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2004 DIGILAW 240 (JK)

Ab. Ahad Kana v. Habibullah Kaloo

2004-08-17

S.N.JHA

body2004
The same old dispute -- whether the document is lease or licence deed -- some time a vexed one, arises for decision in this civil revision by the plaintiff. The significance of the question is that the answer decides nature of the suit and area of adjudication. The relevant issues came to be decided as preliminary issues on the direction of this Court in Civil Revision No. 90 of 1999. 2. In Cobb v. Lane, (1952) ALL ER 1199, it was observed that in the former days, except for the question of the statute, the distinction between a tenancy, whether at will or for a period, and a licence was not so important as it has become since the Rent Restrictions Acts came into operation. If the document is held to be licence deed, the defendant, as a tenant, the lessee, would be entitled to the protection of Jammu and Kashmir Houses and Shops Rent Control Act. 1966. According to the plaintiff, the defendant is a licensee and, therefore, not entitled to such protection. 3. The suit has been filed in the form of mandatory injunction directing the defendant to vacate the suit premises and handover the same to the plaintiff, and for damages or mesne profits with interest from 6th November, 1993 till the date of handing over of possession. The case of the plaintiff, briefly, is that he is the owner of a two storeyed building at Chotabazar, Mohalla Khushalmatu, Sopore. Two shops on the ground floor of the building were given to the defendant for use as a warehouse on certain conditions as mentioned in the document. It was a grant of personal privilege in favour of the defendant to store saleable goods except inflammable or contraband goods, which did not create any interest in the premises. The first licence was granted on 6th November, 1980 for one year. On the request of the defendant, the licence was renewed year to year, on the same terms and conditions, upto 6th November, 1993. Being in bonafide need of the premises to settle his unemployed son in business, the plaintiff did not extend the period of licence. The first licence was granted on 6th November, 1980 for one year. On the request of the defendant, the licence was renewed year to year, on the same terms and conditions, upto 6th November, 1993. Being in bonafide need of the premises to settle his unemployed son in business, the plaintiff did not extend the period of licence. After the extension was refused, the defendant was bound to surrender possession of the licensed shop but, despite requests and demands, he continued to occupy the same and, being thus a trespasser, he is liable not only to ejectment but also to pay compensation and damages as mesne profits. A legal notice was served on the defendant on 1st August, 1996 calling upon him to vacate the premises with no result. In the circumstances, he instituted the suit. 4. The defendant filed written-statement in which he took the stand that the shops, which he had taken on rent from the plaintiff, gutted in fire. The plaintiff delayed reconstruction. As the defendant was suffering monetarily on account of debts to customers and suppliers, he took loan and constructed the shop on his own expense, and that is how it is in his possession. It is the plaintiff who owes money to him As such, the suit is not maintainable and liable to be dismissed. Defendant further stated that the plaintiff had assured him that the shop would continue to remain in his occupation. He was given to understand that agreement was being executed for tax purpose and family partition. 5. As the result of the case largely depends on construction of the agreement, the relevant terms and conditions thereof may straight away be quoted as under: "4. The shop will remain in occupation of the licencee for a period of one year from 6th Nov. 1980 and during this period the licencee will not store or keep any kind of inflammable or other contra-band things in the shop. 5. The licencee hereby agrees and undertakes that he will not sublet the licenced shop to any other person or allow any other person to occupy the licenced shop in any capacity whatsoever. 7. 1980 and during this period the licencee will not store or keep any kind of inflammable or other contra-band things in the shop. 5. The licencee hereby agrees and undertakes that he will not sublet the licenced shop to any other person or allow any other person to occupy the licenced shop in any capacity whatsoever. 7. The licensor will be eligible to inspect and see the licenced shop at any time during the day time either himself or through any of his authorized agents and the licencee is bound to render all assistance and opportunity to the licensor in this regard. 8. That whenever the licensor will have to demolish the existing licenced shop and construct a new one thereof or to effect repairs in the existing licenced shop, the licencee is bound to vacate the licenced premises and handover the possession thereof to the licensor with the condition that the licencee will have fifteen days notice from the licensor to this effect. In case the licencee will not vacate the licenced premises after the notice of fifteen days served on him by the licensor, in that event the licensor will be entitled to enter on the premises and reoccupy the same. 9. On the expiry of the period of licence the licencee is bound to return and handover the possession of the licenced shop to the licensor without any hitch or hindrance whatsoever." There is no dispute about the agreement as such between the parties. There is dispute about its interpretation and status of the defendant and his legal relationship with the plaintiff. It will not be out of place to mention, though not so stated in the pleadings, at the time of hearing of the case it was stated that agreements containing the same terms and conditions, after the first agreement dated 6th November, 1980, were executed on 2nd November, 1981; 2nd November, 1983; 6th November, 1985 and 2nd November, 1989. The agreement dated 2nd November, 1989 was the last agreement. Even though agreements were not executed in the year 1982 or 1984 or 1990 and thereafter, the admitted position is that the defendant remained in occupation of the shop except the story of fire and the re-construction of a new shop on the ground floor -- as set up by the defendant. Even though agreements were not executed in the year 1982 or 1984 or 1990 and thereafter, the admitted position is that the defendant remained in occupation of the shop except the story of fire and the re-construction of a new shop on the ground floor -- as set up by the defendant. For disposal of this civil revision, it is not necessary to go into the dispute about re-construction of the shop after the building gutted in fire. 6. Coming to the substratum of the dispute, as observed in Associated Hotels of India Ltd. v. R. N. Kapoor, AIR 1959 SC 1262, there is a clear distinction between a lease and licence and though the dividing line is clear, sometimes it becomes very thin or even blurred to make the determination difficult. Nevertheless, as a general proposition, law is settled that the nature of the document depends on the substance -- in some cases described as pith and substance -- rather than its form. What determines the substance is intention of the parties. Normally, the intention is to be ascertained from the words used and the terms and conditions of the agreement. Where camouflage is alleged it may become necessary to look into the attending circumstances and conduct of the parties. 7. In Sohan Lal Naraindas v. Laxmidas Raghunath Gadir, (1971)1 SCC 276, it was stated in the agreement that the loft "was given on lease and licence basis for use and occupation". The Supreme Court dwelling upon the controversy, observed: "An attempt was deliberately made to camouflage the true nature of the agreement, by reciting in several clauses that the agreement was for lease and licence and it emphasise the pretence, it was also recited that the defendant was not to have any right as tenant or subtenant In respect of the loft. .... .... .... .... .... .... 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 lot preclude the agreement operating as a licence. A recital that the agreement does not create a tenancy is also not decisive. 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 lot preclude the agreement operating 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." 8. Most of the case law on the subject are post-trial decisions where the Court had the advantage of deciding the dispute with reference to the evidence on record as regards attending circumstances, conduct of the parties etc. In the instant case, evidence is yet to see light of the day. Decision in the instant case, therefore, has to be rendered on the interpretation of the terms and conditions. 9. The all important test is whether the document creates interest in the property. If the document creates an interest in the property, it is lease; but if it only permits the person to make use of the property, of which legal possession continues with the owner, it is licence. This is what follows from a combined reading of section 105 of the Transfer of Property Act and section 52 of the Easements Act. The former defines lease to mean "a transfer of a right to enjoy such property", the latter defines licence to mean "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". 10. Applying the aforementioned test, it is to be seen whether the agreement creates a lease or licence. 11. Clause 4 of the agreement (supra) refers to "occupation" as distinct from "use". Clause 5 puts an embargo on subletting. 10. Applying the aforementioned test, it is to be seen whether the agreement creates a lease or licence. 11. Clause 4 of the agreement (supra) refers to "occupation" as distinct from "use". Clause 5 puts an embargo on subletting. The question of subletting, ordinarily, arises only in case of lease, for, if only right to use is conferred on the grantee, there may not be an occasion to sublet. In fairness to the plaintiff, it may be observed that in V. Muhammadkutty v. Illikkal Moosakutty, AIR 1996 SC 3288 -- a decision relied upon by Mr. G. A. Lone for the plaintiff -- it was held that incorporation of such a clause in the agreement does not by itself lead to the conclusion that the agreement is of lease. However, it may be relevant to point out that what clause 5 further prohibits is that the defendant will not allow any other person "to occupy" the licenced shop in, any capacity whatsoever. The fact that under clause 7, the plaintiff is entitled to inspect and see the licenced shop at any time during the day time and the defendant is bound to render all assistance and opportunity to him in this regard shows exclusive possession of the defendant. The same conclusion is deducible from clause 8, which contemplates vacating of the licenced shop and handing over its possession to the plaintiff whenever he has to demolish the existing shop and construct a new one or to effect repairs therein. If the defendant fails to do so, the plaintiff would be entitled to "enter" on the premises and "re-occupy" the same. Clause 9, again, provides for "handing over" of possession of the licensed shop to the plaintiff on expiry of the stipulated period. 12. The terms and conditions aforesaid are clearly indicative of exclusive possession of the defendant which is an important test to determine whether the document creates interest in the property or only grants permission to use it. However, though a relevant and important consideration, the exclusive possession is not conclusive of the status of the person as licensee/tenant. In Associated Hotels of India Ltd. v. R. N. Kapoor (supra) it was observed: "If under the document a party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances may be established which negative the intention to create a lease". In Associated Hotels of India Ltd. v. R. N. Kapoor (supra) it was observed: "If under the document a party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances may be established which negative the intention to create a lease". The following observations occurring in the said judgment may also be usefully quoted: "...At one time it was thought that the test of exclusive possession was infallible and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee. But there was a change and the recent trend of judicial opinion is reflected in Errington v. Errington, (1952) l All ER 149, wherein Lord Denning reviewing the case law on the subject summarizes the result of his discussion thus at p. 155: `The result of all these cases is that, although a person who is let into exclusive possession is, `prima facie, to be considered to be tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy." A useful discussion on the subject can be found in Rajbir Kaur v. S. Chokesiri and Co., (1989) l SCC 19, which may be quoted as under: "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, 1882, consistently with the above, excludes from its pale any transaction which otherwise, amounts to an `easement or involves a transfer of an interest 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 for 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. On the other hand, the grant only for 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 `Promissory Licences which confer a right of exclusive possession, making them off from the more usual type of licences which serve to authorize acts which would otherwise be trespasses. 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 licence 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 is, as one would expect, that it must depend on the intention of the parties." In Delta International Ltd. v. Shyam Sundar Ganeriwalla, (1999) 4 SCC 454, it was observed: "To find out whether a document creates a lease or licence, the real test is to find out `the intention of the parties; keeping in mind that in cases where a contract for licence is executed by handing over exclusive possession of the premises, the distinguishing line between the lease and the licence is absolutely thin. The intention of the parties is to be gathered from the document itself. Mainly, the intention is to be gathered from the meaning and the words used in the document except where it is alleged and proved that the document is a camouflage. If the terms of the document evidencing the agreement between the parties are not clear, the surrounding circumstances and the conduct of the parties have also to be borne in mind for ascertaining the real relationship between the parties." 13. If the terms of the document evidencing the agreement between the parties are not clear, the surrounding circumstances and the conduct of the parties have also to be borne in mind for ascertaining the real relationship between the parties." 13. As observed above, evidence is yet to be led by the parties and the materials on the record are not enough to throw light as to the surrounding circumstances and conduct of the parties -- though much was argued at the time of hearing of the case. Thus, the dispute has to be decided presently within the perimeters of the agreement. There is no positive material on record brought to my notice to suggest that notwithstanding exclusive possession of the defendant -- about which I have no doubt in my mind, the intention was only to permit use of the premises without creating any interest. Though, the test of `exclusive possession is not decisive, it is certainly of significance. In fairness to the plaintiff, the words "will not store or keep any kind of inflammable or other contraband things in the shop" in clause 4 of the agreement indicate the purpose of the grant viz. use of the premises as a warehouse and storage of saleable articles therein, as averred by the plaintiff. This, however, is not determinative of the agreement being in the nature of lease, for, the licence after all also permits use of the premises. As seen above, if it only permits "use" without `creating any interest, such as giving exclusive possession to the grantee, it will only be a licence. In the converse case, it will be lease. 14. In fairness to the parties, it may be stated that, according to Mr. G. A. Lone for the plaintiff, the conduct of the parties evidenced by grant of successive licences, one after the other, is suggestive of the agreement being in the nature of licence. On the other hand, according to Mr. M. A. Qayoom, long possession of the premises is suggestive of lease. Apart from defendants case that he constructed the existing shop on his own cost, Mr. Qayoom stated that the suit was instituted in 1997, seven years after the expiry of the agreement in 1990 which according to him is a circumstance not consistent with licence. M. A. Qayoom, long possession of the premises is suggestive of lease. Apart from defendants case that he constructed the existing shop on his own cost, Mr. Qayoom stated that the suit was instituted in 1997, seven years after the expiry of the agreement in 1990 which according to him is a circumstance not consistent with licence. He also stated that the agreement was described as `licence and the parties were described as licensor and licensee at the instance of the plaintiff to escape the rigours of income-tax. However, it may be pointed out, there are no averments to this effect in the written- statement. 15. In the above premises, I am inclined to think that the defendants exclusive possession of the premises, coupled with the safeguards provided to him in the agreement, as evidenced by the terms and conditions of the agreement, -- in the absence of any positive material suggesting to the contrary -- is suggestive of creation of interest in the premises and, therefore, the agreement was for lease and not licence. Section 107 of the Transfer of Property Act provides for the manner in which leases of property are made. The agreement in the instant case conforms to those requirements. 16. The question is thus answered in favour of the defendant and it is held that the agreement was for lease and not licence. The decision of the court below on the relevant issues, therefore, does not require any interference. 17. Before I part with the case, it must be clarified that though I am not interfering with the decision on the issues and have recorded finding in favour of the defendant, agreeing with the trial court, the finding would determine only course of the suit. Depending on the evidence to be led by the parties at the trial, it will be open to the plaintiff to take the stand at the stage of final disposal of the suit that the agreement was for licence and not lease and/or to challenge the impugned finding in appeal in terms of section 105 of the Civil Procedure Code, should the suit be dismissed on any ground relevant to the Jammu and Kashmir Houses and Shops Rent Control Act. In the result, this civil revision is dismissed without any order as to costs.