Case Law Details
The brief facts involved in the instant appeal are that the appellant-M/s. Mother Hospital Private Ltd. is a private limited company, the shares in which are held by seven persons closely related to each other, viz., (1) Dr. M. Ali; (2) Dr. Ayesha Beevi (wife of Dr. M. Ali); (3) Nisha, (4) Shabna and (5) Sharmini (all children of Dr. M. Ali and Dr. Ayesha Beevi); (6) Khadeeja Beevi (mother of Dr. M. Ali); (7) and Akbar Ali (father of Ayesha Devi). Out of the total capital of Rs.1,33,63,520/- of the company, the value of the shares held by Khadeeja Beevi and Akbar Ali were Rs.5,000/- each. The company was running a super speciality hospital in Thrissur Town in Central Kerala.
Earlier a partnership firm Mother Hospital had been constituted by Dr. M. Ali, Dr. Ayesha Beevi and their three children. 4.3 acres of land belonged to the firm. The purpose of the partnership firm was to run a super speciality hospital and, accordingly, the firm started construction of the hospital building. Since it was felt expedient to form a private limited company to run and manage the hospital (then under construction), a company was formed for the said purpose and was incorporated on 30.12.1988. Thereafter, an agreement was entered into between the firm and the company by which it was agreed that the firm will complete the construction of the building and hand over possession of the same on completion, on the condition that the entire cost of construction of the building should be borne by the company. The relevant clause in the agreement reads:
“The hospital building shall belong to the company on the company taking possession thereof; but however that the firm has and will have a lien on the hospital building and on any improvements or additions thereto until the money owing by the company to the firm by virtue of this agreement is fully paid off”.
The company took possession of the building on its completion on 18.12.1991 and is running the hospital therein with effect from 19.12.1991. The accounts of the company have been debited with the cost of construction of the building, i . e., Rs. 1,37,83,149.83. The accounts of the firm have also been credited with the payments of Rs.1,06,78,456/- made by the company to the firm for completion of the construction. The balance amount payable by the company to the firm has been carried as the company’s liability in its Balance Sheet, for which the firm had a lien on the building. This amount has also since been paid to the firm. The one time building tax payable by the owner of a building under the Kerala Building Tax Act was also paid by the company.
Since the ownership of the land had to remain with the firm, it was also agreed that the land would be given on lease by the firm to the company and agreement dated 01.02.1989 provided for the said contingency as well in clause 4(g) which reads as under:
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