Purchase Of Goodwill And Continuing Same Business Must For Exemption Under Govt Notification Issued U/S 15(1) Of Bombay Rent Act: High Court

The Bombay High Court has observed that a Notification issued by the State Government on 24 September 1948, exercising its powers under the proviso to Section 15(1) of the Bombay Rent Act, 1947, permits a 'transfer of business' and not a 'transfer of tenancy' for certain commercial premises. Thus, the continuation of business must involve a purchase of goodwill so that the transfer is not considered as unlawful subletting under the Act.A single judge bench of Justice Sandeep V. Marne was considering the petitioner-landlady's challenge to the District Court's order, which set aside the eviction decree passed by a Small Causes Court. The petitioner/plaintiff rented a commercial premise to the respondent no. 1/defendant no. 1 for carrying out a laundry business. The landlady alleged that defendant no. 1 closed his laundry business 'M/s. Snow White Cleaners and Dyers' and was in the process of subletting the premises. Thus, she served a notice to defendant no.1 terminating his tenancy. She then received a notice from defendant nos.1 & 2 that the ownership right in the laundry business was transferred by the defendant no. 1 in favour of defendant no.2 along with stock-in trade, goodwill of business and tenancy rights. The landlady thus filed a suit for eviction of defendant nos. 1 & 2 from the suit premises on the ground of unlawful subletting. The Small Causes Court accepted this ground and passed an order of eviction. However, on appeal, the District Court held that the defendant no. 1's business was a running concern and the assignment of business by defendant no.1 in favour of defendant No.2 did not amount to unlawful subletting. The petitioner-landlady thus filed an appeal against this order. The High Court referred to Section 15 of BRA, which prohibits a tenant from subletting, transferring or giving on license the tenanted premises. However, proviso to Section 15(1) empowers the State Government to issue a 'notification' permitting transfer of interest or giving on license any premises. The State Government issued such a Notification on 24 September 1948 under proviso to Section 15(1). Through this Notification, the government permitted transfer or assignment incidental to the sale of the business as a going concern together with stock-in-trade and goodwill for areas covered under Part II of the Act, provided that the transfer or assignment is of the entire interest of the transferor or assignee in the premises together with business, stock-in-trade and goodwill. Relying on this Notification, the defendant nos. 1 & 2 contended that the entire laundry business was sold defendant no. 1 to defendant no. 2 Referring to the Notification, the Court noted that it permits a 'transfer of business' and not a 'transfer of tenancy'. It was of the view that the intention behind the Notification was that the transfer of business may involve the transfer of tenanted premises for conducting the business or for activities ancillary to the business. Hence, the object of permitting transfer or assignment was so that the transfer of tenanted premises would not be construed as a 'transfer of tenancy' by the landlord, thus putting the transferee at the risk of attracting unlawful subletting under Section 15 of BRA. “…the object is only to ensure that genuine transfer of business by transferor entity to transferee entity does not result in loss of tenancy by attracting ground of subletting.”In the present case, the Court observed that defendant no.1 assigned his tenancy rights under the garb of assignment of business and profited from it. It stated “Thus, what is done in the present case is that the tenancy rights in respect of the premises owned by landlady are assigned in favour of outsider by the tenant behind the back of landlady and without paying her any amount of consideration. Thus, at the expense of property owned by the landlady, the tenant has profiteered. The tenant has not only continued occupying the suit premises by paying paltry amount of rent and has enjoyed the benefits of rent control legislation, but when it came to return of the premises to landlady at the time of closure of business, the tenant has conveniently transferred and assigned his tenancy rights in favour of outsider for valuable consideration.”The Court stated that in case of assignment, the transferor must purchase the goodwill of business from the transferee to claim the exemption under the Notification. “Therefore continuation of same business by use of purchased goodwill is a sine qua non for attracting the exemption under the Notification issued under Section 15(1) of the Bombay Rent Act.” Here, it noted that defendant no. 2 admitted that he removed the words 'Dyers and Dry Cleaners' from the main signboard at the shop. He also admitted that a tailoring business was carried out in the suit premises and was selling carpets, cit pieces, stoves, etc. The Court opined that there was no connection between the laundry business and business of...

Purchase Of Goodwill And Continuing Same Business Must For Exemption Under Govt Notification Issued U/S 15(1) Of Bombay Rent Act: High Court

Sanjana Dadmi

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