Conversion Of Proprietorship To Family-Owned Private Limited Company Not 'Subletting' Under Public Premises Act: Bombay High Court
The Bombay High Court has held that conversion of a proprietorship concern into a partnership firm and subsequently into a private limited company comprising the original tenant's family members does not amount to subletting where no third person is inducted into the business. The Court further held that the 2015 amendment to Section 5 of the Public Premises (Eviction of Unauthorised Occupants) Act, replacing “may” with “shall”, has prospective effect.
Justice Rajesh S. Patil was hearing a writ petition filed challenging the Estate Officer's order dated September 30, 1998, which had been affirmed by the Bombay City Civil Court in 2002. The premises had initially been given on tenancy to Ahuja's proprietorship concern, which was subsequently converted into a partnership firm, after which the business was transferred to a private company.
The Insurance Company contended that the partnership firm had been converted into the private limited company through a deed of assignment executed after the General Insurance (Emergency Provisions) Act, 1971 came into force and, therefore, amounted to subletting. It also argued that the 2015 amendment to Section 5 of the Public Premises Act was retrospective and required the Estate Officer to pass an eviction decree.
The Court noted that apart from Y.D. Ahuja, only his sons and wife had been added to the partnership firm and that, when the firm was converted into the private limited company, the father and sons were its shareholders and directors. Subsequently, the sons retired from the company, and Ahuja again continued the business as a proprietorship concern. Hence, the Court observed that there was no third person brought in the company.
“… admittedly there is no third person who has been brought in the company. In my view, the concept of sub-tenancy has not been specifically mentioned in the P. P. Act. The said ground of sub-tenancy is available under the Maharashtra Rent Control Act or the erstwhile the Bombay Rent Control Act amongst the other grounds mentioned for eviction of the tenant,” the Court remarked.
Relying upon the principles laid down by the Supreme Court in Sri M.V. Ramachandrasa v. Mahendra Watch Company, the Court held:
“… the law as laid down in the said judgment in my view can be applied even in the PP Act. In the present proceedings there is no third person who is brought in the partnership firm and/or in the private limited company by the original tenant. Therefore, the intention of original tenant was clear. He did not wanted a third person to be inducted for whatsoever reasons, hence did not intend to create a sub-tenancy.”
On the 2015 amendment to Section 5, the Court held that retrospective operation has to be specifically mentioned in the statute. Since the Public Premises Act contained no such provision, the amendment was presumed to have prospective effect and could not be applied retrospectively to the present proceedings.
The Court accordingly quashed the Estate Officer's eviction order, as well as the City Civil Court's order.
Case Title: M/s. Economy Engineering Co. v. M/s. The Oriental Insurance Co. Ltd. [Writ Petition No. 1158 of 2002]