Calcutta High Court
Electro Infotech Pvt. Ltd vs The State Of West Bengal & Ors on 11 September, 2009
Author: Jayanta Kumar Biswas
Bench: Jayanta Kumar Biswas
W.P. No. 416 of 2009
In the High Court at Calcutta
Constitutional Writ Jurisdiction
Original Side
Before
The Hon'ble Justice Jayanta Kumar Biswas.
Electro Infotech Pvt. Ltd..........petitioner.
v.
The State of West Bengal & Ors.......respondents.
Mr Ramesh Chaudhury and Mr Anil Chaudhury, Advocates, for the petitioner. Mr Amitabrata Roy, Advocate, for the State.
Heard on : 08.09.2009 & 11.09.2009.
Judgment on: September 11, 2009.
The court:- The petitioner in this writ petition dated May 11, 2009 is aggrieved by the decision of the Officer-on-Special Duty & Ex-Officio Deputy Secretary, Urban Development Department, Government of West Bengal dated January 21, 2009, Annexure P7 at p.76, directing the petitioner as follows :-
"3.You are also requested to submit the following documents/papers in connection with your prayer for examination.
i) Affidavit by the transferee company undertaking that no change of character of the land/land use pattern will be made by the transferee company in subsequent stages.
ii) Financial viability of the transferee company along with last audited balance sheet of the proposed transferee for last three years.
4. Please note that all that above requisite documents will have to be submitted complete in all respect and to the full satisfaction of the Government. The matter will be further processed on submission of the above documents."
The decision was given in view of the application dated August 10, 2007, Annexure P5 at p.71, submitted by the petitioner to the Principal Secretary, Urban Development Department, Government of West Bengal informing the principal secretary about incorporation of the petitioner under provisions of the Companies Act, 1956 consequent upon conversion of a firm called "E.P.Associates" and requesting the principal secretary and undertaking as follows :-
"4. In view of the facts and circumstances mentioned above, we request you to please note and record the change of status of the Lessee of the aforesaid plot of land viz. M/s. E.P. Associates from partnership firm to company and also note the consequent change of name of the lessee firm from M/s E.P. Associates to Electro Infotech Private Limited on its incorporation under the Companies Act 1956 as mentioned above.
5. If any fees and/or charges are required to be paid for recording the above we agree and undertake to pay the same on receiving the intimation from you in this regard."
The partners in the firm, E.P. Associates, executed an instrument dated June 13, 1984, Annexure P1 at p.26, under which they entered into a partnership. By executing an instrument dated July 17, 2002 , Annexure P2 at p46, the State of West Bengal leased out to the firm land measuring 8.9816 cottahs in plot no.7 of Block AQ of Sector V of Bidhannagar (Salt Lake City) to enable the firm "to erect a building thereon for use for manufacturing of Electronic Indicating Turbidity Meter". The partners in the firm entered into a memorandum of association dated May 25, 2007, Annexure P9 at p.8 of S.A., deciding to convert the firm "into a Joint Stock Company as a going concern and to register the same under Part IX of the Companies Act 1956 in the name of Electro Infotech Private Limited." It was noted in the memorandum of association that the "Deed of Partnership" conferred, inter alia, an option on the parties to get the "partnership registered under any enactments or statutes for the time being in force including registration under Part IX of the Companies Act 1956 if considered expedient by them in the best interests of the business", and that "in pursuance of such option" the partners, in a meeting held on March 31, 2007, had unanimously resolved that the business of the firm carried on under the name and style of 'E.P. Associates' would be converted into a Joint Stock Company as a going concern.
Thereupon necessary application was made to the Registrar of Companies, West Bengal for registration of the company under Part IX of the Companies Act, 1956 and after registration of the company the Registrar of Companies issued a certificate of incorporation dated June 29, 2007, Annexure P9 at p.9 of S.A. Under the circumstances, the petitioner submitted the application dated August 10, 2007 requesting the Principal Secretary, Urban Development Department, Government of West Bengal to substitute the petitioner for the firm in the records of the government pertaining to the lease of the plot. By the impugned decision the authority concerned informed the petitioner that steps for substituting the petitioner for the firm would be taken provided it complied with the conditions mentioned in the decision.
The authority giving the impugned decision has proceeded on the basis that the firm sought the government's permission to transfer the leasehold of its plot to a newly formed and registered company within the meaning of the Companies Act, 1956 and hence an independent legal entity. In the application dated August 10, 2007 the petitioner stated all necessary facts and mentioned all relevant provisions including the provisions of s.575 of the Companies Act, 1956 in support of its case that the conversion of the firm into a company did not amount to transfer of the leasehold of its plot by the firm to the company, but that the leasehold stood automatically vested in the company by operation of the provision of s.575 of the Companies Act, 1956. The authority giving the decision totally ignored this aspect of the matter, and on the contrary came to the conclusion that the conversion of the firm into a company amounted to transfer of the leasehold of its plot by the firm to the company. Hence the question is whether the conversion of the firm into a company has amounted to transfer of the leasehold of its plot by the firm to the company.
Relying on the provisions of s.575 of the Companies Act, 1956 and the decisions in Rama Sundari Ray v. Syamendra Lal Ray, [1947] I.L.R. 2 Cal.1 and Vali Pattabhirama Rao & Anr. v. Sri Ramanuja Ginning and Rice Factory (P) Ltd. & Ors., AIR 1984 AP 176, Mr. Chowdhury, counsel for the petitioner, has argued that the authority giving the impugned decision was wrong in concluding that the conversion of the firm, the lessee of the plot, into a company amounted to transfer of the leasehold of its plot by the firm to the company.
On the other hand, Mr Roy, counsel for the respondents, has argued that in view of the terms and conditions of the instrument creating the lease, the firm could not convert itself into a company and thus indirectly transfer the leasehold of its plot, without prior permission of the government, to the company. His argument is that in fact the firm has illegally transferred the leasehold of its plot to the company; and hence, the company, seeking mutation of the records of the lease, is liable to pay the charges mentioned in the impugned decision that the government has taken just as a matter of grace.
The provisions of s.575 in Part IX of the Companies Act, 1956 are as follows:-
"575. Vesting of property on registration. - All property, movable and immovable (including actionable claims), belonging to or vested in a company at the date of its registration in pursuance of this Part, shall, on such registration, pass to and vest in the company as incorporated under this Act for all the estate and interest of the company therein."
It is, therefore, evident that all movable and immovable properties belonging to or vested in a company at the date of its registration in pursuance of Part IX of the Companies Act, 1956 automatically pass to and vest in the company as incorporated under the Companies Act, 1956. Whether in such a case the passing of the properties to the company incorporated under the Companies Act, 1956 amounts to a transfer of the properties by the firm that on conversion became a company was one of the questions that arose for consideration in Rama Sundari Ray v. Syamendra Lal Ray, [1947] I..L.R. 2 Cal. 1 decided by a single bench of this court on January 4, 1940.
Rama Sundari was decided on the basis of s.263 in Part VIII of the Indian Companies Act, 1913. The said s.263 was as follows: -
"263. Vesting of property on registration.- All property, moveable and immoveable, including all interests and rights in, to and out of property, moveable and immoveable, and including obligations and actionable claims as may belong to or be vested in a company at the date of its registration in pursuance of this Part, shall, on registration, pass to and vest in the company as incorporated under this Act for all the estate and interest of the company therein."
In Rama Sundari his Lordship (Panckridge, J.) noted and held (p.9) as follows: -
"It is next argued that if there were pre-existing partnerships and if the partnerships owned the immoveable properties set out in the two schedules, those properties have never vested in the companies.
The plaintiff argues that there has either been a sale or a gift, and that, as the subject matter is immoveable property, a registered instrument is required by s.54 or s.123 of the Transfer of Property Act, as the case may be.
To this argument, s.263 of the Indian Companies Act seems to furnish a conclusive answer. That section provides that all property moveable and immoveable, as may belong to or be vested in a company, on the date of its registration in pursuance of Part VIII, shall on registration, pass to and vest in the company as incorporated under the Act for all the estate and interest of the company therein.
It will be observed that the section is mandatory and does not require the statutory transfer provided thereby to be accompanied by a registered document."
In Vali Pattabhirama Rao & Anr. v. Ramanuja Ginning & Rice Factory (P) Ltd. & Ors., AIR 1984 AP 176, a division bench of the Andhra Prdesh High Court held and said (para.18) as follows:-
"......Thus we hold that if the constitution of the partnership firm is changed into that of a company by registering it under this Part 9 of present Act (Part 8 of previous Act) there shall be statutory vesting of title of all the property of the previous firm in the newly incorporated company without any need of a separate conveyance. A similar view was taken in Rama Sundari Ray v. Syamendra Lal Ray, ILR (1947) 2 Cal 1."
I am, therefore, of the view that the authority giving the decision was wrong in concluding
(i) that conversion of the firm into a company amounted to transfer of the firm's right, title or interest in the plot to the company; and (ii) that hence the company could be given the benefit of mutation of the relevant records substituting it as the lessee for the firm provided it paid the amounts mentioned in the decision and complied with the formalities.
It is not the case that the firm merged into an already existing company registered under Part IX of the Companies Act, 1956. It is evident from the materials produced with the writ petition, especially the memorandum of association considering which the Registrar of Companies, West Bengal registered the company under Part IX of the Companies Act, 1956, that it came into existence on conversion of the firm, 'E.P. Associates', into a joint stock company limited by shares. Hence in view of the provisions of s.575 of the Companies Act, 1956 all properties, movable and immovable, belonging to or vested in the firm at the date of its registration in pursuance of Part IX of the Companies Act, 1956 passed to and vested in the petitioner by operation of law. Nothing in the whole transaction amounted to a transfer of the leasehold of its plot by the firm to the company. Accordingly, the petitioner was fully justified in submitting the application dated August 10, 2007 requesting the government to substitute it as the lessee for 'E.P. Associates', the firm, to whom the plot in question was leased out by the government. For mutating the records incorporating name of the petitioner as the lessee of the plot, the respondents could not ask the petitioner to pay any charge or fee other than the fee, if any, payable just for taking steps to mutate the records. Therefore, the impugned decision cannot be sustained.
For these reasons, I allow the writ petition, set aside the impugned decision and order that the respondents shall mutate all records concerning the lease of the plot substituting therein the petitioner's name as the lessee for that of 'E.P. Associates', the lessee named in the instrument dated July 17, 2002, Annexure P2 at p.46, creating the lease; and that for mutating the records the respondents shall not ask the petitioner to pay any charge or fee other than the fee payable just for mutating the records. Steps for mutating the records shall be taken immediately and the process shall be completed within four weeks from the date of communication of this order to the Principal Secretary, Urban Development Department, Government of West Bengal. There shall be no order for costs.
Urgent certified xerox of this order, if applied for, shall be supplied to the parties within three days from the date of receipt of the file by the department concerned.
(Jayanta Kumar Biswas, J.) sksr/sm