2024 (4) TMI 442 - SC - Companies Law

Demand of unearned increase value - Amalgamation or merger of the two companies does not involve any transfer within the meaning of the Transfer of Property Act, 1882 or not - Interpretation of Lease Agreement Clause - HELD THAT - There is a specific clause in the order of amalgamation which holds that the said plots stand transferred from the original permanent lessee to the transferee M/s. Jaypee Rewa Cement Ltd, which is now known as M/s. Jaiprakash Associates Ltd. Clause II(4)(a) covers all the categories of transfers as it provides that the lessee shall not sell, transfer, assign or otherwise part with the possession of the whole or any part of the commercial plots without the written consent of the lessor. The said clause does not exclude involuntary transfers. In the facts of the case, it cannot be said that there is an involuntary transfer, as the transfer is made based on a petition filed by the lessee and the transferee for seeking amalgamation. In a sense, this is an act done by them of their own volition. A similar issue arose for consideration before this Court in the case of DELHI DEVELOPMENT AUTHORITY VERSUS NALWA SONS INVESTMENT LTD. AND ANR. 2019 (4) TMI 2009 - SUPREME COURT . The Court was dealing with a case where the Company Court passed an order of arrangement and demerger. As a result, the plot given on lease to a company was transferred to another company. In paragraph 5 of the decision, this Court had set out the policy instructions regarding charging an unearned increase. This Court was dealing with an order of the Company Judge, which provided that the property of a company shall stand transferred to the respondent before this Court, and therefore, it was a case of transfer to which clause 6(a) of the lease deed will be attracted. Clause 6(a) in the lease subject matter of the said case was identical to clause II(4)(a) of the perpetual lease in the present case. This Court also held that clause 2(d) of the policy determining unearned income was attracted in the case of transfer due to demerger. The same principles will apply to a merger, and an unearned increase will be payable. In the case of Indian Shaving Products Limited 2001 (10) TMI 1042 - HIGH COURT OF DELHI , the High Court of Delhi dealt with the amalgamation of companies under the SICA and not under the Companies Act. In any event, this court confirmed the said decision by summarily dismissing the petition. In the present case, the relevant clause II(4)(a) of the leases covers involuntary transfers as well. The relevant clause II(4)(a) in the perpetual leases subject matter of this appeal is very wide. It not only covers transfers but also parting with possession. Therefore, the transfer contemplated by the said clause is much wider than what is defined under Section 5. Importantly, Section 5 clarifies that nothing contained therein shall affect any law for the time being in force in relation to the transfer of property to or by companies. Therefore, Section 5 of the TPA will not be of any assistance to the appellant. There is nothing illegal about the impugned judgment - appeal dismissed.

Summary

Issues Involved:
1. Whether the amalgamation of companies amounts to a transfer of property requiring payment of unearned increase value.
2. Applicability of clause II(4)(a) of the perpetual lease deed.
3. Interpretation of "transfer" under Section 5 of the Transfer of Property Act, 1882.

Issue 1: Amalgamation as Transfer

The appellant contended that the amalgamation of M/s. Jaiprakash Associates Pvt Ltd with M/s. Jaypee Rewa Cement Ltd, sanctioned by the High Court of Judicature at Allahabad, did not constitute a "transfer" of the said plots. The appellant argued that the amalgamation was not a sale, transfer, or assignment within the meaning of the Transfer of Property Act, 1882, and thus did not trigger the requirement to pay unearned increase value as per the lease deed. The Court, however, found that the amalgamation order explicitly stated that the properties would be transferred to the transferee company. Therefore, the Court held that the amalgamation did amount to a transfer of property, making the demand for unearned increase lawful.

Issue 2: Applicability of Clause II(4)(a)

Clause II(4)(a) of the perpetual lease deed prohibits the lessee from selling, transferring, assigning, or otherwise parting with possession of the plots without the prior written consent of the lessor, who may impose conditions, including the payment of unearned increase. The Court noted that this clause covers all categories of transfers, including voluntary and involuntary transfers. The Court referred to its previous decision in Nalwa Sons Investment Ltd, which dealt with similar circumstances and upheld the demand for unearned increase. The Court concluded that clause II(4)(a) applied to the amalgamation, making the appellant liable to pay the unearned increase.

Issue 3: Interpretation of "Transfer" under Section 5 of TPA

The appellant argued that the transfer in this case did not fall under the definition of "transfer of property" u/s 5 of the Transfer of Property Act, 1882. However, the Court held that the relevant clause II(4)(a) in the lease deed is broader than the definition in Section 5 of TPA. The clause not only covers transfers but also parting with possession. Furthermore, Section 5 clarifies that it does not affect any law relating to the transfer of property to or by companies. Thus, the Court found that Section 5 of TPA was not applicable in this context.

Conclusion

The Supreme Court dismissed the appeal, upholding the demand for unearned increase by the DDA. The interim stay on the impugned judgment was lifted, allowing the DDA to withdraw the deposited amount along with accrued interest.