CONTRACTS II (SPECIFIC CONTRACTS)

Case Analysis on

ARM Group Enterprises Ltd. v. Waldorf Restaurant and Others (2003) 6

SCC 423.

[April 1, 2003]

SUBMITTED BY: SUBMITTED TO:

Krishan Singhal (Roll No. 1556) Ms. Vidushi Puri

Vaibhav Gadhveer (Roll No. 1596) Faculty of Contracts

Widaphi Lyngdoh (Roll No. 1602)

FACTS

The appellant-landlord had acquired from the original owner the title to the suit premises which
was in use for running Waldorf Restaurant when the appeal came up.

Between 1939 to 1951 Allenberry & Co. (Respondent no. 3) was the contractual tenant of the
original landlord.

On 1-7-1953 the said tenant inducted one E (sole proprietor of Waldorf Restaurant) as sub-
tenant.

On 12-8-1953 Respondent no. 3, the main tenant, gave a formal notice to the landlord expressing
his intention to surrender the tenancy and vacate the leased premises by 31-8-1953, the serving
of which resulted in law in determination of the lease under Section 106 read with Section 111 of
Transfer of property Act, 1882.

Later on, E formed a partnership with two other persons and the same was registered on 1-3-
11954. Since despite the service of formal notice of surrender of tenancy by the main tenant, the
possession of the suit premises was not handed over to the landlord, the landlord instituted the
suit for the eviction of the tenant.

On 27-4-1955, the said suit was decreed in terms of a compromise under which the main tenant
vacated the suit premises and reserved liberty to the landlord to take required legal steps to evict
the sub-tenant.

The landlord then instituted another suit against the sub-tenant which came to be decided after 36
years – High Court held that the dispute in the suit could be decided in proceedings for execution
of the compromise decree, thereafter, the landlord moved an application for the execution of the
compromise decree.

Later, the division bench of the High Court restrained the execution of the compromise decree
taking the view that by operation of law ‘E’ either as a proprietorship concern or as a partnership
firm became a tenant directly under the original landlord because the trade name in which the
business was carried on remained the same i.e., Waldorf Restaurant.

ISSUES

Whether respondent no.1 Waldorf Restaurant could claim the status of direct tenant under the
landlord on the basis of the provisions of Section 13 of West Bengal Rent control Act, 1950. The
firm claimed the status of direct tenant under the landlord indirectly, by devolution of the interest
of a direct tenant in either of two ways:-

I. That once the sole proprietor has constituted the partnership firm, the interest in the
sub tenancy of the sole proprietorship had devolved on the partnership firm.
II. That the sole-proprietorship having passed on its trade name to the partnership
firm, the legal interest in the sub tenancy of the sole proprietorship being attached to the
trade name had passed to the partnership firm.

CONTENTIONS

Appellant

The main contention advanced is that the firm having come into existence on its registration on
1.3.1954 i.e. after surrender of tenancy by the tenant on 31.8.1953, could not claim status of a
tenant directly under the landlord by recourse to Section 13(2) of the Act of 1950.

Defendant

In reply to the argument advance on behalf of the appellant, learned counsel appearing for the
firm laid much emphasis on the pleadings of the appellant submitted in the courts below by
taking us through those pleadings it is pointed out that throughout in the long course of litigation
in the counter civil suits and the execution proceedings at many places, averments have been
made stating that the 'Waldorf Restaurant' was inducted as a tenant on 1.7.1953. On behalf of
respondents, learned counsel argues that the above averments in the pleadings of the appellant in
the courts below amount to admission that Waldorf Restaurant may be initially as a proprietor
concern and later on as partnership firm, came into possession of the suit premises as a sub-
lessee on 1.7.1953 prior to the surrender of tenancy by the tenant on 31.8.1953.

DECISION

I. While deciding on the indirect claim to a direct tenancy via the constitution of the
partnership, the court held that the mere carrying on of a partnership business of which
tenant is a partner in leased premises belonging to that partner does not per se amount to
sub-letting unless it is shown that he withdrew his control of the leased premises and
parted with the possession of the property and thereby surrendered his individual tenancy
rights in favour of the partnership firm.
II. Waldorf Restaurant is merely a trade name. It is not a legal person and has no existence
independent of the proprietor who initially carried on business in that trade name in the
suit premises as sub-tenant and later on by joining as partner of the firm registered in the
same trade name. The legal entities or legal persons are the proprietor and the partnership
firm. Therefore, sub-tenancy cannot be created for the partnership firm merely because of
passing on of the trade name.

ANALYSIS

As far as the case pertains to Section 14 of the Partnership Act, 1932 the firm (Waldorf
Restaurant), in this case, had claimed the status of direct tenant on two grounds viz., that once
the sole proprietor had constituted the partnership firm, the sub-tenancy of the sole proprietorship
had devolved on to the partnership firm, and; that with the inheritance of the trade name the
partnership firm had also inherited the sub-tenancy attached to the trade name of the sole
proprietorship.

The decision in this case explains the relation shared by the partners, the properties held by the
firm and the conceptual difference between the trade name of the partnership firm and the actual
partnership existing between the partners. The court had rightly held that the property
exclusively held a sole proprietor (E, the sole proprietor of Waldorf Restaurant, in this case) does
not become the property of the partnership firm merely because it is used for the business of the
partnership, even if it trades under the same firm name. While denying that the tenancy rights are
attached to the trade name and that the partnership will acquire the status of tenant with the
acquisition of the trade name, the court had distinguished the name of the firm from the
partnership saying that ‘Waldorf Restaurant’ is merely a trade name, it’s not a legal person, the
legal entities or persons are the proprietor and the partnership firm.