Supreme Court Upholds Eviction for Lease Violation: Yuvraj vs. Janardan (2023)

Date of the Judgment: March 21, 2023

Citation: 2023 INSC 242

Judges: Justice Sudhanshu Dhulia and Justice Sanjay Kumar

Can a tenant be evicted for transferring their business within a leased property, even if the lease agreement prohibits it? The Supreme Court of India addressed this critical question in the case of Yuvraj @ Munna Pralhad Jagdale & Ors. vs. Janardan Subajirao Wide. This case revolves around a property dispute where the landlord sought eviction of the tenant for violating the terms of the lease by assigning the business to a third party. The Supreme Court, in this judgment, clarified the legal position regarding such transfers and their impact on tenancy rights. The judgment was authored by Justice Sanjay Kumar, with Justice Sudhanshu Dhulia concurring.

Case Background

The case originated from a suit filed by Ramachandra Maruti Jagdale and his wife, Rangubai Jagdale, (predecessors-in-title of the appellants) against their tenant, Janardan Subajirao Wide, for eviction from a leased property in Pune. The property, identified as C.T.S No. 1873, was leased to the tenant for running a hotel business named “Hotel Ambika”. The landlords sought eviction on the grounds that the tenant had violated the lease agreement by constructing an unauthorized toilet and by transferring the hotel business and possession of the premises to one Krishna B. Shetty.

Timeline:

Course of Proceedings

The Trial Court initially ruled in favor of the landlords, decreeing eviction based on the tenant’s violation of Section 13(1)(e) of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947 (the Act of 1947). This decision was upheld by the 13th Additional District Judge, Pune. However, the Bombay High Court reversed these decisions, stating that the tenant had not parted with possession of the premises and that the partnership agreement did not constitute sub-letting. The High Court further dismissed a review petition filed by the landlords. The landlords then appealed to the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of Section 13(1)(e) and Section 15(1) of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947. These sections deal with the grounds for eviction of a tenant and restrictions on sub-letting, assignment, or transfer of tenancy rights.

• Section 13(1)(e) of the Act of 1947: This section states that a landlord is entitled to recover possession of the premises if the tenant has unlawfully sub-let, assigned, or transferred their interest in the premises. The section reads as follows:

  ‘Section 13 (1) Notwithstanding anything contained in this Act, but subject to the provisions of Section 15, a landlord shall be entitled to recover possession of any premises if the Court is satisfied- (e) that the tenant has, since the coming into operation of this Act unlawfully sub-let the whole or part of the premises or assigned or transferred in any other manner his interest therein; or’

• Section 15(1) of the Act of 1947: This section prohibits a tenant from sub-letting, assigning, or transferring their interest in the premises, unless there is a contract to the contrary. It also allows the State Government to permit such transfers through official notifications. The section reads as follows:

  ‘Section 15 (1) Notwithstanding anything contained in any law, but subject to any contract to the contrary, it shall not be lawful after the coming into operation of this Act 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 and after the date of commencement of the Bombay Rents, Hotel and Lodging House Rates Control (Amendment) Act, 1973, for any tenant to give on licence the whole or part of such premises Provided that the State Government may by notification in the Official Gazette permit in any area the transfer of interest in premises held under such leases or class of leases or the giving on licence any premises or class of premises and to such extent as may be specified in the notification.’

Arguments

Arguments of the Appellants (Landlords):

• The tenant violated the lease agreement by assigning his business to Krishna B. Shetty. The tenant admitted to executing a partnership agreement (Exh. 48) and an assignment agreement (Exh. 49). The assignment agreement, in particular, demonstrated a clear transfer of business interest in the leased premises.

• The tenant’s admissions during his deposition as DW1, along with the documentary evidence, clearly established that he had assigned his business to Krishna B. Shetty.

• The lease deed (Exh. 55) explicitly prohibited the tenant from assigning the business or allowing third parties to conduct business on the premises. This condition was violated by the tenant’s actions.

Arguments of the Respondents (Tenants):

• The tenant’s counsel argued that the execution of a partnership deed (Exh. 48) where a third party was inducted as a partner does not amount to an assignment or sub-tenancy. They contended that the tenant was still involved in the business and had not parted with possession of the premises.

• The partnership agreement (Exh. 48) indicated that the business would be undertaken as a partnership with the tenant, his brother, and Krishna B. Shetty, and that Krishna B. Shetty would look after business transactions. This arrangement, according to the tenant, did not constitute a transfer of tenancy rights.

• The tenant relied on previous judgments which held that mere conversion of a sole proprietorship to a partnership does not amount to sub-letting if the tenant is actively involved and retains control over the premises.

Issues Framed by the Supreme Court

• Whether the tenant committed a breach of the lease condition with regard to the assignment of his business in the leased premises, warranting his eviction under Section 13(1)(e) of the Act of 1947.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court distinguished Parvinder Singh vs. Renu Gautam and others [(2004) 4 SCC 794]* stating that while a genuine partnership might not amount to sub-letting, the assignment agreement in the present case was a clear breach.
• The Court distinguished Mahendra Saree Emporium (II) vs. G.V. Srinivasa Murthy [(2005) 1 SCC 481]* stating that the tenant had not merely converted his business into a partnership but had also assigned it to a third party.
• The Court applied Section 13(1)(e) of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947, holding that the tenant’s actions constituted an unlawful assignment of his interest in the premises.
• The Court applied Section 15(1) of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947, stating that the tenant’s actions were in violation of the prohibition on sub-letting, assignment, or transfer of tenancy rights.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the tenant admitted to executing the assignment agreement (Exh. 49), which clearly transferred his business interest in the leased premises to Krishna B. Shetty. The Court emphasized that this act, in itself, constituted a breach of the lease condition and the statutory mandate under Section 13(1)(e) of the Act of 1947. The Court also noted that the lease deed explicitly prohibited such an assignment, further strengthening the case for eviction.

Fact:Law:

The Court’s reasoning was based on a combination of factual evidence (the execution of the assignment agreement) and the legal framework (Section 13(1)(e) and Section 15(1) of the Act of 1947). The Court emphasized that the execution of the assignment agreement was sufficient to establish a breach, irrespective of the subsequent failure of the specific performance suit filed by Krishna B. Shetty. The court held that the tenant’s actions were a clear violation of the lease agreement and the law.

The Court rejected the tenant’s argument that the partnership agreement was not a sub-letting, stating that the execution of the assignment agreement was the critical factor. The Court also dismissed the relevance of the specific performance suit filed by Krishna B. Shetty, as the breach was complete upon the execution of the assignment agreement.

The Supreme Court’s decision was clear and unequivocal. The Court held that the tenant’s actions constituted a breach of the lease agreement and the statutory mandate, and therefore, the eviction was justified. The Court emphasized the importance of adhering to the terms of lease agreements and the legal restrictions on sub-letting and assignment of tenancy rights.

“Given the clear proscription in the lease deed, duly endorsed by the explicit language of Sections 13(1)(e) and 15(1) of the Act of 1947, the very execution of the assignment agreement dated 15.01.1985 (Exh.49), whereby the tenant admittedly assigned his business in the leasehold premises in favour of Krishna B Shetty for ₹2,00,000/- and accepted a sum of ₹50,000/- as earnest money, was sufficient in itself to establish transgression of the lease condition and the statutory mandate.”

“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.”

“We, therefore, find on facts that the tenant admitted committing a breach of the lease condition with regard to assignment of his leasehold interest in favour of a third party, when he signed the assignment agreement dated 15.01.1985 (Exh.49) for a consideration of ₹2,00,000/- and received ₹50,000/- as earnest money.”

Key Takeaways

• A tenant’s assignment of a business within a leased property, especially when the lease agreement prohibits such assignment, can lead to eviction under the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947.
• The execution of an assignment agreement, where the tenant transfers their business interest to a third party for consideration, is a significant factor in determining a breach of lease conditions.
• The Court emphasized that the mere execution of an assignment agreement is sufficient to constitute a breach, irrespective of the subsequent actions or outcomes.
• Tenants must adhere strictly to the terms of their lease agreements and the statutory restrictions on sub-letting, assignment, or transfer of tenancy rights.

Directions

The Supreme Court directed the legal representatives of the deceased tenant to vacate the suit premises and hand over vacant and peaceful possession to the appellants within 2 months. The Court also stated that if the respondents fail to comply, the appellants are at liberty to initiate execution proceedings.

Development of Law

The ratio decidendi of this case is that the execution of an assignment agreement by a tenant, transferring their business interest in a leased property to a third party, constitutes a breach of lease conditions and the statutory mandate under Section 13(1)(e) of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947, warranting eviction. The Court clarified that the mere execution of such an agreement is sufficient to establish a breach, irrespective of subsequent actions or outcomes. This judgment reinforces the importance of strict adherence to lease terms and statutory restrictions on sub-letting and assignment of tenancy rights.

Conclusion

In conclusion, the Supreme Court’s judgment in Yuvraj @ Munna Pralhad Jagdale & Ors. vs. Janardan Subajirao Wide upheld the eviction of the tenant due to a clear breach of the lease agreement and the statutory provisions. The Court emphasized that the execution of the assignment agreement was sufficient to establish a breach, and the tenant’s actions were in violation of the law. This case serves as a reminder for tenants to strictly comply with lease conditions and statutory restrictions on sub-letting and assignment of tenancy rights.