Case: Kenya Airways, A Company Registered Under Law Regulating Companies In Kenya Vs. Jinibai B. Kheshwala

( 2 ) APPELLANT, Kenya Airways, is defendant No. 3 in the suit. Respondent is original plaintiff No. 1, who along with original plaintiff No. 2, since deceased, is owner and as such landlord in respect of a flat on thet side on second floor of Dunkeld Building, 8, Harkness Road, Bombay 400 006 alongwith a garage located on the ground floor of the said building. Under an agreement of leave and license dated 11th of June, 1974 plaintiff Nos. 1 and 2 permitted original defendant one Mr. Ben Mbrani, the Manager in India of East African Airways posted at Bombay and having a temporary assignment in India, to occupy the said flat on leave and licence basis for a period of six months commencing from 1st June, 1974. Under Clause 4 of the agreement, the licence was given to defendant No. 1 for use of the flat and the garage for his personal use only and for no other purpose. The flat was to be used for his personal residence only. Clause 7 of the agreement provided that in case the licensee commits breach of any of the terms and conditions of the licence the licensor shall become entitled to revoke the licence notwithstanding the fact that the period of licence had not expired and upon revocation of the licence the licensee and his family were to remove themselves from the flat and garage. On the date of the execution of the leave and licence agreement, defendant No. 1 executed a declaration whereby he confirmed that the owners had given the said licence to him on his express representation that he will hand over to them possession of the said flat on or before the expiry of the said licence without creating any difficulty or obstruction or without claiming any right or interest of any kind whatsoever in the said flat and in the said garage. He further confirmed that but for the aforesaid representation the owners would not have given the said leave and licence to him( 3 ) AFTER passage of time original defendant No. 2 M. Yusuf Buttcame to be inducted in the aforesaid premises. By a communication issued by defendant No. 2 on 29th July, 1978 to the attorneys of the plaintiffs, defendant No. 2 claimed that he was occupying the premises having succeeded defendant No. 1 in his capacity of being the Manager of the third defendant Kenya Airways. Defendant No. 2 accordingly claimed to be in possession in his independent right being the Manager of Kenya Airways in Bombay. Present suit for possession is filed on the 30th of August, 1978 claiming possession of the aforesaid premises from the defendants( 4 ) IN the suit, plaintiff took out Notice of Motion No. 1012 of 1978 for interim reliefs. In the motion, defendant No. 2 filed an affidavit in reply. In para 1 of the reply defendant No. 2 asserted that he was at present the Manager, in India, of the third defendantKenya Airways. Averments contained in paras 2 (a) to 2 (c) and para 3 (a) of the affidavit, which are relevant for the enquiry at hand, read as under : (A) The defendant No. 1 at the relevant time was the ManagerIndia of East African Airways. On East African Airways discontinuing its operations in India, Kenya Airways, commenced operations in India with effect from 1st March, 1977. The 1st defendant was thea of East African Airways till 1st March, 1977 and thereafter thea of Kenya Airways, the 3rd defendant herein till 1st May, 1978. I became the Manager India of Kenya Airways, and succeeded the 1st defendant asa of Kenya Airways as from 1st May, 1978. (B) The 3rd defendant Company is an international Airways Company. Its Management is controlled from Kenya, Africa. Its affairs are managed in India by persons appointed as Manager by the Head Office in Nairobi. An international airways company requires premises for its offices and its staff and also for the residence of its Manager in the different countries in which it operates. Such Company has its Managers changing from time to time in every country where its offices are situated. The Flat required inter alia by such company for its Manager is always occupied by the Manager for the time being. This is always known and conveyed to the persons from whom the Flat is taken for the purpose of occupation of the Manager of such. The plaintiffs were never known to the defendant No. 1 and Eastern African Airways at any time before the suit flat was taken by East African Airways from the plaintiffs in or about June, 1974. East African Airways were in search of flat for the purpose of residence for theira in or about June, 1974. The plaintiffs and East African Airways were complete strangers to one another. The plaintiffs were desirous of letting out the suit flat at the best available rent to any respectable persons. The deal in respect of the suit flat was entered into between East African Airways and the plaintiffs in or about June, 1974 through Estate Brokers, Bhagwandas T. M. the Agents of the plaintiffs. While taking the suit flat from the plaintiffs, the said Bhagwandas T. M. , Brokers, who were acting as agents for and on behalf of the plaintiffs, knew very well that the suit flat was required by East African Airways for themselves, for accommodating for the time being their. In fact at the time of taking the suit flat, six months rent in advance was given by East African Airways to the plaintiffs through their Brokers, Bhagwandas T. M. to the knowledge of the plaintiffs. . . . . . . . . .(C) I say and submit that the suit flat in fact and in law was given by the plaintiffs to East African Airways on lease as a tenant. The plaintiffs know that the defendant No. 1 was acting for and on behalf of East African Airways and was their agent and employee. I say and submit that the plaintiffs entered into the transaction of letting out the suit flat in fact to East African Airways knowing all the time it was East African Airways who were the real lessees for the suit flat. It is significant that the plaintiffs are landlords and owners of the suit flat and there was nothing in law to prevent them from giving the suit flat on lease. The suit flat was given to and occupied by East African Airways exclusively and the entire occupation and control of the suit flat was with East African Airways. The plaintiffs have taken the Agreement dated4 and the declaration (Ex. c to the plaint) dated4 from the 1st defendant with ulterior motives, with mala fide intentions and with a view to avoid the provisions and protection of the Rent Act available to the occupants of the suit flat. 3 (a) From 1st March, 1997 East African Airways ceased to operate as aforesaid and thereafter the 3rd defendants commenced operation in India. By a Bilateral Agreement between the Government of Kenya and the Government of India the 3rd defendants, viz. Kenya Airways, have been recognized and accepted by the Government of Kenya and have been granted permission to operate the same services as were operated by East African Airways. After the 3rd defendants commenced operation in India, the 1st defendant continued to use and occupy the suit premises as Manager in India of the 3rd defendant( 5 ) THE aforesaid Notice of Motion was taken up for hearing when defendant Nos. 2 and 3 gave various undertakings which were recorded by the learned Single Judge in his order passed on the 23rd of November, 1978( 6 ) DEFENDANT No. 2 gave an undertaking not to alienate, dispose of or part with possession of the suit flat to any person, save and except the employees of the third defendant. The third defendant in turn, gave an undertaking not to alienate, encumber or part with possession of the suit flat or induct any person in the suit flat, save and except an officer of the defendant company who will be allowed to occupy the suit flat merely in his capacity as an employee of the third defendant and without having any right, title or interest in the suit premises. Both the defendant Nos. 2 and 3 gave an undertaking to deposit in Court an amount of Rs. 2,000/per month. Liberty was given to the plaintiff to withdraw the amounts so deposited. A statement was made on behalf of the third defendant that if any officer is allowed to reside in the suit premises by the third defendant in place and stead of second defendant, the third defendant gave an undertaking in the Court to procure and to file in Court an undertaking from such future officer not to part with possession or induct any third party in the suit premises and that such undertaking shall be filed prior to the future officer being allowed to reside in the suit premises by the third defendant. Based on the aforesaid undertakings and statements the Court declined to appoint Court Receiver( 7 ) THE third defendant, on 24th of October, 1979, and the defendant No. 1 on 24th June, 1980 filed their written statements adopting the defence, taken in their respective( 8 ) THE suit was taken up for hearing on the 1st of December, 1994 when, for the first time, after a period of about sixteen years, a contention was raised by and on behalf of defendant No. 3 as to the maintainability of the suit on the ground that the plaintiff had not obtained consent of the Central Government prior to the filing of the suit and hence the suit is liable to be dismissed in view of the provisions of law contained in section 86 of the Civil Procedure Code. 1908. A prayer was made to frame additional issues in respect of the aforesaid contention and for trying the same as preliminary issues. On 24th November, 1994 defendants took out Notice of Motion No. 2779 of 1994 raising the plea regarding the maintainability of the suit for want of a prior consent of the Central Government under section 86 of the Civil Procedure Code to file the suit. By an order passed on the 1st of December, 1994 the following additional issues were framed. . Whether the defendants proved that section 86 of the Code of Civil Procedure is applicable to the suit as framed as against all the defendants or either of them 2. Whether the suit is liable to be dismissed in entirety against all the defendants or in the alternative against defendant No. 3 in view of the admitted fact that the plaintiffs did not obtain prior consent of the Central Government to file this suit ( 9 ) IN the order, the learned Judge observed that the plaintiffs disputed that section 86 of the Code of Civil Procedure is applicable to this suit. The learned Judge further observed that it is of considerable significance that the suit was filed on the 3rd of August, 1978 and the contention based on applicability ory of section 86 of the Code of Civil Procedure was taken by the defendants for the first time on 24th November, 1994 as is obvious from Notice of Motion No. 2779 of 1994 taken out by the defendants. In the order the learned Judge has noted the contention raised on behalf of the plaintiff in the following terms: the learned Counsel for the plaintiff informs the Court that without prejudice to his contention that section 86 of the Code of Civil Procedure is not attracted to the suit as framed, the plaintiff has now applied to the Central Government for its consent to continue this suit even if section 86 of the Code of Civil Procedure is held to be applicable.( 10 ) BY a separate order passed on the 1st of December, 1994 the learned Judge declined the request made on behalf of the defendants to try the aforesaid issues as preliminary issues by observing that the issue had been raised after almost the period of sixteen years. The said issue was directed to be tried alongwith the other issues at the hearing of the suit. The aforesaid order was carried by the third defendant to the Supreme Court. In the order passed by the Supreme Court on 11th August, 1995 a reference is made to the case of (veb Dautrfraght Seereederi Restock (D. S. P. lines) Department of the German Democratic Republic, New Central Jute Mills Co. Ltd. and another) reported in 1994 (1) S. C. C. 282 wherein it has been observed, asn the present case, the appellant having been held to be a foreign State within the meaning of section 86 and thet not having obtained the consent of the Central Government, as required by section 86, the suit filed on its behalf was not rightly entertained by the trial Court. The question whether a suit should be entertained, cannot be deferred, till the stage of the final disposal of the suit, because that will serve neither the interest of the plaintiff nor of the defendant. The object of section 86 is to save foreign States from being harassed by defending suits in which there are hardly any merits. If the foreign State is required to file written statement and to contest the said suit and only at the stage of final disposal, a verdict is given whether in the facts and circumstances of the case such foreign State is entitled to the protection of section 86 of the Code, the very object and purpose of section 86 shall be frustrated. The bar of section 86 can be taken at the earliest opportunity and the Court concerned is expected to examine the same. after making reference to the aforesaid decision, Supreme Court has proceeded to rule, as under :in view of the aforesaid judgment, the trial Judge has to first hear the parties on the question as to whether the appellant can be held to be a foreign State within the meaning of section 86 and as to whether the plaintiff respondent was required to obtain consent of the Central Government as required by section 86 of the Code( 11 ) BEFORE the Supreme Court reliance was placed on behalf of the plaintiff to the communication dated 2nd of June, 1995 addressed to the plaintiff from the Ministry of External Affairs, Government of India, saying that no permission, as required by section 86 of the Code, is necessary, in the facts and circumstances of the case. The Supreme Court observed that it will be open to the plaintiff to file such communication before the trial Court which shall be taken into consideration while deciding the applicability of section 86 of the Code( 12 ) THE aforesaid preliminary issues were accordingly taken up for consideration by the learned Single Judge in terms of the directions of the Supreme Court. By a judgment and order dated 26th February, 1996, the learned Judge has found that the defendants have failed to prove or bring before the Court any material to show that the third defendants are the undertaking of the Government of Republic of Kenya. Neither is the property of the third defendant, nor its ownership, vests in Government of Kenya. Third defendant, therefore, cannot be categorized as foreign State. Third defendant, therefore, was not entitled to the protection of section 86 of the Code of Civil Procedure.

Reasoning:
( 14 ) WE have heard the learned Counsel appearing for the contending parties at considerable length. What strikes us, at the out set, is the fact that the defendants have raised the issue in regard to immunity based on the provisions of section 86 of the Code after a lapse of almost sixteen years from the date of filing of the suit. The suit is filed on the 29th of July, 1978 whereas the present contention is, for the first time, raised on the 24th of November, 1994. In the meanwhile, defendants have virtually submitted themselves to the jurisdiction of the Court by appearing in the suit. Not only they have appeared in the suit but they have also participated in the Notice of Motion No. 1012 of 1978 taken out by the plaintiffs for appointment of Court Receiver. They have furnished undertakings and made statements based on which prayer of Court Receiver has been declined. The undertakings and statements have been duly recorded in the order passed on 23rd November, 1978. In their respective statements defendant Nos. 1 and 3 have averred that the third defendant company is an international airways company wholly owned by the Government of Kenya. Its management is controlled from Kenya, Africa. Its affairs are managed in India by persons appointed as Manager by the Head Office in Nairobi. Having said this, they have failed to raise the contention under section 86 of the Code. It has been contended on behalf of the third defendant that so far as the bar of section 86 is concerned, the law was not settled till the decision in the case of v. D. S. Rostock (D. S. P. Lines), A. I. R. 1994 S. C. 516 was delivered. It is only by this decision the Supreme Court has settled the law with regard to commercial transactions. The defendants have, after the said decision was rendered, taken up the present contention. Till the aforesaid decision was rendered, defendants, did not have knowledge of their right that was available to them. No question, therefore, of waiver can arise. Reliance is placed on a decision of the Supreme Court in the case of (M/s. Motilal Padampat Sugar Mills Co. Ltd. v. The State of Uttar Pradesh and others) A. I. R. 1979 S. C. 621 wherein it is observed, as under:5. . . . . . . . . . . it is elementary that waiver is a question of fact and it must be properly pleaded and proved. No plea of waiver can be allowed to be raised unless it is pleaded and the factual foundation for it is laid in the pleadings. Here it was common ground that the plea of waiver was not taken by the State Government in the affidavit filed on its behalf in reply to the writ petition, nor was it indicated even vaguely in such affidavit. It was raised for the first time at the hearing of the writ petition. That was clearly impermissible without an amendment of the affidavit in reply or a supplementary affidavit raising such plea. . . . . . . 6. . . . . . . WAIVER means abandonment of a right and it may be, either express or implied from conduct, but its basic requirement is that it must be an intentional act with knowledge. . . . . . . There can be no waiver unless the person who is said to have waived is fully informed as to his right and with full knowledge of such right, he intentionally abandons it. . . . . . . The claim of the appellant to exemption could be sustained only on the doctrine of promissory estoppel and this doctrine could not be said to be so well defined in its scope and ambit and so free from uncertainty in its application that we should be compelled to hold that the appellant must have had knowledge of its right to exemption on the basis of promissory estoppel at the time when it addressed the letter dated 25th June, 1970. In fact in the petition as originally filed, the right to claim total exemption from sales tax was not based on the plea of promissory estoppel which was introduced only by way of amendment. Moreover, it must be remembered that there is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that it is not a correct statement; there is no such maxim known to the law. . . . . . .24. In view of this answer, we do not consider it necessary to answer the second question as that would have arisen only if the first question had been answered in the affirmative.justice Hidayatullah, J. , has answered the second question by observing, as under. . . . . . . In my opinion, the State Trading Corporation cannot be said to be a citizen either by itself or by taking it as the aggregate of citizens that nationality of a corporation is a different concept not to be confused with citizenship of natural persons, that the word citizen in Article 19 (1)e (f) and (g) refers to a natural person, that State Trading Corporation is really a Department of Government behind the Corporate veil and that for all these reason the two questions must be answered in favour of the objectors. . . . . . . 65. The next question is whether the State Trading Corporation is a department or organ of Government notwithstanding the formality of incorporation. On behalf of the corporation it is contended that if the Corporate veil is pierced one sees that the right to invoke Article 19 (1) (f) and (g) is being claimed by three persons who are admittedly citizens of India namely the President of India and the two secretaries. The contention on the other side is that the corporate veil cannot be pierced at all and that if it is, then behind that veil there is the Government of India. 68. In my judgment it is not possible to pierce the veil of incorporation in our country to determine the citizenship of the members and then to give the corporation the benefit of Article 19. If we did pierce the veil and saw that the corporation was identical with Government there would be difficulty in giving relief unless we held that the State can be its own citizen. . . . . . . justice J. C. Shah, in his dissenting judgment, has observed, as follows:113. The first part of the second question raises what is essentially a question of fact. The State Trading Corporation was, on the date of the petition, functioning under the direct supervisions of the Government of India, the share holding was in the names of the President and two secretaries to the Government and its entire subscribed capital was contributed by the Government of India. But it is a commercial body, incorporate as the Memorandum of Association indicates to organize and undertake trade generally with State Trading countries as well as other countries in commodities entrusted to it for such purpose by the Union Government from time to time and to undertake purchase, sale and transport of such commodities in India or anywhere else in the world and to do various acts for that purpose. The Articles of Association make minute provisions for sale and transfer of shares, calling of general meetings, procedure for the general meetings, voting by members, Board of Directors and their powers, the issue of dividend, maintenance of accounts and capitalization of profits. The State Trading Corporation has been constituted not by any special statute or charter but under the Indian Companies Act as a Private Limited Company. It may be wound up by order of a competent Court. Though it functions under the supervision of the Government of India and its Directors, it is not concerned with performance of any governmental functions. Its functions being commercial, it cannot be regarded as either a department or an organ of the Government of India. It is a circumstances of accident that on the date of its incorporation and thereafter its entireg was held by the President and the two Secretaries to the Government of India. justice Das Gupta, has concurred with justice J. C. Shah, by observing, as follows:88. On the other question that has been referred, I agree with the conclusion of my learned brother Shah, J. , that, the State Trading Corporation is not in substance a department and organ of the Government of India. As I entirely agree with the reasoning on which he has based this conclusion, I do not propose to discuss the matter further.( 24 ) IT would appear that as per Hidayatullah, J. , the State Trading Corporation is a department of Government. According to him, if one were to lift the veil of incorporation it will be found that the entire share capital is subscribed by the Government of India, the shareholders are the President of India and two Secretaries to the Government in their official capacities and that its management is a governmental function for the benefit of the nation. None of the share holders holds a share or shares for their personal benefit or enjoyment. None of them has paid for the shares held in their name. The administration of the affairs of the corporation though technically a company, is a concern of the Government of India. The legal and beneficial ownership of the corporation vests in the Government of India. If the veil is lifted one would find the Government of India( 25 ) THE contrary view, which has been expressed by Justice J. C. Shah with Das Gupta, J. , has found that the State Trading Corporation is a private limited company which is capable of being wound up by a Competent Court. It is not concerned with performance of any governmental functions but engaged in commercial activities and hence cannot be regarded as either a department or an organ of the Government of India34 ) BEARING in mind the ratio of the aforesaid decisions, which have been cited before us, we will now proceed to determine, whether the appellant defendant No. 3 is a foreign State within the meaning of section 86 of the Code of Civil Procedure and whether it can claim immunity on the ground that no consent has been obtained from the Central Government as required by the aforesaid section. The Certificate of Incorporation of the third defendant shows that it is a Private Limited Company registered at Nairobi Kenya. The Memorandum of Association and the Article of Association of the respondent shows that it is engaged and carries on the business as carriers by air of passengers and goods in Kenya and elsewhere. It has the right to acquire and hold property; it has a right to amalgamate or enter into Partnership or into any arrangement including for sharing profits, to promote any other company or other body; to acquire and hold shares, debentures or other securities of any other company or body, to lend and advance money or give credit to any person or body and to engage in all the activities mentioned in the Memorandum of Association. The share capital of the company is held by two Government Officials, one the Permanent Secretary to the Treasury and the other a Permanent Secretary to the Ministry of Power and Communications, the former holding 4,99,999 shares and the later 1 share. The same provides as under :the transfer of any share in the Company shall be in writing in any usual or common form and shall be signed by the transferor and the transferee. The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. All instruments of transfer, when registered, shall be retained by the Company. the learned Judge of the trial Court, on placing reliance on the aforesaid Article, has concluded that the defendant No. 3 is not a foreign State under section 86 of the Code. She has thereupon found that the suit as filed is maintainable even though no consent of the Central Government has been obtained. In our view, as long as the shares are wholly owned by the Government of Kenya and the same are not transferred to the public under the aforesaid Article, the third defendant has not ceased to be a Government Company. It is not uncommon that Government Companies are, after passage of time, privatised and are often made into public companies. If that were to happen then certainly the third defendant would lose the status of being a Government Company. However, as long as the company is fully owned and controlled by the Government of Kenya the same would be entitled to claim the immunity under section 86 of the Code. The said immunity would be available to the third defendant even though it is engaged in commercial activities as in India the sovereignty is not lost even though a foreign State Government may be engaged in commercial activities. We are, therefore, unable to concur with the contrary view expressed by the learned Single Judge. However, in view of our earlier finding that the third defendant has submitted to the jurisdiction of the Court by waiving its right under section 86 of the Code, we hold that the third defendant is not now entitled to claim the benefit of section 86 of the Code. Present suit, in our view, is maintainable even though no consent has been obtained by the plaintiff from, the Central Government( 35 ) THE ultimate finding of the trial Court is accordingly confirmed, though on grounds different from the ones taken by the learned Single Judge