Bombay High Court: Transfer of Business Was a Facade for Unlawful Subletting; No Intention to Continue Business After Assignment Indicates Mere Transfer of Tenancy Rights

Court’s Decision:

The Bombay High Court set aside the decree passed by the District Court, Pune, and reinstated the eviction decree issued by the Trial Court. The Court held that the act of transferring the business with tenancy rights constituted unlawful subletting as per Section 13(1)(e) of the Bombay Rent Act, 1947. It directed the Defendants to hand over possession of the premises to the Plaintiff within three months and allowed for an inquiry into mesne profits from 28th September 1994.

Facts:

The case pertains to the commercial property situated at House No. 324, Mahatma Gandhi Road, Camp, Pune. The original Plaintiff (landlady) had let the premises to Defendant No.1 for running a laundry business. In 1981, the Plaintiff alleged that Defendant No.1 sublet the premises to Defendant No.2 under the guise of transferring a running business. The Plaintiff initiated a suit for eviction on grounds of unlawful subletting and unauthorized construction in the premises.

The Trial Court decreed the suit on 28th September 1994 on the ground of unlawful subletting but rejected the claim regarding unauthorized constructions. On appeal, the District Court set aside the Trial Court’s order. The matter eventually reached the High Court, which remanded the case to the District Court to reassess whether the business was a running concern at the time of the transfer. The District Court, upon remand, allowed the appeal, holding that the transfer did not constitute unlawful subletting.

Issues:

1. Whether the transfer of business from Defendant No.1 to Defendant No.2 constituted an unlawful subletting under Section 13(1)(e) of the Bombay Rent Act.
2. Whether the transfer was of a running concern or merely an assignment of tenancy rights.

Petitioner’s Arguments:

The Petitioner contended that the business was closed in 1977 and the alleged transfer in 1981 was a subterfuge to illegally assign the tenancy rights. The Petitioner also argued that Defendant No.2 did not possess any expertise or intention to carry on the laundry business and began using the premises for unrelated business activities.

Respondent’s Arguments:

The Respondents argued that the business was a running concern at the time of the transfer. They contended that the transfer was valid under the proviso to Section 15(1) of the Bombay Rent Act, which allows for the assignment incidental to the sale of a business as a going concern.

Analysis of the Law:

The High Court examined Section 13(1)(e) of the Bombay Rent Act, which permits eviction if the tenant unlawfully sublets or transfers the tenancy rights without the landlord’s consent. The proviso to Section 15(1) allows for the transfer of a business as a going concern, provided that the entire interest, including stock-in-trade and goodwill, is transferred.

Precedent Analysis:

The Court referred to the Supreme Court’s judgment in Yuvraj alias Munna Pralhad Jagdale vs. Janardan Subajirao Wide, which held that even the execution of an assignment agreement without the intention to continue the business constitutes unlawful subletting.

Court’s Reasoning:

The Court found that Defendant No.2 had no experience in the laundry business and began selling unrelated items soon after the transfer. The Court also noted that Defendant No.2 had removed signage related to the laundry business, indicating a lack of intent to continue the same. The evidence suggested that the transaction was aimed at transferring tenancy rights rather than the business.

Conclusion:

The Court concluded that the transfer was not of a running business, but rather an unlawful subletting of the premises. The Appellate Court’s finding that the business transfer was valid was set aside.

Implications:

This judgment reinforces the principle that a mere transfer of tenancy rights under the guise of a business transfer cannot circumvent the prohibition against unlawful subletting under the Bombay Rent Act. The decision clarifies that the intention to continue the transferred business is crucial for availing the protection under Section 15(1).

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