Supreme Court restores eviction, holds partnership reconstitution used as cloak for unlawful sub-letting
Meetu Kumari | Apr 13, 2026 |
SC Restores Eviction; Partnership Reconstitution Held Sham Sub-Letting Device
The appellants, legal representatives of a deceased landlord, challenged a Karnataka High Court order that had set aside an eviction decree against the respondents. The premises were originally leased to a partnership firm, M/s. Mahendra Watch Company, with Respondent No. 1 as the original partner. Over time, the partnership was “reconstituted” multiple times, eventually leading to a situation where the original tenant (Respondent No. 1) retired, and entirely new individuals (Respondent Nos. 2 and 3) took over the business and exclusive possession of the premises. The landlord argued that this was not a bona fide business reorganization but a “sham” arrangement intended to illegally transfer tenancy rights (sub-letting) without the landlord’s consent, violating Section 27 of the Karnataka Rent Act, 1999.
Main Issue: Whether the reconstitution of a partnership firm, resulting in the complete withdrawal of the original tenant and the induction of strangers into exclusive possession of the leased premises, constitutes “unlawful sub-letting” or “assignment” under the Karnataka Rent Act, 1999.
HC’s Decision: The Supreme Court, presided over by Hon’ble Mr. Justice R. Mahadevan, allowed the appeal and restored the trial court’s eviction order. The Court held that while a bona fide change in partnership is permissible, a “reconstitution” that effectively ousts the original tenant and installs strangers in exclusive possession without the landlord’s written consent is a clear case of sub-letting. Invoking the “Doctrine of Lifting the Corporate Veil,” the Court ruled that the partnership deeds were a mere “cloak” or “facade” to hide the illegal transfer of the leasehold interest. The Bench emphasized that the original tenant had divested himself of legal possession, satisfying the grounds for eviction under Section 27(2)(b)(ii) and Section 27(2)(p) of the Act. The respondents were granted three months to vacate the premises.
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