New Delhi: The Supreme Court has held that a partnership arrangement cannot be used as a device to conceal an unlawful transfer of possession of tenanted premises, and that courts are entitled to lift the veil of partnership to ascertain the true nature of the transaction.
A Bench comprising Justices Ahsanuddin Amanullah and R. Mahadevan restored an eviction order against a watch company occupying a shop in Bengaluru, setting aside the Karnataka High Court’s order that had reversed the trial court’s findings in revision.
The case arose from a lease deed dated 22.02.1985, under which M/s. Mahendra Watch Company, represented by its partner Rajesh Kumar, was inducted as a tenant in respect of a shop at Maruthi Plaza, U.M. Lane, Chickpet, Bengaluru. The landlord, Sri M.V. Ramachandrasa, who had himself taken a long-term lease of the larger property from Uttaradi Math in 1983 with liberty to sub-let, later discovered that Rajesh Kumar was no longer in possession and that the business was being carried on exclusively by Ashish M. Jain and Atul M. Jain, who were not parties to the lease. The landlord initiated eviction proceedings before the Court of Small Causes, Bengaluru, under the Karnataka Rent Act, 1999 on the ground of unlawful sub-letting.
The trial court allowed the eviction petition in 2017, finding that the persons in actual occupation were strangers to the original tenancy and that the tenant had unlawfully parted with possession. The Karnataka High Court, however, reversed the decision in revision in 2023, holding that the change in partnership constitution did not amount to sub-letting. The landlord’s legal heirs thereafter approached the Supreme Court, challenging the High Court’s interference.
On the question of revisional jurisdiction, the Court held that the High Court had clearly transgressed the well-settled limits of its power under Section 46 of the Karnataka Rent Act, 1999. Revisional jurisdiction, the Court reiterated, does not confer appellate powers permitting reappreciation of evidence or substitution of factual findings. Interference is warranted only where findings are perverse, based on no evidence, or suffer from manifest illegality. Relying on the Constitution Bench decision in Hindustan Petroleum Corporation Limited v. Dilbahar Singh, the Court held that the High Court had undertaken a fresh analysis of depositions, partnership documents, and rent receipts, and arrived at independent factual conclusions—an exercise wholly impermissible in revisional jurisdiction.
On the burden of proof in sub-letting cases, the Court reaffirmed that the initial onus lies upon the landlord to establish that a third party is in exclusive possession of the premises. Once this is demonstrated, a presumption of sub-letting arises, and the burden shifts to the tenant to explain the nature of such possession. The Court noted that direct evidence of sub-letting is seldom available given the clandestine nature of such arrangements, and that courts are permitted to draw inferences from surrounding circumstances, including exclusive possession by a stranger, to infer that monetary consideration was involved.
Applying these principles, the Court found that the landlord had successfully discharged the initial burden. The lease recognised only Respondent No. 4 as the tenant, and the trial court had categorically recorded that the original tenant was no longer in possession, with Respondent Nos. 2 and 3 in exclusive occupation. The respondents failed to produce the original partnership deed, any duly proved retirement deed, or any document establishing continuity of the original firm. The alleged reconstitution deed was unregistered and had not been proved in accordance with law. In the absence of any cogent evidence, the possession of Respondent Nos. 2 and 3 remained unexplained and unlawful.
On the core question of whether a reconstitution of partnership amounts to sub-letting, the Court surveyed its earlier decisions in Amar Nath Agarwalla v. Dhillon Transport Agency, Parvinder Singh v. Renu Gautam, Celina Coelho Pereira v. Ulhas Mahabaleshwar Kholkar, and Mahendra Saree Emporium (II) v. G.V. Srinivasa Murthy, and distilled the governing principles. The Court held that inducting a partner into a business does not, by itself, amount to sub-letting so long as the original tenant retains legal possession and control over the premises. However, where the tenant has divested himself of possession and a deed of partnership has been drawn up merely as a cloak to conceal an impermissible transfer, courts are not estopped from lifting the veil and determining the real nature of the transaction.
The determinative test, the Court held, is whether the original tenant continues to retain legal possession and control. In the present case, Respondent No. 4 had retired from the business around the year 2000, with no legally admissible evidence showing that he retained any role, possession, or control thereafter. The cross-examination of RW-1 clearly established that Respondent Nos. 2 and 3 were in exclusive possession and control, satisfying the test of parting with possession both in fact and in law. The Court further held that the continued issuance of rent receipts in the name of the original tenant firm did not advance the respondents’ case, as legal possession and control—not the formality of rent payment—is the determinative factor.
The Court accordingly held that the arrangement amounted to unlawful sub-letting and assignment within the meaning of Sections 27(2)(b)(ii) and 27(2)(p) of the Karnataka Rent Act, 1999, and that the respondents were liable to eviction. The High Court’s order was set aside, and the trial court’s eviction order was restored. The respondents were granted three months to vacate and hand over vacant possession of the premises.
Case Title: Sri M.V. Ramachandrasa (Since Deceased) Represented by Legal Heirs v. M/s. Mahendra Watch Company Represented by its Partners & Ors., Civil Appeal No. 4353 of 2026 [Arising out of SLP (C) No. 25957 of 2023], 2026 INSC 348
