1999 Supreme(SC) 469

1999(3) Supreme 485
Supreme Court of India
(From Calcutta High Court)
G.B. Pattanaik & M.B. Shah, JJ.
Delta International Ltd. -Appellant
versus
Shyam Sundar Ganeriwalla & Anr. -Respondents
Civil Appeal Nos. 2198-99 of 1999
(@ Special Leave Petition (C) Nos. 5866-67 of 1998)
Decided on 9-4-1999
Counsel for the Parties :
For the Appearing Parties : Gopal Subramanium, D.P. Gupta, Basker P. Gupta, Sr. Advocates, Ranjan Dev, U. Banerjee, Surendra Dube, Sanjay Sen, Pratik Jalayan, Suehit Mohanty, Mrs. Indra Sawhney, K.V. Vishwa­nathan, Anil Aggarwala, K.V. Vijayakumar, A.K. Raina, R.D. Upadhyay, Ajit M. Singh, Girdhar G. Upadhyay, Advocates.

Important Point
Real test for determining whether a transaction is lease or license is to find out the intention of the parties and the intention is to be gathered from the meaning and words used in the document except where it is alleged and proved that the document is a camouflage.

Headnote:Transfer of Property Act, 1882 -Sections 105 and 107-Lease-Test to determine whether a transaction is lease or license-Real test is to find out the intention of the parties-Intention is to be gathered from meaning and words used in the document except where it is alleged and proved document is a camouflage-In absence of sufficient title or interest or title to create a similar tenancy by a sitting tenant, in favour of a third person, the person in possession to whom possession is handed over cannot claim that tenancy was created in his favour.

       Held :

        (1) To find out whether the document creates lease or license real test is to find out ‘the intention of the parties’; keeping in mind that in cases where exclusive possession is given, the line be­tween lease and license is very thin.

        (2) The intention of the parties is to be gathered from the document itself. Mainly, intention is to be gathered from the meaning and the words used in the document except where it is alleged and proved that 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.

        (3) In the absence of a written document and when somebody is in exclusive possession with no special evidence how he got in, the intention is to be gathered from the other evidence which may be available on record, and in such cases exclusive possession of the property would be most relevant circumstance to arrive at the conclu­sion that the intention of the parties was to create a lease.

        (4) If the dispute arises between the very parties to the written ins­trument, the intention is to be gathered from the document read as a whole. But in cases where the landlord alleges that the tenant has sublet the premises and where the tenant in support of his own defence sets up the plea of a mere licensee and relies upon a deed entered into, inter se, between himself and the alleged licensee, the landlord who is not a party to the deed is not bound by what emanates from the construction of the deed; the tenant and the sub-tenant may jointly set up the plea of a license against the landlord which is a camouflage; In such cases, the mask is to be removed or veil is to be lifted and the true intention behind a facade of a self-serving con­veniently drafted instrument is to be gathered from all the relevant circumstances. Same would be the position where the owner of the premises and the person in need of the premises executes a deed label­ling it as a licence deed to avoid the operation of rent legislation.

        (5) Prima facie, in absence of a sufficient title or interest to carve out or to create a similar tenancy by the sitting tenant, in favour of a third person, the person in possession to whom the posses­sion is handed over cannot claim that the sub-tenancy was created in his favour, because a person having no right cannot confer any title of tenancy or sub-tenancy. A tenant protected under statutory provi­sions with regard to occupation of the premises having no right to sublet or transfer the premises, cannot confer any better title. But, this question is not required to be finally deter­mined in this matter.

        (6) Further lease or licence is a matter of contract between the parties. Section 107 of the Transfer of Property Act inter alia pro­vides that leases of immoveable property may be made either by registered instrument or by oral agreement accompanied by delivery of possession; if it is a registered instrument, it shall be executed by both the lessee and the lessor. This contract between the parties is to be interpreted or construed on the well laid principles for construction of contractual terms, viz. for the purpose of construc­tion of contracts, the intention of the parties is the meaning of the words they have used and there can be no intention independent of that meaning; when the terms of the contract are vague or having double intendment one which is lawful should be preferred; and the construc­tion may be put on the instrument perfectly consistent with his doing only what he had a right to do. (Para 12)

       The plaintiff was a tenant in respect of the suit property wherein it was maintaining and running a petrol service station. The plaintiff executed a leave and license agreement in favour of the defendant under which the defendant was allowed to run the petrol service sta­tion in the plaintiff’s name for a fixed license fee. The plaintiff later terminated the lease and sought permanent injunction restraining the defendants from using the fixtures etc. and also for damages for wrongful use of the fixtures. The learned Single Judge passed the decree in favour of the plaintiff by holding that the agreement in question was only a license agreement and it was not a sub-lease. In appeal, the said Judgment was reversed by holding that the agreement in question con­stitutes a lease mainly on the basis of exclusive possession and the Division Bench observed that “to put is pithily, if an interest in immovable property entitling the transferees to enjoyment is created, it is a lease, if permission to use land without right to exclusive possession is alone granted, a licence is the legal result”.

       Held : It is nowhere pleaded that the deed executed between the parties is a camou­flage to evade the rigours of the provisions of the Rent Act nor is it stated that a sham document is executed for achieving some other purpose. In these set of circumstances, the intention of the parties is required to be gathered from the express words of various terms provided by them in the deed. For this purpose, clause 12 of the document is to be taken into consideration and due weight is required to be given to what parties have stated. It provides as under:-

       “12. It is hereby expressly agreed upon and declared by and between the parties that these presents shall not be treated or used or dealt with or construed by the parties in any way as a tenancy or lease or as a document within the perview of the West Bengal Premises Tenancy Act or any modification or amendment thereof or to confer any rela­tionship as landlord and tenant between the parties hereto.”

       The aforesaid term of the document is not provided by an illiterate layman or poor person in need of some premises for his residence or business, but is executed by two companies where it can be presumed that it is mentioned after full understanding and to avoid any wrong inference of intention. It specifically mentions that only a license was created and not a lease. The said clause is in positive as well as negative form providing that the agreement was a licence and should not be treated or used or dealt with or construed by the parties in any way as lease or to confer any relationship as landlord and tenants between the parties. When the parties which are capable of understanding their rights fully, expressly agreed and declared that document should not be construed in any manner as creating any relationship as landlord and tenant between them, it would be impermissible to conjecture or infer that their relations should be construed as that of landlord and tenant because of certain terms mentioned in the deed can have double intendment. As stated above, intention of the parties is the meaning of the words they have used and there could be no intention independent of that meaning. The learned Single Judge of the High Court rightly, therefore, held that this clause stares in his face in construing it as a lease deed. Secondly, parties to the document were fully aware that lease or sub-lease could not be granted and therefore, specific provision is made in the deed that if the consent of the tenant is obtained for creation of sub-lease, deed for the same would be executed on the terms and conditions which were set out in the document; detailed provisions are made in various clauses of the deed for obtaining permission and execution of lease deed. Parties were conscious that a lawful lease deed could be executed only after obtaining consent of the landlord and the document if treated as sub-lease, would be illegal. Paragraphs 4, 5 and 6 of the deed specifically provide that after obtaining the consent of the landlord, licensor would grant a sub-lease in respect of the said premises for a period of atleast ten years and the licensor would endeavour to obtain a lease on the terms which would not be inconsistent with the standard terms on which a sub-lease is obtained by the licensee for the purpose of selling his products through the Petrol Service Station and a copy of the standard form of the lease was also attached with the deed. Thirdly, no contention was raised by the defendants to the effect that license deed is a camouflage to circumvent the provisions of law or to defeat the rights of owner or tenant who granted the licence and inducted and licencee in possession. Further, in cases where contract for license is executed by handing over exclusion possession of the premises, the distinguishing line between the lease and license is absolutely thin. In such cases, the terms of the document are to be read as they are and it would be unreasonable to draw inference that parties intended to create relationship of landlord and tenant despite express contrary terms in the deed which are binding between the parties. (Paras 14 to 16)

       In the license deed, the parties have specifically made it clear that they were not executing lease deed, but only a license deed and it should not be construed as a lease deed or a deed creating relation­ship of landlord and tenant between them. It was known to them that without prior consent, creation of sub-tenancy would be illegal. Hence, it would not be correct to arrive at a conclusion which is contrary to the law and the express terms of the agreement. Learned counsel for the respondents further submitted that in the present case, exclusive possession of the property was handed over to the defendant coupled with the fact that in clause 18, the parties have used the phrase ‘demised premises’ which means that the intention of the parties was to create relationship of landlord and tenant. In our view, this submission of the learned counsel cannot be accepted. Exclusive possession as discussed above is not the sole inditia to establish the relationship of landlord and tenant between parties. It is true that the word ‘demise’ indicates either lease or conveyance depending upon the terms of the document. But, at the same time said word is to be construed by finding out what is sought to be conveyed or transfered in the context of all the terms of the document. If privilege of occupying the premises exclusively is granted on certain terms and conditions specifically as a licensee or what is agreed to be granted is exclusive possession of the premises on certain terms and conditions as a licencee, then there is no question of holding to the contrary. This would be clear from various meanings which could be assigned to the word ‘demise’. For determining whether the phrase ‘demised premises’ should be construed as a lease or a license as expressly stated in the agree­ment, the phrase or the word is to be construed in context in which it is used. In the present case the said phrase is used in clause 18 three times along with the term ‘license fee’ which was to be paid by the licencee and the manner of its payment. It provides that ‘licence fee’ for the demised premises was Rs. 3950/- per month and the license fee was payable for the said demised premises as provided therein, that is to say, Rs. 23,700/- for six months in advance and that the said license fee is to be adjusted in respect of the demised premises per month. The phrase ‘demised premises’ is used for recovering the license fee. If the intention of the parties was to create lease, then the word ‘rent’ would have been easily used at all the places. ‘Demised premises’, in the present case, includes not only the prem­ises, but fittings, fixtures and the petrol service station also. License was granted specifically to run the petrol service station on the terms and conditions specified therein. There are number of other terms and conditions in the document which indicate that it was a license deed. Firstly, the license was for the purpose of running the petrol service station which was set up by the licensor. The possible grant of sub-lease was reserved for the future in the event of Delta obtaining consent from its landlord Mallika Investments Company. The licensee was not obliged to pay any part of the outgoings in res­pect of the premises which indicate that the charges attendant upon occupation of the premises were to be paid and borne by the licensor. He was also required to keep the plant and machinery at the said premises in good repair and was required to obtain necessary insurance policies for the business. A further clause to the effect that the licensee was permitted to carry on business in the name of the licensor indicates that the premises were not let out otherwise there was no question of permitting the use of the licensor’s name. It is true that there are certain other clauses which may indicate a different intention if they are construed in isolation such as a term to the effect that licensee was entitled to grant sub-licence to operate the petrol station or that they were entitled to install other machinery. But, at the same time, these clauses are to be read in the context of the fact that the licensor had decided not to run the business of petrol service station and that by the impugned deed, right to run the said business along with the premises was given to the licensee. Further, clause 9 specifically provides that licensor shall be at liberty to withdraw and or revoke the leave and licence in case there is any default of the terms mentioned in the document. Clause 16 provides that if the sub-lease is granted then licencee was required to purchase the equipments, fittings and fixtures as men­tioned in the Second Schedule at a price of Rs. 2,50,000/- within a period of one year from the date thereof. Admittedly, sub-lease is not granted and the amount of Rs. 2,50,000/- as agreed is also not paid by anyone. The agreement is a deed of leave and licence and not a lease. (Paras 17 and 18)