Supreme Court: Subletting by Tenant is Unlawful under Bombay Rent Control Act, Unless the Contract Itself Expressly Permits

Supreme Court: Subletting by Tenant is Unlawful under Bombay Rent Control Act, Unless the Contract Itself Expressly Permits

The Supreme Court by its division bench, comprising of Justices Sudhanshu Dhulia and Sanjay Kumar while considering a challenge against a Bombay High Court judgement on recovery of possession of the leased premises, observed that unless the contract itself permits sub-letting, it shall not be lawful, after coming into operation of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947, (Bombay Rent Control Act), for a tenant to sub-let the premises let out to him or to assign or transfer in any manner his interest therein.

In the present case, a petition was filed for recovery of possession of the leased premises from the tenant. Plaintiff stated that the suit premises was leased out to the tenant in the year 1975 for running his hotel business. He asserted that the tenant constructed a toilet in the leased premises in January, 1985, without obtaining his consent and 2-4 days later, he sold his rights in the hotel to Krishna B Shetty for a sum of Rs. 2,00,000 and accepted Rs. 50,000 as earnest money. In November, 1985, there was a dispute between the tenant and Krishna B Shetty, which led to the sealing of the premises, and finally the key thereof was handed over by the Sub-Divisional Magistrate to the tenant and, thereafter, Krishna B Shetty did not operate the hotel.

The Trial Court had held that the appellants were entitled to claim eviction of the tenant under Section 13(1)(e) of the Bombay Rent Control Act. This was confirmed by the Additional District Judge, Pune.

However, the Bombay High Court, reversed the findings of both the Courts, while accepting that there was material to show that the tenant had assigned his business in favor of Krishna B Shetty, the High Court took recourse to the proviso to Section 15(1) of the Act of 1947 and held that it was permissible thereunder for a statutory tenant to transfer his tenancy rights even though the lease agreement prohibited such a transfer.

According to the High Court, so long as the legal possession remained with the tenant, mere creation of a partnership agreement by the tenant for the purpose of jointly carrying on business in the leased premises would not amount to sub-letting. Holding so, the High Court set aside the decree of eviction/possession and dismissed the suit.

The main question before the Apex Court was whether the tenant committed breach of the lease condition with regard to assignment of his business in the leased premises, warranting his eviction under Section 13(1)(e) of the 1947 Act.

The Court deemed it to be apposite to peruse the relevant statutory provisions, viz., Section 13(1)(e) and Section 15(1) of the Act of 1947.

The bench opined that Section 13(1)(e) of the Act of 1947 is crystal clear that, in the ordinary course and notwithstanding anything contained in any other law, unless the contract itself permits sub-letting, it shall not be lawful, after coming into operation of the Act of 1947, for a tenant to sub-let the premises let out to him or to assign or transfer in any manner his interest therein.

The Court noted that the proviso to Section 15(1) authorizes the State Government to permit, in any area, transfer of interest in premises held under leases or a class of leases, by issuing a notification in the Official Gazette, duly delineating the extent to which such transfer is permitted.

The bench expressed that, “the mere execution of a genuine partnership deed by a tenant, whereby he/she converted a sole proprietary concern into a partnership business, while continuing to actively participate in the business and retaining control over the tenanted premises wherein the business is being run, would not amount to sub-letting.”

“However, that principle has no role to play in the case on hand as the tenant did not stop short at executing the partnership agreement but went on to execute the assignment agreement dated whereby, he assigned his hotel business in the leased premises to Krishna B Shetty and received earnest money also. The very act of execution of this document was sufficient in itself to complete the breach of the lease condition and the statutory mandate and did not require anything further,” observed the bench.

Hence, the Court found that the tenant admitted committing the breach of the lease condition with regard to assignment of his leasehold interest in favor of a third party, when he signed the assignment agreement for a consideration of ₹2,00,000/- and received ₹50,000/- as earnest money. The breach being complete on his part upon such execution itself, the failure of the assignee, Krishna B Shetty, in his suit for specific performance against the tenant is of no import.

The impugned judgments of the Bombay High Court were accordingly set aside by the Apex Court and the judgment of the Trial Court, as affirmed by the Appellate Court, stood restored.