Tuesday, 31 March 2020

How to appreciate evidence in eviction suit if tenant takes the plea of partnership to conceal real transaction of subletting?

In order to prove mischief of subletting as a ground for eviction under the Rent Control laws, two ingredients have to be appreciated, (1) parting with possession of tenancy or part of it by the tenant in favour of a third party with exclusive right of possession, and (2) that such parting with possession has been done without the consent of the landlord and in lieu of compensation or rent. Inducting a partner or partners in the business by a tenant, by itself does not amount to subletting. However, if the purpose of such partnership is ostensible and a deed of partnership is drawn to conceal the real transaction of subletting, the Court may tear the veil of partnership to find out the real nature of the transaction entered into by the tenant. The existence of deed of partnership between the tenant and the alleged sub tenant or the ostensible transaction in any other form would not preclude the landlord from bringing on record material and circumstances, by adducing evidence or by means of cross-examination, making out a case of subletting or parting with possession in the tenancy premises with him, may be along with partners, the tenant may not be said to have parted with possession. The initial burden of proving sub-letting is on the landlord. But once he is able to establish that the third party is in exclusive possession of the premises and that the tenant has no legal possession of the tenanted premises, the onus shifts upon the tenant to prove the nature of occupation of such third party and that he still continues to hold legal possession of the tenanted premises. In other words, initial burden lying upon the landlord would stand discharged by adducing prima facie proof of the fact that the party other than the tenant was in exclusive possession of the premises. A presumption of subletting may then be raised and would amount to proof unless rebutted.1

15. As noticed earlier, there is discrepancy between the document at Exhibit 98 i.e. the deed of partnership dated 19 February 1981 and the entry dated 17 September 1981 in the extract of registration obtained from the Registrar of Firms. There is no clarity as to the precise deed or document produced by Thakkar at the stage of registration with the Registrar of Firms. However, even if the contention of Thakkar and others that deed of partnership dated 19 February 1981 was the document which was produced is to be accepted, the contents thereof establish that the real transaction between Thakkar and the so-called partners was of subletting. There is no dispute that no consent whether in writing or otherwise was obtained by Thakkar from the petitioners.

16. Clause 3 of the partnership deed states that no capital whatsoever shall be contributed by Thakkar, whether at the stage of entering into partnership or in future. However, it is stated that Thakkar 'shall give earlier mentioned premises admeasuring 10' x 40' along with all articles fixtures (list of all articles is enclosed)". Thakkar in his deposition (cross-examination) has admitted that when he entered into the partnership in 1981, his business was not that of tailoring. Further, that the list of articles mentioned in the agreement at Exhibit 98 was not attached to it. Thakkar has also admitted that he has no knowledge of tailoring work. Similarly Sailesh Shah (defendant No. 4) in his deposition has admitted that Thakkar had no knowledge of tailoring business or sale of clothes. It is also admitted by Sailesh Shah that Thakkar never took part in the management of the partnership business. The expression 'give earlier mentioned premises ... .......' In clause 3 of Exhibit 98, in said context means and implies that Thakkar parted with the possession of the suit premises in favour of Sailesh Shah and Arora in the guise of entering into partnership with them. This is clear from the rest of the clauses as well as oral evidence on record.

17. Clause 4 of the partnership deed at Exhibit 98 provides that Sailesh Shah and Arora shall manage the entire business of the firm, bear all expenses towards articles, baggage, municipal permissions, employees, electricity charges and incidental expenses. Thakkar is exempted from taking part in the business activities of the firm and is also exempted from any liability or responsibility of any type concerning the business of the firm. Clearly therefore, this is not a case where Thakkar, as a partner, has agreed to carry on the business of the firm together with other partners.

18. Clause 5 of the partnership deed at Exhibit 98, in terms provides that since the entire business of the firm is to be carried on by Sailesh Shah and Arora, only they shall be entitled to all the profits arising from the said business and similarly only they shall be entirely responsible for the losses. One of the essential ingredients in the matter of constitution of a partnership is that the partners agree to carry on business in partnership with each other and to share the profits of such business. The element of sharing of profits is clearly absent in this projected partnership. It is possible that there is a dormant partner, who does not take part in the day to day activities or the business of the firm. It is also possible that a partner does not bear the share of losses. However, the share in profits, is one of the vital ingredients in the constitution of a partnership firm. Such vital ingredient is absent in the partnership or the projected partnership.

19. Section 4 of the Indian Partnership Act, 1932 (Partnership Act) defines 'partnership' as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. From the definition itself, it is clear that one of essential elements necessary for determining the existence of partnership is that there must be an agreement to share the profits of business. Section 6 of the Partnership Act provides for mode of determining existence of partnership. This section provides that in determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be have to the real relation between the parties, as shown by all relevant facts taken together. The first explanation to this section provides that sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property, does not of itself make such persons partners. The second explanation provides that the receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of the profits or varying with the profits earned by a business, does not itself make him a partner with a person carrying on the business. This means that regard has to be had to the real intention between the parties, as shown by all relevant facts taken together. The receipt by a person of the share of the profits of a business is an important element and strong evidence of the existence of partnership between him and the persons carrying on business. It is, however, not conclusive. The crucial test is whether such participation in profits constitutes the relationship between the principal and agent between the persons taking profits and those actually carrying on the business. In this case the element of sharing the profits is absent.

20. Clause 6, again, in terms, provides that Thakkar, 'in lieu of making available his above mentioned premises ... ..... shall take for himself a sum of Rs. 800/- (Rupees Eight Hundred only) per month from income of said partnership business.' This clause further goes on to state that even if the firm makes losses, Sailesh Shah and Arora shall pay every month Rs. 800/- to Thakkar. Clause 8 then provides that Thakkar 'shall have right to take back in his possession above described premises ... ..... if the business of partnership is dissolved.'

21. A conjoint reading of clauses 3, 6 and 8 leave no manner of doubt that Thakkar, in lieu of consideration of Rs. 800/- per month has parted with his possession of the suit premises in favour of Sailesh Shah and Arora. In clause 3 there is reference to the giving of the suit premises to Shah and Arora. In clause 6 there is reference to making available the suit premises to Arora and Shah. In clause 8, Thakkar has reserved unto himself the right to take back in his possession the suit premises. All this is sufficient to establish that Thakkar has parted with the exclusive possession of the suit premises in favour of Sailesh Shah and Arora in the year 1981 and thereafter, in place of Arora, to Dinesh Amrutlal Shah. The deed at Exhibit 98, without anything further, discharges the initial burden which the law casts upon the petitioners.

22. In the case of Celina Coelho Pereira (supra), the Apex Court has held that the initial burden of proving subletting is upon the landlord, but once he is able to establish that the third party has no exclusive possession of the premises, the onus shifts upon the tenant. It is further held that the initial burden lying on the landlord would stand discharged by adducing prima facie proof of the fact that the party other than the tenant was in exclusive possession of the suit premises. A presumption of subletting may then be raised and would amount to proof unless rebutted. If reference is made to the deposition of Sailesh Shah and Thakkar, it will be evident that Thakkar has failed to discharge the onus. Rather, the deposition of Sailesh Shah and Thakkar establish that the so-called partnership was merely a cloak to conceal the real transaction of sub-letting.

23. In the case of Helper Girdharbhai (supra), the Apex Court has held that the issue whether a genuine partnership existed of which the tenant claims to be a partner, is a mixed issue of law and fact. It has been further held that the mere fact that tenant partner was entitled to a fixed percentage of the profit of the firm only and not to share its losses, was not by itself a consideration to hold that such partnership was not a genuine one and the tenant had merely sublet the premises to the so-called partners. This position, is distinguishable and will not apply to the facts and circumstances of the present case. Even in the case of Helper Girdharbhai (supra) the element of sharing of profits was present, although, the tenant partner was entitled to a fixed percentage of the profit of the firm. In the present case, as noted earlier, clause 5 of the deed at Exhibit 98 in terms provides that only Sailesh Shah and Arora will be entitled to the profit arising from the business. Thus, in the present case there is no element of sharing of profit whatsoever, as between Thakkar and the remaining partners. Clause 6 of the document at Exhibit 98 merely provides that Thakkar shall, in lieu of making available the suit premises, take for himself a fixed sum of Rs. 800/- per month from the income of the partnership business. This clause further provides that Sailesh Shah and Arora shall pay this fixed amount of Rs. 800/- per month to Thakkar irrespective of whether or not the partnership business earns profits or makes losses. Clearly this was not the fact situation in the case of Helper Girdharbhai (supra). Again, in the said decision, there were several other factors, which were noticed by the Apex Court to uphold the conclusion that the partnership was genuine and not merely ostensible transaction to conceal the real transaction of subletting.

24. In this case, if the tests summarised by the Apex Court in the case of Celina Coelho Pereira (supra) are applied, it is evident that the real transaction between the parties is one of subletting. Thakkar, has clearly parted with the possession of the suit premises for consideration of Rs. 800/- per month. Thakkar is not at all actively associated with the partnership business, rather is exempted from association with the partnership business. In the evidence, it has come on record that the partnership business is dealing in tailoring, sale of clothes, etc. and Thakkar, has neither any knowledge nor experience of this kind of business. This is not a case where Thakkar can be said to have retained any control over the suit premises. Thakkar, has only retained unto himself the right to take back in his possession the suit premises if the partnership firm is dissolved. Sailesh Shah in his deposition has at one place admitted that it is true that Thakkar has given the suit premises to Sailesh Shah and Arora "as sub tenants". Mr. Datar, however submitted that this admission appears to be a typographical error and on the basis of a stray statement in the deposition, the effect of the rest of the deposition cannot be whittled down.

25. Even if, the aforesaid categorical admission is excluded from consideration, there is other material in the deposition of Sailesh Shah and Thakkar, which establishes the case of sub-letting. There are admissions that Thakkar had no knowledge of tailoring business of sale of clothes. There are admissions that Thakkar never took any part in the management of the partnership business. There are admissions that there was no list of articles like sewing machines, cupboard etc. attached to the deed of partnership at Exhibit 98. There is evidence that no such articles were supplied by Thakkar to the remaining partners. All this coupled with the categoric provisions in the deed of partnership, to the effect that Thakkar was not entitled to any share in the profits of the firm, make it very clear that the entire transaction, in reality, was one of sub-letting and not partnership, as it was projected to be. In such a situation, the two Courts have failed in their duty to pierce the veil of partnership and determine the real nature of transaction between Thakkar and others who claim to be the partners.

26. There is evidence on record that the firm commenced its business from the suit premises in the year 1981 and invitation cards were printed for the inaugural. Upon such invitation cards even the name of Thakkar did not appear. True, as contended by Mr. Datar, this by itself, is not a relevant circumstance. However, if such several circumstances are considered cumulatively, it is clear that the partnership in the present case was only ostensible and a cloak to disguise the real transaction of subletting.
IN THE HIGH COURT OF BOMBAY

Writ Petition No. 1940 of 1996

Decided On: 24.07.2015

Taralakshmi Maneklal Thanawalla  Vs. Shantilal Makanji Dave


Hon'ble Judges/Coram:
M.S. Sonak, J.
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