The Delhi High Court has clarified that a suit for possession and mesne profits against a sick industrial company is not automatically barred by Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Rather, the statutory bar applies only to proceedings of the nature expressly covered by Section 22(1), or proceedings of similar coercive character, and only if they threaten the company’s assets or interfere with implementation of the rehabilitation scheme. A simple eviction/mesne profits action does not, by itself, attract that bar.
The Court also reiterated that where no registered renewal deed exists for a lease beyond one year, the tenant cannot claim a continuing fixed-term or perpetual tenancy merely on the basis of rent enhancement or conduct of parties. In such a case, the tenancy is only month-to-month and can be terminated under Section 106 of the Transfer of Property Act. Further, even if a prior notice to quit is not proved, service of summons in the possession suit can itself operate as notice of termination.
The Court further held that mesne profits may validly be assessed on the basis of comparable instances and judicially noticed comparable rentals from the same building, especially where the tenant fails to produce rebuttal evidence. At the same time, interest on such mesne profits may be denied where the tenant-company remained under SICA protection and there is no material to show that it had ceased to be a sick company during the relevant period.
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On the SICA objection, a Single Judge Bench of Justice Neena Bansal Krishna observed that Section 22(1) does not create a blanket bar against every proceeding involving a sick industrial company. The Court explained that the provision applies only to proceedings of the kind expressly mentioned in Section 22(1), or proceedings ejusdem generis with them, and only where such proceedings threaten the assets of the sick company or interfere with the formulation, consideration, finalisation or implementation of the rehabilitation scheme.
Applying that test, the Court found that the present suit was merely a suit for possession and mesne profits. It was not a coercive enforcement proceeding against the assets of the company, nor was it shown to obstruct the rehabilitation scheme. The Court therefore rejected the argument that prior consent of BIFR was required, and held that Section 22(1) of SICA did not bar the suit.
On termination of tenancy, the High Court held that once the rent exceeded Rs. 3,500 per month, the tenancy was governed by the Transfer of Property Act. It observed that under Section 107 of the Transfer of Property Act and Section 17 of the Registration Act, any lease or renewal for a term exceeding one year could only be created through a registered instrument. Since no registered renewal had been executed after Oct 15, 2006, the tenancy could not be treated as a renewed fixed-term tenancy and could only continue as a month-to-month tenancy.
The Court accepted that the respondent had failed to prove service of the legal notice dated May 06, 2008. Even so, it held that service of summons in a suit for possession itself constitutes notice to quit under Section 106 of the Transfer of Property Act. Since summons had been served on the appellant on March 11, 2010, the Court held that the tenancy stood validly terminated from that stage. The appellant’s continued possession thereafter was unauthorised, making it liable for mesne profits from April 01, 2010 till April 29, 2022.
On the quantum of mesne profits, the High Court noted that although the respondent had not produced independent lease deeds directly proving market rent, the trial court had relied on a previous Delhi High Court judgment involving the same appellant, the same building, and comparable units in the same premises. That earlier matter showed rentals of Rs. 106 per sq. ft. in 2006 for a 2nd floor unit and Rs. 85 per sq. ft. in 2010 for a 10th floor unit, and mesne profits of Rs. 100 per sq. ft. for a 5th floor unit had been upheld there. Against that background, the grant of Rs. 80 per sq. ft. for the present 4th floor unit was treated as conservative and justified.
The Court also stressed that the appellant had led no rebuttal evidence to show that the prevailing market rent was lower, or that the condition of the suit premises was so poor as to reduce its rental value. In the absence of such evidence, the challenge to the rate of mesne profits was rejected. On interest, however, the High Court observed that interest is ordinarily compensatory and not penal, but held that in the facts of this case, the appellant-company could not be saddled with interest during the period it remained a sick company under SICA. Referring to Fertilizer Corporation of India vs. Coromandal Fertilizers Ltd. [2024 INSC 348] and Modi Rubber Ltd. vs. Continental Carbon (India) Ltd. [(2023) 17 SCC 263], the Court held that where a company remains under the protective umbrella of sickness proceedings and there is nothing on record to show that it has come out of that status, it cannot be said that it wilfully withheld payment in the legal sense necessary to justify such interest liability for that period.
Briefly, an appeal was filed by Cement Corporation of India against a trial court decree which had awarded mesne profits to Dr. Narender Gopal Kapahi in respect of a flat at CCI House, 87, Nehru Place, New Delhi. The trial court had granted mesne profits at Rs. 80 per sq. ft. from April 01, 2010 till April 29, 2022, with simple interest at 9% per annum and costs. The dispute arose out of the respondent’s suit for possession, damages and mesne profits against the appellant-company. The respondent claimed that he was the sole owner of the 530 sq. ft. commercial flat, purchased in 1976, and that the premises had been let out to the appellant in 1979. According to him, the original tenancy was for three years, with an option for renewal on 10% enhancement of rent. He alleged that no fresh registered renewal was executed after the original term, and once the rent crossed Rs. 3,500 per month in 2006, the tenancy went outside the protection of the Delhi Rent Control Act.
The respondent further asserted that the property was located in a prime commercial area where market rent was far higher than the rent being paid by the appellant. He stated that after 2002 there was no renewal of the lease, the tenancy had become month-to-month, and it was terminated by legal notice dated May 06, 2008 under Section 106 of the Transfer of Property Act. On that basis, he sought possession and damages/use and occupation charges at market rate.
The appellant-company resisted the suit by arguing that the lease was perpetual in nature and stood renewed every three years upon 10% enhancement of rent under the rent agreement dated March 01, 1980. It also argued that, since it had been declared a sick industrial company by BIFR, the suit could not proceed without permission under Section 22(1) of SICA. It denied valid service of the termination notice and claimed it remained a lawful contractual tenant, not an unauthorised occupant. By the time the matter reached appeal, possession had already been handed back on April 29, 2022, so the controversy before the High Court effectively survived on mesne profits, the plea under Section 22(1) of SICA, validity of termination, and award of interest.
