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TMI Blog2004 (8) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... r referred to as the "landlord") let out Shop No. 13/14 (Private No. 15) Block "C", Cannaught Place, New Delhi, to M/s. Singer Sewing Machine Company, incorporated under the laws of the State of New Jersey, USA, (hereinafter referred to as "American company"), at a rental of Rs. 1,200 per month vide a registered lease deed dated July 11, 1966. In the year 1982, the landlord filed an eviction petition on the ground, inter alia, that the American company, without obtaining any written consent from the landlord, had parted with the possession of the premises in dispute in favour of Indian Sewing Machine Company Limited, incorporated under the Indian Companies Act (hereinafter referred to as "Indian company"), and it was the said company which was in exclusive possession of the premises and thereby it was liable for eviction in view of section 14(1)(b) of the Delhi Rent Control Act (hereinafter referred to as the "Act"). The eviction petition was contested by the appellant on the ground, inter alia, that a direction was issued to the American company to reduce its share capital to 40 per cent, in order to carry on business in India in view of section 29 of the Foreign Exchange Regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, but the amalgamation of the original lessee, namely, the American company with the Indian company had to be resorted to under compulsion of law with a view to secure compliance of the provisions of the FERA and the directions issued by the Reserve Bank of India and, therefore, section 14(1)(b) of the Act would not be attracted. Learned counsel has further submitted that in the peculiar facts of the present case, section 14(1)(b) of the Delhi Rent Control Act should not be literally construed but a purposive construction should be given. Reference in this connection has been made to a decision of the Delhi High Court in Telesound India Ltd., In re [1983] 53 Comp. Cas. 926 , wherein it has been held that the effect of an order of amalgamation passed under section 394 of the Companies Act is that the rights, properties and the liabilities of the transferor company become the rights, property and liabilities of the transferee company and it is neither an assignment of right or property nor an assignment of the property by the company. On amalgamation, the transferor company merges into the transferee company shedding its corporate shell, but for all practical purposes remaining ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of eviction can be passed against the appellant. Shri Dushyant Dave, learned senior counsel for the respondent, has submitted that the argument that it was not the voluntary act of the American company whereunder its leasehold rights, rights of tenancy or occupancy got transferred to or vested in the Indian company is wholly fallacious. The direction issued by the Reserve Bank of India for ensuring compliance of section 29 of the FERA was merely to reduce the equity capital of the American company to 40 per cent, and this could be achieved by various modes permissible in law. No such direction had been issued by the Reserve Bank to the American company for getting itself amalgamated with an Indian company. The American company voluntarily submitted to a scheme of amalgamation with the Indian company in the company petition before the Bombay High Court whereunder its "lease, right of tenancy or occupancy" got vested with the Indian company. After the sanction of scheme of amalgamation, the American company completely lost its identity and it was the Indian company which came into possession of the premises in dispute and, therefore, the provisions of section 14(1)(b) of the Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole or any part of the premises, he would be liable for eviction. The applicability of the section depends upon occurrence of a factual situation, namely, sub-letting or assignment or otherwise parting with possession of the whole or any part of the premises by the tenant. Whether it is a voluntary act of the tenant or otherwise and also the reasons for doing so are wholly irrelevant and can have no bearing. This view finds support from an earlier decision rendered in Parasram Harnand Rao v. Shanti Prasad Narinder Kumar Jain, AIR 1980 SC1655, wherein section 14(1)(b) of the Delhi Rent Control Act came up for consideration. The tenant in the premises, was Laxmi Bank, which was ordered to be wound up and in that winding up proceeding, the court appointed an official liquidator who sold the tenancy rights in favour of S. N. Jain on February 16, 1961. The sale was confirmed by the High Court and, as a result thereof, S. N. Jain took possession of the premises. Thereafter, the landlord filed a petition for eviction of Laxmi Bank. The High Court held that as the transfer in favour of S. N. Jain by the official liquidator was confirmed by the court, he acquired the status of the tenant by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transferor company therein, provided that 13,445 equity shares of..." The effect of this clause is that with effect from January 1, 1982, "leases, rights of tenancy or occupancy" of the Singer Sewing Machine Company (American company) got vested with M/s. Indian Sewing Machine Company (Indian company). The provision for facilitating reconstruction and amalgamation of companies is made under section 394 of the Companies Act. In an amalgamation, two or more companies are fused into one by merger or by one taking over the other. Reconstruction or amalgamation has no precise legal meaning. In Halsbury's Laws of England (4th Edn.) para. 1539, the attributes of amalgamation of companies have been stated as under : "Amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly 'amalgamation' does not, it seems, cover the mere acquisition by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act and that appellant No. 1-company had not been wound up and/or liquidated, but had been merely blended with appellant No. 2 on the basis of the order of the court and consequently there was no subletting by appellant No. 1-company to appellant No. 2-company. It was also urged that appellant No. 1-company had not become extinct but had been merged and/or blended with appellant No. 2-company. It was held that the order of amalgamation was made by the High Court on the basis of the petition filed by the transferor company in the company petition and, therefore, it cannot be said that this is an involuntary transfer effected by the order of the court. It was further held that appellant No. 1 company was no longer in existence in the eyes of law and it had, effaced itself for all practical purposes. Appellant No. 2-company, i.e., the transferee company, was not a tenant in respect of the suit premises and it was appellant No. 1 company which had transferred possession of the suit premises in favour of appellant No. 2-company. The court further took the view that under the relevant Act, there was no express provision that in case of any involuntary transfer or transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement it had assigned the leasehold interest in the demised premises to the Indian company which was carrying on the same business in the tenanted premises without obtaining the written consent of the landlord arid, therefore, it was a clear case of sub-letting. After referring to the earlier decisions in Shanti Prasad Narinder Kumar Jain's case (supra) and General Radio & Appliances Co. Ltd. 's case (supra), the court ruled that it was a case of assignment by the foreign company to the Indian company which amounted to sub-letting within the meaning of section 14(1)(b) of the Act and the decree for eviction was affirmed. These cases dearly hold that even if there is an order of a court sanctioning the scheme of amalgamation under sections 391 and 394 of the Companies Act whereunder the leases, rights of tenancy or occupancy of the transferor company get vested in and become the property of the transferee company, it would make no difference in so far as the applicability of section 14(1)(b) is concerned, as the Act does not make any exception in favour of a lessee who may have adopted such a course of action in order to secure compliance of law. Madras Bangalore Transport Co. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transferee company and who are in real control of the affairs of the said company and if it is done it will be evident there has been no sub-letting or parting with possession by the American company. In Palmer's Company Law (24th Edn), in Chapter 18, para. 2 onwards some instances have been given in which the modern company law disregards the principle that the company is an independent legal entity and also when the courts would be inclined to lift the corporate veil and the important ones being in relation to the law relating to trading with enemy where the test of control is adopted and also where the device of incorporation is used for some illegal or improper purpose. In Gower's Principle of Modern Company Law (4th Edn.), in Chapter 6, the topic of lifting the veil has been discussed. The learned author has said that there is no consistent principle beyond a refusal by the Legislature and the judiciary to apply the logic of the principle laid down in Salomon's case where it is too flagrantly opposed to justice, convenience or the interest of the Revenue. In the cases where veil is lifted, the law either goes behind the corporate personality to the individual members, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company has been formed to evade obligations imposed by the law, the court will disregard the corporate veil . . ." It was held that, broadly, where a fraud is intended to be prevented, or trading with enemy is sought to be defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be "persons who actually work for the corporation veil . . . " The main principle on which such a course of action can be taken was stated in paragraph 28 of the report and the relevant part thereof is being reproduced below Page 381 of 89 Comp. Cas. "28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned . . ." However, it has nowhere been held that such a course of action is open to the company itself. It is not open to the company to ask for unveiling its own ..... X X X X Extracts X X X X X X X X Extracts X X X X
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