Case Note & Summary
The dispute arose under the Delhi Rent Control Act, 1958 concerning eviction of a tenant company for unauthorized assignment of tenancy rights. The original tenant was a United Kingdom incorporated company, Cox & Kings (Agents) Limited, which held the demised premises under a lease. The original landlady, Smt. Jagdish Rani Sethi, later sold the property to Smt. Chander Malhotra, who became the respondent after being impleaded in the eviction proceedings. The eviction petition was initially filed by the original landlady on various grounds, but the respondent amended the petition to plead sub-letting to an Indian company. The Rent Controller found that the premises had been sub-let by the foreign company and ordered eviction, which was confirmed in appeal and by the Delhi High Court. The material facts showed that after the Foreign Exchange Regulation Act, 1973 came into force, the foreign company was required to obtain permission from the Reserve Bank of India to carry on business. The RBI refused permission, leading to the winding up of the foreign company's business. Subsequently, an Indian company was incorporated with the foreign company holding only 40% shares after RBI approval. The foreign company and the Indian company executed an agreement dated July 4, 1980, whereby the business was assigned as a going concern along with all assets and liabilities, including leasehold interests. The agreement expressly assigned monthly and other tenancies of all rented premises of the foreign company in India, subject to observance of lease covenants. The landlord's written consent was never obtained. The core legal issue was whether the involuntary transfer of leasehold interest from the foreign company to the Indian company, allegedly compelled by FERA, fell outside the prohibition of Section 14(1)(b) of the Delhi Rent Control Act. The appellants argued that the transfer was involuntary because the RBI had refused permission to continue the foreign company's business, and hence it did not constitute subletting. The respondent contended that the transfer was a voluntary assignment of the business and tenancy rights without landlord consent, squarely within the statutory prohibition. The Supreme Court rejected the appellants' contention, holding that Section 29 of FERA did not compel the transfer of the tenanted premises to the Indian company. The agreement between the companies clearly demonstrated a voluntary assignment of the leasehold right. Section 14(1)(b) explicitly prohibits subletting, assignment, or parting with possession without the landlord's written consent. The court followed the ratio in P.H. Rao v. S.P.N.K. Jain, which held that even an involuntary sale by an official liquidator amounts to an assignment under the same provision. It also relied on Venkatarama Iyer v. Renters Ltd., where transfer of business as a going concern with leasehold rights was treated as subletting. The decision in Madras Bangalore Transport Co. was distinguished because in that case there was substantial identity between the limited company and the partnership firm, which was absent here. Accordingly, the Supreme Court dismissed the appeal and upheld the eviction decree, holding that the foreign company's assignment of leasehold interest to the Indian company without the landlord's written consent was a clear violation of Section 14(1)(b) of the Delhi Rent Control Act, 1958.
Headnote
A) Rent Control - Sub-letting and Assignment - Section 14(1)(b) of Delhi Rent Control Act, 1958 - Tenant cannot sublet, assign, or part with possession without landlord's written consent; transfer of business as going concern including tenancy rights constitutes assignment. The foreign tenant company assigned its leasehold interest to an Indian company under a voluntary agreement without landlord consent; the court held such transfer fell within the prohibition and upheld eviction. Held that the landlord's written consent is a pre-condition and its absence rendered the induction of the new company unlawful (Paras Not mentioned). B) Foreign Exchange Regulation - Effect of FERA Permission - Section 29 of Foreign Exchange Regulation Act, 1973 - RBI permission to carry on business does not compel transfer of tenanted premises; refusal of permission to foreign company does not justify assignment of lease without landlord consent. The court reasoned that FERA only regulated business activity and did not require the premises to be given to the Indian company, so the transfer remained a voluntary assignment in violation of rent control law. Held that FERA compulsion was not a valid defence (Paras Not mentioned). C) Precedent - Involuntary Transfer and Rent Control - P.H. Rao v. S.P.N.K. Jain, (1980) 3 SCR 444; Venkatarama Iyer v. Renters Ltd., (1951) II MLJ 57; General Radio & Appliances Co. Ltd. v. M.A. Khader, (1986) 2 SCR 607 - Even involuntary or court-confirmed transfers of tenancy rights can amount to assignment under rent control statutes; business transfers as going concern with leaseholds constitute subletting. The court followed these decisions and distinguished Madras Bangalore Transport Co. (West) v. Inder Singh, (1986) 3 SCC 62 where substantial identity of entities negated subletting. Held that the present transfer was an assignment as there was no identity between foreign and Indian companies (Paras Not mentioned).
Issue of Consideration
Whether involuntary transfer of leasehold interest from foreign company to Indian company due to FERA compulsion constitutes sub-letting within meaning of Section 14(1)(b) of Delhi Rent Control Act.
Final Decision
The Supreme Court dismissed the appeal and upheld the eviction decree, holding that the foreign company's assignment of leasehold interest to the Indian company without the landlord's written consent constituted sub-letting/assignment under Section 14(1)(b) of the Delhi Rent Control Act, 1958.
Law Points
- Section 14(1)(b) of Delhi Rent Control Act prohibits subletting
- assignment
- or parting with possession without landlord's written consent
- involuntary transfer or assignment of leasehold interest is still covered
- FERA permission does not compel transfer of tenancy premises
- transfer of business as going concern with leasehold rights amounts to assignment/subletting
- substantial identity of companies may negate subletting but not present
