Business Conducting Agreement A Camouflage for Leave & Licence; Occupant Protected as 'Deemed Tenant' under S.15A Bombay Rent Act: Bombay High Court - 2025-07-23

‘Substance Over Form’: Bombay HC Upholds Deemed Tenancy, Rules ‘Business Conducting’ Pact Was a Camouflaged Licence

Mumbai: In a significant ruling on tenant rights, the Bombay High Court has upheld a decision declaring an occupant a "deemed tenant" under the erstwhile Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 (Bombay Rent Act). Justice N. J. Jamadar held that a purported ‘business conducting agreement’ was a mere camouflage for a leave and licence arrangement, and the occupant was entitled to statutory protection as his licence was subsisting on the crucial date of 1st February 1973.

The Court dismissed a writ petition filed by the heirs of a lessee, affirming the findings of the Appellate Bench of the Court of Small Causes, which had reversed the trial court's initial dismissal of the suit.

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A Decades-Long Battle Over a Mumbai Shop

The dispute, originating in 1977, revolved around a 90 sq. ft. shop at Jacob Circle, Mumbai. The original defendant, Venkatesh Bhandarkar, was the main lessee of a larger property and had allowed the original plaintiff, Henry D’Souza, to occupy the suit premises from 1966. D’Souza claimed he was a licensee running his own tailoring business, paying a monthly compensation of Rs. 150.

In 1972, the parties executed an agreement labelling D’Souza as a ‘Hirer’ tasked with ‘conducting’ a business named “Bhandarkar Stores” for a royalty of Rs. 150 per month. D’Souza filed a suit asserting that this agreement was a sham to conceal a leave and licence relationship. He sought a declaration that he had become a "deemed tenant" under Section 15A of the Bombay Rent Act, which conferred tenancy status on licensees in occupation as of 1st February 1973.

The trial court dismissed the suit, but the Appellate Bench of the Small Causes Court reversed this, leading the landlord's heirs to file the present writ petition in the High Court in 1999.

Clashing Arguments: Licence vs. Conducting Agreement

Petitioners' (Landlord's) Arguments: - Mr. Arun Palekar , counsel for the petitioners, argued that the 1972 agreement was clear and unambiguous. It was a business conducting agreement, not a licence. - He contended that the court could not look beyond the written terms of the contract, citing Section 92 of the Indian Evidence Act, which bars parol evidence to contradict a written document. - Crucially, he submitted that even if it were a licence, its one-year term expired on 31st October 1972. Therefore, it was not a "subsisting licence" on 1st February 1973, a mandatory condition for protection under Section 15A.

Respondents' (Occupant's) Arguments: - Mr. Vivek Walavalkar , representing the occupant's heirs, countered that the court must look at the "pith and substance" of the transaction, not its label. - He argued that the conducting agreement was a camouflage, pointing to clauses that allowed D'Souza to bring his own sewing machines for his tailoring business. - He asserted that there was no "running business" of "Bhandarkar Stores" ever handed over to D’Souza. - He further argued that the landlord’s continued acceptance of "royalty" payments until May 1975 amounted to an implied renewal of the licence, making it subsisting on the critical date.

Court’s Analysis: Piercing the Documentary Veil

Justice Jamadar embarked on a detailed analysis, addressing two pivotal questions: the true nature of the 1972 agreement and whether the licence was subsisting on 1st February 1973.

1. Distinguishing a Sham Document from its Terms

The Court distinguished between contradicting the terms of a document and challenging its very character. While Section 92 of the Evidence Act bars oral evidence to alter a contract's terms, it does not prevent a party from proving that the document itself is a sham and that the real agreement was something else entirely.

Citing the Supreme Court in Smt. Gangabai vs. Smt. Chhabubai , the judgment noted:

"The sub- section is not attracted when the case of a party is that the transaction recorded in the document was never intended to be acted upon at all between the parties and that the document is a sham. ... For that purpose oral evidence is admissible to show that the document executed was never intended to operate as an agreement but that some other agreement altogether not recorded in the document, was entered into between the parties."

The Court found that the plaintiff's pleadings and evidence successfully established that the real intention was to create a licensor-licensee relationship.

2. Absence of a ‘Running Business’

A key factor was the exclusion under Section 5(4A) of the Bombay Rent Act, which states that a "person conducting a running business belonging to the licensor" is not a licensee. The Court found no evidence that "Bhandarkar Stores" was a running business.

The judgment highlighted a crucial admission from the defendant during cross-examination:

"...when the Defendant gave the business of Bhandarkar Stores to the Plaintiff, there was no stock in trade and no running business in the said store."

This admission, coupled with evidence showing D’Souza was running his tailoring business "Jude and Company" from the premises since 1967, convinced the Court that the transaction was a licence to occupy the premises and not a contract to conduct a business.

3. Subsistence of Licence by Implied Renewal

On the critical issue of whether the licence was subsisting, the Court found the landlord’s conduct post-expiry of the agreement to be decisive. The landlord had continued to accept monthly payments (termed "royalty") until May 1975 and took no steps to terminate the arrangement until 1977.

"If the aforesaid factor is considered in juxtaposition with the evidence... an inference becomes inescapable that for over three years after the expiry of the term under the said agreement, the Defendant accepted the royalty without any demur."

This conduct, the Court held, constituted an implied renewal of the licence, ensuring it was subsisting on 1st February 1973.

Final Decision

Finding no error or infirmity in the appellate court’s decree, the High Court dismissed the writ petition. The judgment reaffirms the legal principle that courts can investigate the true nature of a transaction to prevent the circumvention of statutory protections afforded by rent control legislation. The decision brings finality to a legal battle that has spanned over four decades.