Zarina Umer Chamdewala v. Sati Lalchand Verumal Lalwani

1. This is an appeal under Clause 15 of the Letters Patent against the judgment of Mr. Justice K. K. Desai, who did not permit the appellant-defendant before us to defend the suit against her filed by respondent No. 1-plaintiff on the ground that her licence had terminated and that she was, therefore, not entitled to the possession, the reason being that during- the pendency of the suit she was adjudicated an insolvent. The short facts leading to this appeal are as follows: On November 1, 1962, an agreement was entered into between the- plaintiff and defendant No. 1 called an agreement of leave and licence by which she agreed to be in occupation of the premises in dispute on a monthly compensation of Rs. 400 split up into Rs. 250 for occupation and Rs. 150 for hire charges for furniture which apparently there was none and also certain outgoings. Initially it was said to be for eleven months with an option to defendant No. 1 to renew it. She had also to pay Rs. 1,200 as deposit for carrying out the terms of the agreement. For two months defendant No. 1 paid the compensation, and thereafter there was some dispute between the parties in the matter of supplying furniture, which was, according to defendant No. 1, not supplied. It resulted in correspondence and ultimately on April 5, 1963, the plaintiff gave twenty four hours' notice terminating the agreement and demanding the dues to that date. He then followed it up by a suit for eviction of defendant No. 1. The value of the property as mentioned in the plaint is Rs. 25,100. The plaintiff also claims a sum of Rs. 1,826.60 as arrears of compensation and Rs. 20 per day as future compensation until the date the property was vacated. It appears that a motion for receiver was taken out and in that proceeding the Court directed defendant No. 1 to make certain deposits every month, and thereafter the case was transferred to the list of long causes. On September 9, 1963, defendant No. 1 filed her written statement wherein she contended that though the agreement was in the form of leave and licence, it was in substance a tenancy and that she was entitled to continue in possession of the property as long as she was ready and willing to perform the terms of the tenancy. Thereafter, the plaintiff died and his widow has been brought on record. On December 6, 1966, defendant No. 1 was adjudicated an insolvent and a vesting order was made. Thereafter, the plaintiff inquired whether the Official Assignee was prepared to defend the suit. The Official Assignee wrote to the plaintiff to take such action as she deemed fit in the suit. Thereafter, the Official Assignee was brought on record as defendant No. 2. When the suit was placed for hearing a motion was taken out by the plaintiff for a direction that as the property had vested in defendant No. 2, defendant No. 1 had no right to defend the suit. On the contention that she made, the learned Judge acceded to this request and prevented defendant No. 1 from defending the suit. Thereafter, the substituted plaintiff gave evidence and on the basis of that evidence the learned Judge made a decree in eviction against defendant No. 1. Defendant No. 1 appeals.

2. Mr. Engineer, on behalf of the appellant, contends that at the stage at which the suit was, there was no question of any right vesting in defendant No. 2 in respect of the suit property. The plaintiff called the agreement a licence and if it was a licence, no right under it vested in defendant No. 2 and it was defendant No. 1's right to defend the suit on grounds available to her. Ho then argues that even if the question as to whether there was vesting of the rights of defendant No. 1 in defendant No. 2 on the assumed fact that the allegations made by defendant No. 1 were true and that there was a tenancy, in the circumstances of the case such tenancy could not vest in defendant No. 2.

3. So far as the first aspect of the matter is concerned, there cannot be any doubt as to the right of defendant No. 1 to defend the suit if it is merely put on the ground either that the licence was not terminated or that the suit was premature or that the agreement was improperly terminated. It is well* settled that a licence creates merely a personal right in the licensee put upon the property, to do certain things, in or upon the property. But it does not create any right in the licensee. It being purely a personal right created in the licensee it certainly cannot vest in defendant No. 2.

4. The argument, however, of Mr. Bamchandani, for respondent No. 1, is that defendant No. 1 alleges that though the agreement was in the form of leave and licence, it was really in substance a tenancy. If it was a tenancy, says he, it being property it must vest in the Official Assignee under the provisions of the Presidency-towns Insolvency Act and she has, therefore, no status to defend the suit.

5. Section 2(e) of the Presidency-towns Insolvency Act (hereinafter referred to as the Act) defines the word "property" to include any property over which or the profits of which any person has a disposing power which he may exercise for his own benefit. The definition as given here does not give sufficient indication as to what should be regarded as "the property" available to the Official Assignee and which should vest in him. The definition is an inclusive definition and, therefore, it may well be argued that it is a very wide definition and it includes any and every kind of property. Though, however, this definition is wide, there are further provisions in the Act which in a great measure control the meaning ,of the word "property". Section 17 provides that on the making of an order of adjudication, the property of the insolvent, wherever situated, shall vest in the Official' Assignee and further says "and shall become divisible among his creditors". It is clear, therefore, that what is intended to be vested in the Official Assignee is such property of the insolvent as is capable of being reduced into money and being divided amongst the creditors of the insolvent. Section 52 lays down what property of the insolvent is divisible amongst his creditors. Sub-section (1) excludes certain kind of property from the vesting clause and this is, (a) property held by the insolvent on trust for any other person; (b) the tools (if any) of his trade and the necessary wearing apparel, bedding, cooking vessels and furniture of himself, his wife and children inclusive of tools and apparel and other necessaries as aforesaid not exceeding in value three hundred rupees in the whole. Sub-section (2) states what property of the insolvent shall comprise of and which should vest in the official assignee, viz.

(a) all such property as may belong to or be vested in the insolvent at the commencement of the insolvency or may be acquired by or devolve on him before his discharge;

(b) the capacity to exercise and to take proceedings for exercising all such powers in or over or in respect of property as might have been exercised by the insolvent for his own benefit at the commencement of his insolvency or before his discharge; and

(c) all goods being at the commencement of the insolvency in the possession, order or disposition of the insolvent, in his trade or business by the consent and permission of the true owner under such circumstances that He is the reputed owner thereof...

The two provisos are not material for our present purposes. Now, it is no doubt true that the property of the kind now in question has not been either included or excluded specifically. But that is understandable in the context, In order that it should be included in Section 52, it must first amount to property and it is only then that the question of inclusion, or exclusion can come in. If, as argued by Mr. Engineer, the right which defendant No. 1 claims cannot, be regarded as property, there can not be any question of either exclusion or inclusion under Sub-sections (1) and (2) of Section 52 of the Act. We must, therefore, address ourselves to this question.

6. As we have said at the outset, the word "property" is of wide import and may include every right which a person has over property. In this sense, a monthly tenancy that a person may hold may amount to property. Whether or not it is of appreciable vise is a different matter. That would be so under the ordinary law of property viz. Transfer of Property Act and the general law of property. But then, the provisions of the property law have been largely modified by the emergency legislation known as the Rent Control Acts in various States. Even to the Bombay Rent Control Act, 1947, there is a previous history. The first Act which came into operation is the Act of 1939. The provisions in that Act were comparatively few and there was nothing in that Act which prevented assignment or transfer or sub-letting of tenancy rights in the premises. Thereafter, the provisions were much modified in 1944 Act. Even under that Act under certain circumstances if the contractual terms so permitted tenancy right could be assigned or the property could be sub-let.

7. The Act of 1947 made a departure from those provisions. Section 5(11) of the Bombay Kent Control Act, 1947, defines the word "tenant" in such a way as not only to include a tenant for the time being under an agreement with the landlord, but, also sub-tenants and other persons as have derived title under a tenant before the commencement the Act of 1947 and thereafter before the commencement of the amendment of 1959 even if they remained in possession of the premises after the termination of the lease with or without the assent of the landlord. Even the successors of a tenant who have derived title prior to the amendment of 1959 and any member of the tenant's family residing with him at the time of his death as may be decided in default of the agreement by the Court are included in the definition. By Section 15, as it originally stood, it made it unlawful for any tenant to sub-let the whole or any part of the premises let to him or to assign or transfer in any other manner his interest therein, with a proviso that the State may by notification in the Official Gazette permit in any area the transfer of interest in premises held under such leases and to such extent as may be specified in the notification. This section was amended in 1959 and was made subject to any contract to the contrary. The clear effect of this section is that until the Act was amended no tenant was entitled in any manner to transfer or sub-let his interest in the tenancy, and after the amendment unless permitted by the contract. Under the proviso the State Government had issued notifications from time to time which permitted the transfer of tenancy interest along with business as a going concern, and the sad experience of the litigating public is that it is extremely misused. However, with the policy of the legislation we are not concerned.

8. In the present case, the flat is a residential flat and the agreement gives no power to the defendant to transfer her interest in the property. On the contrary, it specifically prohibits her from transferring the same to anyone under Clause 11 thereof. It is obvious, therefore, that under Section 15 of the Bombay Rent Act the transfer is unlawful. In the circumstances, assuming that it is property the question is, is it such property that it can be divisible amongst the creditors either as it is or by cash realisation of the same, and the answer must be in the negative.

9. As we have stated earlier, Sections 17 and 52 of the Presidency towns Insolvency Act read together can only mean that the property which vests in the official assignee must be such property that it is capable of being disposed of so that the amount realised can be divided amongst the creditors. We find support for this conclusion in the decision of this Court in Chandrakant Devji v. Narotiamdas Amarchand Sir John Beaumont C.J. dealing with the question in a slightly different context says (p. 646) :

...A suit relating to the property of the insolvent, in my opinion, means a suit which, if successful, will increase the assets distributable amongst the creditors, or the defence of which may prevent the assets being diminished.

It was on this ground that the learned Chief Justice held under Section 68(1)(d) of the said Act that (p. 646) :

...A right to institute an appeal, which merely relates to a money claim against an insolvent., is not, in my view, a legal proceeding relating to the property of the insolvent and does not fall within the powers given by Section 68 to the Official Assignee.

10. Mr. Ramchandani has invited our attention to a passage in Sir D, F. Mulla's Law of Insolvency in India, second edition, 1958, and argued that whatever may be the position in regard to the alienability of the property or otherwise, even such a tenancy is property and must vest in the Official Assignee. In particular, he relies upon para, 501 at page 471, which, reads as follows:

'Property' includes any property over which, or over the profits of which, any person has a disposing power which he may exercise for his own benefit. In view of that definition, all property in the hands of the insolvent, though inalienable, would vest in the Official Receiver, unless exempted by the Code of Civil Procedure, 1908, or by any other enactment for the time being in force from liability to attachment and sale in execution of a decree.

Even though the statement has been worded very widely, the foot-note contains cases, which clearly indicate that the proposition as widely stated cannot be supported. In Bhala Nath v. Chunni Lal ; in Sohan Singh v. Official Receiver [1937] A.I.R. Lah. 782, occupancy rights under the Punjab Tenancy Act; in Vithoba Chinnaji v. Mahadeo Kesheorao [1937] A.I.R. Nag. 242, occupancy land in Nagpur and in Masumayya v. Official Receiver, Kurnool [1943] A.I.R. Mad. 72 Masjir service lands, were held not to vest in the receiver in insolvency. In the first case under the agra tenancy act the ex-proprietary tenancy could not be transferred in execution or alienated except in accordance with law. In the second case, the lands involved were governed by the Punjab Tenancy Act which could not be attached or sold in execution of a decree or transferred by private contract without the consent of the landlord. In the fourth case, which is more apposite, the lands were service Inam lands. Such lands it was held in Anjaneyalu v. Sri Venugopala, Rim Mill, Ltd. (1922) I.L.R. 45 Mad. 620, to be inalienable by reason of Section 6(d) of the Transfer of Property Act as it "was opposed to the nature of the interest affected thereby". In. our view, the ratio of these cases must apply to the case where a tenant is a monthly tenant governed by the Rent Act unless his tenancy is made alienable under the proviso to Section 15(7) of the Bombay Rent Act.

11. Our attention was invited to the decisions in Muni Lal v. Bari Doab Sank, Ltd. [1936] A.I.R. Lah. 368, Puninthavelu Mudaliar v. Bhashyam Ayyangar (1901) I.L.R. 25 Mad. 406 and In re Abubaker (1924) 26 Bom. L.R. 628. In Muni Lal's case, the judgment-debtor was declared insolvent during execution proceedings. It appears that the property of the insolvent was sold and the insolvent had commenced proceedings for setting aside of the sale. The decision went against him and he, therefore, wanted to appeal. The learned Judge held that as the property of the insolvent vested in the Official Assignee the insolvent had no interest in it and he, therefore, could not appeal. This decision does not touch the present question for the obvious reason that the property in respect of which proceedings were commenced by the insolvent vested in the Official Receiver, and it was property in the real sense of the word capable of producing money which could be divided amongst the creditors. In Puninthavelu's case a suit was 'filed against the defendant for possession of some property. After the suit was filed, the defendant became insolvent and as the Receiver refused to defend the suit, it was held that the defendant had no right to defend the suit. Here also, the question related to immovable property which was very much property and which was capable of producing money divisible amongst the creditors. This case also has no application to the facts of the present case. In Abubaker's case, Sir Norman Macleod C. J. held that even statutory tenancy to which the insolvent became entitled, was his property within the meaning of Section 62 of the Presidency-towns Insolvency Act and vested by the adjudication order in the Official Assignee, and came to an end by the disclaimer of the Official Assignee. The learned Chief Justice followed the decision in Parkinson v. Noel [1928] 1 K.B. 117, which decision is no longer good law even in India, where it has been consistently held that statutory tenancy does not vest in the Official Assignee. This case came to be considered by Bhagwati J. in Rodrigues, In re (1944) 46 Bom. L.R. 916, where the learned Judge followed the later decision in Sutton v. Dorf [1932] 2 K.B. 304 and held that statutory tenancy is not property within the meaning- of Section 62 of the Act and, therefore, does not vest in the Official Assignee by the adjudication order.

12. This brings us to the two decisions of this Court, which apparently appear to be in conflict. The first is the decision in Jagjivan Jaichand v. Arvind Y. Fozdar (1946) Civil Revision Application No. 239 of 1945, decided by Lokur and Dixit JJ. on September 20, 1946 (Unrep.). In this case, the petitioner before the Court was a tenant of certain premises and he was adjudicated insolvent on May 27, 1944. lie, however continued to remain in possession of the premises and thereafter the Official Assignee disclaimed the tenancy under Section 62 of the Act on July 8, 1944. The plaintiffs then gave twenty-four hours notice to the defendant and called upon him to vacate the premises and thereafter they instituted a suit for ejectment of the defendant in the Small Causes Court at Bombay. The defendant claimed protection under Section 11 of the Bombay Rent Restriction Act, 1939. When the case was heard by the learned Judges the decision in Rodrigues's case was sought to be distinguished on the ground that in the case under consideration there was a continuing tenancy when the defendant became insolvent and, therefore, that decision had no application that not being a statutory tenancy. The learned Judges relying upon the amended definition of the word "tenant" in s1. 4(4) of the then Rent Act as then applicable, held that inasmuch as the petitioner was a person by whom or on whose account rent was payable for the premises and included every person from time to time deriving title under a tenant whether or not his tenancy was legally terminated, he was entitled to the protection of the Act.

13. On a second occasion, in Anandmmdas VallabTidas Thaltkar v. 'Mavji Mulji (1956) Civil Revision Application No. 254 of 1056, decided by Shah and Palnitkar JJ., on December 6, 1956 (Unrep.) a similar question came up before Shah and Palnitkar JJ. Here also, the facts were exactly similar to those in the earlier case. The learned Judges referred to the decision in Reeves v. Davies [1921] 2 K.B. 486 and also to other cases and stated that, if the question was res Integra they would have held that the tenancy in such cases vested in the Official Assignee, but the decision in the earlier case was binding. The Court, however, held on merits that the defendant was not entitled to the protection of the Rent Act.

14. In this connection, we may state that the principles applicable under the Rent Acts in England and in this country are comparatively different. In Megarry's Rent Acts, Tenth edn., Vol. 1, 1967, at page 204 reference is made to assignment and at page 207 to the question of alienation. In respect of assignment the learned author says:

The ordinary right to assign a tenancy is not carried over into a statutory tenancy; for it is a natural incident of property, and not a 'terra' or 'condition' of the tenancy". At page 207, he says:

"A contractual tenancy is assignable unless the agreement provides to the contrary; it also vests in the trustee in bankruptcy on the bankruptcy of the tenant and in his personal representatives on his death. It is immaterial that the tenant may have claimed the benefit of the Acts by obtaining an order reducing the rent to the standard rent.

At page 208 regarding sub-letting- and transmission, he says:

Unless prohibited by the terms of his tenancy, a statutory tenant may sub-let part but not the whole of the premises;...Further, the Acts make express provision for the transmission of a tenancy on the death of the tenant;...

A perusal of the relevant sections of the Rent Acts in force in England does not indicate that sub-letting and assignment of tenancy rights, whether it is residential tenancy or business tenancy, is restricted or prohibited. As we have seen, the provisions under our Act are comparatively more stringent, and subletting or assignment of a tenancy is not permitted unless the right is conferred by the contract creating the tenancy. It is in this light that we must consider the question as to whether the tenancy during the operation of the Rent Act of the nature with which we are dealing, must vest in the Official Assignee to bring- in the consequence of throwing a debtor on the road. Having given our anxious consideration to the question we find it impossible to hold that such a tenancy dissociated from a going business can be regarded as property which must vest in the Official Assignee.

15. In our view, therefore, the learned trial Judge was in error in disallowing defendant No. 1 to defend the present suit. "We accordingly set aside both the orders dated January 31, 1969, and remit the suit for trial from the stage from which defendant No. 1 was prevented from defending the suit. Respondent No. 1 will pay the costs of this appeal to the appellant. Costs in the trial Court will be costs in the cause. Respondent No. 2 will not be entitled to any cost.

16. Mr. Ramchandani says that a large amount is lying in deposit with the Prothonotary which has been paid from time to time by the appellant under the orders of this Court and it is lying without interest. He requests that at least an amount at the rate of Rs. 250 p. in. from the date when the amount remained unwithdrawn should be permitted to be withdrawn out of the deposits made by defendant No. 1 under the orders of this Court. The request seems to be justified, and the appellant also has no objection to that course being adopted. We accordingly permit the plaintiff to withdraw a sum of Rs. 10,000 which is equivalent to the compensation at the rate of Rs. 250 p.m. from January 1, 1966, till the end of April, 1969. Defendant No. 1 will continue to make the deposit as directed by this Court at Rs. 250 p.m. towards the dues and the plaintiff will be at liberty to withdraw the same.