Hindustan Petroleum Corporation Ltd. and Another vs John and Others

P.K. Balasubramanyan, J.—The Defendants are the Appellants. The suit by the Plaintiffs was for recovery of possession on the strength of their title with mesne profits. The suit was resisted by the Defendants. The suit was decreed by the trial court. The appeal filed by the Defendants as A.S. 249 of 1992 was dismissed by a learned Single Judge. This appeal is filed by the Defendants u/s 5(ii) of the High. Court Act.

The plaint schedule property was leased by the predecessor of the Plaintiffs the owner of the property to the ESSO Standard Eastern, Inc on 29th September 1970 on a monthly rent of Rs. 300. The term of the lease wa3 ten years from 1st June 1970. The lease deed conferred a right on the tenant to exercise an option for renewal of the lease for a further term of ten years. The relevant clause, Clause 3(d) in the lease deed Ext. A-1 dated 29th September 1970 read as follows:

(d) THAT the landlord will on the written request of the tenant made before the expiry of the term here by created and if there shall not at the time of such request be any existing breach or non-observance of any of the covenants on the part of the tenant hereinbefore contained grant to it a lease of the demised premises for the further term of ten years from the expiration of the said term at a monthly rent of Rs. 350 (Rupees Three hundred and fifty only) and containing the like covenants and provisos as are herein contained.

The term of the lease was to expire by 1st June 1980. On 18th March 1980 the Defendant exercised the option of renewal conferred on it under the lease deed by Ext. B-1. That notice informed the landlord that the Defendant company was exercising its option for renewal of the lease for a period of ten years from 1st June L980 to 31st May 1990 at a rent of Rs. 350 per month in terms of Clause 3(d) of the lease deed. The extended period of the lease on the basis of this option expired on 31st May 1990. Meanwhile on 13th March 1974 the ESSO (Acquisition of Undertakings in India) Act, 1974, Act 4 of 1974 came into force having received the assent of the President on 13th March 1974. On 18th April 1989 a notice was sent on behalf of the landlords calling upon the Defendants to vacate the premises on the basis that the period of the renewed lease expired on 31st May 1990 and under law; Defendants were bound to surrender vacant possession. Reply marked Ext. A-3 was sent on behalf of the Defendants informing the landlord that the earlier option to continue was in terms of the lease deed and in spite of the exercise of that option, the Defendants have the right to exercise a further option under the ESSO (Acquisition of Undertakings in India) Act, 1974, hereinafter referred to as the Act. On 27th February 1990 under Ext. A-4 Hindustan Petroleum Company in which the rights of Esso had come to vest by virtue of the Act informed the landlord that it was exercising the option to renew the lease in terms of Sections 5, 8 and 7(3) of the Act and they were exercising the option to continue for a further period of twenty years commencing from 1st June 1990 on the same terms and conditions contained in the lease agreement Ext. A-1. Disputing this position taken up by the Defendants, the Plaintiffs filed the suit for recovery of possession on 9th July 1990. The Plaintiffs took the stand that in view of the exercise of option by the lessee on the expiry of the original ten years, which commenced on 1st June 1970, the right of the Defendant to have an option either under the contract or under the Act had come to an end and the Defendants were liable to vacate the premises on demand by the landlord. The Defendants filed a written statement raising the contention that the first option exercised by them to continue from 1st June 1980 until 3lst May 1990 was the option available under the lease deed and the exercise of such an option cannot stand in the way of the Defendants exercising a further option or a one-time option under the Act. The Defendants took the stand that the original term of the lease must be deemed to be twenty years in view of the option to renew available to the tenant and if so the statutory renewal under the Act would be for a further term of twenty years and the same would expire only by 31st May 2010. The trial court took the view that the exercise of option by the Defendants by Ext. B-1, dated 18th March 1980 must be deemed to be an exercise under the Act and since the option under the Act available was only a right to exercise an option for continuing for one more term, on the expiry of the period on 31st May 1990, the Defendants were bound to vacate the premises. The trial court therefore granted the Plaintiff a decree for recovery on the strength of title and granted to the Defendants four months'' time to surrender vacant possession. In the appeal filed by the Defendants, the learned Single Judge agreed with the view taken by the trial court and confirming the decree for eviction, dismissed the appeal. It is this decision that is challenged in this further appeal under the Kerala High Court Act,

We shall first advert to the relevant provisions of the Act. u/s 3 of the Act on and from the appointed day, the right, title and interest of Esso Eastern Inc. in relation to its undertakings in India stood transferred to and vested in the Central Government. u/s 5 of the Act the Central Government was to be the lessee or tenant under the circumstances referred to in that section. Section 5(2) provided that on the expiry of the term of any lease or tenancy referred to in Sub-Section 1 of Section 5 of the Act, such lease or tenancy shall if so desired by the Central Government be renewed on the same terms and conditions on which the lease or tenancy was held by the Esso immediately before the appointed day. u/s 7 of the Act the Central Government was given the power to direct that the rights vested in the Government in respect of the undertakings of the Esso may vest in a Government company. Section 7(3) of the Act provided that the provisions of Sub-section 1 of Section 5 regarding the right to renewal would apply to a lease or tenancy which vests in a Government company as they applied to a lease or tenancy vested in the Central Government and reference in Section 5(2) to the Central Government shall be construed as a reference to the Government company. In this case there is no dispute that the rights of Esso than vested in the Central Government had come to vest in the Hindustan Petroleum Corporation Ltd., Defendant No. 1 in the suit. Thus the position is that the first Defendant company acquired the right to exercise the statutory option u/s 5(2) of the Act.

The validity of similar provisions in the Caltex [Acquisition of Shares of Caltex Oil Refining (India) Ltd. and of the Undertakings in India of Caltex (India) Limited] Act, 1977 with particular reference to similar provisions in that Act came up for consideration before the High Court of Madhya Pradesh in the decision in Manohar Singh and Another Vs. Caltex Oil Refining (India) Ltd., Bombay and Others, . The challenge to the constitutional validity of the Act based on Articles 14 and 19 of the Constitution of India was repelled by the Division Bench. It was held that the right of option available under the statute to the transferee company was only a one-time option and the relevant provision did not create a lease in perpetuity and hence the Act could in no way be found to be violative of the fundamental rights of the land owners. The facts of that case were somewhat similar and during the course of the discussion it was observed by the Division Bench thus:

...The Central Government by this provision only gets that right under a lease which the Caltex (India) had under it. So if the Caltex (India) had the right to renew the lease, the Central Government could have renewed it. In the instant case, howerer, the lease provided for only one renewal which right had already been exercised by the Caliex (India) and it was this renewal which was to expire on 30th October 1978. The lease, therefore, could not have been renewed under this provision. Sub-section (3) of Section 7, however, confers an additional power on the Central Government to renew or continue a lease on its expiry.

Thus it was indicated in that decision that inspite of the fiact that the contractual option had been exercised, the company in which the rights get vested, could exercise a further statutory option.

The validity of the Esso (Acquisition of Undertakings in India) Act itself came up for consideration before the High Court of Andhra Pradesh in Mustafa Hussain Vs. Union of India (UOI) and Another, . Their Lordships held that a careful perusal of the provisions of the Acts including Sections 5(2) and 7(3) of the respective enactments would show that they are very much necessary to give effect to the object of the Act. During the course of the discussion it was held by their Lordships that the provisions in the Act do not give scope for any perpetual lease as apprehended by the learned Counsel. The corporations can exercise this option only once on the same terms and conditions on which the lease or tenancy was existing on the appointed day. Based on this observation, counsel for the Plaintiff submitted that since the option in this case had been exercised once already after coming into force of Act 17 of 1974, there cannot be any further renewal in alleged exercise of she right under the statute. We do not think that this aspect was specifically considered in that decision and that decision was essentially related to considering the question of validity of the relevant provisions of the Act providing for a renewal on the exercise of option by the concerned company.

In G. Sridharanmrthi v. Hindustan Petroleum Corporation Ltd. AIR 1991 Kar 249, the question was whether the transfer of the lessee''s interest in the company amounted to subletting or assignment of leasehold right coming within the purview of the Karnataka Rent Control Act. The Division Bench held that it did not amount to a subletting or assignment of the tenancy. Their Lordships stated that this was a case in which the very contract of lease was modified by the law and in the place of Esso, Hindustan Petroleum Company continued the lease, substituted by the law itself.

In Sankaranarayanan Nambiar v. Union of India 1989 (2) KLT 635 this Court had occasion to consider the validity of the present Act. This Court upheld the validity. This Court followed the decision of the Madhya Pradesh High Court in Manohar Singh and Another Vs. Caltex Oil Refining (India) Ltd., Bombay and Others, on the construction of Section 5(2) of the Act. In Hindustan Petroleum Corporation Ltd. and Another Vs. Dolly Das, the Supreme Court dealt with the Caltex [Acquisition of Shares of Caltex oil Refining (India) Ltd. and of the undertakings in India of Caltex (India) Ltd.] Act. Their Lordships observed that "the crucial question whether the option for renewal either in terms of the lease deed or in terms of the Act had been availed of or not, is the controversy between the parties now". Their Lordships noticed that on the expiry of the term, the deed in that case provided for renewal for two terms of ten years each on the same terms and conditions except for enhancement of rent and execution of fresh deed modifying the clause relating to renewal. The company gave notice of renewal in terms of the option available under the contract by letter dated 23rd May 1979 and the right to continue by exercising the option under the Act by letter dated 13th September 1989. Their Lordships stated that it was not necessary to examine the effect of renewal for the earlier period as even on the company''s own showing it had invoked the statute in the latter notice and not the terms of the deed. Therefore their Lordships held that the company could seek for renewal only in terms of Section 7 of the Act which enabled it to renew the deed for a period of one term as originally granted. Then the following observations were made:

A covenant for renewal is not treated as a part of the terms prescribing the period of lease but only entitles a lessee to obtain a fresh lease. Renewal of lease could only be for one term and no more, but nevertheless it could be contended that the covenant for renewal was also part of the lease and, therefore, stood incorporated in the renewed lease arising under the Act.

On the peculiar facts of that case, their Lordships thought that it was not necessary to enter upon the merits of the controversy in that regard. Going by the said decision, as we understand it, the company could exercise the option both in terms of the contract and in terms of the statute but that renewal can only be for the term originally fixed. Here we have already noticed that by Ext. B-1 dated 18th March 1980 the company had exercised its option to continue under the lease and not under the statute. But thereafter on 27th February 1990 by Ext. A-4, the company had exercised its option to continue in terms of the statute. Even though the company has claimed that it can continue for a term of twenty years on the basis that the term of the lease was twenty years and not ten years, in view of the right of option available to the company under the lease, that position could not be accepted since the term of the lease, is only ten years and on the expiry of the term of the contractual option, the company would be entitled to an option to continue the lease only for one more term as provided in the contract. That term is clearly for a period of ten years and if so, by exercising the statutory option the company would be entitled to be in possession as a lessee for a further period of ten years from 1st June 1990, that is till 31st May 2000.

We find that the learned Single Judge has not considered the distinction between the exercise of the contractual option and the exercise of the statutory option. When a contractual option is available to the tenant, it is not possible to compel the tenant not to exercise that option but to exercise only an option conferred on it by a statute. The decisions referred to by learned Counsel for the Plaintiffs mostly are cases where after the exercise of the contractual option, the lessee was trying to exercise the statutory option and the validity of the provisions were upheld on the ground that the right to option was not a right to be in possession perpetually but it was only a one-time option. The latest decision of the Supreme Court also clearly suggests that the right to opt under the lease is different and distinct from the right to opt under the statute. Here on facts, the Defendants have clearly exercised their option under the lease deed by is suing Ext. B-1. notice and thus getting the benefit of a renewal for ten years. The subsequent exercise of option on 27th February L990 was the option available to the company under the statute and hence the company was entitled to be in possession for a further period of ten years from 1st June 1990. The decree for recovery granted by the trial court and confirmed by the learned Single Judge cannot therefore be said to be correct.

Before proceeding further, we have to consider one more aspect. It appears that immediately after the suit was decreed by the trial court on 29th June 1991, the decree holder filed an execution petition seeking delivery on 9th April 1992. Notice was ordered on that execution petition, through the execution was sought within two years of the decree. The decree holder took out the notice. But the notice was returned stating that the addressee was not available to receive the notice. Thus no notice was served on the Defendants in the execution. Meanwhile in the appeal A.S. 249 of 1992, this Court granted a stay of execution of the decree. Thus the execution petition filed by the decree holder remained dormant. On 9th July 1998, the learned Single Judge dismissed the appeal holding that the company had no right of option. It is seen that the decree holders, without making any attempt to serve on the judgment debtors the notice on the execution petition which had been filed on 9th April 1992, pressed for delivery and the executing court without noticing that no notice has been served on the judgment debtors pursuant to its earlier order made, ordered delivery. It is submitted that on 28th June 1999 delivery was effected. The present appeal was filed on 29th June 1999. Thus during the period when there was no stay from this Court the property was taken delivery of by the decree holder. Now that we have held that the Defendants are entitled to continue in possession as lessees until 31st May 2000, it is clear that the property has to be restored possession of to the Defendants in terms of Section 144 of the Code of Civil Procedure. But we find that in any event, the term of the lease would come to an end on 31st May 2000 and even if a re-delivery is to be ordered, it may take its own time and a re-delivery would be of no practical advantage to the Defendants. In the circumstances, we think that the proper course to adopt is to compensate the Defendants for the loss of the term of 11 months from 28th June 1999 till 31st May 2000. Obviously, there is no clear data on the basis of which we can fix such compensation and in the ordinary course, we need not undertake such an exercise but stop with merely allowing the appeal and dismissing the suit. But that would mean that the Plaintiffs will have to file another suit after 1st June 2000 and the litigation will have to be fought all over again. We do not think that it is just or proper to drive the Plaintiffs to another suit. We think that it will be just and proper to compensate the Defendants for the loss of a portion of the term for which they were entitled to be in possession on the basis of the exercise of their right under the Act. To shorten the litigation, we think that it will be proper for us to fix the compensation due in that regard rather than directing a fresh enquiry into that question. We think that a sum of Rs. 5000 per month us compensation for deprivation of use of the land would be the just compensation on the facts and in the circumstances of the case. The Plaintiffs also could not be seriously prejudiced as otherwise they will be forced to make restitution to the Defendants and to fight another suit for recovery of possession after the expiry of the renewed term of 31st May 2000.

We therefore allow this appeal and modifying the decisions of the courts below we hold that the Defendants were entitled to continue in occupation of the premises as lessees until 31st May 2000. But taking note of the fact that that date is fast approaching, the further fact that the Plaintiffs have meanwhile obtained delivery of the property through court, and to avoid multiplicity of proceedings, instead of dismissing the suit, we confirm the decree but subject to the grant to the Defendants of a decree for recovery of a sum of Rs. 55,000 towards compensation recoverable from the Plaintiffs, charged on the plaint schedule property for the Defendants being deprived of the full term of the renewed lease. We also award to the Defendants, their costs in this litigation in all the three courts.