Mumbai: The Bombay High Court in a judgment delivered on 4th October 2024 by Justice Sandeep V. Marne has ruled that a tenant company with a paid-up capital of Rs 1 Crore and over as on 31st March 2000 when the Maharashtra Rent Control Act 1999 (MRCA) came into force loses its protection and privileges as a tenant.
Once such protection is lost it cannot regain it by voluntarily reducing its paid-up capital to less than Rs 1 Crore. The consequence of losing protection means that such company is at the mercy of the landlord and may be evicted by being served with a termination notice under the Transfer of Property Act (TOPA).
A suit was filed by the landlord Depe Global Shipping Agencies Pvt. Ltd. against Mather and Platt (India) Ltd. a tenant occupying 5000 sq. ft. premises in Hamilton House in Ballard Estate on the ground that as on 31st March 2000 its paid up capital was Rs 18.90 crores and hence deemed as a cash rich entity which has the ability to pay market rent as against a paltry sum of Rs 13,865/- which was the standard rent applicable to such premises.
The ruling emphasised that a reduction in paid-up capital does not automatically restore protection under the MRCA once such protection is lost. This ruling will have far reaching consequences vis-à-vis a landlord’s right to evict a tenant which is a cash rich entity. In the instant case Mather & Platt applied to Bombay High Court in a scheme of demerger whereby it diverted its paid up capital to two of its defunct sister concerns ostensibly to enable them to acquire its two profitable divisions.
These concerns were funded by Mather and Platt from its paid up capital whilst leaving its General Reserves of Rs. 45 crores intact. The net result was that Mather and Platt was left with paid up capital of Rs. 75,60,000/- in an attempt to regain protection under the MRCA. The High Court held that this voluntary act of reduction of its paid-up capital had no bearing on the right of a landlord to evict the tenant as once it was classified as a cash rich entity it could not regain protection.
Senior Advocate Mr. Haresh Jagtiani along with Mr. Yashpal Jain and Mr. Suprabh Jain represented the landlord and argued that by resorting to mechanism of restructuring make no difference to the right of a landlord if he chose to terminate the tenancy. An act of restructuring even though approved by the High Court only affected Mather and Platt and its stakeholders and had no bearing on the landlord.
Citing precedents from earlier rulings the court underscored the principle that the loss of protection creates a right for the landlord to seek eviction. The ruling highlighted that allowing a tenant to regain protection would be against the object and legislative policy of the MRCA and emphasised that the golden thread that runs through the new legislation is affordability to pay market rent. In conclusion the court set aside the previous judgments of the lower courts that had ruled in favour of the tenant and decreed the landlord’s suit by ordering Mather and Platt to vacate the premises by 31st December 2024.
This decision also reinforces the need for clarity in commercial tenancy agreements and the implication of corporate financial manoeuvers in the context of rent control law.
