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High Court Of Calcutta
S. B. SINHA
ALLAHABAD BANK - Appellant
Versus
SADAY CHAND MAHATAB - Respondent
Appeal 65 Of 1996
Decided On : 03/04/1999
LEASE OR LICENCE - DISTINCTION - SUBSTANCE OF THE AGREEMENT AND INTENTION OF THE PARTIES - EXCLUSIVE POSSESSION - RELEVANCE - SURROUNDING CIRCUMSTANCES - ADMISSIBILITY - INTERPRETATION OF DOCUMENTS - RULES - LEASE - ESSENTIAL FEATURES - LICENCE - CHARACTERISTICS - DISTINCTION BETWEEN LEASE AND LICENCE - FACTORS - INTENTION OF THE PARTIES - NATURE OF POSSESSION - EXCLUSIVE POSSESSION - RELEVANCE - USE OF THE WORDS 'LEASE' OR 'LICENCE' - NOT DECISIVE - SURROUNDING CIRCUMSTANCES - RELEVANCE - SUBSTANCE OF THE TRANSACTION - RELEVANCE - INTENTION OF THE PARTIES - GATHERING FROM THE TERMS OF THE AGREEMENT - CONSTRUCTION IN THE CONTEXT OF SURROUNDING, ANTECEDENT AND CONSEQUENT CIRCUMSTANCES - EXCLUSIVE POSSESSION - PRIMA FACIE EVIDENCE OF TENANCY - CIRCUMSTANCES NEGATING INTENTION TO CREATE A LEASE - RELEVANCE - SUB-LEASING - REQUISITES - TENANT MUST HAVE LEGAL POSSESSION - SUB-LETTING BY LICENSEE - NOT SUB-LEASING - DISTINCTION BETWEEN LEASE AND LICENCE - CAMOUFLAGING REAL NATURE OF TRANSACTION BY RESORTING TO SKILFUL DRAFTING - TO BE AVOIDED - INTENTION OF THE PARTIES - RELEVANCE - CREATION OF INTEREST OR ESTATE IN THE PROPERTY - RELEVANCE - EXCLUSIVE POSSESSION - RELEVANCE - DELIVERY OF EXCLUSIVE POSSESSION - RELEVANCE - USE OF THE WORDS 'LEASE' OR 'LICENCE' - NOT DECISIVE - INTENTION OF THE PARTIES - RELEVANCE - NATURE OF TRANSACTION - RELEVANCE - EXCLUSIVE POSSESSION - RELEVANCE - SUBSTANCE OF THE DOCUMENT - RELEVANCE - INTENTION OF THE PARTIES - RELEVANCE - AMBIGUOUS DOCUMENT - SURROUNDING CIRCUMSTANCES - RELEVANCE - CONDUCT OF THE PARTIES - RELEVANCE - INTERPRETATION OF DOCUMENTS - QUESTION OF LAW.
Fact of the Case:
The plaintiffs, joint owners of a premises, entered into a memorandum of agreement with the defendant bank for the sale of the premises. Pending execution of the deed of sale, the parties entered into a leave and licence agreement for one year, which was extended thrice. The sale of the premises fell through. The plaintiffs filed a suit for vacant possession of the premises, alleging that the defendant was a licensee and not a tenant. The trial court decreed the suit in part, holding that the defendant was not a tenant but a licensee. On appeal, the High Court held that the memorandum of agreement constituted a lease and not a licence.
Finding of the Court:
The Supreme Court held that the memorandum of agreement constituted a lease and not a licence. The court held that the intention of the parties was to create a long-term arrangement, as evidenced by the fact that the agreement included the heirs, executors, administrators, representatives and assigns of the parties. The court also noted that the appellant was granted exclusive possession of the premises and was responsible for paying all outgoings, including rates and taxes. The court further held that the fact that the agreement was labelled as a leave and licence agreement was not decisive, and that the substance of the transaction was that of a lease.
Issues: Whether the memorandum of agreement dated 7th February, 1979 entered into by the parties constitutes a lease or licence.
Ratio Decidendi: The intention of the parties, as gathered from the terms of the agreement and the surrounding circumstances, is the key factor in determining whether a transaction is a lease or a licence. Exclusive possession of the premises is a relevant factor, but it is not decisive. The use of the words 'lease' or 'licence' is not decisive. The substance of the transaction, rather than the label attached to it, is what determines its legal character.
Final Decision: Appeal allowed.
( 1 ) THIS case has been placed before this bench in view of the difference of opinion between two of the Hon'ble Judges of this court. The question succinctly put is as to whether the memorandum of agreement dated 7th February, 1979 entered into by the parties constitutes a lease or licence.
( 2 ) THE basic fact of the matter is not in dispute. The plaintiffs-respondents are the joint owners of a premises bearing No. 2 Netaji Subhas Road, Calcutta as described in the schedule appended to the plaint. The appellant Bank approached the plaintiffs with a proposal to purchase the said premises at a price of Rs. 81 lakhs. For the said purpose negotiations had been held between July 78 and February 79. The parties also discussed about observance and performance of various formalities in this regard. However, as the plaintiffs had some difficulties in execution the deed of sale in favour of the defendant-appellant immediately, as it appears from the minutes of discussion dated 6th November, 1995, it was suggested that pending execution of the formal deed of sale the parties may enter into a leave and licence agreement for one year at the first instance: pursuant whereto the aforementioned agreement had been entered into.
( 3 ) IN terms of the said agreement the respondents agreed to allow the appellant to use and occupy the ground floor of the said premises which was expected to be vacant by 15th February, 1979 and the remaining floors as soon thereafter as the then occupier would vacate. Pursuent to the said agreement the appellant was put in possession of a portion of the premises in question which was vacant. On the expiry of the aforementioned period of one year, the said period was extended thrice. Admittedly, the agreement to sell the said premises by the respondent in favour of the appellant failed through. The respondents, on the expiry of the extended period filed a suit against the appellant in the Original Side of this court which was marked as suit No. 644 of 1984 praying, inter alia, for the following reliefs :-" (A)DECREE for vacant possession of the determined portion of the said premises No. 2, Netaji Subhas Road, Calcutta, indicated in yellow border in the plan annexed hereto as annexure 'a' full particulars whereof are set out in annexure 'a' hereto; (B)decree for vacant possession of the portions of the said premises No. 2 Netaji Subhas Road, Calcutta encroached upon by the defendant and beyond the portions covered by the said leave and licence being the said common areas and the said retained areas as indicated in violet and green borders respectively on annexure A and full particulars whereof are set out in annexure 'e'. (c)DECREE for damages and/or mesne profits at the rate of Rs. 19,500/-per diem from 15th August, 1984 as stated in paragraph 9 of the plaint. (d)DECREE for damages and/or mesne profits at the rate of Rs. 3000/-per diem as stated in paragraph 14 of the plaint. (e)IN the alternative and enquiry into the damages suffered by the plaintiffs by reasons of wrongful occupation of the said premises by the defendant and decree for the sum found due thereupon. (f)DECREE for Rs. 12,49,295. 04 P. towards municipal rates and taxes as pleaded in paragraph 17 of the plaint. "
( 4 ) IN the written statement the appellants, inter alia, took a plea that the parties had entered into an agreement of lease and not a mere leave and licence.
( 5 ) THE learned trial Judge in view of the pleadings of the parties framed as many as 9 issues, the material issues however, are as follows:-1. WHAT were the terms and conditions on the basis of which the defendant entered into possession of premises No. 2, Netaji Subhas Road, Calcutta, under the plaintiffs. 2. DID the defendant become a tenant or a licensee under the plaintiffs.
( 6 ) THE learned trial Judge decreed the said suit in part. As regard issue No. 1 and 2 it was held that the appellant was not a tenant but a licensee under the respondents. An appea
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