Paltronics Allied Industries Pvt. Ltd. and Mr. Tejpal Singh V. Union of India and Ors.

WP(C)/31692/2024

AI Insights

The case involves M/S Paltronics Allied Industries Pvt. Ltd. & Anr. (Petitioners) seeking a writ of mandamus from the High Court of Orissa to direct the Union of India & Ors. (Opposite Parties) to update the records of a property previously owned by M/s Paltronics Allied Industries, which was taken over by the Petitioner No.1 Company. The dispute centered on the recognition of the Petitioner No.1 Company's rights over the property as per a Takeover Agreement dated 14.04.1994 and a subsequent Certificate of Amendment issued on 26.08.2006. The Opposite Parties contested the petition citing ongoing legal proceedings and disputes regarding the property's status under various land laws.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 800036 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 11-04-2025
• Assessment Year: misc
• Other Referred Cases: Vinayak Purshottam Dube v. Jayashree Padamkar Bhat, Raghu Lakshminarayanan v. Fine Tubes, G.R. Engineering Works Ltd. v. Oil India Ltd., New Horizon Ltd. v. Union of India, SRSC Infra Private Ltd V S National Highway Authority of India, Commissioner of Income-Tax v. Texspin Engg. & Mfg., Vali Pattabhirama Rao v. Sri Ramanuja Ginning and Rice Factory (P.) Ltd., Jai Narain Parasrampuria (Dead) v. Pushpa Devi Saraf, Commissioner of Income Tax, Udaipur v. Chetak Enterprises Pvt. Ltd., Sozin Flora Pharma LLP v. State of Himachal Pradesh, INOX Air Product Pvt. Ltd Vs State of Himachal Pradesh and others, JSTI Transformers Pvt. Ltd. vs. State of Himachal Pradesh, Security Product Pvt. Ltd. vs. State of Himachal Pradesh and others
• Laws Referred To: Articles 226 and 227 of the Constitution of India, 1950
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: B S RAYAGURU; SASWAT DAS
• Assessee Lawyers: M AN O J MI SHRA; TANMAY MISHRA; SUBIR PALIT
• Keywords: Compromise Decree; Lease Deed; Takeover agreement; Demised Property; Update Records
• Section: 19(1)(g); 300-A; 23 Rule 3 of the CPC

Judgement Text

" Page 1 of 28 IN THE HIGH COURT OF ORISSA AT CUTTACK W.P.(C) No.31692 of 2024 (In the matter of an application under Articles 226 and 227 of the Constitution of India, 1950). M/S Paltronics Allied Industries Pvt. Ltd. & Anr. …. Petitioner (s) -versus- Union of India & Ors. …. Opposite Party (s) Advocates appeared in the case through Hybrid Mode: For Petitioner(s) : Mr. Manoj Kumar Mishra, Sr. Adv. along with Mr. Tanmay Mishra, Adv. Mr. Subir Palit, Sr. Adv. along with associate For Opposite Party (s) : Mr. B.S. Rayaguru, CGC Mr. Saswat Das, AGA for O.Ps.3 & 4 CORAM: DR. JUSTICE S.K. PANIGRAHI DATE OF HEARING:-19.03.2025 DATE OF JUDGMENT: -11.04.2025 Dr. S.K. Panigrahi, J. 1. The Petitioners, in this Writ Petition, seek a direction from this Court to the Opposite Parties to update the details in respect of the demised Property so as to reflect the takeover of the demised Property by the Petitioner No.1 Company. The Petitioners further seek direction to the Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 2 of 28 Opposite Parties to recognize compromise decree and give effect to the takeover agreement by making necessary changes in their records. 2. One Mr. Tejpal Singh, is said to be the sole proprietor of one `M/s Paltronics Allied Industries' (hereinafter referred to as \"Erstwhile Entity\"), which was duly registered as a Small-Scale Industry. The Erstwhile Entity, entered into a duly registered Lease Deed dated December 13, 1979 (hereinafter referred to as \"Lease Deed\") with the Governor of the State of Orissa, in terms of which the Erstwhile Entity became the lessee of the Landed Property Situated in Mouza Mouza - Patia, bearing Plot No. 309/1694, under Khata No. 474/5, Area - Ac. 5.000 Dec. (hereinafter referred to as \"Subject Property\"). 3. Under the terms of the Lease Deed, the Erstwhile Proprietor was put into possession of the Subject Property 1979 onwards and has continued as such. On 18.03.1994, the Petitioner No. 1 Company i.e. a private limited company, was incorporated under the provisions of the Companies Act, 1956. The Memorandum of Association of the Company (hereinafter referred to as \"MOA\") states that one of the main objects of the Company is \"to take over the business including lease rights of Paltronics Allied Industries, Bhubaneshwar\" i.e. the Erstwhile Entity. The subscribers to the MOA include the Erstwhile Proprietor i.e. the Petitioner No. 2 herein. 4. The entire object and purpose of incorporating the Company, as is borne out from inter alia the MOA, was to take over the assets, liabilities, and business of the Erstwhile Entity, including the leasehold rights in the Subject Property under the Lease Deed. The agenda/ minutes of the Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 3 of 28 first meeting of the Board of Directors of Paltronics Allied Industries Private Limited held on 19.03.1994 have been relied upon to show that the same was the first agenda item which was taken up by the board of directors. 5. It is stated that to this end, the Company and the Erstwhile Proprietor also entered into an \"Agreement for Take-Over of Business of Paltronics Allied Industries by Paltronics Allied Industries Pvt. Ltd.\" dated 14.04.1994 (hereinafter referred to as \"Takeover Agreement\"). The Takeover Agreement in its recitals provides for the transfer of the business of the Erstwhile Entity along with its land, building, and other ancillary equipment which includes the leasehold right in the subject property under the lease deed from the Erstwhile Proprietor to the Company on the terms as set out in the Takeover Agreement. 6. According to Clause 4 of the MOA and AOA of Petitioner No. 1 Company, the above noted subject Property which was initially owned by Tejpal Singh, Proprietor of M/s Paltronics Allied Industries has been taken over by the Petitioner No. 1 Company and as such on account of this takeover, this Company is treated to be the absolute owner of the demised Property for all legal purposes. 7. A Certificate of Amendment of the Constitution of the Unit from proprietorship to Private Limited Company was issued by the Directorate of Industries, Government of Odisha on 26.08.2006. 8. Pursuant to the Takeover Agreement, certain disputes and differences arose between the Petitioner No. 1 Company on the one hand, and the Erstwhile Proprietor i.e. the Petitioner No.2 herein, on the other hand. Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 4 of 28 Contrary to their inter se understanding, the Petitioner No. 2 claimed that the Subject Property continued to belong to the Erstwhile Entity / the Erstwhile Proprietor, and that the same did not vest in the Petitioner No. 1 Company, owing to certain monetary claims made by the Erstwhile Entity / the Erstwhile Proprietor. 9. As a result of the above, the Petitioner No. 1 Company filed a Civil Suit being C.S. No. 493 of 2013 before the Ld. Additional Senior Civil Judge, Bhubaneswar against the Petitioner No.2 seeking, inter alia, a declaratory relief that the Subject Property belongs to and vests in the Petitioner No. 1 Company.. 10. During the pendency of the 2013 Suit, the Petitioner No. 1 Company and the Petitioner No. 2 reconsidered their positions, and an amicable settlement was arrived at in terms of which both parties admitted and accepted inter alia that: a. The rights in the Subject Property under the Lease Deed originally vested in the Erstwhile Entity. b. The Erstwhile Proprietor, together with others, incorporated the Company. c. The Erstwhile Entity ceased to exist upon the incorporation of the Petitioner No. 1 Company. d. The Subject Property has, pursuant to the takeover agreement between the parties vested free of any legal encumbrance in the Petitioner No. 1 Company 11. Accordingly, the Petitioner No.1 Company and the Petitioner No.2 entered into a compromise and filed an application under Order 23 Rule Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 5 of 28 3 of the CPC, which was filed before the Ld. Additional Senior Civil Judge, Bhubaneswar in the 2013 Suit on 16.07.2024 which remained pending since. 12. With the aforesaid backdrop the Petitioners herein have approached this Court seeking a writ of mandamus directing the Opposite Parties to take necessary steps in pursuance of the Takeover Agreement and corresponding changes being made in the MOA and AOA. I. PETITIONERS’ SUBMISSIONS: 13. Ld. Sr. Counsels appearing for the Petitioners have jointly submitted that the Property vests in and belongs to the Company, and not the Erstwhile Proprietor and that the State is also ad idem as is evident from the Certificate of Amendment of the Constitution issued by it. It has also been submitted that the state cannot approbate and reprobate in the same breath and must unquestionably recognise the legal position of the petitioners herein. 14. It is further submitted that by refusing to update the governmental Records in this regard, the opposite parties are in effect, depriving the Company of its assets an provided in the agreement, which cannot be effectively enjoyed by the Company and the same is in violation of under Articles 19(1)(g) and 300-A of the Constitution of India. 15. The Ld. Sr. Counsels appearing for the Petitioners have strenuously relied upon the Certificate of Amendment of the Constitution, issued by the State as well as the terms of the original lease deed to buttress the point that the same is permitted thereunder as well. It has been Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 6 of 28 submitted that once the State has recognized that the Subject Property vests in and belongs to the Petitioner No. 1 Company, the Opposite Party No. 2 and 3 are left with only a formal task of updating the official records to reflect the same appropriately. 16. It has been urged by the Ld. Counsels for the Petitioner that the takeover of the Subject Property by the Petitioner No. 1 Company is under the provisions of the 1956 Act by virtue of the incorporation of the Company as recorded in the MOA, as also the Takeover Agreement, as subsequently recorded in the Certificate of Amendment of the Constitution. It has been contended that the Opposite Parties are in dereliction of their duty and power. 17. Ld. Sr. Counsels for the Petitioners have contended although a compromise had been arrived at between the Petitioners herein the Ld. Court below has not passed any decree to that effect. In this regard they submit that that the suit was ill-advised and that they be permitted to urge the present petition having finally elected the appropriate remedy in law. Additionally, the Ld. Sr. Counsels for the Petitioners have relied upon certain judicial pronouncements which shall be dealt with hereunder. II. SUBMISSIONS BY OPPOSITE PARTIES: 18. It has been contended by the learned counsel for the Opposite Parties that the present petition should not be allowed on the ground that various proceedings under different statutes have been initiated with regard to the property in question for a variety of reasons. It has been submitted that a resumption case bearing Resumption Case No.1/2024 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 7 of 28 arising out of Lease Case No.1019/1979 has been instituted by the Tahasildar, Bhubaneswar in terms of the provisions of the under Section 3B of the OGLS Act, 1962 and accordingly notice has been issued to the Petitioner No.2 herein on 19.10.2024. 19. It is further submitted that a OLR 8 (A) Appeal Case No.15/2024 under Section 58-A of OLR Act has been instituted in the Court of Addl. District Magistrate Bhubaneswar challenging the order dated 30.04.2022 passed in Mutation Case No.7114 of 2022 by the Additional Tahasildar. And accordingly, notice has been issued in the said appeal case to the Petitioner No.2, Sri Tejpal Singh, Proprietor, Platronics Allied Industries vide Notice No.6367 on 30.10.2024. 20. Strenuous reliance has been placed on Clause 4(ii) of the lease deed which provides that \"That upon breach or non-observation of any condition of lease wherein granted, the lessor may declare the lease has been determined and the Collector or any officer or person appointed on that behalf by the Lessor shall be entitled to re-enter and take possession of the demised land and buildings and other structure erected thereon and the material thereof as well as stores and stock\" It is submitted that a field verification by the RI, Kalarahanga reported that the land is no more used for the purpose for which the lease was sanctioned and presently a multi-storied building is under construction. 21. It is further contended that the land which was granted for industrial purpose was converted to Kisam `Gharabari' status and the same has been utilised for construction of residential complex which was contrary to the conditions of lease and the said matter is Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 8 of 28 under enquiry by the Member, Board of Revenue. In the meantime, Board of Revenue vide Letter No. 174 dt.04.02.2025 has requested to allow another period of two months to complete the enquiry as the Member, BOR has taken charges on 29.01.2025. 22. Lastly, it was submitted that in the suit for declaration between the Petitioner Nos.1 & 2 is pending before the court of Civil Judge (Sr. Div.) Bhubaneswar in C.S. No.493/2013 and no decree much less any compromise decree has been passed therein thus the present petition is not maintainable. IV. ISSUES FOR CONSIDERATION: 23. In view of the aforesaid discussion this Court proceeds to formulate the following sole issue that falls for consideration. (A) WHETHER OR NOT THE PRESENT PETITIONERS HAVE A LEGAL RIGHT IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHICH OUGHT TO BE RECOGNIZED AND CONSEQUENTLY WHETHER OR NOT THE PRESENT PETITION BE ALLOWED. V. ANALYSIS AND REASONING BY THIS COURT: 24. The grievance of the petitioners is that despite the aforesaid legal backdrop and the steps as contemplated in law having been taken by them, the records of rights continue to erroneously reflect the name of Tejpal Singh in place of Petitioner No.1 Company. The petitioners have thus approached this Court to direct the opposite parties to update/ make necessary changes in their respective records with regard to the status of the subject property in terms of the takeover that has taken place. Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 9 of 28 25. It has been strenuously submitted that the takeover agreement dated 14.04.1994 itself creates a legal right in the petitioners qua the opposite parties herein. The opposite parties are within the meaning of \"State\" as envisaged under Article 12 of the constitution. 26. It has been urged by the Ld. Sr. Counsels that the Petitioners have been pursuing their legal remedies as such are protected under the Limitation Act and that the petition does not suffer from delay and latches whatsoever. 27. It has been submitted that the petitioner had elected a remedy which caused the suit being filed before the Ld. Trial Court at the first instance. Be that as it may, it is contended that this court under its extraordinary jurisdiction has ample powers to recognise the legal right that flows from the takeover agreement and creates rights and duties, inter se the petitioner and opposite parties herein. 28. The takeover agreement forms the bedrock of the transaction which by itself provides the grounding in law of a concluded contract. The right of the parties are determined and are set in stone on the basis of the sanctity of the said agreement. The fact that such a situation has been envisaged by the original lease deed itself can be traced to the recitals which, in fact, categorically provide for such a situation. The Petitioner No. 1 Company is said to have taken over the entire business, assets, and liabilities of the Erstwhile Entity pursuant to the takeover agreement, the same is traced to the recital contained in the Lease Deed. 29. The subject land in question appears to have been allotted on an application being made by one Tejpal Singh who is said to represent Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 10 of 28 one M/s Paltronics Manufacturing Company which was registered as a small scale industry. The said recommendation was made by the District Industries Centre, Puri on 15.9.1979. It appears pursuant to the recommendation dated 15.1979 a Lease Deed was entered into between the then Collector of Puri and the aforesaid Tejpal Singh who is said to be the sole proprietor of Paltronics Allied Industries vide a Lease Deed dated 13.12.1979. A perusal of the Lease Deed dated 13.12.1979, especially the proviso to Clause 2 provides that “provided that in case of reconstruction of the lessee or amalgamation of the lessee with any new company or corporation formed to take over the lease this covenant permits transfer of the demised land to such reconstructed or new company or corporation”. 30. In view of such an unequivocal proviso, it is clear that the lessor and the lessee therein where both cognizant of the fact that the lessee therein, could in the future undergo any reorganization of business. In order to meet such a situation the proviso specially carves out this provision to state that the covenant will permit the transfer of the subject land to the new entity that would be formed in the future or to a new entity which would take over the lease of the lessee therein. In view of such an unequivocal and clear recital in the original Lease Deed there would be no impediment in law for the lessee therein (Petitioner No.2 herein) to enter into any “takeover” as provided or contemplated under the original Lease Deed. That being the case, as the sequence that have unfolded and the subsequent transactions that have been entered into are in consonance with the terms of the original Lease Deed itself. Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 11 of 28 31. It appears while the matters stood thus, a new company by the name of Paltronics Allied Industries Pvt Limited was incorporated and a certificate of incorporation for the same was issued on 18.3.1994 by the Registrar of Companies, Orissa. Further, a perusal of the Memorandum of Association of the aforesaid company reveals that under the objects to be pursued by the company on its incorporation clause 4 of the memorandum of association provides that “to take over the business including lease rights of Paltronics Allied Industries, Bhubaneswar”. Interestingly, the aforesaid Tejpal Singh has been described as one of the founding promoters of the new company with substantial number of equity shares having been subscribed by him right at the beginning of the formation of the company. The said shareholding of Tejpal Singh has also been reflected in the Articles of Association of the company. Both the Memorandum of Association of the company as well as the Articles of Association of the company have been executed on 25.2.1994. 32. A perusal of the minutes of the first meeting of the Board of Directors of Paltronics Allied Industries Private Limited on 19.3.1994 shows that Tejpal Singh remained present for the same. The agenda item for the constitution of the board resolved that Tejpal Singh was inducted into the Board of Directors. Further, one of the other Directors proposed the name of the Tejpal Singh for the post of Managing Director and it was resolved that Tejpal Singh be appointed as the Managing Director of the company for a term of 5 years. Most importantly, an agenda item was drawn up for taking over of business of Paltronics Allied Industries. Under the same, Tejpal Singh impressed upon the members that the Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 12 of 28 company was formed with the view to convert Paltronics Allied Industries at Patia, Bhubaneswar a proprietorship concern to a private limited company for expansion and to widen the area of activities. The latest balance sheet of the concern was placed before the meeting. The Directors, accordingly, decided to take over the business for a consideration of 3000 numbers of equity shares of the company of Rs. 100 each to be allotted in due course to Sri Tejpal Singh and ₹20,000 to be payable to Tejpal Singh, proprietor of Paltronics Allied Industries and pass the following resolution. “Resolved that consent of the board of directors be and is hereby given for the acquisition of business of Paltronics Allied Industries, Bhubaneswar as per Clause 4 of the memorandum of association of the company for a consideration of Rs. 20,000 and allotment of 3000 numbers of equity shares of ₹100 each of the company amounting to Rs. 3,00,000.” 33. An agreement dated 14.04.1994 which has been described as an agreement for takeover of business of Paltronics Allied Industries by Paltronics Allied Industries Private Limited was executed by the transferor i.e. Tejpal Singh described as Proprietor of Paltronics Allied Industries and Petitioner No. 1 company through its Director described as the transferee. It is stated therein that the transferee has offered to take over the business of the transfer to which the transfer has agreed on the terms as reproduced as hereunder; “That the Transfer as the sole proprietor of Paltronics Allied Industries will transfer the same along with its land building and other ancillary equipments in favour of the Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 13 of 28 Transferee at a consideration of Rs. 3,20,000 comprising of Rs. 20,000 towards cost of land, Rs. 2,10,000 towards cost of compound wall and existing building and Rs. 90,000 towards cost of electronic testing equipments and furnitures. The said business will continue under the name and style of Paltronics Allied Industries Private Limited where in the transfer is a Promoter Director.” 34. On 26.8.2006 a Certificate of Amendment of the Constitution of the unit in question from proprietorship to private limited company has been issued by the General Manager of the Directorate of Industries, District Industries Centre which comes within the purview of the opposite parties herein. The Ld. Sr. Counsels have vehemently contended that, this in fact reflects the correct legal position which already stands recorded in the records of the opposite parties and there should have been no dispute with regard to the same. That being the case there is a clear admission and it is in admitted position that the conversion of the proprietorship to the private limited company has in fact been recognised by the opposite parties. This certificate demonstrates that the Petitioner No.1 Company is nothing but the new avatar of the Erstwhile Entity, having taken over all its assets and liabilities as contemplated by the Erstwhile Entity.This submission seems to have some merit. The Opposite Parties themselves have acknowledge the same cannot now be permitted to blow hot and cold. 35. The objections raised by the Opposite Parties herein involve issues which admittedly according to themselves are subject matter of challenge in various proceedings under different provisions of land Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 14 of 28 laws. This court in the present petition is not concerned with any of the issues or objections that were raised during the course of hearing. Rather, the only question that falls for determination in the present case has been framed as an “Issue A” [supra]. That apart no other challenge has been raised by the Opp. Parties to the issue at hand in the present petition. 36. One last factual aspect of the matter is that on 16.7.2024 the Petitioners herein is stated to have entered into a compromise and filed an application under Order 23 Rule 3 of the Code of Civil Procedure. The said application is said to have remained pending since and no compromise decree has been passed pursuant to the same. 37. Such being the factual backdrop of the case the legal position relating to the subject matter needs to be adverted to. In the case of Vinayak Purshottam Dube v. Jayashree Padamkar Bhat1 the Hon’ble Apex Court dealt with the concept of a proprietorship form as hereunder; “22. In this regard, it is necessary to discuss the jurisprudential status of a proprietary concern. In a report of the Insolvency Law Committee submitted in February 2020, the definition of “proprietorship firms” reads as under: “2. Definition of “Proprietorship Firms” *** 2.2. Proprietorship firms are businesses that are owned, managed and controlled by one person. They are the most common form of businesses in India and are based in unlimited liability of the owner. Legally, a proprietorship is not a separate legal entity and is merely the name under 1 (2024) 9 SCC 398 : 2024 SCC OnLine SC 212 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 15 of 28 which a proprietor carries on business. [Raghu Lakshminarayanan v. Fine Tubes [Raghu Lakshminarayanan v. Fine Tubes, (2007) 5 SCC 103 : (2007) 2 SCC (Cri) 455] .] Due to this, proprietorships are usually not defined in statutes. Though some statutes define proprietorships, such definition is limited to the context of the statute. For example, Section 2(haa) of the Chartered Accountants Act, 1949 defined a “sole proprietorship” as “an individual who engages himself in practice of accountancy or engages in services…”. Notably, “proprietorship firms” have also not been statutorily defined in many other jurisdictions.” (emphasis in original) [Source : Report of the Insolvency Law Committee, pp. 117- 118, Government of India (Ministry of Corporate Affairs, February, 2020).]” 38. The Supreme Court in the case of Raghu Lakshminarayanan v. Fine Tubes2, while distinguishing a juristic person such as a company, a partnership or an association of persons from a proprietary concern, it was observed that a person who carries on business in the name of a business concern, but he being a proprietor thereof, would be solely responsible for conduct of its affairs. A proprietary concern is not a company. Further, a proprietary concern is only the business name in which the proprietor of the business carries on the business. 39. The proposition laid down hereinabove is important to bear in mind for the simple fact that in the present case the lease has been allotted to one Mr Tejpal Singh who is the sole proprietor of a sole proprietorship 2 (2007) 5 SCC 103 : (2007) 2 SCC (Cri) 455] Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 16 of 28 firm. The aforesaid discussion makes it amply clear that it was the individual who, in fact, was the lessee and that a sole proprietorship is interchangeable in legal status with the status of the proprietor himself. It is this proprietor who has subsequently joined the subsequent new company as a promoter director and taking shareholding in the newly formed company. The board resolution as well as the takeover agreement both make it clear that the sole proprietorship firm was no longer in existence and that the company took over the assets and liabilities of the sole proprietorship firm. It is also interesting to note that the first board meeting itself makes it clear that the intention to form the company has been stated to “convert” the sole proprietorship firm into a company. 40. The fact that business is needed to reorganise themselves from time to time by forming and extinguishing entities has been recognised and discussed by the Gauhati High Court in the case of G.R. Engineering Works Ltd. v. Oil India Ltd.3 the relevant portion of which is hereunder; “17. It may, now, be pointed out that when the owner of a proprietary concern decides, in order to expand his business, to form a partnership firm with some others, strictly speaking, a new entity is born in the form of a firm. The firm, which may be so born, could not have had any experience in its own name. This does not mean that a businessman would not take into consideration the earlier experience of one of the partners of such a firm for the purpose of determining the capability of the firm to execute 3 (2007) 3 Gau LR 899 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 17 of 28 a contract if allotted to them. Similarly, a firm may consist of two persons as partners and in order to expand their business, they may bring in some new partners and a new firm, in a new name, may be organised and formed. Though the newly born firm may not have any experience in its own name, would the experience of those, who had been carrying on the business of the type, which the newly bom firm is required to do, not be counted by a prudent businessman for determining the technical experience of the newly born firm to do the business ? It is not uncommon that a company, on account of merger or amalgamation, undergoes a re- organization and a tender may be submitted in the name of such a reorganized company. Shall the experience of the company, which has merged into re-organized company, not be taken into consideration, because the tender has not been submitted in the name of the company, which has merged, but has been submitted in the name of a re-organized company, which has no experience, in its own name ? Similarly, there may be a split in a company and the persons, who had been looking after a particular field of the business of the company, may form a new company after leaving the earlier company. The new company, though have persons with experience in the field, may not have experience in its own name; while the original company would have experience in its own name, but it would lack persons with experience, who had done work in the field. The requirements, regarding experience, cannot mean that the offer of the originaL company must be considered, because it has experience, in its name, though it does not have any experienced person with it to carry on the work and ignore the offer of the new company on the ground that it has no experience in its own name, though it has persons having experience in the field and also capability to undertake and execute the work. A tender process, in such a case, is nothing, but a commercial transaction; The terms and conditions of the bidding documents have to be, therefore, construed, from the standpoint of a prudent Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 18 of 28 businessman. When a businessman enters into a contract, whereunder some work is required to be performed, he would seek to assure himself about the credentials of the person whom he has to choose for the purpose of performance of the work. If such credentials are to be examined from a commercial point of view, it logically means that if the contract is to be entered into, a company, as a prudent person in business, will look into the background of the entity, be it a company or firm, and the persons, who are in control of the same and capable to execute the work. A businessman would not go by the name of the company alone, but by the persons behind it, who have experience to do the work. Similar has to be approach of the State and its instrumentalities, while considering the eligibility of a tenderer, as is the case at hand, for the purpose of awarding the contract…….” 41. These aspects of law have also been dealt with and succinctly explained in New Horizon Ltd. v. Union of India4, , wherein the Apex Court observed and laid down as under:— “23. Even if it be assumed that the requirement regarding experience as set out in the advertisement dated 22.4.1993 inviting tenders is a condition about eligibility/or consideration of the tender, though we find no basis for the same, the said requirement regarding experience cannot be construed to mean that the said, experience should be of the tenderer in his name only. It is, possible to visualize a situation where a person having past experience has entered, into a partnership and the tender has been submitted in the name of the partnership firm which may not have any past experience in its own name. That does not mean that the earlier experience of one of the partners of the firm cannot be taken into consideration. Similarly, a company incorporated under the Companies Act having past experience may 4 (1995) 1 SCC 478 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 19 of 28 undergo reorganization as a result, of merger or amalgamation with another company which may have no such past experience and the tender is submitted in the name of the reorganized company. It could not be the purport of the requirement about experience that the experience of the company which has merged into the reorganized company cannot be taken into consideration because the tender has not been submitted in its name and has been submitted, in the name of the reorganized company which does not have experience in its name. Conversely there may be a split in a company and persons looking after a particular field of the business of the company form a new company after leaving it. The new company, though having persons with experience in the field, has no experience in its name while the original company having experience in its name lacks persons with experience. The requirement regarding experience does not mean that the offer of the original company must be considered because it has experience in its name though it does not have experienced persons with it and ignore the offer of the new company because it does not have experience in its name though it has persons having experience in the field. While considering the requirement regarding experience it has to be borne in mind that the said requirement is contained in a document inviting offers for a commercial transaction. The terms and conditions of such a document have to be construed from the standpoint of a prudent businessman. When a businessman enters into a contract where under some work is to be performed he seeks to assure himself about the credentials of the person who is to be entrusted with the performance of the work. Such credentials are to be examined from a commercial point of view which means that if the contract is to be entered with a company he will look into the background of the company and the persons who are in control of the same and their capacity to execute the work. He would go not by the name of the company but by the persons behind the company. While keeping in view the past Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 20 of 28 experience he would also take note of the present state of affairs and the equipment and resources at the disposal of the company. The same has to be the approach of the authorities while considering a tender received in response to the advertisement issued on 22.4.1993. This would require that first the terms of the offer must be examined and if they are found satisfactory the next step would be to consider the credentials of the tenderer and his ability to perform the work to be entrusted. For judging the credentials past experience will have to be considered along with the present state of equipment and resources available with the tenderer. Past experience may not be of much help if the machinery and equipment is outdated. Conversely lack of experience may be made good by improved, technology and better equipment.” 42. In the case of SRSC Infra Private Ltd V S National Highway Authority of India5 which while approving the principle of law laid therein only distinguished the same on facts, as in that case the Business Transfer Agreement would not concluded and thus was incapable of being enforced. It was held therein as hereunder; “58. In G.R. Engineering Works Ltd. v. Oil India Ltd. (Supra), the business of the partnership was duly taken over by the private limited company. All the assets, liabilities, and dues became assets, liabilities and dues of the private limited company. The partnership firm was dissolved, the works order of the partnership firm were modified as the works order with the private limited company. In the present case, as already found in paras above, the transactions required to fully effectuate the BTA dated 03.08.2019 are yet to be completed.” 5 2021 SCC OnLine Del 3640 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 21 of 28 43. The High Court of Bombay in the case of Commissioner of Income- Tax v. Texspin Engg. & Mfg.6, while dealing with a case where partnership firm was being treated as a company under the statutory provisions of the Companies Act, held that when a firm is treated as a company, there is no conveyance of the property executable in favour of the Limited Company. The vesting of property of firm in the Limited Company was not incidental to a transfer, but statutory. Of course the primary question there being whether the transaction would be amenable to capital gains tax. It would be profitable to reproduce the relevant part judgment hereinbelow; “6…... Now, in the present case, it is argued on behalf of the department before the Tribunal, for the first time, that in this case, on vesting of the properties of the erstwhile Firm in the Limited Company, there was a transfer of capital assets and, therefore, it was chargeable to income-tax under the head “Capital gains” as, on such vesting, there was extinguishment of all right, title and interest in the capital assets qua the Firm. We do not find any merit in this argument. In the present case, we are concerned with a Partnership Firm being treated as a company under the statutory provisions of Part IX of the Companies Act. In such cases, the Company succeeds the Firm. Generally, in the case of a transfer of a capital asset, two important ingredients are : existence of a party and a counterparty and, secondly, incoming consideration qua the transferor. In our view, when a Firm is treated as a Company, the said two conditions are not attracted. There is no conveyance of the property executable in favour of the Limited Company. It is no doubt true that all properties of the Firm vests in the Limited Company on the Firm being treated as a Company 6 (2003) 180 CTR 497 Bom Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 22 of 28 under Part IX of the Companies Act, but that vesting is not consequent or incidental to a transfer. It is a statutory vesting of properties in the Company as the Firm is treated as a Limited Company. On vesting of all the properties statutorily in the Company, the cloak given to the Firm is replaced by a different cloak and the same Firm is now treated as a Company, after a given date. In the circumstances, in our view, there is no transfer of a capital asset as contemplated by Section 45(1) of the Act. Even assuming for the sake of argument that there is a transfer of a capital asset under Section 45(1) because of the definition of the word “transfer” in Section 2(47)(iii), even then we are of the view that liability to pay capital gains would not arise because Section 45(1) is required to be read with Section 48, which provides for mode of computation……..” 44. Similar issue came up before the High Court of Andhra Pradesh in Vali Pattabhirama Rao v. Sri Ramanuja Ginning and Rice Factory (P.) Ltd. 7 wherein the court was considering a situation where a previous firm was converted into company under the provisions of Companies Act. The Court held that there was statutory vesting of title of all the property of the previous firm in the newly incorporated company, therefore, there was no need for any separate conveyance. It was held that a partnership which was treated as a company for the purposes of the Companies Act can be registered under Part 8 of the previous Act (Part 9 of the present Act) and the vesting is provided by Section 263 of the 1913 Act (Section 575 of the present Act). The provision is mandatory and there will be statutory vesting in the corporation so incorporated under the provisions of the Companies Act. The Registrar 7 AIR 1984 AP 176 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 23 of 28 is bound to give a certificate of registration under Section 262 (present Section 574) which is a conclusive proof of incorporation, vide Section 35 of the present Act that corresponds to Section 24 of the previous Act. Hence, it is clear that no conveyance is necessary when a partnership is converted and registered as a company. However, it is not possible to acquire such title statutorily under this section if the previous firm purports to convey title to the company in which event a separate deed of conveyance is necessary. The Court therefore held that if the constitution of the partnership firm is changed into that of a company by registering it under Part 9 of the present Act (Part 8 of the 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 for a separate conveyance. 45. The above judgment was quoted with approval by the Supreme Court in Jai Narain Parasrampuria (Dead) v. Pushpa Devi Saraf8 , in following manner:- “26. The said decision has been followed by a Division Bench of the Andhra Pradesh High Court in Vali Pattabhirama Rao v. Sri Ramanuja Ginning & Rice Factory (P) Ltd. wherein it was held : (AIR pp. 184-85) “Thus we hold that if the constitution of the partnership firm is changed into that of a company by registering it under 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 for a separate conveyance.” 8 (2006) 7 SCC 756 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 24 of 28 46. The Supreme Court while considering the effect of conversion of partnership firm into a company under Part IX of the Companies Act in Commissioner of Income Tax, Udaipur v. Chetak Enterprises Pvt. Ltd9. , held that on statutory vesting all properties of the firm, in law, vest in the company and the firm is succeeded by the company. The relevant portion is reproduced hereunder:— “7. The question is : what is the effect of conversion of partnership firm into a company under Part IX of the Companies Act? That can be discerned from Section 575 of the Companies Act, which reads thus: “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 manifest that all properties, movable and immovable (including actionable claims) belonging to or vested in a company at the date of its registration would vest in the company as incorporated under the Act. In other words, the property acquired by a promoter can be claimed by the company after its incorporation without any need for conveyance on account of statutory vesting. On such statutory vesting, all the properties of the firm, in law, vest in the company and the firm is succeeded by the company. The firm ceases to exist and assumes the status of a company after its registration as a company.” 9 AIR 2020 SC 4305 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 25 of 28 47. The High Court of Himachal Pradesh in Sozin Flora Pharma LLP v. State of Himachal Pradesh10 while placing reliance on various judgments has categorically held in the judgment supra that upon conversion of a registered partnership firm to an LLP under the provisions of the Limited Liability Partnership Act, all movable and immovable properties of erstwhile registered partnership firm are automatically vest in the converted LLP by operation of Section 58(4)(b) of the Limited Liability Partnership Act. However, while making aforesaid observations, Division Bench has further held that transfer of assets of a firm to the LLP is by operation of law. Being statutory transfer, no separate conveyance/instrument is required to be executed for transfer of assets. If it is so, no stamp duty can be charged merely on account of change of the name of the company. Having dealt with the issues therein the Court came the conclusion as hereinunder; “5. Conclusion : -From the above discussion, following conclusions are drawn:— 5(a). Upon conversion of a registered partnership firm to an LLP under the provisions of the Limited Liability Partnership Act, all movable and immovable properties of erstwhile registered partnership firm, automatically vest in the converted LLP by operation of Section 58(4)(b) of the Limited Liability Partnership Act. 5(b). The transfer of assets of firm to the LLP is by operation of law. Being statutory transfer, no separate conveyance/instrument is required to be executed for transfer of assets. 10 2021 SCC OnLine HP 4961 : AIR 2021 HP Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 26 of 28 5(c). Since there is no instrument of transfer of assets of the erstwhile partnership firm to the limited liability partnership, the question of payment of stamp duty and registration charges does not arise as these are chargeable only on the instruments indicated in Section 3 of the Indian Stamp Act and Section 17 of the Indian Registration Act. 5(d). Partnership firm's legal entity after conversion to limited liability partnership does not change. Only the identity of the firm as a legal entity changes. Such conversion or change in the name does not amount to change in the constitution of partnership firm. 5(e). Stamp duty and registration fee cannot be levied upon conversion of a partnership firm to LLP. Therefore, permission under Section 118 of the H.P. Tenancy and Land Reforms Act for recording such change of name in the revenue documents, i.e. M/s Sozin Flora Pharma to M/s Sozin Flora Pharma LLP cannot be made dependent upon deposit of stamp duty and registration fee. For the foregoing discussion, we allow the instant writ petition. The impugned Annexures P-8, dated 28.08.2017 and P-10 dated 23.08.2019, insofar they direct the petitioner to deposit the stamp duty and registration fee consequent upon change of its name from M/s Sozin Flora Pharma to M/s Sozin Flora Pharma LLP, are quashed and set aside. The respondents are directed to enter the name of the petitioner as ‘M/s Sozin Flora Pharma LLP’ in the revenue record within a period of four weeks from today.” 48. The same view has echoed forth in the case of INOX Air Product Pvt. Ltd Vs State of Himachal Pradesh and others11; JSTI Transformers Pvt. 11 2022 SCC OnLine HP 6502 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 27 of 28 Ltd. vs. State of Himachal Pradesh12 and Security Product Pvt. Ltd. vs. State of Himachal Pradesh and others13. 49. From a combined reading and collective conspectus of the legal propositions discussed herein above two things emerge. Firstly, that in case of a “conversion” the transfer of assets i.e. all movable and immovable properties of erstwhile firm, automatically vest in the converted LLP/ company by operation of law. No separate documents have be executed for the same. Secondly, in cases like the present one where there is no automatic operation of law, where the “takeover” of a firm take place by a company the same will be governed by the documents existed executed by the parties. Both the types of transfer are similar conceptually the only difference being that in one case there is no requirement to execute any formal documents whereas in the other necessary documents have to be executed. In the present case the Petitioner No.1 Company as borne out from the records of the case was clearly formed to take over the assets and liabilities of the sole proprietorship firm in question. As discussed hereinabove, a sole proprietorship is nothing but the proprietor himself acting in another name. There is no legal distinction between a sole proprietor and the proprietorship firm. The lease in question in the present case was given to one Tejpal Singh. The said person has been taken on board as one of the promoter directors in the newly formed Petitioner No.1 Company. The first board meeting also shows the shareholding of the said person in 12 2022 SCC OnLine HP 2043 13 2024 SCC OnLine HP 3808 Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified Page 28 of 28 the Petitioner No.1 Company. The Articles of Association and the Memorandum of Association of the Petitioner No.1 Company state therein that one of the main objects of the formation of the company is to “takeover” the sole proprietorship firm. The same has been ratified in the very first board meeting itself. Pursuant to the same a takeover agreement has been executed between the parties. Most importantly, the District Industries Centre has issued a Certificate of Amendment of the Constitution of the unit which really in effect recognises the amended position pursuant to the various transactions referred to hereinabove. 50. In view of the above discussion, the Writ Petition deserves to be allowed. Consequently, the Opposite Parties herein are directed to update /make necessary amends in their records and give full effect to the takeover agreement by making necessary changes in their respective records to reflect the name of the Petitioner No.1 Company herein indicating the details of subject property. The said exercise shall be carried out expeditiously within a period of 2 weeks. 51. Ordered accordingly. No order as to costs. (Dr. S.K. Panigrahi) Judge Orissa High Court, Cuttack, Dated the 11th April, 2025/ Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 15-Apr-2025 16:40:34 Signature Not Verified "