, but that vesting is not
consequent or incidental to a transfer. It is a statutory
vesting of properties in the Company as the Firm is treated
as a Limited Company. On vesting of all the properties
statutorily in the Company, the cloak given to the Firm is
replaced by a different cloak and the same Firm is now
treated as a Company, after a given date. In the
circumstances, in our view, there is no transfer of a capital
asset as contemplated by Section 45(1) of the Act. Even
assuming for the sake of argument that there is a transfer of
a capital asset under Section 45(1) because of the definition
of the word "transfer" in Section 2(47)(iii), even then we
are of the view that liability to pay capital gains would not
arise because Section 45(1) is required to be read with
Section 48, which provides for mode of computation........"
44.Similar issue came up before the High Court of Andhra Pradesh in Vali
Pattabhirama Rao v. Sri Ramanuja Ginning and Rice Factory (P.)
Ltd. 7 wherein the court was considering a situation where a previous
firm was converted into company under the provisions of Companies
Act. The Court held that there was statutory vesting of title of all the
property of the previous firm in the newly incorporated company,
therefore, there was no need for any separate conveyance. It was held
that a partnership which was treated as a company for the purposes of
the Companies Act can be registered under Part 8 of the previous Act
(Part 9 of the present Act) and the vesting is provided by Section 263 of
the 1913 Act (Section 575 of the present Act). The provision is
mandatory and there will be statutory vesting in the corporation so
incorporated under the provisions of the Companies Act. The Registrar
AIR 1984 AP 176
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is bound to give a certificate of registration under Section 262 (present
Section 574) which is a conclusive proof of incorporation, vide Section
35 of the present Act that corresponds to Section 24 of the previous Act.
Hence, it is clear that no conveyance is necessary when a partnership is
converted and registered as a company. However, it is not possible to
acquire such title statutorily under this section if the previous firm
purports to convey title to the company in which event a separate deed
of conveyance is necessary. The Court therefore held that if the
constitution of the partnership firm is changed into that of a company
by registering it under Part 9 of the present Act (Part 8 of the previous
Act), there shall be statutory vesting of title of all the property of the
previous firm in the newly incorporated company without any need for
a separate conveyance.
45.The above judgment was quoted with approval by the Supreme Court
in Jai Narain Parasrampuria (Dead) v. Pushpa Devi Saraf8 , in
following manner:-
"26. The said decision has been followed by a Division
Bench of the Andhra Pradesh High Court in Vali
Pattabhirama Rao v. Sri Ramanuja Ginning & Rice Factory
(P) Ltd. wherein it was held : (AIR pp. 184-85)
"Thus we hold that if the constitution of the partnership
firm is changed into that of a company by registering it
under Part 9 of present Act (Part 8 of previous Act),
there shall be statutory vesting of title of all the property
of the previous firm in the newly incorporated company
without any need for a separate conveyance."
(2006) 7 SCC 756
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46.The Supreme Court while considering the effect of conversion of
partnership firm into a company under Part IX of the Companies Act
in Commissioner of Income Tax, Udaipur v. Chetak Enterprises Pvt.
Ltd9. , held that on statutory vesting all properties of the firm, in law,
vest in the company and the firm is succeeded by the company. The
relevant portion is reproduced hereunder:--
"7. The question is : what is the effect of conversion of
partnership firm into a company under Part IX of the
Companies Act? That can be discerned from Section 575 of
the Companies Act, which reads thus:
"575. Vesting of property on registration. All property,
movable and immovable (including actionable claims),
belonging to or vested in a company at the date of its
registration in pursuance of this Part, shall, on such
registration, pass to and vest in the company as
incorporated under this Act for all the estate and
interest of the company therein."
It is manifest that all properties, movable and immovable
(including actionable claims) belonging to or vested in a
company at the date of its registration would vest in the
company as incorporated under the Act. In other words, the
property acquired by a promoter can be claimed by the
company after its incorporation without any need for
conveyance on account of statutory vesting. On such
statutory vesting, all the properties of the firm, in law, vest
in the company and the firm is succeeded by the company.
The firm ceases to exist and assumes the status of a
company after its registration as a company."
AIR 2020 SC 4305
Location: ORISSA HIGH COURT, CUTTACK
47.The High Court of Himachal Pradesh in Sozin Flora Pharma
LLP v. State of Himachal Pradesh10 while placing reliance on various
judgments has categorically held in the judgment supra that upon
conversion of a registered partnership firm to an LLP under the
provisions of the Limited Liability Partnership Act, all movable and
immovable properties of erstwhile registered partnership firm are
automatically vest in the converted LLP by operation of Section 58(4)(b)
of the Limited Liability Partnership Act. However, while making
aforesaid observations, Division Bench has further held that transfer of
assets of a firm to the LLP is by operation of law. Being statutory
transfer, no separate conveyance/instrument is required to be executed
for transfer of assets. If it is so, no stamp duty can be charged merely on
account of change of the name of the company. Having dealt with the
issues therein the Court came the conclusion as hereinunder;
"5. Conclusion : -From the above discussion, following
conclusions are drawn:--
5(a). Upon conversion of a registered partnership firm to
an LLP under the provisions of the Limited Liability
Partnership Act, all movable and immovable properties of
erstwhile registered partnership firm, automatically vest in
the converted LLP by operation of Section 58(4)(b) of the
Limited Liability Partnership Act.
5(b). The transfer of assets of firm to the LLP is by
operation of law. Being statutory transfer, no separate
conveyance/instrument is required to be executed for
transfer of assets.
2021 SCC OnLine HP 4961 : AIR 2021 HP
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5(c). Since there is no instrument of transfer of assets of
the erstwhile partnership firm to the limited liability
partnership, the question of payment of stamp duty and
registration charges does not arise as these are chargeable
only on the instruments indicated in Section 3 of the Indian
Stamp Act and Section 17 of the Indian Registration Act.
5(d). Partnership firm's legal entity after conversion to
limited liability partnership does not change. Only the
identity of the firm as a legal entity changes. Such
conversion or change in the name does not amount to
change in the constitution of partnership firm.
5(e). Stamp duty and registration fee cannot be levied
upon conversion of a partnership firm to LLP. Therefore,
permission under Section 118 of the H.P. Tenancy and
Land Reforms Act for recording such change of name in the
revenue documents, i.e. M/s Sozin Flora Pharma to M/s
Sozin Flora Pharma LLP cannot be made dependent upon
deposit of stamp duty and registration fee.
For the foregoing discussion, we allow the instant writ
petition. The impugned Annexures P-8, dated 28.08.2017
and P-10 dated 23.08.2019, insofar they direct the petitioner
to deposit the stamp duty and registration fee consequent
upon change of its name from M/s Sozin Flora Pharma to
M/s Sozin Flora Pharma LLP, are quashed and set aside.
The respondents are directed to enter the name of the
petitioner as 'M/s Sozin Flora Pharma LLP' in the revenue
record within a period of four weeks from today."
48.The same view has echoed forth in the case of INOX Air Product Pvt.
Ltd Vs State of Himachal Pradesh and others11; JSTI Transformers Pvt.
2022 SCC OnLine HP 6502
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Ltd. vs. State of Himachal Pradesh12 and Security Product Pvt. Ltd. vs.
State of Himachal Pradesh and others13.
49. From a combined reading and collective conspectus of the legal
propositions discussed herein above two things emerge. Firstly, that in
case of a "conversion" the transfer of assets i.e. all movable and
immovable properties of erstwhile firm, automatically vest in the
converted LLP/ company by operation of law. No separate documents
have be executed for the same. Secondly, in cases like the present one
where there is no automatic operation of law, where the "takeover" of a
firm take place by a company the same will be governed by the
documents existed executed by the parties. Both the types of transfer are
similar conceptually the only difference being that in one case there is no
requirement to execute any formal documents whereas in the other
necessary documents have to be executed. In the present case the
Petitioner No.1 Company as borne out from the records of the case was
clearly formed to take over the assets and liabilities of the sole
proprietorship firm in question. As discussed hereinabove, a sole
proprietorship is nothing but the proprietor himself acting in another
name. There is no legal distinction between a sole proprietor and the
proprietorship firm. The lease in question in the present case was given
to one Tejpal Singh. The said person has been taken on board as one of
the promoter directors in the newly formed Petitioner No.1 Company.
The first board meeting also shows the shareholding of the said person in
2022 SCC OnLine HP 2043
2024 SCC OnLine HP 3808
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the Petitioner No.1 Company. The Articles of Association and the
Memorandum of Association of the Petitioner No.1 Company state
therein that one of the main objects of the formation of the company is to
"takeover" the sole proprietorship firm. The same has been ratified in the
very first board meeting itself. Pursuant to the same a takeover
agreement has been executed between the parties. Most importantly, the
District Industries Centre has issued a Certificate of Amendment of the
Constitution of the unit which really in effect recognises the amended
position pursuant to the various transactions referred to hereinabove.
50. In view of the above discussion, the Writ Petition deserves to be
allowed. Consequently, the Opposite Parties herein are directed to
update /make necessary amends in their records and give full effect to
the takeover agreement by making necessary changes in their respective
records to reflect the name of the Petitioner No.1 Company herein
indicating the details of subject property. The said exercise shall be
carried out expeditiously within a period of 2 weeks.
51. Ordered accordingly. No order as to costs.
(Dr. S.K. Panigrahi)
Judge
Orissa High Court, Cuttack,
Dated the 11th April, 2025/
