A mere acceptance of rent from an illegal sub-tenant does not create landlord-tenant relationship

Asmita Kuvalekar | Government Law College, Mumbai | 29^th April 2020. 

VINAYKISHORE PUNAMCHAND MUNDHADA AND ANR V SHRI BHUMI KALPATARU AND ORS (CIVIL APPEAL NO 6299 OF 2010 ARISING OUT OF SPECIAL LEAVE PETITION (C) NO 2517 OF 2007)

FACTS OF THE CASE: 

In 1974, the appellants inducted MadanKumar Govardhandas Pasari as their tenant who created a partnership firm named Bhumi Kalpataru. Business continued normally till 1991 until the landlords found out that their tenant had clandestinely sub-let the suit premises to Jagdish Champalal Mundhada. Bhumi Kalpataru had been dissolved and a new partnership called Shri Bhumi Kalpataru resembling the first had been created. The dispute arose because of the appellants’ claim that the sub-letting was done without their knowledge or sanction. The Rent Controller held in their favour but the decision was overruled in a writ petition filed by the Respondents at the Nagpur Bench of the Bombay High Court. The Respondents argued that the landlords had accepted rent from Shri Bhumi Kalpataru and therefore, their legal remedy was waived. Their acceptance of the rent was implied acceptance of the sub-letting. 

In this case, it is this decision of the High Court and inherent point of law that is questioned before the Supreme Court. 

ISSUE: 

1. Whether sub-letting without the landlord’s permission binds the landlord? 
2. Whether acceptance of rent from sub-tenant without knowledge of illegal sub-tenancy strip the landlord of a legal remedy?
3. Whether landlords should bring direct evidence on record for proving payment of consideration between original tenant and illegal sub-tenant? 

JUDGEMENT:

The Court quickly ascertained that the new firm ‘Shri Bhumi Kalpataru’ was in no way related to the first firm that went by the name of ‘Bhumi Kalpataru’. None of the members of the first firm were part of the new partnership. Thus, it became abundantly clear that this was not a matter of mere reconstitution of firm with the same members. This was a new firm altogether. In that regard, the Court made another significant observation. Throughout the legal proceedings, the Respondents never disputed the fact that the appellants had not entered into a fresh agreement with Shri Bhumi Kalpataru recognizing it as their new tenant as against the old tenant’s rights. In light thereof, it was undeniable that the new tenant had been sub-let the premises illegally, without the written permission of the landlords as required by law. 

The arrangement of sub-letting between the original tenant and the new one was entirely clandestine and carried out behind the landlord’s back. As such, it was absurd to hold that merely because the appellants accepted rent from Shri Bhumi Kalpataru, they could no longer avail of their legal remedy against the illegal sub-letting. The fact that the whole sub-letting exercise was carried out without the consent of the landlords brought out the intention of the Respondents. Under the garb of a confusingly similar firm name, the Respondents succeeded in fooling the appellants.  ‘Shri’ is a widely used term in India and any reasonable person can confirm that using Shri before the same firm name as the original tenant has a great potential to cause confusion. The fact that all the partners of Shri Bhumi Kalpataru were new with no link to the members of Bhumi Kalpataru proves that these were two different firms and sub-letting had been illegally carried out. 

The Court clarified that sub-letting by itself is not illegal but only when it is done in the manner envisaged by law. Accordingly, such a decision cannot be made by the tenants without the prior knowledge and consent of the landlord. It was also clarified that merely entering into a partnership after acquiring tenancy rights does not create a suspicion of illegal sub-letting or parting of possession. As long as the original tenant continues to use or exercise control over the premises, even with his new partners, his act of creating a firm will not dispossess him of his rights or subject him to eviction. However, if a firm is created and followed by a parting of user or possession of the property or is used for illegal purposes, the Court is authorized to scrutinize the legality of the firm and the parting of possession. In this regard, if the landlord suspects that the firm has been created solely to avoid eviction, he is empowered by law to bring forth evidence undermining the legal tenability of the partnership deed through oral evidence by virtue of his being an outsider to the deed. This kind of suspicious partnership business has become a common practice for underhand dealings and easy profit from sub-letting considerations. 

In the present case, the Supreme Court remarked that the Respondents’ stance was dicey as unilateral sub-letting on part of the tenant without the consent of the landlord does not bind the landlord. Even the taking of rent from the sub-tenant under a genuine belief that nothing has changed, cannot render the landlord helpless against illegal sub-letting. This principle of law was first laid down in Ram Saran v Pyare Lal and Anr¹. The judgement postulated, “…mere knowledge of the landlord about occupation of the tenanted premises by the said registered society and acceptance of rent for the tenanted premises tendered by the tenant in the name of the registered society, will not create a sub-tenancy unless induction of a sub-tenant is made with the written consent of the landlord.” 

Lastly, having regard to the facts and circumstances of the case read with the principle of law as explained above, the Apex Court dismissed the Respondents’ argument that the landlords had no right to object since they could not prove payment of consideration between the original tenant and the new firm. The Court lambasted this submission exclaiming that it is unrealistic to ask for proper/direct evidence of an arrangement that by its nature is illegal and secretive. It would be highly unfair to expect a landlord to collect evidence of an arrangement that was purposely hidden from him by the wrongdoers. It is rather the responsibility of the Court to infer the particularities of every case and come to an intelligent conclusion thereby. The prior consent of the landlord being crucial for a legal transaction of sub-letting, the Court can decide based on the findings in an enquiry. 

The High Court judgement was duly set aside. It was seen that the judgement was not only erroneous, it was also bad in law as the High Court reappreciated evidence and came to its own conclusions, an act clearly outside the ambit of Article 226/227 of the Indian Constitution. 

1. (1996) 11 SCC 728