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1937 Supreme(SC) 79
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD ALNESS, SIR LANCELOT SANDERSON, AND SIR GEORGE LOWNDES
SECRETARY OF STATE FOR INDIA IN COUNCIL - Appellant
Versus
KUCHWAR LIME AND STONE COMPANY, LIMITED - Respondents
On appeal from the High Court at Patna.
Decided On : November 19, 1937.
Solicitor for appellant:Solicitor, India Office. Solicitors for respondents: Sanderson, Lee & Co.
An ineffective attempt to transfer leasehold interest, rendered void by lack of compulsory registration, does not constitute a breach of a covenant against transfer and cannot justify the forfeiture of the lease.
Headnote:(A) Indian Registration Act, 1908 - Sections 17 and 49 - Transfer of Property Act, 1882 - Section 107 - Lease - Covenant against assignment and transfer - Forfeiture - Whether an agreement to transfer leasehold rights, which is void for want of registration, constitutes a breach of covenant justifying forfeiture - An agreement that purports to invest a third party with a definite interest in quarrying rights, but is inoperative for lack of compulsory registration, does not effect a valid transfer - An attempted but wholly ineffective transfer does not amount to a breach of a covenant against transfer and therefore does not entitle the lessor to forfeit the lease.
(B) Lease - Sub-letting - Distinction between agency and sub-tenancy - Appointment of a local agent to work quarries for his own profit, where no landlord-tenant relationship is established, does not amount to sub-letting, even if the agency is coupled with an interest.
(C) Damages - Abandonment of claim - Where an issue regarding damages is framed but no evidence is adduced during the trial, the proper inference is that the claim has been abandoned.
Facts of the case:
The respondent company held two quarrying leases containing a covenant prohibiting the assignment of the lease, transfer of any right or interest, or underletting of the premises without the prior assent of the regulatory authority, with forfeiture as the penalty for breach. The company entered into an unregistered agreement to sell the leasehold rights to a third party, subject to the required sanction. Pending such sanction, the third party was appointed as a local agent, entitled to work the quarries for his own profit and pay royalties to the company. The regulatory authority refused assent and declared the leases forfeited on the ground of unauthorized transfer or sub-letting.
Findings of Court:
The court found that the agreement did not create a landlord-tenant relationship and thus was not a sub-lease. However, it did purport to transfer a definite interest in the quarries. Since the value of the interest exceeded the statutory threshold and the document was not registered, the transfer was ineffective under the Indian Registration Act. Consequently, there was no valid transfer to trigger the forfeiture clause. Regarding damages, the court found that the failure to lead evidence indicated the claim was abandoned.
Issues: Whether the agreement to sell leasehold rights and appoint a local agent constituted a sub-lease or a transfer of interest, and whether the ineffectiveness of such transfer due to non-registration would still justify the forfeiture of the leases.
Ratio Decidendi: A purported transfer of interest in immovable property that is void for want of compulsory registration does not result in an actual transfer; therefore, such an ineffective attempt does not breach a covenant prohibiting transfer and cannot be the basis for forfeiture of a lease.
Result: Decree of the High Court affirmed as to declaration and injunction; claim for damages disallowed.
Legal Category Hierarchy
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property law
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leases
- assignment and sub-letting
- forfeiture
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leases
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registration law
- compulsory registration
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contract law
- agency
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practice and procedure
- maintainability
- damages
Judgement
Appeal (No. 24 of 1937) from a decree of the High Court (February 7, 1936) which reversed a decree of the Subordinate Judge of Arrah (March 7, 1935).
The main question for determination in this appeal involved the interpretation of a clause in each of two leases, dated April 1, 1928, granted by Government to the respondent company. By one of the leases the Government leased to the company for twenty years the right to quarry limestone and manufacture lime in an area known as Lower Murli Hill. The second lease was of the land in Upper Murli Hill together with the right to quarry and extract limestone and manufacture lime. The company had to pay to Government royalties on the limestone and lime at rates stated in the leases. In both leases there was a clause prohibiting, without the previous assent of the Board of Revenue, the assignment of the lease, or the transfer of any right or interest acquired thereunder, or the underletting of the whole or any portion of the premises comprised in the lease. The penalty prescribed for the infraction of any of the conditions in that clause was forfeiture of the lease.
In January, 1933, the company went into voluntary liquidation. By an agreement of September 30, 1933, the company, through its liquidators, contracted with one Subodh Gopal Bose for the sale to him for Rs.6ooo of the leasehold rights in the properties comprised in the two leases of April 1, 1928, subject to the sanction of the Board of Revenue of Bihar and Orissa, it being provided that the agreement for transfer should stand cancelled if such sanction was not given. The agreement was not registered. It was further provided that the prospective purchaser should act as the agent of the vendor company in respect of the leasehold rights in the quarries; that he should be entitled to work the quarries for his own profit; and that he should pay to the company the royalties and any other sums payable by the company to Government under the two leases.
The Board of Revenue in fact refused their assent to the sale, and on July 18, 1934, they declared the leases to be forfeited on the ground that the company had transferred or sub-let the rights and interests under the leases to Bose in breach of the covenants therein. On September 24, 1934, the company instituted the suit out of which this appeal arose, claiming a declaration that the leases had not been validly forfeited, an injunction restraining the defendant from granting to other persons a lease in respect of the lands comprised in the two leases of April 1, 1928, and from interfering with any of the rights of the company, possessory or otherwise, over or in respect thereof, and Rs.11,000 damages. The facts and the material terms of the contract of September 30, 1933, appear from the judgment of the Judicial Committee.
The Subordinate Judge held that the agreement of September 30, 1933, though purporting to appoint Bose to work the quarries as agent of the respondent company, was in substance and reality a sub-lease to him of the quarrying rights, and being without the consent of the Board of Revenue was in breach of the covenants in the leases, which had therefore been forfeited, and he dismissed the suit.
On appeal, the High Court (Khaja Mohamad Noor and Varma JJ.) were of opinion that the agreement with Bose did not amount to either a sub-lease or a transfer within the covenants. They were further of opinion that if the agreement could be so construed it would be void for want of registration under s. 17 of the Indian Registration Act, 1908. They accordingly granted the respondent company the declaration and injunction claimed. The appeal is reported at ( 1936) I. L. R. 15 Pat. 460.
1937. Oct. 25, 26. Fergus Morton K.C. and Wallach for the appellant. The substance of the agreement between the company and Bose must be looked at; the rights of the company under the leases became vested in him, and he entered into possession of the quarries and worked them; he was not a
