Case: M/S.Shree Chamundi Mopeds Ltd Vs. Church Of South India Trust Asson

These appeals filed by M/s.Shree Chamundi Mopeds Ltd. raise questions involving the interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter referred to as the Act.2. The appellant is a public limited company registered under the Companies Act, 1956. It was set up with the object of manufacturing mopeds in collaboration with Cycle Peugot of France. It has set up a factory at Hirahalli in Tumkur district of Karnataka State. The appellant company has taken on rent the premises belonging to the Church of South Indian Trust Association, respondent No. 1 in these appeals, in Bangalore on a monthly rent of Rs. 21,159/-. The appellant company committed default in payment of rent and as on March 31, 1987 a sum of Rs. 2,45,534/- was payable as rent to the respondents. The respondents issued a legal notice dated 1 st April, 1987 calling upon the appellant company to pay the said amount. The appellant company while admitting the liability to pay the aforesaid sum stated that it was expecting certain sums of money towards developmental loan from the Government of Karnataka and as soon as the same was received it would clear the outstanding payable by it to the respondents. Since the amount was not paid the respondents issued a notice under Section 434 of the Companies Act and thereafter a petition was filed in the High Court of Karnataka under Section 433(e) of the Companies Act for winding up of the appellant company. While the said winding up petition was pending the appellant company, claiming that it has become a sick industrial company, filed a reference under Section 15(1) of the Act before the Board of Industrial and Financial Reconstruction, hereinafter referred to as the Board, on 12 December, 1988. After, hearing the concerned parties, the Board formed a prima facie opinion that it would be just and equitable as also in public interest that the appellant company, which has become a sick industrial company within the meaning of Section 3(1)(o) of the Act, should be wound up in view of the large accumulated losses, poor market prospects for the products of the appellant company and inability of the promoters to bring in the required additional interest free funds etc. After publication of the general notice in the newspapers and on intimation to the concerned parties the Board heard the objections/ suggestions, if any, of the concerned parties to the proposed winding up of the company and after considering the same the Board passed the order dated April 26, 1990, whereby it wasconsideration of the facts and material before us and the submissions made at todays hearing, we find that Shree Chamundi Mopeds Ltd. have become economically and commercially non-viable due to its huge accumulated losses and liabilities and should be wound up. However, in view of the submissions made by the company and in order to give a final opportunity to the promoters as requested by them, our advice to wind up the company to the respective High Court will be withheld for a period of one month. The promoters were directed to submit an acceptable rehabilitation proposal which is technically, economically and commercially viable for the revival of the company to ICICI urgently and ICICI was directed to appraise the proposal, if any, submitted by the promoters to them and submit their report to us within one month. If no acceptable rehabilitation scheme is received by the BIFR within one month, our opinion to wind up the company will be forwarded to the High Court of judicature in Karnataka for further necessary action under the law.The appeal filed by the appellant company before the Appellate Authority for Industrial and Financial Reconstruction, hereinafter referred to as the "Appellate Authority", against the said order dated 26 April, 1990, was dismissed by the Appellate Authority by order dated January 7, 1991. The appellant company has filed Writ Petition (Civil) No. 594/91 in the High Court of Delhi wherein the said order passed by the Appellate Authority has been challenged. In the said writ petition, the High Court of Delhi, on February 21, 1991, passed an order for issuing notice returnable for May 10, 1991, to show-cause as to why rule nisi be not issued. On the stay petition filed with the said Writ Petition, notice was issued for May 10,1991 and in the meanwhile, operation of the order of the Appellate Authority dated January 7, 1991 was stayed. We have been informed that the said Writ Petition is still pending in the Delhi High Court and the stay order passed by the said Court is also operative.After the dismissal of the appeal of the appellant company by the Appellate AuthOrity the winding up petition was taken up for consideration and it was allowed by a learned single Judge of the Karnataka High Court by order dated August 14, 1991. The learned single Judge was of the view that pendency of the writ petition in the High Court of Delhi and the stay of operation of the order of the Appellate Authority did not stand in the way of the Court to proceed with the matter. The appellant company filed an appeal against the said order of the learned single Judge which was dismissed by a Division Bench of the High Court by order dated November 6,1991. Civil Appeal No. 126/ 92 has been filed by the appellant company against the said order of the Karnataka High Court dated November 6, 1991.5. On 26 February 1988 the respondents filed a petition seeking eviction of the appellant company from the demised premises under S. 21(1) of the Karnataka Rent Control Act, 1961 on the ground that the appellant company is a chronic defaulter in the payment of rent and as on . March 31, 1987 the appellant company was in arrears to the tune of Rs. 2,45,534/- and that the said amount has not been paid in spite of notice and that a cheque dated January 1, 1988 for a sum of Rs. 50,000 1 - which was sent by the appellant company, when presented for encashment, was dishonoured. In those proceedings the appellant company moved an application under S. 151, C.P.C. read with S. 22 of the Act for stay of the said proceedings on the ground that the appellant company had been declared a sick industrial company under the Act by the Board and a scheme was under preparation as per Section 16 of the Act. The said application of the appellant company was rejected by the XII Additional Small Causes Judge, Bangalore by order dated September 14, 1989, on the view that Section 22 of the Act had no application inasmuch as proceedings instituted by the landlord for recovery of possession of the premises of which a sick industrial company is a tenant is not included among the proceedings which are required to be suspended under S. 22(1) of the Act. Thereafter the XII Additional Small Causes Judge, Bangalore by order dated September 30, 1989 allowed the eviction petition filed by the respondents and held that the respondents were entitled to get possession of the premises and that appellant company is liable to vacate and give possession to the respondents. The appellant company filed a writ petition against the said order of the Additional Small Causes Court which was subsequently converted into a revision petition under S. 50 of the Karnataka Rent Control Act. The said revision was dismissed by a learned single Judge of the Karnataka High Court by order dated 15 March, 1991 in view of S. 29(1) of the Karnataka Rent Control Act which prescribes that no tenant against whom an application for eviction has been made by a landlord under S. 21 shall be entitled to prefer or prosecute a revision petition under S. 50 against an order made by the Court on an application made under S. 21 unless he has paid or pays to the landlord or deposits with the District Judge or the High Court, as the case may be, all arrears of rent due in respect of the premises up to the date of payment. The learned single Judge found that neither the tenancy nor the amount claimed in the petition towards the arrears and the subsequent rents due as on February 28, 1991 (amounting in all Rs. 9,35,618/-) was disputed. The learned single Judge rejected the prayer for exemption from the applicability of S. 29(1) of the Karnataka Rent Control Act claimed on the basis of the statutory protection granted to the appellant company under Section 22 of Act. It was held that no enquiry under S. 16 was pending nor any scheme referred to under S. 17 was under preparation or consideration and there is also no sanctioned scheme under implementation and that the appeal filed by the appellant company under S. 25 of the Act has also been rejected. It was held that the stay order which had been passed by the Delhi High Court in the writ petition did not entitle the appellant company to invoke the protection under S. 22 of the Act as if the appeal under Section 25 of the Act was pending. The revision petition filed by the appellant company was, therefore, rejected. Civil Appeal No. 2553/91 has been filed by the appellant company against the said order of the Karnataka High Court.

Court's reasoning:
We are, therefore, of the opinion that the passing of the interim order dated February 21, 1991 by the Delhi High Court staying the operation of the order of the Appellate Authority dated January 7, 1991 does not have the effect of reviving the appeal which had been dismissed by the Appellate Authority by its order dated January 7, 1991 and it cannot be said that after February 21,991, the said appeal stood revived and was pending before the Appellate Authority. In that view of the matter, it cannot be said that any proceedings under the Act were pending before the Board or the Appellate Authority on the date of the passing of the order dated August 14, 1991 by the learned single Judge of the Karnataka High Court for winding up of the company or on November 6, 1991 when the Division Bench passed the order dismissing O.S.A. No. 16 of 1991 filed by the appellant company against the order of the learned single Judge dated August 14, 1991. Section 22(1) of the Act could not, therefore, be invoked and there was no impediment in the High Court dealing with the winding up petition filed by the respondents. This is the only question that has been canvassed in Civil Appeal No. 126 of 1992, directed against the order for winding up of the appellant company. The said appeal, therefore, fails and is liable to be dismissed.We are also unable to agree with the contention of the learned counsel for the appellant company that the leasehold interest of the appellant company in premises leased out to it is property for the purpose of Section 22(1). It is no doubt true that leasehold interest of the lessee in the premises leased out to him is property which can be transferred and the said interest can also be attached and sold by way of execution in satisfaction of a decree against a lessee. In that sense, it can be said that the leasehold interest of a company is its property. But the question is whether the same is true in respect of the interest of a company which is in occupation of the premises as statutory tenant by virtue of the protection conferred by the relevant rent law because in the instant case on the date of reference to the Board the proceedings for eviction of the appellant company were pending and the appellant company was in occupation of the premises only as a statutory tenant governed by the provisions of the Karnataka Rent Control Act. In Smt. Gian Devi Anand v. Jeevan Kumar, 1985 Supp (1) SCR 1, this Court has laid down that the termination of a contractual tenancy does not bring about a change in the status and legal position of the tenant .unless there are contrary provisions in the relevant Rent Act and the tenant, notwithstanding the termination of tenancy, does enjoy an estate or interest in the tenanted premises. It is further laid down that this interest or estate which the tenant continues to enjoy despite termination of the contractual tenancy creates a heritable interest in the absence of any provision to the contrary. This Court has also held that the legislature which by the Rent Act seeks to confer the benefit on the tenants and to afford protection against eviction, is perfectly competent to make appropriate provision regulating the nature of protection and the manner and extent of enjoyment of such tenancy rights after the termination of contractual tenancy of the tenant including the rights and the nature of protection of the heirs on the death of the tenant.14. In the instant case, we are concerned with the right of the tenant as governed by the Karnataka Rent Control Act. In Cl. (r) of S. 3, the expression "tenant" has been defined to include "the surviving spouse or any son or daughter or father or mother of a deceased tenant who had been living with the tenant in the premises as a member of the tenants family after the death of the tenant and a person continuing in possession after the termination of the tenancy in his favour". In view of Cl. (5) of the proviso to sub-sec. (1) of S. 21, protection against eviction is not available to a tenant who has "unlawfully sublet the whole or part of the premises or assigned or transferred in any other manner his interest therein and where the subletting, assignment or transfer has been made before the coming into operation of this part (except in respect of sub-letting, assignment or transfer to which the provisions of S. 61 are applicable), such sub-letting, assignment or transfer has been made contrary to any provision of law then in force.From these provisions, it would appear that except in cases covered by the two provisos to sub-sec. (1) of S. 23, there is a prohibition for a tenant to sub-let whole or any part of the premises let to him or to assign or transfer in any other manner his interest therein. This prohibition is, however, subject to a contract to the contrary. A tenant who subjects or assigns or transfers the premises,in contravention of this prohibition loses the protection of law and can be evicted by the landlord under S. 21(1)(f). In the case of a statutory tenant, the relationship is not governed by contract. The prohibition against assignment and transfer is, therefore absolute and the interest of a statutory tenant can neither be assigned nor transferred. This means that the interest of the statutory tenant in the premises in his occupation, as governed by the Karnataka Rent Control Act is a limited interest which enables the surviving spouse or any son or daughter or father or mother of a deceased tenant who had been living with the tenant in the premises as a member of the tenants family up to the death of the tenant and aperson continuing in possession after the termination of the tenancy in his favour, to inherit the interest of the tenant on his death. The said interest of the tenant is, however, not assignable or transferable and, therefore, the interest, of a company which is continuing in occupation of the premises as a statutory tenant by virtue of the protection conferred by the Karnataka Rent Control Act, cannot be regarded as property of the company for the purpose of sub-see. (1) of S. 22 of the Act and for that reason also the provisions of S. 22(1) were not attracted to the eviction proceedings institution by the respondents against the appellant company. The provisions of S. 22(1) did not, therefore, bar the prosecution of the said proceedings by the respondents and the order dated September 30, 1989 passed by the XII Additional Small Cause Judge, Bangalore allowing the eviction petition cannot be held to have been passed in contravention of the provisions of S. 22(1) of the Act. Civil Appeal No. 2553 of 1991 also, therefore, fails and is liable to be dismissed.