Bank merger won't override landlord's right to evict: Supreme Court orders PNB's eviction from CP

The Supreme Court recently held that a government-sanctioned merger of banks under the Banking Regulation Act, 1949, does not sweep away a landlord’s statutory protection against unauthorised subletting or assignment under rent control laws.

A Bench of Justices Sanjay Karol and N Kotiswar Singh clarified that rent control provisions do not differentiate between "voluntary" and "involuntary" transfers of possession.

Once an original tenant ceases to exist and a new entity takes over the premises without the landlord's written consent, the ground for eviction is legally complete.

"The applicability of the section depends upon the occurrence of a factual situation, namely, sub-letting or assignment or otherwise parting with possession... Whether it is a voluntary act of the tenant or otherwise, and also the reasons for doing so, are wholly irrelevant," the Court observed.

By way of background, in 1947 British Motor Car Company Limited (appellant) let out a prime commercial space measuring over 3,500 sq. ft. in Pratap Building at Connaught Circus in New Delhi to Hindustan Commercial Bank (HCB) at a monthly rent of ₹585.

Decades later, in December 1986, the Government of India issued a gazette notification amalgamating HCB with the public sector giant Punjab National Bank (PNB). Under this scheme, prepared by the Reserve Bank of India (RBI) in public interest, all assets, liabilities and physical possession of HCB's branches vested in PNB.

British Motor Car Company promptly hit the courts, filing an eviction petition under Section 14(1)(b) of the Delhi Rent Control Act, 1958 (DRC Act). Their argument was straightforward - HCB had parted with possession and assigned the tenancy to PNB without obtaining the landlord's prior written consent.

The Supreme Court sided with the landlord.

PNB argued that it didn't sneak into the property through a private deal, rather it was placed there by a sovereign government notification. The Supreme Court, relying on its previous landmark rulings in Singer India Ltd. and Parasram Harnand Rao, held that Section 14(1)(b) of the DRC Act is absolute. It does not care why a tenant left or how a new tenant arrived. If the original tenant loses corporate identity and control of the space without the landlord's written signature, it triggers eviction.

The bank also contended that since the merger scheme was rolled out under Section 45 of the Banking Regulation Act and placed before the parliament, it acquired the status of a powerful central statute that could override local rent laws.

The Bench rejected this by pointing to the court's historic decision in K.I. Shephard v. Union of India. The Court restated that an RBI-framed amalgamation scheme is strictly an administrative function, not a legislative rule.

Because it is not a law enacted by the parliament, it doesn't possess the muscle to override the mandatory written-consent protections given to landlords under the Delhi Rent Control Act.

While the Court allowed the landlord's appeal and set aside the Delhi High Court's order, it acknowledged that PNB had been operating from the iconic Connaught Place location for a very long time.

Hence, the Court exercised equity and granted PNB a grace period until January 31, 2027, to peacefully pack up and hand over vacant possession to British Motor Car Company, subject to the bank filing a formal undertaking within four weeks and continuing to clear its rental dues.

Advocates Shyam Divan and Shyam Mehta appeared for the British Motor Car Company.

Advocate Rajesh Kumar Gautam appeared for HCB/ PNB.

[Read Judgment]