Sohanlal Narain Das vs Laxmidas Raghunath Gadit

V.M. Tarkunde, J.—This appeal has been filed by the original plaintiff from a decree of the Bombay City Civil Court by which the plaintiff''s suit for possession of a Medo (i.e. a loft or room on the first floor) of certain premises was dismissed with costs. The premises are situated in the Mulji Jetha Market in Bombay, and the plaintiff is the tenant thereof. The premises consist of a shop on the ground floor and the Medo on the first floor. As will be presently noticed, the plaintiff''s Medo as well as the Medos of other adjoining shops in the Mulji Jetha Market have separate entrances and are capable of being used as separate shops. The plaintiff as well as the defendant are cloth merchants. By a written agreement dated November 3, 1958, which was termed by the parties as an agreement of leave and licence, the defendant was allowed the use and occupation of the plaintiff''s Medo for a period of one year on defendant''s agreeing to pay compensation at the rate of Rs. 250 per month. Incidentally the rent which the plaintiff had to pay to the landlords for the premises inclusive of the Med.) was Rs. 157. 10 Ps. per month. The year for which the Medo was given to the defendant for his use and occupation was the Hindu calendar year, which ended on October 28, 1959. According to the plaintiff, the Medo was again given to the defendant for his use and occupation at the end of the year for a further period of one year on monthly compensation of Rs. 300. The second year of the alleged licence ended on October 17, 1960. The plaintiff called upon the defendant to vacate the Medo on October 17, 1960, and on the defendant''s failure to do so filed the present suit for possession in the Bombay City Civil Court on October 18, 1960.

The suit was resisted by the defendant on the ground that he was the plaintiff''s sub-tenant in respect of the Medo and was protected by the provisions of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947. It will be recalled that sub-leases of premises covered by the Act were unlawful under s. 15 thereof but wore rendered lawful by an amendment of that section in cases where the sub-leases were created prior to May 21, 1959, and the sub-lessees continued in possession of the premises on and after that date. The defendant claimed in his written statement that the shop on the first floor (the Medo ) was sub-let to him by the plaintiff on a monthly rent of Rs. 250, and that he (the defendant) was in exclusive possession of the shop all along. He further stated that the agreement dated November 3, 1958 "does not embody the real nature of the transaction between the parties."

At the trial the plaintiff gave his own evidence. The defendant examined on his behalf his elder brother who was his constituted attorney and was concerned in bringing about the transaction which was embodied in the agreement dated November 3, 1958. On a consideration of the nature of the agreement and the evidence led before him, the learned trial Judge held that the defendant was not a licensee of the plaintiff, that he was the plaintiff''s tenant, and that he could not be ordered to hand over possession of the suit premises to the plaintiff. Accordingly, the learned Judge dismissed the suit.

The only question which arises in this appeal, and which was canvassed before us by Mr. Nariman on behalf of the plaintiff, is whether the relationship between the plaintiff and the defendant was that of landlord and tenant, or that of licensor and licensee. The relevant material in considering this question consists of the terms of the agreement between the parties dated November 3, 1958, together with the evidence of such circumstances as may be taken into consideration for the purpose of interpreting the words used in that agreement.

The agreement characterises the plaintiff as "the owner" and the defendant as "the licensee". The preamble of the agreement says that the defendant had agreed to take the loft (Medo) of the plaintiff''s shop for a period of one year on leave and licence basis and that the plaintiff had agreed to grant the leave and licence for the ''''use and occupation" of the Medo for a period of one year. The first clause repeats what was stated in the preamble about the agreement to grant the leave and licence to the defendant for the use and occupation of the Medo. The second clause says that the defendant shall pay to the plaintiff "monthly compensation or licence fee" at the rate of Rs. 250 per month. The third clause runs thus:

The Licensee shall have no right as a tenant or sub-tenant in respect of the said loft (Medo) of the said shop. The Licensee shall not sub-let, allow to use, transfer or assign in any way the said loft (Medo) of the shop to any one else.

The fifth clause says that the defendant shall use and occupy the Medo "as a cloth merchant only and shall not be entitled to carry on any other business." Clauses Nos. (6) and (7) relate to the period of the defendant''s use and occupation. Clause No. (6) says that the parties to the agreement shall give one month''s clear notice in writing of their intention to terminate the agreement. Clause (7), however, provides that if the defendant terminated the agreement before the stipulated period of one year, the plaintiff was entitled to get compensation or licence fee for the whole of the period of one year. Read together, clauses (6) and (7) mean that the plaintiff was entitled to terminate the agreement by giving one month''s clear notice in writing, but that the defendant had to pay compensation for the stipulated period of one year even if he purported to terminate the agreement on an earlier date. These are the material terms of the agreement.

It was admitted by the plaintiff in his evidence that the defendant has been in exclusive possession of the Medo from the time of the agreement. The Medo used to be locked by the defendant and the key of the Medo was with the defendant. According to the plaintiff, there are two entrances to the Medo; one is a separate entrance and the other is through his shop. About the entrance through his shop the plaintiff stated :

There is a hole in the ceiling of my shop, and to go to the Medo through this hole we have to use a bamboo ladder.

Regarding the direct entrance to the Medo the plaintiff deposed that it is "a big one." It is further clear from the plaintiff''s evidence that there is a door to the hole in the ceiling of his shop through which the Medo could be entered, that the door was locked by him from below, and that the defendant from his side had kept an iron safe on the wooden planks which covered that hole. The plaintiff specifically admitted that he had never gone to the Medo since the time the defendant went into its occupation.

The position of the Medo is further clear from the evidence of the defendant''s brother Yassanji. He stated:

To come to the Medo it is not necessary to pass through the shop. In the Pragraj Galli (of Mulji Jetha Market) there are in all 22 shops and 20 Medos. There is a lobby all along the Medos and two staircases at the two ends of the lobby.

It is thus clear that the entrance to all the Medos is through the lobby and the approach to the lobby is through the two stair-cases. The evidence of this witness shows that the lobby is 7'' wide and the Medo in dispute is 11'' x 12''.

In view of the arguments advanced by Mr, Nariman it is necessary to notice the definition of lease in s. 105 of the Transfer of Property Act and that of license in s. 52of the Indian Easements Act. The relevant part of s. 105 of the Transfer of Property Act lays down :

A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

Section 52 of the Indian Easements Act provides:

where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.

It will be noticed that one of the elements in the definition of licence is that the right granted to the licensee should not be an interest in the immovable property in question. It follows that where a dispute arises as to whether a transaction is a license or a lease the primary question is whether the transaction is a lease.

The terms of s. 105 of the Transfer of Property Act show that a transfer of a right amounts to a lease if three requirements are fulfilled. The transfer must be of a right to enjoy immovable property, the transfer must be for a certain time, and the transfer must be for valuable consideration. If these three requirements are fulfilled the transfer amounts in law to a lease.

The main argument advanced by Mr. Nariman before us was that in considering whether the agreement dated November 3, 1958, was in the nature of a lease or a license the paramount consideration must be the intention of the parties as expressed in that document. In this connection Mr. Nariman pointed out that the parties expressed their intention in clear and unambiguous terms in cl. (3) of the agreement when they stated that the defendant "shall have no right as a tenant or sub-tenant in respect of the said loft (Medo) of the said shop." Mr. Nariman further argued that the law, as it stood at the time of the agreement, prohibited the grant of a sub-lease, and the parties should not be held to have intended to create a sub-lease when it was unlawful to do so. These arguments of Mr. Nariman appear to be based on the assumption that the question whether a transaction amounts to a lease or a license depends primarily on whether the parties desired that it should be regarded as a lease or a license. In our view, this assumption is not correct.

It is clear from the terms of s. 105 of the Transfer of Property Act that where the three conditions mentioned in that section are fulfilled, the transfer amounts to a lease as a matter of law. It is not permissible to parties to enter into a transaction which amounts to a lease as defined by s. 105, and then to say that the transaction does not create a lease but amounts to a license. We agree that the intention of the parties is of paramount importance in deciding whether a transaction between them was a lease or a license, but in our view, the said intention must relate to the elements which constitute a lease or a license respectively. Thus one of the requirements of a lease is that it must consist of a transfer of a right to enjoy immovable property. Such a transfer necessarily implies the grant of the right to exclusive possession of immovable property by the transferor to the transferee. It is, therefore, of primary importance in construing the terms of a transfer as to whether the parties intended that the transferee should get exclusive possession of the immovable property in question. The intention of the parties is also relevant in deciding whether the other conditions of the lease have been fulfilled. This is particularly BO in deciding whether the transfer was for a valuable consideration. Even where exclusive possession of immovable property was transferred for a certain period the transaction might amount to a license and not a lease where the dominant consideration was not the price which the transferee was to pay for the use and enjoyment of the property. A railway company may grant exclusive possession of a separate room at a railway station for conducting a tea stall for a specified period, and yet the transaction would amount to a license, as the dominant consideration of the railway company in such a case is the provision of amenities to railway passengers, and not the price that may be paid by the transferee for the enjoyment of the immovable property. Exclusive possession of Immovable property for a specified period may also be granted to a person out of sympathy and not in consideration of the price that might be paid by him and in such cases also the transfer may amount to a license and not a lease. Thus, in our view, the intention of the parties which is relevant in deciding whether a transaction is a lease or a license is their intention with regard to the elements which in law constitute a lease or a license and not their intention with regard to whether their transaction should be regarded as a lease or a license. It is only where the terms of a transaction are capable of being construed as the terms of a lease as well as those of a license that the assertion of the parties that they intend to create a lease or a license, as the case may be, would be a material consideration.

Construing the agreement dated November 3, 1958 in the light of these principles, it appears to us that the transaction between the parties fulfill all the requirements of a lease. In the first place, the defendant was to get exclusive possession of the Medo under the terms of the agreement. Under the agreement the use and occupation of the Medo was granted to the defendant who had to pay Rs. 250 per month by way of compensation. The fact that the use and occupation of the Medo was granted to the defendant, and that no reservation was made for the entry of the plaintiff in the Medo clearly shows that the defendant was to have under the agreement exclusive possession of the Medo. This is also clear from the location of the Medo, the fact that there was a separate entrance thereto, and the further fact that the defendant was to carry on the business as a cloth merchant in the Medo. It was obviously intended by the parties that customers of the defendant should use the separate entrance to the Medo during business hours, that the defendant''s cloth should remain in the Medo after the close of business hours, and that the Medo should be in the possession of the defendant both during business hours and after the business of the day was over. The admission of the plaintiff that he never visited the Medo after it was pat into the possession of the defendant supports the conclusion that that was the intention of the parties from the beginning.

Secondly, there can be no doubt that the monthly amount of Us. 250 which the plaintiff was to get from the defendant was the only consideration why the plaintiff agreed to give to the defendant exclusive possession of the Medo. No other consideration has been mentioned in the agreement as well as in the deposition of the plaintiff. The plaintiff and the defendant were both cloth merchants. There is nothing on record to show that the plaintiff had any interest in the business of the defendant. It was never the plaintiff''s case that the Medo was given to the defendant out of sympathy or for any consideration other than the monthly payment of the so-called compensation.

Thirdly, the transfer was for a period of one year with a reservation in the plaintiff''s favour that he could terminate the agreement by giving one month''s clear notice in writing. The agreement could not have been terminated by the plaintiff within a period of less than one month. Thus the agreement between the parties fulfils all the three ingredients of the definition of a lease.

It was argued by Mr. Nariman that there is nothing in the agreement which shows that the defendant was entitled to get exclusive possession of the Medo under the agreement. We have stated above the reasons why we cannot accept this argument. Mr. Nariman further contended that the plaintiff''s case that the transaction between the parties was a license is supported by the terms of cl. (5) of the agreement which stated that the defendant was to use and occupy the Medo "as a cloth merchant only" and was not entitled to carry on any other business therein. Mr. Nariman referred in this connection to the wording of s. 52 of the Indian Easements Act and argued that the agreement between the parties granted to the defendant the right to carry on the business of a cloth merchant in the Medo, and that the grant of such a right amounted to the grant of a license as defined by s. 52 of the said Act. We do not find any substance in this argument. Restrictive covenants to the effect that the tenant shall use the leased premises only for his personal residence or only for business, or only for business of a certain type, are found in many leases. In order that a grant should be that of a license as defined by s. 52 of the said Act it is not enough that it should be the grant of a right to do something in or upon the immovable property of the grantor; it is further necessary under the terms of that section that the right should not amount to an interest in immovable property. It follows that if the transaction between the parties amounts to a lease as defined by s. 105 of the Transfer of Property Act, it cannot be a license as defined by s. 52 of the Indian Easements Act, even if some restriction has been imposed on the manner in which the transferee may enjoy the immovable property given to him.

We must accordingly hold that by their agreement the parties provided, and intended to provide, for the transfer of exclusive possession of the Medo for a certain period and for a valuable consideration. The transaction was, therefore, of a lease and not a license. Assuming that the parties knew what in law amounted to a lease, it must be held from the terms of the agreement that they intended to create between themselves the relation of landlord and tenant. In that case it is immaterial that they characterised the transaction as the grant of a license and agreed that the grantee will not have the right of a tenant or a sub-tenant. Alternatively, supposing that the parties did not know what in law amounted to a lease, even then the transaction entered into by them was that of a lease and not of a license. If the parties created between themselves a relation which in law amounted to that between landlord and tenant they cannot by mere volition transform that relation to one between licensor and licensee.

Support to the above view is derived from two judgments of this Court. In Emperor Vs. Sherif Dadumiyaji, the Bombay Municipal Corporation had passed an agreement to the petitioner in that case of farming certain stables on the petitioner''s undertaking to pay a certain monthly amount "as compensation for use and occupation by him as licensee." Despite this averment, the Court held that the agreement amounted to a lease because its terms showed that all the elements of the definition of a lease in s. 105 of the Transfer of Property Act were fulfilled. A similar question was considered by this Court in the more recent decision in Ramjibhai Virpal Shah Vs. Gordhandas Maganlal Bhagat, In that case the Court considered whether the terms of a compromise decree which related to premises covered by the Bombay Rent Restriction Act of 1947 created the relationship of landlord and tenant between the parties. Mr. Justice Gajendragadkar, as he then was, in delivering the judgment of the Division Bench observed (p. 369):

...Where the agreement is reduced to writing, it is but trite to say that the relationship brought into existence by the writing must always be determined in the light of the words used by the parties in executing the document. The substance of the transaction has no doubt to be determined, and if in substance the transaction appears to be one of lease, the fact that an effort is made to clothe the transaction with an appearance of license by the use of ingenious and clever words would not alter the essential character of the transaction. In that sense the use of words such as ''mesne profits'' or ''compensation'' can have no material effect.

The learned Judge then went on to say (p. 369) :

...But this is a statement of one aspect of the matter. In determining the nature of the transaction itself Courts have inevitably to take into account the words used by the parties, and in that sense it would be wrong to suggest that the words used in the document, such as ''compensation'' or ''mesne profits'' are of no consequence whatever. In deciding the question as to what was the intention of the parties in executing the document Courts would have to look at the document as a whole, give the words used in the document their plain, grammatical meaning and determine the intention of the parties in that manner. If the intention of the parties clearly appears to be not to create the relationship of landlord and tenant between them, then in construing the words used in the document the Courts would have to bear that fact in mind. In such a case if the words used in the document are consistent both with a lease or a licence, Courts would naturally prefer to treat the document as a licence rather than as a lease in view of the intention of the parties which is otherwise clear beyond a doubt. Even so, the intention can be given effect to in construing the words of the document only where the words are capable of two constructions, one of which is consistent with the said intention. If the words used in the document are unambiguous and lead only to the inference that the relationship of landlord and tenant is thereby intended to be created, the doctrine of intention cannot materially affect the construction of the document.

In a later part of his judgment the learned Judge referred to the decision of the Calcutta High Court in O.C. Ganguly Vs. Kamalpat Sing Dugar, In regard to that case Mr. Justice Gajendragadkar observed (p. 370):

...Having construed the document before him as creating a lease, Mr. Justice Chakravarti repelled the argument of the intention of the parties as being inconsistent with the said construction by observing that though the intention of the parties may be a useful and legitimate guide in determining the relationship actually created, if in the case of a written document the rights actually transferred exceed those of a licence and make out a lease, it is quite impossible to reduce a lease to a licence by speculating as to what the lessor might really have intended. If he intended less, his acts exceeded his intention and by the consequence of his acts he must abide. In our opinion, there can be no quarrel with this statement of the law. As I have already mentioned, if the words used in the document unambiguously and clearly lead to only one inference and that of the creation of a lease, then the consideration of the intention may not be of any avail to the party that pleads for a licence.

The terms of the compromise decree in that case were held not to constitute a lease, mainly because it was out of compassion or humanity that the defendant therein was allowed to continue in the occupation of the premises for a limited period and that the dominant consideration for the agreement was not the monthly amount promised by the defendant.

In support of his argument Mr. Nariman relied on certain observations, of the Supreme Court in Mrs. M.N. Clubwala and Another Vs. Fida Hussain Saheb and Others, It was held by the Supreme Court in that case that the relationship between the owner of a certain market and the occupier of one of the stalls in that market was that of licensor and licensee and not landlord and tenant. The decision turned on the facts of that case, the Court holding that the legal possession of the stalls must be deemed to remain with the owner of the market and not the occupier of the stall, and that the daily amount paid by the stall-holder to the owner was in the nature of a licence-fee and not rent. Mr. Nariman relied on the following statement in the judgment of the Supreme Court:

whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee the decisive consideration is the intention of the parties. This intention has to be ascertained on a consideration of all the relevant provisions in the agreement.

It appears to us that this observation does not moan that where the parties to an agreement enter into a transaction which amounts to a lease as defined by s. 105 of the Transfer of Property Act, the transaction will be held to be the grant of a license if the parties declare their intention in unequivocal terms that the relation between them will be that of licensor and licensee and not of landlord and tenant. The observation of the Supreme Court is consistent with our view that in considering whether a transaction is a lease or a license the intention of the parties is of decisive importance only in so far as it relates to the elements which in law constitute a lease or a license respectively. That this was the view of the Supreme Court appears, with great respect, to have been borne out by the manner in which the question of intention was considered by the Court in relation to the facts of the case. In holding, for instance, that the possession of the stalls remained with the owner of the market and not with the stall-holders the Court observed (p. 615):

...Could in such circumstances the landlords have ever intended to part with possession in favour of the stall-holders and thus place themselves at the mercy of these people? We are, therefore, of the opinion that the intention of the parties was to bring into existence merely a licence and not a lease and the word ''rent'' was used loosely for ''fee''.

Mr. Nariman also relied on a decision of the Privy Council in Issue v. Hotel De Paris, Ltd. [1960] 1 All E. R. 348. In that case the Privy Council confirmed the decision of the Federal Supreme Court for the West Indies that a certain transaction was in the nature of a licence and not a lease. Although exclusive possession of the property in that case was with the person who was held to be a licensee, it was found that the payments which he was to make to the owner were not in the nature of rent payable for his possession and enjoyment of the property. We do not find that this decision supports Mr. Nariman''a contention in any way.

In the result we agree with the conclusion of the learned trial Judge that the defendant is a tenant, and not a licensee, of the plaintiff. The appeal, therefore, fails and is dismissed with costs.

It is agreed between the parties that the amount which has been deposited by the defendant in the City Civil Court and in this Court will not be withdrawn by him for a period of two months from today.