TMI Blog1983 (12) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants in this appeal. The suit is laid for eviction of the defendants from the plaint schedule site after declaring the suit lease as duly terminated, removing the structures and deliver vacant possession of the same. The plaintiffs are grandsons of one Vali Subbarayudu and it is averred that the said Subbarayudu granted a lease to one Nidumukkala Subbarayudu the suit lands for the purpose of constructing and running a ginning and rice and oil factory under a lease deed dated July 10, 1903, and the said lease though called a permanent lease was a tenancy at will and the said lease will enure for the life of the original lessee only and the original lessee constituted the first defendant firm with himself and other sharers and erected the factory of the first defendant and the first defendant paid the rents due till January 1, 1969, and committed default in payment of half-yearly rents and the first defendant also committed breach of covenants of the aforesaid lease described in paragraph 7 in detail and the lease aforesaid offends the rule of perpetuities and consequently void. It was further alleged that handing over of the leased premises by the original lessee to the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has become final and, hence, it is unnecessary to examine his defence in this appeal. The present suit was also tried along with the other suit, O. S. No. 79 of 1967, filed by the very same plaintiffs claiming that the first defendant trespassed into the adjacent land belonging to them and not covered by the original lease deed. The court below dismissed the said suit holding that the first defendant is in possession of less than the original extent mentioned in the lease deed and hence no question of trespass would arise and that judgment and decree have become final and hence we are concerned only with the controversy in O. S.No.36 of 1969. On the material issues framed by the trial court, it found that the lease deed dated July 10, 1903, is a permanent lease and it can enure beyond the lifetime of the original lessee and the first defendant did not commit any breach of covenants of the lease, the plaintiffs and their prede-cessors-in-interest have acquiesced in the mode of enjoyment of the plaint schedule property by the first defendant and, hence, they are estopped from filing the present suit and there is no default in payment of the rent by the first defendant, and the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us notice the facts that are not in controversy. Under exhibit A-1 dated July 10, 1903, which is a registered deed, a permanent lease was granted by the grandfather of the plaintiffs one Vali Subbarayudu of an extent of 16,423 sq. yards situate in Vijayawada town to one Nidumukkala Subbarayudu for a sum of Rs. 180 to be paid in two half-yearly instalments of Rs. 90 each. The lessee under the said document entered into a partnership, exhibit B-53, dated November 12, 1906, with 47 other persons for constructing the factory. The said deed recites that the partners obtained the lease under exhibit A-l for the purpose of constructing a factory jointly and they constructed the buildings and installed machinery and were carrying on the business since May 4, 1904. Subsequently, those partners and the lessee, under exhibit B-54, converted the said firm into a private limited company named as Sri Ramanuja Ginning and Rice Factory (P.) Ltd., Vijayawada, the first defendant herein in the year 1920. The original lessor, Vali Subbarayudu, died in the year 1921 and the original lessee, Nidumukkala Subbarayudu, died in the year 1951, It appears that the lessee, Nidumukkala Subbarayudu, has no chil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermanent lease and it was heritable and transferable ] . *** Questions Nos. 3 and 4: We must say that these two questions are not raised in the trial court. In fact, the plaint states that the original lessee constituted the first defendant firm with himself and other sharers and erected the first defendant factory in the plaint schedule property and since then carried on business therein under the name and style, "Sri Ramanuja Ginning and Rice Factory (P.) Ltd., Vijayawada". This statement clearly discloses that the plaintiffs are aware of the fact that the original lessee joined the third parties as partners and a firm was created and, subsequently, it was converted into a private limited company, the first defendant. The terms of exhibit B-53 dated November 12, 1906, a registered partnership deed state that the suit site was taken in the name of Nedumukkala Subbarayudu for the purpose of erecting a factory jointly. It also recites that the lease amount payable under the said permanent lease shall be payable out of the income of the firm and it shall be the responsibility of the person who will be the managing partner from time to time. It is not permissible to dispute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph, we have substituted the word 'acquired' for the word 'purchased' in order to cover the acquisition of leases, mortgages, etc . We have also assimilated the wording in this paragraph to that in the first." S.O.R. It is clear that the main principle is that the property brought into the stock of the firm by the partner becomes the property of the firm. On the other hand, the previous section 253(1) is more specific in stating that all partners are joint owners of all properties originally brought into the partnership stock and thus we have no doubt in our mind that the construction placed by the Supreme Court on section 14 of the present Partnership Act in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, holding (at p. 1303) that "whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership, it becomes the property of the firm, and..... since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act 22 of 1936. In the present case, as exhibit B-54, the 1st defendant company was formed on December 6, 1928, as per the certificate of incorporation and hence it is not permissible for the appellants to contend that the partnership was illegal either on the date of its formation or 1904 or subsequently by the provisions of the 1913 Act as the offending clauses (3) to (5) of the said section came into force on January 15, 1936, as per the notification dated November 28, 1936, in the Gazette of India, dated November 28, 1936, Part I, page 1492. Hence, we overrule this objection. We may also add in this connection that even assuming that the property in question was in the hands of the firm which was illegal for some time before it was converted into a limited company, the rights cannot be adjudged on the basis of the past event which is no longer in existence for deciding the rights of the parties at present. It is enough if we note that courts have ruled that the members of partnership or a company hit by this section can, however, have beneficial interest in the property. (Vide Queen v. Tankard [1894] 1 QB 548 and Nibaran Chandra v. Lalit Mohan, AIR 1939 Cal. 187). If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 255 of the 1913 Act (present Act section 567) and section 256 of the 1913 Act (present Act section 568) whereunder a deed of partnership has to be filed before the Registrar before seeking the registration. Hence, a partnership which was treated as a company for the purposes of the Companies Act can be registered under Part 8 of the previous Act (Part 9 of the present Act) and the vesting is provided by section 263 of the 1913 Act (section 575 of the present Act). The provision is mandatory and there will be statutory vesting in the corporation so incorporated under the provisions of the Companies Act. The Registrar is bound to give a certificate of registration under section 262 (present section 574) which is a conclusive proof of incorporation, vide section 35 of the present Act that corresponds to section 24 of the previous Act. Hence, it is clear that no conveyance is necessary when a partnership is converted and registered as a company. However, it is not possible to acquire such title statutorily under this section if the previous firm purports to convey title to the company in which event a separate deed of conveyance is necessary. Thus, we hold that if the constitution of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of association, recites that the permanent lease was taken by the original lessee on behalf of all the shareholders and, hence, the permanent leasehold rights in the said lease and also the buildings constructed in the land, machinery and other equipment shall be treated as property of the factory. The capital of the factory was declared at Rs 41,600 divided into 104 shares each valued at Rs. 400 and this arrangement was adopted by a special resolution of the directors. It was also recited that this capital can be enhanced further by a special resolution by the directors. Exhibit B-54 is the latest copy of the articles of association adopted in the general body meeting of the company dated December 30, 1955, and the company itself is called Sri Ramanuja Ginning and Rice Factory (Private) Limited. The question is whether this leasehold interest in the factory has become the property of the first defendant private limited company. In view of the part played by the original lessee in securing the lease for the purpose of the first defendant as promoter we have to see the legal consequences. For this purpose we have to examine : (1) The nature of jural relationship between the promoter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, and then sell his property to it, but I do say that if he does, is bound to take care that he sells it to the company through the medium of a board of directors who can and do exercise an independent and intelligent judgment on the transaction, and who are not left under the belief that the property belongs, not to the promoter, but to some other person." Again Lord Blackburn, at page 1269, observes : "They must make a reasonable use of the powers which they accept from the Legislature with regard to the formation of the corporation, and that requires them to pay some regard to its interests. And consequently they do stand with regard to that corporation when formed, in what is commonly called a fiduciary relation to some extent." He further observes : (at p. 1269): "Where, as in the present case, the company is formed for the purpose of becoming purchasers from the promoters as vendors, the interests of the promoters and of the company clash. It is the vender's interest to get as high a price as possible, and they have a strong bias to overvalue the property which they are selling ; it is the purchasers' interest to give as low price as possible, and to secure that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration. But, in India, both the Specific Relief Acts 1 of 1877 and 47 of 1963, made provisions making the pre-incorporation contracts binding on the company. Section 21( f ) of the 1877 Act which corresponds to section 14 of the 1963 Act did not retain in the said provision as the said clause is covered by section 9. The present section 15 ( h ) corresponds to section 23( h ) of the previous Act and section 19 ( e ) of the present Act corresponds to section 27 ( e ) of the previous Act. Section 15( h ) provides that the company can enforce pre-incorporation contracts, if such contract is warranted by the terms of the incorporation and the company has accepted the contract and has communicated such acceptance to the other party. The converse position is covered by section 19 ( e ) where a third party can enforce the contract against the company if such contract is warranted by the terms of the incorporation of the company and the company has accepted the contract and communicates such acceptance to the other party to the contract, and, hence, the dicta in Natal Land and Colonization Co. Ltd. v. Pauline Colliery Syndicate Ltd. [1904] AC 120,126 (PC) of Lord Davey speaking for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal estate in the property continues to vest in him though in his capacity as a trustee. (Vide Tulsidas Kilachand v. CIT [1961] 42 ITR 1 (SC). It is necessary in this connection to state that the Transfer of Property Act is not exhaustive of the law relating to a transfer of property by act of parties. The preamble itself indicates two things. (1) It purports to define and amend certain parts of law relating to transfer or property. (2) It relates to the transfer of property by act of parties. Thus, it excludes from its purview sales in execution of decrees, insolvency proceedings, testamentary and intestate succession. The word "convey" occurring in the first paragraph of the section is of wider import. The sweep of this expression can usefully be gathered from the definition given in section 205(1)( ii ) of the Law of Property Act of England. "'Conveyance' includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of any interest therein by any instrument except a will." Let us turn to section 9 which states that a transfer of property may be made without writing in every case in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary and, hence, it will not become a trust. Hence, the transaction is outside the purview of section 5 of the Transfer of Property Act and also the Trusts Act and it does constitute a conveyance as a vesting instrument or other assurance of property and can be made orally under section 9 of the Transfer of Property Act. If he purchases property from a third party, he will be acquiring the title though apparently in his name for the benefit of the company yet to be formed. The property vests in him for the benefit of the company though his assurance is sufficient to clothe the company after its birth to claim full title. Hence, we hold that the property acquired by a promoter can become the property of the company by its acceptance and adoption after its birth. A Division Bench of the Madras High Court had an occasion to consider in an unreported judgment in Writ Appeals Nos. 85 and 86 of 1963 dated August 5, 1964, whether a promoter of a private limited company prior to its incorporation can make a valid application on its behalf for the grant of a stage carriage permit and it was held that if the company came into existence before the actual determination by the authorities, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he name and style of Sri Ramanuja Ginning and Rice Factory (Private) Limited. As per the orders in I. A. No. 3370 of 1973 dated December 31, 1973, the plaint was amended and the word "purporting" was struck off and the word "calling" was used and a new paragraph was added stating that the said lease though called a permanent lease was really a tenancy at will of either party under law, as the lessee was given the right to give up the leasehold right if he did not require the lease hold property and, as such, the lessor was also entitled to the same right to cancel the lease and take back the leasehold property at his will and even if otherwise the lease can enure only for the lifetime of the lessee and not beyond his lifetime and the use of the word "putra, poutra" in the lease deed are superfluous and would have no legal effect. In the court below, it was contended by the defendants that the plaintiffs filed this application purporting to be a consequential amendment petition arising out of the order of the court permitting the thirteenth defendant to be added as a party and they were not aware of these insertions and consequently they filed an application to receive the additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant has become a tenant holding over as after the death of the original lessee, the lessor and his successors have accepted the rents and hence the first defendant has become a tenant holding over and his tenancy was terminated under exhibit A-2. This is again a new question raised. Hence we have to examine whether the first defendant can be described as a tenant holding over. We must look to section 116 of the Transfer of Property Act, 1882, which defines the effect of holding over which is in the following terms : "If a lessee or underlessee of property remains in possession thereof after the determination of the lease granted to the lessee, and the lessor or his legal representative accepts rent from the lessee or underlessee, or otherwise assents to his continuing in possession, the lease is, in the absence of an agreement to the contrary, renewed from year to year, or from month to month, according to the purpose for which the property is leased, as specified in section 106." For the application of section 116 as held by the Supreme Court in Karnani Industrial Bank Ltd. v. Province of Bengal, AIR 1951 SC 285, two things are necessary. (1) The lessee should be in poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is admitted in the plaint that the rent was paid up to January 1, 1959. The court below found that the subsequent rent due has been deposited in the court during the pendency of the suit and hence this ground is factually baseless. Further, exhibit A-1 provides 12% interest for non-payment of rent till the date of payment and there is no clause entitling the lessor to evict the defendants for nonpayment of rent and hence this ground is factually incorrect. The ground of waste pleaded in the trial court is causing material damage to the leased premises by wasteful and destructive acts due to gross negligence. The court below found in paragraph 43 of its judgment that there is no proof that any material damage to the leased premises was done by wasteful acts or destructive acts. Under this ground, the learned counsel argues that there is deficiency in the extent of land leased out as found by the court below in the connected suit in O. S. No. 79 of 1967 and hence a portion of the land is lost to the estate and hence it constitutes a waste and there shall be forfeiture of the lease. We must say that this is not the ground urged in the court below. However, we see under exhibit A-l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s intended to relieve persons against fraud when a person refrains from interfering when his legal rights are being violated. Let us see the facts to apply this principle. We have already referred to the allegations in the original plaint and also the quit notice, exhibit A-2, wherein the first defendant was described as a successor-in-interest of the original lessee. In fact, in the connected suit filed in O. S. No. 79 of 1967, the plaintiffs themselves have admitted that the first defendant is a representative-in-interest of the original lessee. That suit relates not to the leased property but an adjacent land and no doubt the first defendant denied the said allegation. Now, in the present suit, the first defendant pleaded that they are the successors-in-interest of the original lessee. Even the amended plaint in paragraph 4 as already extracted, earlier portion of our judgment states that Nidumukkala Subbarayudu, the original lessee, took the plaint schedule property for constructing and running a ginning, rice and oil factory and it is he who constituted the first defendant firm with other sharers. So the plaintiffs and their predecessors-in-title are fully aware that the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that the first defendant was treated as successor-in-interest of the original lessee. These facts clearly disclose that this is not a case of a mere acquiescence without any representation by words or conduct but the plaintiffs and their predecessors-in-title have accepted the assignment in whatever manner the original lessee did to the first defendant and received the rent from the first defendant and hence they are estopped from contending that the first defendant is not a successor-in-interest and no leasehold interest was passed to it and consequently we hold that all principles of equitable and legal estoppel are attracted to the facts of the present case, and we accordingly affirm the finding of the trial court on issue No. 3 that the plaintiffs and their pre-decessors-in-interest have acquiesced in the mode of enjoyment of the plaint schedule property by the first defendant and they are now estopped from contending to the contrary. QUESTION NO. 10 ADVERSE POSSESSION In view of the fact that we have permitted the plaintiffs to raise new grounds challenging that the first defendant is not a successor-in-interest of the original lessee, we have to permit the defendent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y adverse possession for a limited interest of permanent lessee. It is fairly settled that when a tenant dies and the rent is accepted by the landlord from a person claiming to be the heir of the original tenant for a period of twelve years, the relationship of landlord and tenant is not effected and the heir acquires the status of the tenant: Sadanand Mandal v. Jyotish Kanta Ray, AIR 1926 Cal 952. Recently in a case arising under the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act of 1960 our learned brother, Seetharam Reddy J., held that when a person continues in possession in a building after the death of his grandfather who is the original tenant for over a statutory period, he prescribes interest of tenancy. (Vide M. Vijaya Ram v. Kamaran [1983] 1 AP LJ 45 ; [1983] 1 ALT 79. The rule that a landlord's cause of action to recover possession from a tenant or any one claiming under the tenant only accrues from the time when he determines the tenancy was first enunciated by Sir Barnes Peacock C. J. in Davis v. Kazee Abdool Hamed [1867] 8 Suth WR 55 which is followed in several decisions and was finally accepted by their Lordships of the Privy Council ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of evidence, is, he is yearly or monthly tenant. That was a case where the permanent lease deed granted was held to be inadmissible for want of registration and the terms also could not be looked into in view of section 92 of the Evidence Act. Mulla's on Transfer of Property Act, sixth edition, at page 657, remarks about this case as a clear case of permanent tenancy acquired by prescription. The tenant came into possession in 1865 under a permanent lease which was inadmissible as evidence of a lease for want of registration and hence that case is of no assistance to the appellants. In fact that was distinguished in In re Vadasseri Tharawattil Karnavan and Manager Ittichathara Valia Mannadiar, AIR 1957 Mad. 73, where a Division Bench held that the said case cannot be an authority for the proposition that the right of permanent lessee cannot be acquired by prescription. Sri Veerabhadraiah next contends on the strength of Nainapillai Marakayar v. Ramanathan Chettiar [1924] ILR 47 Mad. 337, that no tenant of land in India can obtain right of permanent tenancy by prescription against his landlord. But this case was already explained in a number of decisions and the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ert his tenancy into a permanent one by doing any act adverse to the landlord." The view expressed by the Supreme Court was again considered by the same High Court in Administrator of District Board, Gaya v. Shri Deonath Sahay, AIR 1970 Pat. 256, holding that once a tenancy of some kind has come into existence, any subsequent assertion of permanent tenancy right by the tenant cannot create any such right in his favour by adverse possession. So it is clear that if an ordinary tenant got into possession by his mere assertion, he cannot convert the tenancy into one of permanent tenancy. But exhibit A-1 created a permanent tenancy, and we hold so and hence we conclude that if the assignment of interest of the original lessee, in whatever form, to the first defendant is invalid and inoperative, the possession of the first defendant becomes adverse to the original lessor and the acceptance of the rent for over the statutory period of 12 years makes the assignee to prescribe for the limited title of permanent interest. In fact, the possession of the first defendant had all the qualities of adequacy, continuity, exclusiveness and publicity to constitute its possession as adverse. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded from contending that the first defendant is not a successor-in-interest as the principle of estoppel stands in the way. Even assuming that the assignment in favour of the first defendant by the original lessee is not valid for want of conveyance or otherwise, so long as the permanent lease is not forfeited and validly terminated, even the licensee or any one claiming from the permanent lessee can continue in possession. This is not a case of abandonment of estate by the lessee. Hence, a permissive possession from the lessee cannot be removed so long as the lease is not validly terminated. The suit is not maintainable without terminating the lease. The grounds of forfeiture of lease are found to be factually incorrect and legally untenable. The plaintiffs have not sued any heir of the lessee and we cannot accept that he died heirless though he may not have any progeny and hence the suit against the first defendant must be treated as one based on privity of estate. We also alternatively hold that even assuming that the assignment is invalid and inoperative, the first defendant perfected title by adverse possession for permanent lessee's interest as he continued in possession ..... X X X X Extracts X X X X X X X X Extracts X X X X
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