Case Summary
| Citation | Delta International Ltd. v. Shyam Sunder Ganeriwalla AIR 1999 SC 2607 : (1999) 4 SCC 545 |
| Keywords | sec 105 TPA, lease and license |
| Facts | in this case, Abhiram Mullick( since deceased ), created tenancy of his premises, in favor of Mallika investment company private limited. |
| Issues | whether the agreement between parties is a lease or license? |
| Contentions | |
| Law Points | |
| Judgement | |
| Ratio Decidendi & Case Authority |
Full Case Details
M.B. SHAH, J. – 2. These appeals are filed against the judgment and decree dated 2-12-1997 passed
by the Division Bench of the High Court of Calcutta in appeal from Original Decrees Nos. 148 and
165 of 1992. The undisputed facts of the matter are that the original owner of the premises was
Abhiram Mullick (since deceased) who created tenancy of the premises, namely, No. 4-D, Council
House Street, Calcutta in favour of Mallika Investment Company Private Limited. Dewar’s Garage
India Private Limited was inducted into the premises as the monthly tenant under Mallika Investment
Company Private Limited. Dewar’s Garage India Private Ltd. (in short “Dewar”) was maintaining and
running a petrol service station for sale of motor spares and components at the tenanted premises.
Dewar had erected and built certain structures on the said premises. Dewar was subsequently
amalgamated into Delta International Limited (appellant-plaintiff). By an agreement dated 18-7-1970,
Dewar executed leave and licence agreement in favour of ESSO Standard Eastern Inc. (in short
ESSO). ESSO in turn permitted Shyam Sundar Ganeriwalla, Respondent 1, to run a petrol service
station. By an order passed in Company Petition No. 331 of 1991, Dewar was amalgamated with the
plaintiff (Delta International Limited). Further, the business undertakings and the estates of ESSO also
had been taken over by an Act of Parliament and have been transferred and assigned by the Central
Government in favour of M/s Hindustan Petroleum Corporation Limited. In 1985, Delta International
Limited filed Civil Suit No. 491 of 1985 in the High Court of Calcutta for a perpetual injunction
restraining the defendants and/or their servants, agents and assigns from using any of the fixtures,
fittings and accessories lying at the suit premises; for damages, for wrongful use and occupation of the
premises at the rate of Rs 20,000 p.m. from 1-5-1985, that is, the date of termination of leave and
licence as claimed in the plaint and for a decree for possession of the said premises and other reliefs.
The learned Single Judge passed the decree in favour of the plaintiff by holding that the agreement in
question was only a licence agreement and it was not a sub-lease. In appeal, the said judgment was
reversed by holding that the agreement in question constitutes a lease mainly on the basis of exclusive
possession and the Division Bench observed that
“to put it pithily, if an interest in immovable property entitling the transferees to enjoyment is
created, it is a lease, if permission to use land without right to exclusive possession is alone
granted, a licence is the legal result”.
3. At the time of hearing of this appeal, learned counsel for the parties exhaustively referred to the
material terms and conditions of the agreement in which the term “leave and licence” is used. In
support of their contentions, they also referred to various decisions which have laid down tests to find
out in which set of circumstances even though the document is termed as a leave and licence it could
be construed as a lease.
4. Learned counsel for the appellant submitted that:
1. Learned Single Judge of the High Court was right in holding that the document does
not create any lease because the intention of the parties was quite manifest from the document
as well as clause 12 which stared in the face.
2. The appellant himself was a monthly tenant of the premises and could not create a subtenancy without the prior written consent of the landlord in view of the provisions of Section
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14(1) of the West Bengal Premises Tenancy Act, 1956. It is nobody’s case that such a consent
was obtained. (para 1 of the deed)
3. The licence was for the purpose of running the petrol station which had been set up by
the appellant and which the appellant no longer wished to operate. (paras 2 and 3 of the deed)
4. The possible grant of sub-lease was specifically reserved for the future in the event that
the appellant was able to obtain a consent from its landlord Mallika Investment Company
Private Limited. (paras 4, 5 and 6 of the deed)
5. The licence is stated to be for the benefit of the respondent to “use, occupy, enjoy, run
and work” the petrol station. (clause 1)
6. The respondent was not obliged to pay any portion of the outgoing in respect of the
premises despite the fact that fifty per cent of municipal rates, taxes etc. were normally
payable by the occupier of the premises; thus even the charges attendant upon occupation of
the premises were to be paid by the appellant. (clauses 3 and 4)
7. The respondent was obliged to keep the plant and machinery at the said premises in
good repair. (clause 5)
8. The respondent was obliged to take out necessary insurance policies for the business.
(clause 8)
9. The appellant was entitled to revoke the licence in the event of any breach or default on
the part of the respondent. (clause 9)
10. Clause 11 specifically permits the respondent to carry out business in the name of the
appellant which normally would not be permitted if it is not a licence to run the business.
11. Clause 12 manifests the intention of the parties that the document was executed only
for the purpose of creating a licence and not a lease.
12. Clauses 13 to 17 specifically make provision for the possible future grant of sub-lease
by the appellant to the respondent in the event that the appellant obtains a consent from the
tenant. These clauses also contemplate various terms which would be provided in the
prospective sub-lease.
13. Clause 18 provides for the payment of advance licence fees by the respondent and the
term “demised premises” used thrice in the clause must be read in conformity with other
clauses of the document and the intention of the parties.
14. The right given to the respondent to give it on sub-licence was given, as the
respondent was only to operate the petrol station. (clause 19)
5. On the basis of the aforesaid terms of the document, Mr Ashok Desai, learned Senior Counsel
for the appellant submitted that the construction of the document would depend upon its pith and
substance and not upon the labels that the parties may put upon it. The paramount test for determining
whether it is a lease or a licence is “the intention of the parties”. He submitted that exclusive
possession of the premises being granted, although an important factor, does not preclude the court
from holding that the document is in fact a licence, particularly in cases where the grantor did not
have the power to grant a lease or is forbidden by the provisions of the rent control legislations. He
emphasised that the dominant intention is to be found out in such cases from the document itself. He
referred to the following principles stated in the decisions of this Court to advance his contention:
(a) The construction of a document would depend upon its pith and substance and not
upon the labels that the parties may put upon it. This principal was laid down by this Court in
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the decisions of Inderjeet Singh Sial v. Karam Chand Thapar [AIR 1996 SC 247]
and Vayallakath Muhammedkutty v. Illikkal Moosakutty [AIR 1996 SC 3288].
(b) The paramount test is “the intention of the parties” as stated in the case of Capt. B.V.
D’Souza v. Antonio Fausto Fernandes [AIR 1989 SC 1816] and Vayallakath at p. 387.
(c) Exclusive possession of the premises being granted, although an important factor,
does not preclude the court from holding that the document is in fact a licence as decided in
the case of Sohan Lal Naraindas v. Laxmidas Raghunath Gadit [(1971) 1 SCC 276] and
Rajbir Kaur v. S. Chokesiri & Co [AIR 1988 SC 1845].
(d) Even where exclusive possession is granted, only a licence will be created if the
grantor did not have the power to grant a lease. This principal was laid down in the case of
Rajbir Kaur.
(e) The appellant, as a monthly tenant, was forbidden by Section 14(1) of the Act to sublet the premises without the prior written consent of the landlord. It is nobody’s case that the
prior written consent of the landlord was in fact obtained in the present case. It is, therefore,
not possible to contend that any sub-lease was granted and any such purported disposition
would be unenforceable and void. (Decided in the case of Waman Shriniwas Kini v. Ratilal
Bhagwandas & Co. [AIR 1959 SC 689]
(f) Where the dominant intention is to use the premises with fittings and fixtures for the
purpose of running a business, the same does not tantamount to a lease of immovable property
as decided in the case of Uttamchand v. S.M. Lalwani [AIR 1965 SC 716].
6. As against this, Mr D.P. Gupta, learned Senior Counsel for Respondent 1 submitted that for
resolving the dispute that the document is a lease or a licence, the legal principles have been laid
down in a long line of decisions which inter alia are as under:
(a) The court looks at the substance of the transaction and not the label which the parties
may have agreed to put on the transaction. The court is entitled to decide whether or not the
agreement between the parties is a mere camouflage to get round the rigours of rent control
legislations.
(b) Irrespective of the label that may have been put upon the transaction by the parties, the
court would gather the true intention of the parties as to whether an interest in the land or
premises was sought to be created or not.
(c) Exclusive possession is a most significant indicator to hold that the document creates a
lease.
7. In support of his contentions, learned counsel for the respondent referred to the decisions of this
Court in the cases of Associated Hotels of India Ltd. v. R.N. Kapoor [AIR 1959 SC 1262],
Sohan Lal Naraindas v. Laxmidas Raghunath Gadit [(1971) 1 SCC 276], Capt. B.V. D’Souza v.
Antonio Fausto Fernandes [AIR 1989 SC 1816], Tulsi v. Paro [(1997) 2 SCC 706] and K. Achyuta
Bhat v. Veeramaneni Manga Devi [AIR 1989 SC 93].
8. Further, the learned counsel for the respondent referred to various clauses of the deed for
finding out the intention of the parties and referred to certain terms such as:
(a) The licensee is described in the agreement so as to include its successors and
assigneees as per the memorandum of agreement.
(b) The expression “demised premises” has been used three times in clause 18 which
leaves no doubt that interest in the property is created.
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(c) The operative clause is in the language of a formal lease. What is granted and given to
use, occupy, enjoy, run and work is the premises described in the First Schedule together with
the plant and machinery, fixtures and fittings set out in the Second Schedule.
(d) ESSO was to pay for electricity, was liable to repair the fittings and fixtures and to
keep them in a proper running and usable condition, was entitled to bring in and instal other
machinery, was to take out necessary licences and insurance policies, could continue the
business either in its own name or in the name of Dewar (subject to indemnity) and would not
assume any liability or responsibility for taking over the existing employees. (clauses 5, 6, 7,
8 and 11)
(e) ESSO would have the right to grant leave and licence to a third party during the
continuance of the agreement. (clause 13)
(f) It was contemplated that if Dewar is able to obtain a lease of the said premises on
terms which would not be inconsistent with ESSO’s standard form, then Dewar will grant a
sub-lease to ESSO for at least a period of 10 years with three renewal options. [clause 15(a)]
9. From the aforesaid submissions it is apparent that the common contention of the learned
counsel for both the parties is that the Court has to gather and find out the true “intention of the
parties” as to whether the document creates a lease or a licence; the dominant intention of the parties
is to be gathered from the terms of the document irrespective of the labels that the parties may put
upon it. It is to be stated that even though it is the common contention of the learned counsel for the
parties that the dominant intention of the parties is to be gathered from the document, yet all
throughout the question had remained a vexed one, having no easy solution and precise mathematical
tests. Because ultimately “intention of the parties” is to be inferred. For this purpose, we would first
refer to the tests laid down by this Court in the case of Associated Hotels of India Ltd. v. R.N.
Kapoor which are relied upon in subsequent decisions. In a minority judgment rendered by Subba
Rao, J. the Court held that there is a clear distinction between a lease and a licence; the dividing line is
clear, though sometimes it becomes very thin or even blurred and observed that for such a
determination, the following propositions may be taken as well established:
“(1) to ascertain whether a document creates a licence or lease, the substance of the
document must be preferred to the form;
(2) the real test is the intention of the parties – whether they intended to create a lease or a
licence;
(3) if the document creates an interest in the property, it is a lease; but if it only permits
another to make use of the property, of which the legal possession continues with the owner,
it is a licence; and
(4) if under the document a party gets exclusive possession of the property, prima facie,
he is considered to be a tenant; but circumstances may be established which negative the
intention to create a lease.”
10. Before laying down the aforesaid proposition, the Court held as under:
“At one time it was thought that the test of exclusive possession was infallible and if a
person was given exclusive possession of a premises, it would conclusively establish that he
was a lessee. But there was a change and the recent trend of judicial opinion is reflected in
Errington v. Errington [(1952) 1 All ER 149] wherein Lord Denning reviewing the case-law
on the subject summarizes the result of his discussion thus at p. 155:
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‘The result of all these cases is that, although a person who is let into exclusive possession is,
prima facie, to be considered to be tenant, nevertheless he will not be held to be so if the
circumstances negative any intention to create a tenancy.’
The Court of Appeal again in Cobb v. Lane [(1952) 1 All ER 1199] considered the legal position
and laid down that the intention of the parties was the real test for ascertaining the character of a
document. At p. 1201, Somervell, L.J., stated:
‘… the solution that would seem to have been found is, as one would expect, that it must
depend on the intention of the parties.’
Denning, L.J., said much to the same effect at p. 1202:
‘The question in all these cases is one of intention: Did the circumstances and the conduct
of the parties show that all that was intended was that the occupier should have a personal
privilege with no interest in the land?’ ”
11. At this stage, it would be worthwhile to quote some more instructive discussions from Cobb v.
Lane rendered by three learned Judges in their judgments given separately:
Somervell, L.J. observed:
“Certainly under the old cases (and I doubt if this has been affected by the modern
authorities), if all one finds is that somebody has been in occupation for an indefinite period
with no special evidence of how he got there or of any arrangement being made when he went
into occupation, it may be that the court will find a tenancy at will. I am assuming that there is
no document, or clear evidence as to terms. The modern cases establish that, if there is
evidence of the circumstances in which the person claiming to be a tenant at will went into
occupation, those circumstances must be considered in deciding what the intention of the
parties was.”
The learned Judge further observed:
“No doubt, in former days, except for the question of the statute, the distinction between
a tenancy, whether at will or for a period, and a licence was not so important as it has become
since the Rent Restrictions Acts came into operation. In many cases under those Acts it has a
special importance. That fact has led to an examination of the distinction, and the solution
that would seem to have been found is, as one would expect, that it must depend on the
intention of the parties.”
Denning, L.J. further observed to the same effect as under:
“Under the old cases there would have been some colour for saying that the brother was a
tenant at will, but the old cases can no longer be relied on. Owing to the impact of the Rent
Acts, the courts have had to define more precisely the difference between a tenant and a
licensee. … The question in all these cases is one of intention: Did the circumstances and the
conduct of the parties show that all that was intended was that the occupier should have a
personal privilege with no interest in the land?”
Delivering a concurring judgment, Romer, L.J. further considered the facts and observed:
“She was not a tenant at will, and, unless she was, she could not create the tenancy on
which the defendant relies. In the absence of a sufficient title or interest in her to carve out or
to create a similar tenancy in the defendant, his claim, as I say, fails in limine.”
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12. Further, in his judgment, Lord Denning, J. referred to an earlier decision in Errington v.
Errington wherein the Court held that the test of exclusive possession is by no means decisive. For
determining what was the intention of the parties the Court relied upon the following observations
from the decision in Booker v. Palmer [(1942) 2 All ER 674 (677)] wherein Lord Greene, M.R. held:
“To suggest there is an intention there to create a relationship of landlord and tenant
appears to me to be quite impossible. There is one golden rule which is of very general
application, namely, that the law does not impute intention to enter into legal relationship
where the circumstances and the conduct of the parties negative any intention of the kind.”
13. Along with other cases, the aforesaid case was referred to and relied upon in the case of
Rajbir Kaur v. S. Chokesiri and Co. where this Court considered and held that ultimately the
question whether a transaction is a lease or a licence “turns on the operative intention of the parties
and there is no single, simple litmus test to distinguish one from the other”.
14. The relevant discussion in para 22 is as under:
“22. It is essential to the creation of a tenancy that the tenant be granted the right to the
enjoyment of the property and that, further, the grant be for consideration. While the
definition of ‘lease’ in Section 105 of the Transfer of Property Act, 1882, envisages the
transfer of a right to enjoy the property, on the other hand the definition of a ‘licence’ under
Section 52 of the Indian Easements Act, 1882, consistently with the above, excludes from its
pale any transaction which otherwise, amounts to an ‘easement’ or involves a transfer of an
interest in the property, which is usually involved in the case of a transfer of right to enjoy it.
These two rights, viz., easements and lease in their very nature, are appurtenant to the
property. On the other hand, the grant only for the right to use the premises without being
entitled to the exclusive possession thereof operates merely as a licence. But the converse
implications of this proposition need not necessarily and always be true. Wherever there is
exclusive possession, the idea of a licence is not necessarily ruled out. English law
contemplates what are called ‘Possessory Licences’ which confer a right of exclusive
possession, marking them off from the more usual type of licences which serve to authorise
acts which would otherwise be trespasses. Thus exclusive possession itself is not decisive in
favour of a lease and against a mere licence, for, even the grant of exclusive possession might
turn out to be only a licence and not a lease where the grantor himself has no power to grant
the lease. In the last analysis the question whether a transaction is a lease or a licence ‘turns
on the operative intention of the parties’ and that there is no single, simple litmus test to
distinguish one from the other. The ‘solution that would seem to have been found is, as one
would expect, that it must depend on the intention of the parties’.”
15. Dealing with the contention that the intention of the parties is to be determined upon a proper
construction of the deed entered into between the parties, and that alone is a decisive matter, the Court
dealt with the said contention in para 32 and observed as under:
“Indeed learned counsel placed strong reliance on the following observations by this Court in
M.N. Clubwala v. Fida Hussain Saheb [AIR 1965 SC 610]:
‘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.’
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The proposition of Dr Chitale as to the conclusiveness of what emanates from the construction
of the documents has, in this case, its own limitations. The import, significance and
conclusiveness of such documents making, or evidencing, the grants fall to be examined in two
distinct contexts. The dispute may arise between the very parties to the written instrument, where
on the construction of the deed one party contends that the transaction is a ‘licence’ and the other
that it is a ‘lease’. The intention to be gathered from the document read as a whole has, quite
obviously, a direct bearing. But in cases where, as here, the landlord alleges that the tenant has
sub-let the premises and where the tenant, in support of his own defence sets up the plea of a mere
licensee and relies upon a deed entered into, inter se, between himself and the alleged licensee, the
landlord who is not a party to the deed is not bound by what emanates from the construction of
the deed. At best, it is a piece of evidence, the weight to be accorded to which will necessarily
depend upon all the other circumstances of the case. The tenant and the sub-tenant, who jointly set
up a plea of licence against the landlord may choose to camouflage the truth and substance of the
transaction behind a facade of a self-serving and conveniently drafted instrument.”
16. Learned counsel for the respondent had also relied upon the decision of this Court in Sohan
Lal Naraindas v. Laxmidas Raghunath Gadit wherein the Court has observed as under:
“6. An attempt was deliberately made to camouflage the true nature of the agreement, by
reciting in several clauses that the agreement was for lease and licence and it emphasised the
pretence, it was also recited that the defendant was not to have any right as tenant or subtenant in respect of the loft.
9. Intention of the parties to an instrument must be gathered from the terms of the
agreement examined in the light of the surrounding circumstances. The description given by
the parties may be evidence of the intention but is not decisive. Mere use of the words
appropriate to the creation of a lease will not preclude the agreement operating as a licence.
A recital that the agreement does not create a tenancy is also not decisive. The crucial test in
each case is whether the instrument is intended to create or not to create an interest in the
property the subject-matter of the agreement. If it is in fact intended to create an interest in the
property it is a lease, if it does not, it is a licence. In determining whether the agreement
creates a lease or a licence the test of exclusive possession, though not decisive, is of
significance.”
From the aforesaid discussion what emerges is:
(1) To find out whether the document creates a lease or a licence the real test is to find out
“the intention of the parties”; keeping in mind that in cases where exclusive possession is given,
the line between a lease and a licence is very thin.
(2) The intention of the parties is to be gathered from the document itself. Mainly, the
intention is to be gathered from the meaning and the words used in the document except where it
is alleged and proved that the document is a camouflage. If the terms of the document evidencing
the agreement between the parties are not clear, the surrounding circumstances and the conduct of
the parties have also to be borne in mind for ascertaining the real relationship between the parties.
(3) In the absence of a written document and when somebody is in exclusive possession with
no special evidence how he got in, the intention is to be gathered from the other evidence which
may be available on record, and in such cases exclusive possession of the property would be the
most relevant circumstance to arrive at the conclusion that the intention of the parties was to
create a lease.
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(4) If the dispute arises between the very parties to the written instrument, the intention is
to be gathered from the document read as a whole. But in cases where the landlord alleges that the
tenant has sub-let the premises and where the tenant in support of his own defence sets up the plea
of a mere licensee and relies upon a deed entered into, inter se, between himself and the alleged
licensee, the landlord who is not a party to the deed is not bound by what emanates from the
construction of the deed; the tenant and the sub-tenant may jointly set up the plea of a licence
against the landlord which is a camouflage; in such cases, the mask is to be removed or the veil is
to be lifted and the true intention behind a facade of a self-serving conveniently drafted instrument
is to be gathered from all the relevant circumstances. Same would be the position where the owner
of the premises and the person in need of the premises executes a deed labelling it as a licence
deed to avoid the operation of rent legislation.
(5) Prima facie, in the absence of a sufficient title or interest to carve out or to create a similar
tenancy by the sitting tenant in favour of a third person, the person in possession to whom the
possession is handed over cannot claim that the sub-tenancy was created in his favour; because a
person having no right cannot confer any title of tenancy or sub-tenancy. A tenant protected under
statutory provisions with regard to occupation of the premises having no right to sub-let or
transfer the premises, cannot confer any better title. But, this question is not required to be finally
determined in this matter.
(6) Further lease or licence is a matter of contract between the parties. Section 107 of the
Transfer of Property Act, 1882 inter alia provides that leases of immovable property may be made
either by a registered instrument or by an oral agreement accompanied by delivery of possession;
if it is a registered instrument, it shall be executed by both the lessee and the lessor. This contract
between the parties is to be interpreted or construed on the well-laid principles for construction of
contractual terms, viz., for the purpose of construction of contracts, the intention of the parties is
the meaning of the words they have used and there can be no intention independent of that
meaning; when the terms of the contract are vague or having double intendment, one which is
lawful should be preferred; and the construction may be put on the instrument perfectly consistent
with his doing only what he had a right to do.
18. In our view, the submission of the learned counsel for the appellant requires to be accepted
because as stated above, it is nowhere pleaded that the deed executed between the parties is a
camouflage to evade the rigours of the provisions of the Rent Act nor is it stated that a sham
document is executed for achieving some other purpose. In these set of circumstances, the intention of
the parties is required to be gathered from the express words of various terms provided by them in the
deed. For this purpose, clause 12 of the document is to be taken into consideration and due weight is
required to be given to what the parties have stated. It provides as under:
“12. It is hereby expressly agreed upon and declared by and between the parties that these
presents shall not be treated or used or dealt with or construed by the parties in any way as a
tenancy or lease or as a document within the purview of the West Bengal Premises Tenancy
Act or any modification or amendment thereof or to confer any relationship as landlord and
tenant between the parties hereto.”
19. The aforesaid term of the document is not provided by an illiterate layman or poor person in
need of some premises for his residence or business, but is executed by two companies where it can
be presumed that it is mentioned after full understanding and to avoid any wrong inference of
intention. It specifically mentions that only a licence was created and not a lease. The said clause is in
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positive as well as negative form providing that the agreement was a licence and should not be
treated or used or dealt with or construed by the parties in any way as lease or to confer any
relationship as landlord and tenants between the parties. When the parties which are capable of
understanding their rights fully, expressly agreed and declared that the document should not be
construed in any manner as creating any relationship as landlord and tenant between them, it would be
impermissible to conjecture or infer that their relations should be construed as that of landlord and
tenant because certain terms mentioned in the deed can have a double intendment. As stated above,
the intention of the parties is the meaning of the words they have used and there could be no intention
independent of that meaning. The learned Single Judge of the High Court rightly, therefore, held that
this clause stares in his face in construing it as a lease deed.
20. Secondly, the parties to the document were fully aware that lease or sub-lease could not be
granted and therefore, specific provision is made in the deed that if the consent of the tenant (sic
landlord) is obtained for creation of a sub-lease, the deed for the same would be executed on the terms
and conditions which were set out in the document; detailed provisions are made in various clauses of
the deed for obtaining permission and execution of a lease deed. The parties were conscious that a
lawful lease deed could be executed only after obtaining the consent of the landlord and the document
if treated as a sub-lease, would be illegal. Paras 4, 5 and 6 of the deed specifically provide that after
obtaining the consent of the landlord, the licensor would grant a sub-lease in respect of the said
premises for a period of at least ten years and the licensor would endeavour to obtain a lease on the
terms which would not be inconsistent with the standard terms on which a sub-lease is obtained by the
licensee for the purpose of selling his products through the petrol service station and a copy of the
standard form of the lease was also attached with the deed.
21. Thirdly, no contention was raised by the defendants to the effect that the licence deed is a
camouflage to circumvent the provisions of law or to defeat the rights of the owner or the tenant who
granted the licence and inducted the licensee in possession. Further, in cases where a contract for
licence is executed by handing over exclusive possession of the premises, the distinguishing line
between the lease and the licence is absolutely thin. In such cases, the terms of the document are to be
read as they are and it would be unreasonable to draw an inference that the parties intended to create a
relationship of landlord and tenant despite express contrary terms in the deed which are binding
between the parties.
22. However, Mr D.P. Gupta, learned Senior Counsel for the respondent vehemently relied upon
various terms of the document in support of his submission that the document should be construed as
a lease deed. He submitted that construe the document as it is and disregard what would be the legal
consequences of construing it one way or the other way. For that purpose, he referred to the following
observations of Buckley, J. from the paragraphs which are sought to be relied upon from The
Interpretation of Contracts by Kim Lewison, Q.C.:
“My first duty is to construe the contract, and for the purpose of arriving at the true
construction of the contract, I must disregard what would be the legal consequences of
construing it one way or the other way.”
23. For this proposition there cannot be any dispute. The contract is to be construed on the basis
of the terms of the document disregarding the legal consequences. However, when the terms of the
document are ambiguous and are holding a double intendment then the meaning which is lawful is to
be preferred. As stated above, in the licence deed, the parties have specifically made it clear that they
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were not executing a lease deed, but only a licence deed and it should not be construed as a lease
deed or a deed creating a relationship of landlord and tenant between them. It was known to them that
without prior consent, creation of sub-tenancy would be illegal. Hence, it would not be correct to
arrive at a conclusion which is contrary to the law and the express terms of the agreement. Learned
counsel for the respondents further submitted that in the present case, exclusive possession of the
property was handed over to the defendant coupled with the fact that in clause 18, the parties have
used the phrase “demised premises” which means that the intention of the parties was to create
relationship of landlord and tenant. In our view, this submission of the learned counsel cannot be
accepted. Exclusive possession as discussed above is not the sole indicia to establish the relationship
of landlord and tenant between the parties. It is true that the word “demise” indicates either lease or
conveyance depending upon the terms of the document. But, at the same time the said word is to be
construed by finding out what is sought to be conveyed or transferred in the context of all the terms of
the document. If the privilege of occupying the premises exclusively is granted on certain terms and
conditions specifically as a licensee or what is agreed to be granted is exclusive possession of the
premises on certain terms and conditions as a licensee, then there is no question of holding to the
contrary. This would be clear from various meanings which could be assigned to the word “demise”.
In Stroud’s Judicial Dictionary of Words and Phrases, the word “demise” is given a different
meaning and it is stated that it is to be interpreted in the context of other terms.
24. In Butterworths’ Words and Phrases the word “demise” has been explained as under:
“The relationship of landlord and tenant is one of contract, but a lease also operates as a
conveyance. The usual word for this purpose is ‘demise’, but neither this word nor any formal
words of conveyance are necessary. Provided the instrument shows the parties’ intent that the
one is to divest himself of the possession and the other is to come into the possession for a
determinate time, either immediately or in the future, it operates as a lease. This is so whether
it is in the ordinary form of a demise, or in the form of a covenant or agreement, or in the
form of an offer to let or take on certain terms and an acceptance appearing on
correspondence. [Halsbury’s Laws, Vol. 27 (4th Edn.) para 107]
‘The terms of the lease, in my opinion establish an exclusive occupation. The word
“demise” prima facie alone would be sufficient to establish that. I do not go so far as to
say that where the word “demise” is used in a lease or agreement no evidence would be
admissible to displace the presumption arising from its use, but the word prima facie
would establish an exclusive occupation.’ Young & Co. v. Liverpool Assessment
Committee [(1911) 2 KB 195, 215] DC, per Avory, J.”
25. Hence for determining whether the phrase “demised premises” should be construed as a lease
or a licence as expressly stated in the agreement, the phrase or the word is to be construed in the
context in which it is used. In the present case the said phrase is used in clause 18 three times along
with the term “licence fee” which was to be paid by the licensee and the manner of its payment. It
provides that “licence fee” for the demised premises was Rs3950 per month and the licence fee was
payable for the said demised premises as provided therein, that is to say, Rs 23,700 for six months in
advance and that the said licence fee is to be adjusted in respect of the demised premises per month.
The phrase “demised premises” is used for recovering the licence fee. If the intention of the parties
was to create a lease, then the word “rent” would have been easily used at all the places. “Demised
premises”, in the present case, includes not only the premises, but fittings, fixtures and the petrol
service station also. Licence was granted specifically to run the petrol service station on the terms and
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conditions specified therein. There are a number of other terms and conditions in the document
which indicate that it was a licence deed. Firstly, the licence was for the purpose of running the petrol
service station which was set up by the licensor. The possible grant of sub-lease was reserved for the
future in the event of Delta obtaining consent from its landlord Mallika Investments Company.
The licensee was not obliged to pay any part of the outgoings in respect of the premises which
indicates that the charges attendant upon occupation of the premises were to be paid and borne by the
licensor. He was also required to keep the plant and machinery at the said premises in good repair and
was required to obtain necessary insurance policies for the business. A further clause to the effect that
the licensee was permitted to carry on business in the name of the licensor indicates that the premises
were not let out otherwise there was no question of permitting the use of the licensor’s name. It is true
that there are certain other clauses which may indicate a different intention if they are construed in
isolation such as a term to the effect that the licensee was entitled to grant a sub-licence to operate the
petrol station or that they were entitled to instal other machinery. But, at the same time, these clauses
are to be read in the context of the fact that the licensor had decided not to run the business of petrol
service station and that by the impugned deed, right to run the said business along with the premises
was given to the licensee. Further, clause 9 specifically provides that the licensor shall be at liberty to
withdraw and/or revoke the leave and licence in case there is any default of the terms mentioned in the
document. Clause 16 provides that if the sub-lease is granted then the licensee was required to
purchase the equipments, fittings and fixtures as mentioned in the Second Schedule at a price of Rs
2,50,000 within a period of one year from the date thereof. Admittedly, sub-lease is not granted and
the amount of Rs 2,50,000 as agreed is also not paid by anyone.
26. Hence, even though it is not necessary to discuss, however, we would briefly refer to other
decisions upon which learned counsel for the parties relied upon. Learned counsel for the respondent
relied upon the decision in the case of Capt. B.V. D’Souza v. Antonio Fausto Fernandes and
submitted that the main purpose of enacting the rent statutes is to protect the tenant from the
exploitation of the landlord, who being in a dominating position is capable of dictating his terms at the
inception of the tenancy and the Rent Acts must receive that interpretation which may advance the
object and suppress the mischief. He, therefore, submitted that use of the words leave and licence or
some other terms in the document should be construed in a way so as to advance the object of the
Rent Act. In our view, in the present case, there is no question of such exploitation by the landlord.
Dewar itself was inducted by a tenant in the premises and at the time of executing the leave and
licence document, the parties were under the impression that they would obtain the consent of the
landlord for granting a sub-lease. That contemplation was not achieved. Hence, the said judgment has
no bearing in interpreting the terms of the document which is executed between two companies
knowing full well their rights and the legal implications of the terms provided in the document. He
also referred to the decision in the case of Tulsi v. Paro wherein this Court after considering the
revenue records for the period from 1951-52 to 1971-72 mentioning that the appellant was not in
possession as the “tenant at will”, held that the theory of licence was untenable and in that context
observed that a licensee has no right in property and not to speak of any right to exclusive possession
of the property and animus of possession always remains with the licensor and the licensee gets the
possession only with the consent of the licensor and is liable to vacate when so asked. In the said case,
there was no written document between the parties and considering the facts of the case particularly
exclusive possession for a period of 20 years and the revenue records, the Court held that it was
unthinkable to conclude that the appellant of that case was a licensee. As stated above, exclusive
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possession is one of the most relevant factors for deciding whether it is a lease or a licence. But, at
the same time, when the terms of the document are clear leaving no doubt that the parties never
intended to execute a lease deed, in that set of circumstances, exclusive possession would lose its
importance. Dealing with a similar question in the case of M.N. Clubwala v. Fida Hussain Saheb
this Court observed as under:
“While it is true that the essence of a licence is that it is revocable at the will of the
grantor the provision in the licence that the licensee would be entitled to a notice before being
required to vacate is not inconsistent with the licence. In England it has been held that a
contractual licence may be revocable or irrevocable according to the express or implied terms
of the contract between the parties. It has further been held that if the licensee under a
revocable licence has brought the property on to the land, he is entitled to notice of revocation
and to a reasonable time for removing his property, and in which to make arrangements to
carry on his business elsewhere. … Thus the mere necessity of giving a notice to a licensee
requiring him to vacate the licensed premises would not indicate that the transaction was a
lease. Indeed, Section 62(c) of the Indian Easements Act, 1882 itself provides that a licence is
deemed to be revoked where it has been either granted for a limited period, or acquired on
condition that it shall become void on the performance or non-performance of a specified act,
and the period expires, or the condition is fulfilled. In the agreements in question the
requirement of a notice is a condition and if that condition is fulfilled the licence will be
deemed to be revoked under Section 62. It would seem that it is this particular requirement in
the agreements which has gone a long way to influence the High Court’s finding that the
transaction was a lease. 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. In the absence, however, of a formal document the
intention of the parties must be inferred from the circumstances and conduct of the parties.”
27. As stated earlier, the document contemplates three types of agreements, one, that of a leave
and licence; secondly, in case a consent is obtained from the tenant (sic landlord), for execution of a
sub-lease which would create an interest in the property as a sub-tenant and thirdly, in case of a sublease, for purchase of equipment, fitting and fixtures at a price of Rs 2,50,000. The second and third
parts of the agreement never came into operation. Hence, for the reasons discussed above, we hold
that the agreement dated 18-7-1970 is a deed of “leave and licence” and not a “lease”.
28. In the result, the appeals are allowed, the judgment of the Division Bench dated 2-12-1997 is
set aside and the order passed by the learned Single Judge in Suit No. 491 of 1985 is restored.
