K.P. Baburaj v. T.K. Sreenivasan

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT :** **THE HONOURABLE MR. JUSTICE P.BHAVADASAN** **FRIDAY, THE 11TH JUNE 2010 / 21ST JYAISTHA 1932** **RSA.No. 1121 of 2006(A)** **-----------------------** **AS.200/2002 of ADDL.DISTRICT COURT, KOZHIKODE OS.143/2000 of PRL.MUNSIFF COURT I, KOZHIKODE** **....................** **APPELLANT/APPELLANT/DEFENDANT:** **------------------------------------------------------------** **K.P. BABURAJ, AGED 49, S/O. K.P. BALAN, CYCLE MART, EAST HILL ROAD, KOZHIKODE-5, KACHERI VILLAGE AND AMSOM, KOZHIKODE TALUK.** **BY ADV. SRI.C.P.MOHAMMED NIAS** **RESPONDENT(S): RESPONDENT/PLAINTIFF:** **--------------------------------------------------------------------** **T.K. SREENIVASAN, AGED 61, S/O. PERACHAN, RESIDING AT THAZHEKKANDI HOUSE, EAST HILL ROAD, KOZHIKODE-5, KACHERI VILLAGE AND DESOM OF KOZHIKODE TALUK.** **BY ADVS. SRI.T.SETHUMADHAVAN, SRI.PUSHPARAJAN KODOTH, SRI.K.JAYESH MOHANKUMAR.** **THIS REGULAR SECOND APPEAL HAVING BEEN FINALLY HEARD ON 11/06/2010,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **Kss** ## **ORDER ON I.A.NOS.2688/2006 & 918/2007 IN RSA NO.1121/2006** **DISMISSED** **11/06/2010 SD/- P.BHAVADASAN, JUDGE** **/TRUE COPY/** **P.S.TO JUDGE** **Kss** ## **P. BHAVADASAN, J.** - - - - - - - - - - - - - - - - - - - - - - - - - - - R.S.A. No. 1121 of 2006 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 11th day of June, 2010. ## **JUDGMENT** Faced with the concurrent findings against him, the defendant in O.S. 143 of 2000 before the Munsiff's Court, Kozhikode has come up in appeal. The parties and facts are herein after referred to as they are available before the trial court. 2. The suit was one for recovery of possession and realization of damages. According to the plaintiff, the plaint schedule property is owned by him and the defendant was put in possession of the same as per Ext.A1 dated 2.12.1998. The licence fee was fixed as Rs.300/- per month. The period of licence came to an end by 1.11.1999. Even before the expiry of the licence period, the plaintiff had issued a notice to the defendant informing about the termination of the licence and asking him to surrender vacant possession of the RSA.1121/2006. 2 building. A reply notice was sent and he continued to be in possession. That caused the suit to be filed. 3. The suit was resisted by the defendant by pointing out that he is a tenant and therefore he is entitled to protection of Act 2 of 1965. According to him, the landlord was in the habit of obtaining blank signed papers from him and those might have been used to draw up the deed involved in this case. According to him, the actual entrustment was a lease and that he had advanced a sum of Rs.5,000/- and Rs.125/- was the monthly rent. Periodically the rent was enhanced. When the defendant refused to pay enhanced rent, the present suit has been laid. Pointing out that the suit is not maintainable, he prayed for a dismissal of the suit. 4. The trial court raised necessary issues for consideration. The evidence consists of the testimony of P.W.1 and the documents marked as Exts. A1 to A7 from the side of the plaintiff. The defendant was examined as D.W.1. The trial court on a consideration of Ext.A1 document and RSA.1121/2006. 3 other facts brought out in evidence came to the conclusion that the arrangement by which the defendant was in occupation of the premises was purely a licence and decreed the suit as prayed for. Aggrieved, the defendant carried the matter in appeal as A.S. 200 of 2002 before the District Court, Kozhikode. The first appellate court, on an independent evaluation of the evidence and materials before it concurred with the findings of the trial court and confirmed the judgment and decree for eviction. The said judgment and decree are assailed in this appeal. 5. Learned counsel appearing for the appellant pointed out that the courts below have erred in law in construing Ext.A1 document as a licence, whereas in fact it evidences an arrangement of lease. Attention was drawn to the fact that initially the tenant had come into possession by virtue of a possessory mortgage Ext.A4 dated 25.2.1989. That was redeemed as per Ext.A5 dated 11.1.1995. Thereafter, Ext.A7 licence agreement was entered into by him and subsequently Ext.A1 was got executed. Learned RSA.1121/2006. 4 counsel pointed out that right from 1989 the defendant has been continuing in possession and that shows that Ext.A1 does not reflect the true nature of the transaction entered into by the parties, and that is only the camouflage. On the construction of Ext.A1, it can be seen that the transaction is a lease and not a licence as contended by the plaintiff. In support of the above contention, learned counsel relied on the decision reported in **B.V. D'Souza v. Antonio Fausto Fernandes** (AIR 1989 SC 1816) and **Beena v. Ramachandra Rao** (2004(2) KLT 336(SC)). Learned counsel stressed that the document in question prohibits sub-lease and provides for renewal of licence and these are incidents of a lease rather than a licence. Coupled with this is his long possession. These facts have not been taken note of by the courts below and therefore they have erred in their judgments. 6. Per contra, learned counsel appearing for the respondent pointed out that the courts below have considered the document in the proper perspective and has RSA.1121/2006. 5 come to the conclusion that the transaction is only a licence. According to learned counsel, it is not correct to say that there is a prohibition against sub-lease in Ext.A1. Merely because it is stated that the licence could be renewed, it does not mean that it is a lease. Learned counsel pointed out that it is the intention of the parties that has to be looked into and terms of the document to ascertain whether a particular transaction is a lease or licence. According to learned counsel, in order to determine the issue, the document has to be read as a whole and then a conclusion has to be drawn regarding the nature of the transaction. In support of his contention learned counsel relied on the decision reported in **Chunchun Jha v. Ebadat Ali** (AIR 1954 SC 345), **Associated Hotels of India v. R.N. Kapoor** (AIR 1959 SC 1262), **New Bus Shop Owners Association v. Corporation of Kozhikode** (2009(4) KLT 476(SC)) and **Gilbert v. Vivekanandan** (1988 (1) KLT 80). 7. The question as to whether the transaction is a lease or licence is a vexed question. Rules regarding the RSA.1121/2006. 6 construction of a document are well settled. If the document is clear and unambiguous, then one need not look into anything else, but to construe the document. True, the nomenclature as such may not be conclusive. In the decision in **Beena's case** it has been held that the use of the words 'possession', 'rent', 'landlord', 'licence' etc. by themselves are not sufficient to show the nature of the document. Ultimately the question revolves around as to what is it that the parties intended and what is the nature of the transaction they have entered into. In the decision reported in **B.V. D'Souza's case** construing Ext.20 in that case it was held as follows: _“The document Ext.20 has been described as an arrangement of leave and licence and the parties as the Licensor and the Licensee. But it is significant to note that in the very first sentence of the document the respondent is described as “Landlord hereinafter called the Licensor”. However, this cannot answer the disputed issue as it is firmly established that for ascertaining whether a document creates a licence or lease,_ RSA.1121/2006. 7 _the substance of the document must be preferred to the form. As was observed by this Court in Associated Hotels of India Ltd., v. R.N. Kapoor (AIR 1959 SC 1262), the real test is the intention of the parties - whether they intended to create a lease or licence. If an interest in the property is created by the deed it is a lease but if the document only permits another person to make use of the property “of which the legal possession continues with the owner”. it is a licence. If the party in whose favour a document is executed gets exclusive possession of the property, prima facie he must be considered to be a tenant: although this factor by itself will not be decisive. Judged in this light, there does not appear to be any scope for interpreting Ext.20 as an agreement of leave and licence._ _the document has been placed before us by the learned counsel for the appellant. Although as stated earlier, it has been described as an agreement of leave and licence and the parties as the “Licensor” and the “Licensee”, its provisions unmistakably indicate that the appellant was being let in as a tenant on the monthly rental of Rs.350/- (besides water and electricity charges) to_ RSA.1121/2006. 8 _be paid regularly on or before the 5[th] day of each consecutive month. By clause 5, it was agreed that the appellant “shall not sub-let, under-let or part possession of the premises to any stranger nor shall he keep the premises vacant for more than 3 months without the consent of the Licensor”, that is, the respondent. The question of executing a sub-lease or sub-letting can arise only by a tenant. If a licensee inducts any person in the property as his tenant, it cannot be described as sub-letting. In clause 15, it is stated that on the expiry of the period, the deed “shall be renewable thereafter at the will of the licensee”; and in the event of the licensee not desiring to renew, “shall give one month's notice in writing”. These terms are not consistent with the respondent's case of licence, and indicate that an interest in the property was created in favour of the appellant in pursuance of which he was put in possession with a right of renewal. When compared with the terms of the documents set out in the judgments in Associated Hotels of India Ltd.v. R.N.Kapoor and Sohan Lal Naraindas v. Laxmidas Raghunath Gadit, relied upon by the learned counsel for the appellant, which were construed by this Court as_ RSA.1121/2006. 9 _creating lease in spite of their description as licence deeds, the appellant's case stands out as stronger. If the approach adopted by the courts below in interpreting the document is accepted, it shall defeat the object of the Rent Acts, by permitting the parties to camouflage the real nature of the transaction by resorting to skilful drafting.”_ A reading of the above decision shows that it is the substance of the transaction that has to be looked into and not the form. Construing the terms of the document, it was found that the elements of lease were apparent in the document and therefore it was held that the document in fact evidenced a lease and not a licence. 8. In the decision reported in **Beena's case** the facts show that the tenant concerned came into possession from long ago and going by the terms of the licence the period expired on 13.3.1982. Nevertheless the appellant continued in occupation of the premises and the suit was filed on 22.9.1989. The relevant paragraphs for the present purpose is paragraphs 8 and 9, which read as follows: RSA.1121/2006. 10 _“The crucial issue for determination is as to whether there is a lease or licence existing between the parties. though a deed of licence may have been executed, it is open for the parties to the document to show that the relationship which was agreed upon by the parties and was really intended to be brought into existence was that of a landlord and tenant though it was outwardly styled as a deed of licence to act as a camouflage on the Rent Control Litigation. 'Lease' is defined in S.105 of the Transfer of Property Act 1882 while 'licence' is defined in S.52 of the Indian Easements Act 1882. Generally speaking the difference between a 'lease' and 'licence' is to be determined by finding out the real intention of the parties as decipherable from a complete reading of the document, if any, executed between the parties and the surrounding circumstances. Only a right to use the property in a particular way or under certain terms given to the occupant while the owner retains the control or possession over the premises results in a licence being created; for the owner retains legal possession while all that the licensee gets is a permission to use the premises for a particular purpose or in a particular_ RSA.1121/2006. 11 _manner and but for the permission so given the occupation would have been unlawful. The decided cases on the point are legion. For our purpose it would suffice to refer to a recent decision of this Court in Corporation of Calicut v. K. Sreenivasan (2002(2) KLT 291)._ _A few principles are well settled. User of the terms like 'lease' or 'licence','lessor' or 'licensor', 'rent' or 'licence fee' are not by themselves decisive of the nature of the right created by the document. An effort should be made to find out whether the deed confers a right to possess exclusively coupled with transfer of a right to enjoy the property. What has been parted with is merely a right to use the property while the possession is retained by the owner. The conduct of the parties before and after the creation of relationship is of relevance for finding out their intention.”_ ## 9. In the decision reported in **Chunchun Jha's case** , it was held as follows: _“The first is that the intention of the parties is the determining factor. But there is nothing special about that in this class of cases and here,_ RSA.1121/2006. 12 _as in every other case, where a document has to be construed, the intention must be gathered, in the first place, from the document itself. If the words are express and clear, effect must be given to them and any extraneous enquiry into what was thought or intended is ruled out. The real question in such a case is not what the parties intended or meant but what is the legal effect of the words which they used. If however, there is ambiguity in the language employed, then it is permissible to look to the surrounding circumstances to determine what was intended.”_ ## In the decision reported in **Associated Hotels of India's case** it was observed as follows: _“There is a marked distinction between a lease and a licence. S.105 of the Transfer of Property Act defines a lease of immoveable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid or promised. Under S.108 of the said Act, the lessee is entitled to be put in possession of the property. A lease is therefore a transfer of an interest in land. The interest transferred is called the leasehold interest. The_ RSA.1121/2006. 13 _lessor parts with his right to enjoy the property during the term of the lease, and it follows from it that the lessee get that right to the exclusion of the lessor. Whereas S.2 of the Indian Easements Act defines a licence thus:_ _“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 immoveable 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 licence.”_ _Under the aforesaid section, if a document gives only a right to use the property in a particular way or under certain terms while it remains in possession and control of the owner thereof, it will be a licence. the legal possession, therefore, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for the permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property. There is, therefore, clear distinction between the two concepts. The dividing line is clear though sometimes it becomes_ RSA.1121/2006. 14 _very thin or even blurred. 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:_ _“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 he same effect at p.1202:_ RSA.1121/2006. 15 _“The question in all these cases is one of intention: Did the circumstances and the conduct of the parties show that all that as intended was that the occupier should have a personal privilege with no interest in the land?”_ _The following propositions may, therefore, be taken as well-established: (1) To ascertain whether a document creates a lience 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. Judged by the said tests, it is not possible to hold that the document is one of licence. Certainly it does not confer only a bare personal privilege on the respondent to make use of the rooms. It_ RSA.1121/2006. 16 _puts him in exclusive possession of them, untrammelled by the control and free from the directions of the appellants. The covenants are those that are usually found or expected to be included in a lease deed. The right of the respondent to transfer his interest under the document, although with the consent of the appellants, is destructive of any theory of licence. The solitary circumstance that the rooms let out in the present case or situated in a building wherein a hotel is run cannot make any difference in the character of the holding. The intention of the parties is clearly manifest, and the clever phraseology used or the ingenuity of the document writer hardly conceals the real intent. I, therefore, hold that under the document there was transfer of a right to enjoy the two rooms, and, therefore, it created a tenancy in favour of the respondent.”_ ## In the decision reported in **New Bus Stand Shop Owners Association's case** it was held as follows: _“If we apply the aforesaid principles in the facts of case in hand, we are bound to hold that the agreement between the parties merely falls_ RSA.1121/2006. 17 _under the category of licence as the licensee is never given the exclusive possession. the Corporation retained the exclusive possession of the shops and this is clear from the conditions of the licence discussed above._ _......... Also a three-Judge Bench of this Court in Board of Revenue etc. etc. v. A.M. Ansari etc. (AIR 1976 SC 1813), relied on the decision in Errington and Cobb and expressively approved the opinion of Lord Denning in Cobb in para 10. The same passage was approved by Justice Subba Rao (as His Lordship then was) in Associated Hotels of India Ltd.”_ A reading of these decisions makes one fact very clear, ie. it is not the use of a particular term or phraseology or nomenclature that determines the nature of transaction. One has to construe the document as it is and try to ascertain as to what the parties are intended while entering into the transaction. In fact this aspect has been considered in the decision reported in **Gilbert v. Vivekanandan** (1988(1) KLT 50). The issue that came up for consideration in the said decision was that the particular RSA.1121/2006. 18 document was a mortgage or lease. In the said decision it was observed as follows: _“The document must be read as a whole to understand its true nature and significance. The character of the document must be determined with reference to the effect of the words used by the parties. As stated by the Supreme Court in Chunshun Jha v. Ebadat Ali,AIR 1954 SC 345, 346:_ _“............. If the words are express and clear, effect must be given to them and any extraneous enquiry into what was thought or intended is ruled out. The real question in such a case is not what the parties intended or meant but what is the legal effect of the words which they used. If however, there is ambiguity in the language employed, then it is permissible to look to the surrounding circumstances to determine what was intended.”_ _Referring to this principle, Lord Justice Devlin observes in Daview v. Elsby Brothers Ltd., (1961) 1 WLR 170, 176:_ _“........ It is a general principle ............ that the intention which the framer of the document has in mind when he brings it into existence is not material....... as a general principle the question is not what the writer of the document intended or meant_ RSA.1121/2006. 19 _but what a reasonable man reading the document would understand it to mean..........”_ _In Stret v. Mountford (1985) 2 All.E.R. 289, 294 (H.L) this principle was restated by the House of Lords. Lord Temple man says:_ _“......... Both parties enjoyed freedom to contract or not to contract and both parties exercised that freedom by contracting on the terms set forth in the written agreement and on no other terms. But the consequences in law of the agreement, once concluded, can only be determined by consideration of_ _the effect of the agreement. If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence. The manufacturer of a five pronged implement for manual digging results in a form even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.”_ _See also the decision of this court in K.P.O. Moideenkutty Haji v. Muhammadali, 1987(2) KLT 994 (D.B). These decisions show that even when the parties, uninstructed in law, used language, the legal effect of which they did not intend or foresee, the nature of the transaction which they_ RSA.1121/2006. 20 _concluded must be determined with reference to the legal effect of the words used by them. It is not open to the court to ignore the legal effect if words which are express and clear, whatever be the consequences and whatever be the disadvantage or hardship that it might ultimately cause to one or more of the parties. The question is not what the parties had intended or meant, but what is the legal effect of the words which they used, which means, what a reasonable man reading the document would understand them to mean. It is only in the case of ambiguity in the language used by them is it permissible for the court to look at the surrounding circumstances to determine what the parties actually intended.”_ 10. It cannot be said that the nomenclature of the document is altogether irrelevant. May be that the use of the words 'tenancy', 'mortgagor', 'licensee', 'landlord', 'possession' etc will not by themselves determine the character of the transaction or the real purpose of the RSA.1121/2006. 21 transaction. However it cannot also be said that the they are totally irrelevant. 11. The distinction between 'licence' and 'lease' is well established. In the case of licence there is mere permission to occupy without which the occupation is illegal. No interest is created in the property in favour of the licencee. In the case of lease, there is transfer of interest for enjoyment, but on payment of rent. 12. Having understood the distinction, and noticed the various principles by which the document is to be construed, an attempt shall now be made to ascertain whether the document involved in this case is a lease or licence. 13. Before going into that question, certain facts, which may have a bearing on the issue, may be noticed. Admittedly, the defendant before the trial court came into possession of the property by virtue of Ext.A4 from 25.2.1989. It was a possessory mortgage. It is not in dispute that by virtue of Ext.A5 dated 11.1.1995 the RSA.1121/2006. 22 possessory mortgage was redeemed by the mortgagor. Thereafter the occupation of the defendant was under Ext.A7 dated 2.11.1995, which is a licence agreement entered into between the parties in 1995. Further possession of the defendant was on the basis of Ext.A1 dated 2.12.1998. This would show that there are different transactions entered into between the parties, under which the defendant occupied the premises. It could not therefore be said that the defendant was altogether unaware of the consequences of the transaction entered into by him with the plaintiff. He cannot simply say that he had signed blank papers and the plaintiff later on concocted the document. 14. Now one may have a look at Ext.A1. Both Exts.A1 And A7 are styled as licence. The document involved in the present case is Ext.A1. It clearly recites that the defendant is allowed to occupy the premises purely on licence basis and he will have no other rights over the premises. It is true that there is as clause which reads as follows: RSA.1121/2006. 23 It is also true that the document contains a further recital which reads as follows: However, A1 also contains a recital regarding various other rights and obligations of the parties. It is difficult to accept the plea of the defendant that the two stipulations extracted above by themselves are sufficient to indicate that the transaction is a lease. It is not possible merely based on those recitals to come to the conclusion that the defendant is holding the property on lease arrangement and not a licence. In fact there is no prohibition against sub-lease and there is no automatic renewal also. In some of the cases where a licence has been construed as a lease, it can be seen that the licensee retains an option to renew. There is no such clause in the present deed. There is nothing to RSA.1121/2006. 24 show that absolute possession has been given to the licencee. He has merely been given a right to occupy the premises in accordance with the other terms of the document. 15. It must be remembered that initially the tenant occupied the premises on mortgage, then on licence and then again on licence, which is the subject matter of the present suit. The defendant must be bestowed with the knowledge of the nature of the transaction entered into by him on each of the occasions. 16. Another important fact also needs to be noticed. Ext.A2 lawyer notice was served on 4.10.1999, which is prior to the expiry of the period of licence. The reply notice Ext.A3 is dated 26.10.1989 and the suit was laid on 19.2.2000. These dates do show that even before the expiry of the licence, the plaintiff informed the defendant that he does not intend to let the defendant continued to be in occupation after the period of licence. RSA.1121/2006. 25 17. On a reading of Exts.A1 and A7, it is extremely difficult to hold that the transactions evidence anything other than a licence. The decisions relied on by the learned counsel for the appellant may not have any application to the facts of the present case. At any rate, it is not possible to say that from the words used in the transaction a lease can be concluded. Moreover, when a person enters into a transaction, he should be bestowed the knowledge of the nature of the transaction he has entered into. 18. The courts below have considered these aspects in detail and had come to the conclusion that the transaction is a licence. Even though learned counsel for the appellant picked out certain words from Exts.A1 and A7 and contended for the position that the transaction can only be a lease arrangement, his contentions cannot be accepted. On a reading of the document as a whole, it is clear that Ext.A1 evidences only a licence. If that be so, the courts below were fully justified in decreeing the suit. The finding being RSA.1121/2006. 26 essentially one on fact , based on the evidence on record, no substantial question of law arises for consideration in this Second Appeal. Accordingly, this Second Appeal is dismissed confirming the judgments and decrees of the courts below. However, the defendant is given six months time to vacate the building, provided he files an affidavit before the trial court that he will unconditionally vacate the premises after six months period granted by this court within a month from today. Arrears of licence fee as ordered by the trial court will be paid by the defendant within a period of one month from today and the appellant shall continue to pay damages for future use and occupation at the rate specified by the trial court for the period he is in occupation. There will be no order as to costs. ## **P. BHAVADASAN, JUDGE** sb.