2004 Supreme(SC) 13

2004(1) Supreme 197
SUPREME COURT OF INDIA
(From Madhya Pradesh High Court)
Brijesh Kumar & Arun Kumar, JJ.
Food Corporation of India & Ors. -Appellants
versus
M/s. Babulal Agrawal -Respondent
Civil Appeal No. 3484 of 1997
With
C.A.No. 3485 of 1997
Decided on 5-1-2004
Counsel for the Parties :
For the Appellants : M.R. Rajendran Nair and Shakil Ahmad Syed, Advocates.
For the Respondent : G.K. Banerji, S. Bhatnagar, Saurabh Agarwal, Advocate for Ms. Ruby Singh Ahuja, Advocates.

IMPORTANT POINT
In case one who holds out a promise, backs out, will have to compensate the party who acted bonafidely on the basis of the promise made.

Headnote:(i) Transfer of Property Act, 1882-Sections 106 and 107-Contract Act, 1872-Limitation Act, 1963-Article 55-Suit for breach of contract-Food Corporation of India invited tenders for hiring plinths for storing foodgrains-Tender notice indicated that FCI-defendant would occupy premises for a period of three years-Premises constructed by plaintiffs in accordance with instructions and specifications of FCI-However, no formal lease executed-Premises handed over to FCI on 24.1.1987-FCI gave 15 days notice on 26.9.1988 for vacating plinths and vacated the same on 10.10.1988-Plaintiff taking it as breach of contract by FCI, filed a suit for damages-Trial Court decreed the suit-Whether defendants can be held liable for damages-(Yes)-Whether suit filed on 4.10.1991 i.e. within three years of vacating the premises was barred by time-(No).

       Held : The High Court has rightly dealt with the question while holding that the plaintiff had not filed the suit for enforcement of agreement of lease. It was a suit filed for damages for the breach of contract. It was not a suit for specific performance of the contract. A promise was definitely held out by the defendant to the appellant, for occupying the premises for a period of three years at a given rate of rent. The premises were in fact constructed in accordance with the instructions and specifications of the defendant. For raising the construction the plaintiff had raised loans from the bank. Everything happened in accordance with the terms of the contract except that the period of tenancy was interdicted before three years of taking over of the possession by the defendant. It may be observed that even a monthly lease may last for more than a year and for any longer period. In our view, the Trial Court and the High Court have rightly held that in absence of any lease deed or a registered lease deed the nature of the lease would only be that of a monthly lease. But it does not mean that it would deprive the plaintiff of damages for breach of terms of an agreement in accordance of which he had performed his part of the obligation by creating a liability against himself by taking loan from bank later only to be told that it all will be of no consequence as agreed in the agreement since no lease was executed and registered. The plinths were constructed in accordance with the design and specification given by the defendant. It may be of no use to any other person and for any other purpose. In this background as what was held out by the defendant, assumes importance and in case one who holds out a promise, backs out, will have to compensate the party who acted bonafidely on the basis of the promise made. As indicated earlier, even the tender notice, besides other correspondence, all gave out that the defendant would occupy the premises for a period of three years. Everything was acted upon according to the agreement except the execution of lease deed, hence there was termination of tenancy on 15 days notice. The plaintiff is not insisting that the defendant must retain possession for the remaining period or that the tenancy was not terminable but termination of the tenancy would not necessarily mean that the defendant would also not be liable for compensation for the breach of promise held out in the terms of the agreement which lead the plaintiff to undertake the construction and invest money by raising loan. Therefore, in our view, it would not be of much consequence as to whether a lease deed for a lease of three years was executed and registered or not. The execution of the agreement and its existence and its terms and conditions are not disputed. Nor it has been disputed that it was held out by the defendant that it would occupy the premises for a period of three years extendable by one year at its option on the rate of rent as agreed between the parties. In the case in hand, the plaintiff is not praying for relief of specific performance. In this view of the matter, we find that the defence put up by the defendant appellant is not legally tenable. (Para 7)

       In the case in hand, as indicated above, the notice terminating the contract is dated 26.9.1988 saying that "we are going to vacate your above plinths by October 10, 1988". The plaintiff replied to the notice saying that the defendant could not vacate the premises before 23.1.1990. However, the defendant vacated the premises on 10.10.1988. This is the date when the contract was broken and cause of action also accrued. The suit had been filed on 4.10.1991 i.e. within three years of vacating the premises. In view of the position indicated above, we do not find any merit in the argument raised on behalf of the appellant that the suit of the plaintiff was barred by time. (Para 13)

       (ii) Registration Act, 1908-Sections 2(7), 17(1)(d)-Documents of which registration is compulsory-FCI invited tenders for hiring plinths for storing foodgrains-Clause 8 of the agreement provided that upon completion of the plinths etc. premises would be handed over to defendant under a lease agreement to be executed between the parties in prescribed proforma-It was only an executory agreement and not an agreement creating rights in immovable property, hence not compulsorily required to be registered-It was a mere agreement between parties which was not registered but was admissible in evidence.

       Held : It is thus clear that if the agreement is such which may amount to a present demise even though the document may be contemplated to be executed later on it may be a document or agreement creating the rights. There must be demise of the property in praesenti. But an agreement for securing another agreement or deed in future would not be such an agreement or document which may require registration. Clause 8 of the agreement did not create any right in praesenti nor there was any immediate demise of the property. It was only an executory agreement. The construction of the plinth it seems had yet to start with other facilities and amenities. On completion, such a certificate was to be obtained from the defendant. It was thereafter that the possession was to be handed over under the lease agreement which was to be executed between the parties. The construction was to be strictly in accordance with the directions and specifications of the defendant. Condition No. 9 also contemplated that if the structure was found defective or workmenship was faulty the defendant could refuse to take possession of the premises and the earnest money was liable to be forfeited. Hence it is evident that no possession, right or title had passed on in praesenti at the time of execution of the agreement, and there were many prior conditions attached thereto. Such an agreement, in our view, has been rightly held to be only an executory agreement and not an agreement creating rights in the immovable property, hence not compulsorily required to be registered. It was a mere agreement between the parties which was not registered but was admissible in evidence. (Para 11)