SAJJAD ALI SHAH, J.---The Appellant seeks leave of this Court against the judgment of the Sindh High Court, whereby, the said Court while exercising constitutional jurisdiction reversed the findings of the Appellate Court on the ground of default, personal bona fide use as well as "handing over of possession" and ultimately dismissed the ejectment petition.
2. The Appellant on 26.02.1991 filed an ejectment petition against the Respondents Nos, 1 and 2 asserting therein that Shop No,2 in their building known as "State Life Building No,5-A" situated at Zaib-un-Nisa Street, Saddar, Karachi, admeasuring 2800 square feet was let out to one Anis-ur- Rehman who was carrying business therein under the name and style of Limton Watch Company.
It.was the case of the Appellant that after the death of Haji Anis-ur-Rehman, the sole proprietor of Limton Watch Company, his son Respondent No,1 with the consent of other legal heirs stepped into the shoe of his father and became the proprietor of Limton Watch Company and for all intent and purposes was treated as tenant. It was the case of the Appellant that the Respondent defaulted in payment of rent for the month of February 1987, March 1987 to March 1988 and then from April 1988 to January 1991, (except April 1989) and therefore, committed default in payment of monthly rentals and was liable to be ejected. The second ground on which ejectment of the Respondent was sought, was "handing over of possession" as according to the Appellant the Respondent No,1 without the written consent of the Appellant converted the sole proprietary concern into a private limited company and handed over the possession of the said premises to the limited company which is a juristic person and a separate entity and therefore, has sublet the premises and rendered itself liable to the ejectment. The third ground was personal bona fide need for establishing its own office.
3. The Respondents after having been served filed a joint written statement, it was asserted that after the death of Haji Anis-ur-Rehman, the Respondent No,1 along with his brothers continued their business but the rent receipt was issued in the name of their late father. As to default, it was submitted that the Appellant refused to accept the rent remitted by the Respondents. through pay order compelling them to deposit the rent with the First Rent Controller, South in M.R.C. No,702 of 1990. As to "handing over of possession", it was asserted that late Haji Anis-urRehman was carrying business along with his brothers and after his death the said business was continued by his legal heirs including Respondent No,l. It was denied that the Respondent No,1 had converted his sole proprietary concern nor has handed over the possession to the Respondent No,2 as alleged.
The personal bona fide need of the Appellant was also denied by asserting that it has number of buildings with all modern facilities and major portions of the said buildings are lying vacant, therefore, the ground is just to dislodge the Respondents.
4. The Rent Controller allowed the parties to adduce evidence and after hearing the parities vide its order dated 4.5.1998 dismissed the ejectment application on all the three counts. The Appellant filed an appeal and the Appellate Court after hearing the parties allowed the ejectment on all the three counts. This time the Respondents invoked the constitutional jurisdiction of the High Court of Sindh by challenging the verdict of the Appellate Court. The High Court after hearing the parties on the issue of default and subletting through its impugned judgment reversed the verdict of the Appellate Court. Leave to examine the judgment of the High Court was granted vide. Order dated 07.09.2017. The relevant portion whereof reads as follows:- "The case set up by the petitioner-landlord is that the son without any permission converted his sole proprietary business of Limton Watch Co., into a private limited company M/s. Limton Watch Co. (Pvt.) Ltd. in the rented premises without written consent of the petitioner and handed over possession of said premises to M/s. Limton Watch Co. (Pvt.) Ltd. Thus the subletting was established on record, which aspect was not considered by the learned High Court in exercise of constitutional jurisdiction, which could not have otherwise been exercised unless it was shown to be misreading or non-reading of the evidence, which was not the case.
The point noted above requires consideration. Leave is granted on this petition inter alia to consider the issue raised."
5. Mr. Sattar Muhammad Awan, ASC for the Appellant contended that it had come on record that the Respondents converted its proprietary concern into private limited company and has taken two additional Directors and the said company attempted to pay rent and on refusal has deposited the same with the Rent Controller and such circumstances were sufficient to prove that the Respondent had parted with the possession of the rented premises in favour of a juristic person and therefore, was liable to be ejected on that score. It was further contended that the impugned judgment allegedly violates the principle laid down by this Court in the case of Manek J. Mobed v.
Shah Behram (PLD 1974 SC 351). It was next contended that without even touching the findings of Appellate Court which allowed ejectment on account of personal bona fide need the judgment was set aside merely on the ground that the incorporation of a private limited company for the purpose of conducting business would not amount to subletting. It was lastly contended that there was sufficient material on record to establish that the Respondent had committed default in payment of rent but since the learned Judge had come to the conclusion that there was no subletting, therefore, the unauthorized rent was accepted as due payment of rent. Mr. Awan in support of his contention has placed reliance on the judgment of this Court in the case of Manek J.
Mobed and another v. Shah Behram and others (PLD 1974 SC 351), M/s. Premier Mercantile Service and another v. S. M. Younus and another (PLD 1982 SC 79), Saeeda Begum v. Shamim Ahmed (1994 SCM R 791), Muhammad Subhan and others v. Bilquees Begum through legal heirs (1994 SCM R 1507) and Haider All Bhim ji v. VI-ADJ, Karachi South (2012 SCM R 254).
6. On the other hand Mr. F. M. Javed, ASC appearing for the Respondents contended that the incorporation of a private limited company to conduct business with two additional Directors who are wife and son of the Respondent No,1 in the demise premises for the convenience and to get tax benefits by no stretch of imagination can be termed as subletting. It was further contended that even if it is so, the Appellant by accepting rent from Respondent No, 2 for the month of February 1987, has accepted private limited company as its tenant and has waived its right, if any, to seek ejectment on the ground of subletting. Per counsel the demise premises was through out used by a partnership firm as is evident from the tax returns, therefore, its conversion into a limited company would not amount to parting with possession or subletting. It was further contended that the Appellant does not require the demise premises for its personal bona fide use but such need has been created to seek ejectment of the Respondents. As to default, it was submitted that the Respondents through out have been very regular in payment of rent and the Appellant to create a ground of default has returned seven pay orders through which rent for the months of March to August 1987 was paid, compelling the Respondents to deposit rent with the Rent Controller and therefore, the ejectment application was rightly dismissed.
7. We have heard the learned counsel for the respective parties and perused the record as well as case law cited at bar.
8. The admitted position which emerges from the record appears to be that M/s. Indian Life Insurance Company, the predecessor-in-interest of the Appellant had let out the demise premises to one Haji Anis-urRehman who was conducting therein, his business under the name and style of M/s. Limton Watch Company. It also appears to be the matter on record that after the death of said Anis-ur-Rehman, somewhere in the year 1952, his son Respondent No,1 was conducting the same business under the same name and style. The perusal of Ex.O/27 and Ex.O/28 placed on record by the Respondents themselves reflect that on 03.03.1986 the Respondent No,1 being son of the original tenant requested for change of tenancy in his name and the Appellant demanded Death Certificate of his father Anis-ur-Rehman and a Deed reflecting relinquishment of rights from the other legal heirs. The respondent No,1 did furnished. the death certificate as well as relinquishment deed reflecting that the other legal heirs have relinquished their rights in the tenancy. It appears that while such request of seeking change of tenancy was pending that instead of Respondent No, 1, the Respondent No, 2 on his own started sending rent of the demise premises. The Appellant refused to accept the rent from Respondent No,2 and returned 10 pay orders as reflected from Ex.O/32 and Ex.O/33 (again produced by the Respondents) on the ground that the said pay orders were on behalf of a private limited company which was not the tenant of the Appellant. The record reflect that thereafter the respondent No,2 Company deposited the said rent with the Rent Controller and till date the rent is being deposited by the respondent No,2 Company. There is also no denial that the Respondent No,1 has converted M/s. Limton Watch Company into a private limited company and at present the said private limited company is conducting business in the demise premises. The very argument of Mr. F. M. Javed pleading waiver on account of appellant having accepted rent for February 1987 from respondent No,2 contains a concession as to the change in the status of tenant. In the given circumstances, the case of the respondent No,1 as put forward was that earlier a partnership was conducting business in the demise premises and now a limited Company consisting of same partners now called Directors is running the same business, therefore, the question of subletting does not arise. However, it is important to note that the respondents have not placed anything on record to show that the appellant at any point of time were informed about the formation of partnership or the Respondent No,2 company and that they had expressly or impliedly accepted the "partnership" or the Respondent No,2 Company as their "tenant". The stance is further belied from the fact that the Respondent No,2 Company was formed in the year 1978 as it appears from the certificate of incorporation and the partnership if any was prior to that whereas the Respondent No,1 in the year 1986 was asking for change of tenancy from the name of his late father to his personal name.
Nothing has been placed on record to show that the original tenant was conducting business as partner. The assessm ent order placed on record show existence of partnership since 1973 whereas the original tenant had admittedly expired in the year 1952. Additionally, Mr. F. M. Javed has argued that the Directorship of the respondent No,2 Company consists of respondent No,1 son of the original tenant) his wife and son, therefore the question of subletting does not arise but nothing has been placed on record from the office of the Registrar of the Companies in support of such plea. Even if we accept this position on its face value, still the result which emerges is the handing over of possession by the tenant who admittedly was a natural person i,e, Anis-ur-Rehman to a juristic person a limited company. The concept of subletting which contains an element of return/compensation as canvassed by Mr. F. M. Javed and which even misled the High Court has become an alien to the Ordinance, 1979 and now "handing over of possession" of the rented premises to some other person under section 15(2)(iii)(a) exposes a tenant to eviction. Though the term "subletting" and "handing over of possession" mostly are used interchangeably even in Courts but there appears to be marked difference between the term "handing over of possession" and "subletting" as the term handing over of possession, of course, is of wider implication than just subletting as in the latter, element of return/compensation is also involved whereas as in handing over of possession the landlord has just to show that any person other than the tenant without his permission is in possession of the rented premises and then the burden shift on the tenant that he has not handed over the possession of the premises and that he is still in exclusive possession of the rented premises. In the instant case a I distinct legal entity independent and separate from its Directors has come into exclusive possession of the rented premises which is running business therein, paying taxes in its own name, depositing rent with the Controller from its own accounts and such change has been brought without the consent or even the knowledge of the Appellant- landlord which exposes the tenant to the consequences as provided under section 15(2) of the Ordinance, 1979.
9. It is important to observe here that once the Appellant/landlord in these particular circumstances recognizes status of the Respondent No,2 Company as their tenant then the proceedings on account of "handing over of possession" on change of Directors would not be sustained as the status of a Company is totally different and independent of its Directors and any change of Directors by way of their addition or removal would not affect the status of the Company and, therefore, would not provide a cause for "handing over of possession". For this very reason in cases where the tenant is holding a tenancy right in his personal name and forms a company may be for the expedience of business and parts with possession by allowing the Company to undertake the business in that premises then notwithstanding the fact that the Company is conducting the same business and the original tenant has become its Director or share holder would not save the tenant from the consequences of "handing over of possession".
10.In a case where partnership was converted into a limited company, this Court in the case of Messrs Premier Mercantile Service and another (supra) while deciding the effect of such conversion vis-a-vis landlord tenant relationship held as follows: "We would agree with the learned counsel for the petitioners that it is necessary and appropriate in certain cases to lift the veil of incorporation with a view to find out the true state of affairs and to determine the rights and liabilities of the parties. Nonetheless on doing so in this case we find that the result is not to the advantage of the petitioners. A distinct legal entity different from the firm had come into existence. It was so whether the veil of incorporation was lifted or not. Such a legal entity had an altogether different rights and liabilities with respect to third parties including the landlords. Such a change could not be unilaterally brought about by the tenants so as to transform their very legal existence in manner to affect their liability. The landlords could object.
They could make it a ground for proceedings under the Rent Laws. Such a tenant as had permitted itself to be dissolved and then affected and substituted by a different legal entity could be ejected for this act alone, having not taken the landlord into confidence".
11.Likewise in the case of Muhammad Subhan and another (supra), where a proprietary concern was converted into a partnership it was held by this Court as under:- "Once a proprietary firm is changed into a partnership firm, then all the partners have right, title and interest in the tenancy, goodwill, business and assets according to their share unless otherwise provided in the partnership deed. The petitioners have not filed partnership deed from which it could be ascertained that although the firm is a partnership firm, yet the right of tenancy was preserved in the name of petitioner No,1 and other partners did not have any right in the tenancy. In these circumstances, petitioner No,1 has created interest of other two partners in the disputed premises who shall be deemed to be in its possession as partners. The learned counsel for the petitioners pointed out that the firm has been dissolved in the year 1985, but it makes no difference as the ejectment case had been filed in the year 1982 and the violation as contemplated by section 15(2) (iii) (a) of the Sindh Rented Premises Ordinance had been committed. The concurrent finding of both the Courts on this issue cannot be disturbed".
12.Further in the case of Messrs Uzma Constraction Company v. Navid H. Malik (2015 SCM R 642), the tenant started operating a limited company for which he was a major share holder in a portion of the rented premises and the Court was of the opinion that such parting of possession in favour of the Company would amount to subletting regardless of, whether the Respondent/tenant was a Director or shareholder of the said Company. The relevant portion of the referred judgment as detailed in para 26 reads as follows:- "It is settled law that a company is a legal entity independent and separate from its Directors or shareholders. Therefore, the lease agreement, entered into by the respondent, cannot be said to be a lease entered into on behalf of the said companies, and the admitted parting of possession in favour of the companies would amount to subletting, regardless of whether the respondent was a Director or shareholder of the said companies.
13.In the instant case, though nothing has been brought on record by the Respondent No, 1/tenant to show from the office of the Registrar of the Companies that he is a Director/shareholder of the Respondent No,2 Company in whose favour the Respondent has parted with possession and even if it is presumed that he is one of the Directors still the Company has a distinct legal entity separate from its Directors and therefore, the directorship of the Respondent in the Company as already stated would not save him from the consequences provided under section 15(2) of the Ordinance.
14.As to the waiver of right by conduct as pleaded by Mr. F. M. Jawed on the ground that Appellant has accepted the rent for the month of February 1987 tendered by Respondent No,2.
However, simultaneously the Respondents themselves have placed on record Ex.O/32 a letter from the Appellant through which the rent tendered by Respondent No,2 for the months from March 1987 to September 1987 was returned, therefore, even if we accept that the rent for the month February 1987 was accepted by the Appellant would not earn them a waiver of right by conduct as the acceptance of rent does not appear to be a deliberate act of the Appellant to acknowledge the Respondent No,2 their tenant. It has been a settled law that to prove a waiver of right by conduct there should be some clear and decisive act or conduct and it must be shown that the person entitled to the right had knowledge of its F breach and that he had acquiesced or failed to enforce notwithstanding such knowledge. Whereas in the instant case the return of money orders sent by Respondent No,2 through which Respondent No,2 had remitted rent for the months from March 1987 to September 1987 clearly reflect that the acceptance of the rent, if any, for the month of February 1987 was through omission/ignorance which cannot give rise to an waiver, by conduct.
15. Now coming to the question of default, it appears to be an admitted position that since 1987, the Respondent No,1 has failed to pay the rent and it was Respondent No,2/Company who offered the rent to the Appellant and on refusal deposited the same with the Rent Controller. Since Respondent No,2 admittedly was not the tenant of the appellant, therefore, the appellant was right in declining to receive the rent and such payment or deposit with the Rent Controller could not save the Respondent No,1 from the consequences of default which, of course, stands established, therefore, is found liable for the consequences as provided in section 15(2) of the Ordinance, 1979.
16.In view of what has been discussed above, the instant appeal is allowed on the ground of "handing over of possession" and "default" as canvassed before us. The Respondents shall hand over the vacant peaceful possession of the premises in question to the Appellant within 30 days.
The Appellant would be entitled to withdraw all the rent deposited in the instant proceedings.