2017 (12) TMI 1809 - HC - Indian Laws

Validity of lease agreement entered - change in status of plots, for which lease was granted - validity of the order by which first petitioner is liable to pay 10% of the market value of the immovable property for the purpose of registering itself as a lessee of such immovable property with the first respondent - HELD THAT - The legal entity to which the first respondent had granted the lease, in respect of the subject plots, does not exist in the manner and form as on the date of execution of the deed of lease, on the date of presentation of the writ petition. Such legal entity does not exist till date. The legal entity of the lessee has undergone a change. The first petitioner traces its rights to the immovable property demised under the deed of lease through the original lessee. The property covered under the deed of lease has travelled from the original lessee to different entities and ultimately to the first petitioner. Each of the entities, subsequent to the original lessee, are separate and distinct legal entities than that of the original lessee. The deed of lease describes the original lessee as a legal entity which would deem to include its successors and assigns unless repugnant to the context. Clause (vii) of the lease deed prohibits assignment without prior written consent of the first respondent. The description of the original lessee to include its assigns in the lease deed would necessarily exclude any assignee of the original lessee, when the original lessee has acted in breach of Clause (vii). A scheme of amalgamation or arrangement documents the compromise arrived at between the parties to the scheme inter vivos. A scheme may be between two or more companies. It may also be between a company and its shareholders or creditors. A proceeding for sanction of a scheme relating to a company under the Companies Act, 1956 is a proceeding in rem. A sanctioned scheme binds the company, its shareholders, creditors and all concerned in the affairs of the company - The transfer and vesting of the rights of the lessee in respect of the deed of lease in favour of the first petitioner is not binding upon the first respondent as the lessor. The first respondent by the impugned writing has demanded 10% of the market value to recognize the first petitioner as its lessee. Such a demand is in the contractual field. It is open to the first respondent to demand a consideration for the purpose of recognizing an entity as its lessee, in the given facts of the present case. The impugned reasoned Order dated July 31, 2014, therefore, cannot be said to suffer from any infirmity warranting an interference under Article 226 of the Constitution of India - Petition dismissed.

Issues Involved:
1. Validity of the imposition of 10% market value for registering as a lessee.
2. Interpretation of lease deed terms regarding assignment and transfer.
3. Applicability of the Transfer of Property Act, 1882, and the Indian Registration Act, 1908.
4. Binding nature of the sanctioned scheme of arrangement on the respondent.
5. Arbitrary nature of the respondent's decision under Article 14 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Validity of the Imposition of 10% Market Value for Registering as a Lessee:
The petitioners challenged the order dated July 31, 2014, which required the first petitioner to pay 10% of the market value of the immovable property to register as a lessee. The petitioners argued that the lease deed did not provide for such a payment in the event of a change of name of the lessee. They contended that the decision to impose this condition was arbitrary and without basis.

2. Interpretation of Lease Deed Terms Regarding Assignment and Transfer:
The petitioners referred to the lease deed, arguing that it allowed the lessee to include assigns, particularly in the context of a scheme of arrangement sanctioned by the High Court. They asserted that the first petitioner, emerging from such a scheme, should be treated as the lessee. The respondent, however, maintained that the demerged entity is a separate legal entity and that the transfer of lease amounts to subletting, which requires consent under the lease terms.

3. Applicability of the Transfer of Property Act, 1882, and the Indian Registration Act, 1908:
The petitioners argued that the transfer of immovable property from the original lessee to the first petitioner occurred by operation of law, making the provisions of the Transfer of Property Act, 1882, and the Indian Registration Act, 1908, inapplicable. They cited several judgments, including Bharat Petroleum Corporation Ltd. v. P. Kesavan, to support their position that transfers by operation of law do not require compliance with these Acts.

4. Binding Nature of the Sanctioned Scheme of Arrangement on the Respondent:
The petitioners contended that the scheme of arrangement sanctioned by the High Court is binding on the respondent, who did not object to it during the sanction process. They argued that the respondent must accept the first petitioner as the lessee, as the scheme's sanction order is binding on all parties involved.

5. Arbitrary Nature of the Respondent's Decision under Article 14 of the Constitution of India:
The petitioners claimed that the respondent's decision to impose a 10% market value charge was arbitrary and violated Article 14 of the Constitution of India. They argued that the basis for the 10% charge was not discussed in the impugned order, making it arbitrary and without legal foundation.

Judgment Analysis:
The court analyzed the lease deed dated September 5, 2006, and noted that the original lessee's legal entity had undergone changes due to the scheme of arrangement. The court found that the lease deed required prior written consent from the respondent for any assignment, which was not obtained. The court held that the transfer and vesting of rights in favor of the first petitioner were not binding on the respondent without consent.

The court referred to various judgments, including Bharat Petroleum Corporation Ltd., and concluded that a transfer by operation of law does not need to meet the requirements of the Transfer of Property Act, 1882, or the Indian Registration Act, 1908. However, the court emphasized that a sanctioned scheme does not override rent laws, and the landlord's consent is necessary for the transfer to be binding.

The court determined that the respondent's demand for 10% of the market value was within the contractual field and not arbitrary. It held that the respondent, as an authority under Article 12, did not act arbitrarily in demanding consideration for recognizing the first petitioner as the lessee. The court dismissed the writ petition, finding no infirmity in the impugned order.

Conclusion:
The court dismissed the writ petition, upholding the respondent's demand for 10% of the market value for recognizing the first petitioner as the lessee. It concluded that the transfer of lease rights was not binding on the respondent without consent and that the respondent's decision was not arbitrary under Article 14 of the Constitution of India.

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