M/s. Jagjit Cotton Textiles Ltd. And Others v. Col. A.k. Malhotra

ANIL DEV SINGH, J.

(1) THIS is a Regular First Appeal against the judgment and decree passed by the learned single Judge in Suit No. 548/83, dated April 9, 1991 whereby the respondent-plaintiff has been held entitled to a decree for possession in respect of premises No. C-243, Defence Colony, New Delhi and has also been held entitled to damages @ Rs. 1,500. 00 per month for the use and occupation of the premises by the appellants-defendants from the date of institution of the suit till the possession is delivered to the plaintiff-respondent. The facts giving rise to this appeal are as under:-

(2) RESPONDENT is the owner of house No. C-243, Defence Colony, New Delhi. The respondent and appellant No. 1 entered into a leave and licence agreement, Ex. P 62, in respect of the premises in question.

(3) BY virtue of the agreement the first appellant was given licence to use the premises for residence of any employee and his family or for purpose of companys residential house for a period of three years commencing from April 11, 1977 and ending on April 10,1980. Under the agreement the first appellant agreed to pay Rs. 1,100. 00 for the use and occupation of the premises,rs. 100. 00 for the fittings and Rs. 200. 00 for the garage and Rs. 100. 00 for facility of telephone provided to it by the respondent. The aforesaid compensation of Rs. 1500. 00 was required to be paid by 7th of each calender month. The agreement further stipulated that on the expiry of the period of licence the licensee will vacate the premises. In spite of the expiry of period of licence, the first appellant and its officer, second appellant failed to vacate the premises. Since the appellants did not vacate the premises, the respondent gave notice to the first appellant inviting its atten tion to the fact that the licence to use the premises came to an end on April 10,1980 and its occupation and that of its officer, the second appellant (second defendant in the suit) after that date was unlawful and illegal. The notice called upon the first appellant to vacate the premises and pay compensation @ Rs. 3,500. 00 per month from April 10,1980 till the service of the notice and also pay future compensation @ Rs. 5,200. 00 per month. The notice did not evoke any favourable response with the result that the respondent filed the suit on April 11, 1983 for eviction of the appellants from the suit premises and for payment of compensation for use and occupation thereof on the ground that the appellants had no right to remain in occupation of the premises on or after April 10,1980, when the licence to use the premises expired. The appellants opposed the suit on the ground, inter alia, that the agreement dated April 11, 1980 though described as leave and licence agreement was actually a lease agreement, which created relationship of landlord and tenant between the respondent and the first appellant. The trial court examined the agreement, the statements of the witnesses and the documents produced by the parties and came to the conclusion that the agreement was one of leave and licence.

(4) BEFORE us the question is whether the agreement confers a status of a licensee or a lessee on the first appellant. In order to determine the question it will be necessary to examine the relevant recitals in the agreement, Ex. P. 62.

(5) IN the agreement, the respondent is called as the licensor and the first appellant is described as the licensee. By virtue of clause 1 of the agreement the first appellant was granted permission to use the premises for the residence of its employee and his family or for the purpose of companys residential house. As per clause 3 the licence was granted for a period of 3 years commencing from April 1, 1977 and ending on April 4, 1980. The agreement also records that the respondent will have full possession and control of the premises. In this regard it will be necessary to refer to clause 7 of the agreement which makes the aforesaid stipulation:-

"that notwithstanding the said permission and the licence or anything contained in these presents, it is agreed that the licensor shall continue to have full possession and control of the said premises and fittings and telephone and a free and unrestricted right of entry into and use of the said premises. "

(6) NEXT to be noticed is Clause 10 of the agreement which shows that the first appellant could use the telephone installed by the respondent in the premises for which the former undertook to pay all the bills/charges regularly in the name of and on behalf of latter. Clause 14 declares that nothing contained in the agreement shall be construed to create any tenancy rights in respect of the premises in favour of the licensee.

(7) THE most important clause which is the key to the determination of the question is clause 7. As seen above,this clause clearly specifies that the licensor i. e. the respondent shall continue to have full possession and control of the premises,fittings and telephone. the clause also confers on him an unrestricted right of entry into and use of the premises. Thus the agreement recognises that the first appellant and its officer did not have exclusive possession of the premises. It is well settled that mere permission to use the premises without being entitled to exclusive possession thereof creates only a licence. Therefore the first appellant has only a status of a licensee under the agreement.

(8) IN Mullas Treatise on the `transfer of Property Act (7th edition) the principles on the basis of which the determination of the question whether an instrument creates a lease or a licence have been culled out from a survey of judicial thought reflected in large number of authorities. At pages 650 and 652 thereof, it is stated as follows:

"a licence is defined in Section 52 of the Indian Easement Act 5 of 1982 as a right to do or continue to do, in or upon the immovable property of the grantor something which would in the absence of such right be unlawful, and such right does not amount to an easement or an interest in the property. The distinction between a licence and a lease is marked by the last clause of the definition, for a licence does not create any estate or interest in the property to which it relates. There is no simple litmus test for distinguishing a lease from a licence. The character of the transaction turns on the operative intent of the parties. If interest in immovable property, entitling the transferee to its enjoyment, is created, it is a lease; if permission to use the land without the right to exclusive possession is alone granted, the transaction is a licence. It is the creation of an interest in immovable property or a right to possess that it distinguishes a lease from a licence. For the purpose of deciding whether a particular transaction is a lease or a licence, the question of intention of the parties is to be determined, and the intention has to be inferred from the circumstances of each case. It is essential therefore to look to the substance and essence of the agreement, and not merely to the form. . . . . . . . . . . . . . . . . . "

". . . . . . . . . In a Bombay case, it was stated that if an interest in immovable property entitling the transferor to enjoyment is created, it is a lease; if permission to use land without a right to exclusive possession is alone granted, then it is a licence. "marginal variations of this broad statement are possible". On the facts, since an exclusive possession had been given and there was no other circumstance indicating to the contrary, the transfer was held to be lease, though it was titled "lease and licence agreement. " Where exclusive possession of the suit property was with the defendant and not with the landlord, it was held to be a lease and not a licence. A person who is granted accommodation in a cattle shed at his request, on the condition of payment of repair charges, is a licensee and not a lessee. In a Patna case, the State Road Transport Corporation allowed the plaitniff to run a refreshment room under an agreement. The agreement empowered the Corporation to inspect and check the manner in which the refreshment room was being run by the plaintiff and to remove the plaintiffs employees. It was held that the agreement created no interest in the premises in favour of the plaintiff and the plaintiff was only a licensee. The fact that the premises were given to the plaintiff for a term of one year made no difference, since a clause in the agreement required the giving of three months notice on either side to terminate the agreement. . . . . . . "

(9) IN Sohanlal Naraindas Vs. Laxmidas Raghunath Gadit 1971 (1) SCC 276 [LQ/SC/1971/25 ;] ">1971 (1) SCC 276 [LQ/SC/1971/25 ;] [LQ/SC/1971/25 ;] the Supreme Court faced with the question whether the agreement created a lease or licence held as follows:

"9. Intention of the parties to an instrument must be gathered from the terms of the agreement examined in the light of the surrounding circumstances. The description given by the parties may be evidence of the intention but is not decisive. Mere use of the words appropriate to the creation of a lease will not preclude the agreement operates as a licence. A recital that the agreement does not create a tenancy is also not decisive. The crucial test in each case is whether the instrument is intended to create or not to create an interest in the property the subject matter of the agreement. If it is in fact intended to create an interest in the property it is a lease, if it does not, it is a licence. In determining whether the agreement creates a lease or a licence the test of exclusive possession, though not decisive, is of significance. . . . . . . . "

(10) IN Khalil Ahmed Bashir Ahmed Vs. Tufelhussein Samasbhai Sarangpurwala (1988) 1 SCC 155 [LQ/SC/1987/768] the Supreme Court while construing the instrument as a licence deed, inter alia, relied upon clause 12 thereof which gave the licensor the right to enter upon the premises and inspect the same at any time and in this regard observed as follows:

"to put it precisely if an interest in immovable property entitling the transferee to enjoyment was created, it was a lease; if permission to use land without exclusive possession was alone granted, a licence was the legal result. We are of the opinion that this was a licence and not a lease as we discover the intent. "

(11) AGAIN in smt. Rajbir Kaur and another Vs. M/s. S. Chokesiri and Co. JT 1988 (3) SC 593 [LQ/SC/1988/383] at 601 the Supreme Court stated the principle in determining whether the agreement created a lease or licence thus:

". . . . . . . One of the twin principal tests by which a lease is distinguishable from the relationship created under a licence is the element of the right to exclusive possession involving the transfer of an interest in the property; the other being the `rent stipulated for the grant.

(12) IN Wood V. Leadbitter (153 E. R. 351 at 354) Baron Alderson emphasized the element of the transfer of interest:

"a dispensation or license properly passeth no interest, nor alters or transfers property in anything but only makes and action lawful which without it had been unlawful".

(13) IN Clenwood Lumber Co. V. Phillips (1940) A. C. 405 at 408) the distinction was pointed out thus:

"if the effect of the instrument is to give the holder an exclusive right of occupation of the land, though subject to certain reservations or to a restriction of the purposes for which it may be used, it is in law a demise of the land itself".

It is essential to the creation of a tenancy that the tenant be granted the right to the enjoyment of the property and that, further, the grant be for consideration. While the definition of `lease in Section 105 of the Transfer of Property Act,1882, envisages the transfer of a right to enjoy the property, on the other hand the definition of a `licence under Section 52 of the Indian Easements Act, 1982, consistently with the above, excludes from its pale any transaction which otherwise, amounts to an "easement" or involves a transfer in the property, which is usually involved in the case of a transfer of right to enjoy it. These two rights, viz. easements and lease in their very nature, are appurtenant to the property. On the other hand, the grant only of the right to use the premises without being entitled to the exclusive possession thereof operates merely as a licence. But the converse implications of this proposition need not necessarily and always be true. Wherever there is exclusive possession, the idea of a licence is not necessarily ruled out. English Law contemplates what are called `possessory-Licences which confer a right of exclusive possession, marking them off from the more usual type of licences which serve to authorise acts which would otherwise be trespasses. (See John Dewar : "licences and Land Law": Modern Law Review (Vol. 49 No. 6 Nov. 1986) and S. Moriorty "licences and Land Law:legal principles and Public Policies" (1984) 100 L. Q. R. 376). Thus exclusive possession itself is not decisive in favour of a lease and against a mere licence, for even the grant of exclusive possession might turn out to be only a licencee and not a lease where the grantor himself has no power to grant the lease. In the last analysis the question whether a transaction is a lease or a licence "turns on the operative intention of the parties" and that there is no single,simple litmus-test to distinguish one from the other. The "solution that would seem to have been found it, as one would expect, that it must depend on the intention of the parties" (See Cobb V. Lane (1952) 1 ALL. E. R. 1198). "

(14) HAVING regard to the aforesaid decisions it is apparent that where the agreement grants to a person only the right to use the premises without being entitled to the exclusive possession thereof, it merely creates a licence in his favour. But even where exclusive possession is transferred, the grant may or may not operate as a lease since the test of exclusive possession, though significant is not decisive and the idea of a licence is not necessarily ruled out.

(15) IN the instant case clause 7 of the agreement grants full possession of the premises to the owner. It entitles him to an unrestricted right of entry into the premises. This right of entry clause clinches the point in favour of the plaintiff. It puts the matter beyond all doubt that the instrument creates only a licence and not a lease.

(16) THE matter also needs to be examined on the basis of the surrounding circumstances appearing from the evidence led by the parties. In the present case the trial court examined the respondent, Mr. Prem Sehgal (DW 1), second appellant, Shri V. P. Thapar, Manager (personnel and Administration) of the first appellant No. 1 as D. W. 2 and Mr. J. S. Soni, Inspector. House Tax Department New Delhi.

(17) FROM the statement of the parties, it appears that there are certain facts which are admitted by both the sides. There is no controversy between the parties that the terms of the agreement Ex. P. 62 were orally settled and were subsequently incorporated in the agreement. In this regard the following statement of Mr. V. P. Thapar, Manager Personnel and Administration of the first appellant company as D. W. 2 is significant.

". . . . All the terms written in Ex. P. 62 were agreed to by me. . . . . . . . The terms orally settled between the parties were incorporated in the agreement. "

(18) TO the similar effect is the statement of appellant No. 2 as DW 1.

"the meeting took place at Delhi. The terms for taking this house had already been discussed between me and Mr. Malhotra. These terms were reduced to writing by this agreement. The agreement reflects the terms agreed to between the parties. "

(19) THUS from the above statements there is no manner of doubt that the parties had entered into the leave and licence agreement consciously and after mutually settling the terms.

(20) IT also appears from the statements of the second appellant (D. W. 1) and D. W. 2 that they were aware of the implications of the leave and licence agreement and had entered the same after due deliberations and thought. D. W. 2 in his statement before the learned single Judge categorically stated that he was aware of the difference between a lease and a licence. In this regard he stated as follows:

" I know the difference between a lease and a licence. In most of the cases we have entered into lease agreement but in this case an exception was made at the instance of the plaintiff. . . . . . . . I know that in case there is a leave and licence agreement, the licensee is not protected under the Rent Act. "

(21) HAVING regard to the above statement, we are of the opinion that the appellant company knew the consequences of leave and licence agreement and would be bound by the terms thereof.

(22) FROM the evidence it is also clear that the parties took their own time in executing the agreement and the same was result of a conscious and deliberate decision on their part. The respondent in his statement before the trial court has claimed that he came to Delhi on March 21, 1977 when the second appellant talked to him on telephone and showed his interest in taking the house. The second appellant inspected the house on the same day in his presence and expressed willingness to take the same. At that stage, a draft of the leave and licence agreement was shown to him. It is further stated that the terms incorporated therein were agreed to by the second appeallant except the term for payment of compensation for the use and occupation of the house for which he needed instructions from the first appellant. On March 28,1977 the respondent received a telegram from the second appellant that the compensation acceptable for the use and occupation of the premises was Rs. 1,500. 00 per month. As per the respondent he was requested to come to Delhi. Acordingly he reached Delhi on April 1, 1977 to finalise the leave and licence agreement. Mutual discussion took place about the agreement and the second appellant told him that he would get the agreement typed and send the same to him at his Jaipur address. Before leaving for Jaipur, the respondent delivered the keys of the house retaining duplicate keys for himself, which were brought by him in court on the date when his statement was recorded. On April 12, 1977 the respondent received the draft leave and licence agreement from the appellants. However. he found two deficiencies; one was that each page of the agreement was not signed and the other was regarding effective date of the agreement. The draft agreement was returned to the appellant on May 1, 1977. Thereafter a reminder Ex. P-68 was sent to the appel lants. It was on June 9,1977 that the respondent re ceived the agreement from the first appellant alongwith letter Ex. P. 64. The agreement was signed by the re spondent and the same was returned to the said appel lant. He also deposed that he had visited the premises in question 20 times between 1977 to 1980. In the depositions of the second appellant (D. W. 1) and Shri V. P. Thapar, D. W. 2 this position has not been serious ly disputed. This is clear from the following statement of D. W. 1:

"i cannot admit or deny the suggestion that I had a talk with Mr. Malhotra for taking this house on 21. 3. 1977. I do not remember if I had any meeting or negotiations with the plaintiff for taking this house. It is correct that I did send a telegram to the plaintiff at Chandigarh in connection with taking of this house but I do not exactly remember the date. It may be 28. 3. 1977. It is correct that before I sent the telegram I had negotiations with the plaintiff. I do not remember to have received a telegram from Mr. Malhotra on 30. 3. 1977. I do not remember if Mr. Malhotra came down to Delhi on 1. 4. 1977. . . . . . . . . . . . . .

. . . . . . . I did receive the originals of letters dated 4. 5. 1977 and 30. 6. 1977. Copies of the letters are Ex. P. 66 and P. 67. I have seen the letter dated 9. 6. 1977 (Ex. P. 64) sent by me to the plaintiff. The contents of this letter are correct. I did receive the original of letter dated 24. 5. 1977 copy of which is Ex. P. 68. it is correct to suggest that I had two meetings with the plaintiff in connection with taking of this house - one was prior to 28. 3. 1977 and the other was after 28. 3. 1977 and before 11. 4. 1977. I do not remember to have received the telegram marked "e".

(emphasis supplied).

(23) IT is also important to note that the payments made by the first appellant for use and occupation of the house were being treated by it as compensation. Admittedly the first appellant was making deposit of Rs. 1,500. 00 per month in saving bank account of the respondent maintained by the latter in Grindlays Bank, Connanught Place, New Delhi. The payments were treated by the appellants as compensation. This is evident from Ex. P. 1 to Ex. P. 58 which are letters from the appellants to the Manager, Grindlays Bank, Connaught Circus, copies whereof were sent to the respondent. All these letters which were written from September 2, 1977 to May 6,1983 use the same language. At this stage it will be appropriate to extract the contents of one of the letters:

The Manager, Grindlays Bank Ltd. E Block, Connaught Place, New Delhi -110 001. Dear Sir, S/b Account No. 23531 "please credit the proceeds of the enclosed cheque No. 998157 dated 1st September,1977 on Allahabad Bank, Scindia House,new Delhi for Rs. 1,500. 00 (Rupees one thousand five hundred only) in the above Savings Bank Account of Col. A. P. Malhotra. Thanking you, Yours faithfully, for JAGATJIT COTTON TEXTILE MILLS LTD. sd/- Accounts Officer Encl:as above. c. c.- Col. A. P. Malhotra, 521/6, Raja Park, Jaipur 302 004. (This is towards compensation for the month of Septeember 77, Kindly send us stamped receipt). "

(24) IT was only after the institution of the suit that the first appellant while depositing the amount of Rs. 1,500. 00 on May 6, 1983 and thereafter described the payments as `rent for the premises in question. Letters Ex. P. 1 to P. 58 covering a period of six years show that the appellant clearly understood the agreement to be one of leave and licence and acted in furtherance of the same by depositing the compensation for use and occupation of the house.

(25) IN nutshell the following factors would show that the agreement between the parties created a licence and not a lease in favour of the first appellant:

1. The agreement has been styled as leave and licence agreement. 2. In the agreement, the first appellant has been described as a licensee while the respondent has been described as a licensor. 3. The first appellant was not given exclusive possession of the house as is apparent from clause 7 of the agreement which confers an "unrestricted right of entry into and use of the said premises" on the owner- respondent. 4. The payments made for use and occupation of the house were consistently described as compensation by the first appellant. 5. The agreement specifically recites that the terms thereof will not be considered to be creating a tenancy in respect of the said premises in favour of the first appellant.

(26) IT is also significant that the terms of the agreement were orally settled by the parties and the same were incorporated in the agreement. The first appellant consciously executed the leave and licence agreement even though it knew the implications thereof. It is worth noting that in all other cases it had executed lease agreements with the owners of the properties.

(27) IT was contended by the learned counsel for the appellants that the respondent while corresponding with the Municipal Corporation of Delhi had described the payment received by him from the first appellant as `rent. The respondent has explained the reasons for the same in his statement dated January 5, 1987. According to him the MCD does not make any distinction between a lease and a licence for the purpose of imposition of the property tax. He further stated that in their terminology taxes are determined on the basis of rateable value of the property which is derived from the rent receipts. It was in this context that in his letters to the MCD he mentioned the payments as rent. The use of the word "rent" by the respondent in his correspondence with the MCD is of no consequence.

(28) LEARNED counsel for the appellants also submitted that mere rectial in a covenant that nothing herein shall be considered to create any tenancy in respect of the premises in favour of the licensee will not by itself be sufficient to hold that the instrument creates a leave and licence agreement between the parties or precludes the creation of a lease. There can be no dispute with this proposition but such a clause coupled with other clauses of the agreement can be helpful in indicating the nature of the agreement.

(29) HAVING regard to the substance of the agreement and the statements of the parties and their witnesses, we are of the opinion that the agreement Ex. P. 62 merely creates a licence and not a lease.

(30) ACCORDINGLY, we find no merit in the appeal the same is dismissed. The respondent will be entitled to costs from the appellants which are quantified at Rs. 5,000. 00.