Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.6391/2009
(@ SPECIAL LEAVE PETITION (CIVIL) NO.11051 OF 2006)
The New Bus Stand Shop Owners Association ...Appellant(s)
Vs.
Corporation of Kozhikode & another ...Respondent(s)
J U D G M E N T
GANGULY, J.
1. Leave granted.
2. The subject matter of challenge in this
proceeding is the judgment and order dated
21.02.2006 whereby the learned Judges of the
Division Bench held that the controversy in
this case is covered by the Division Bench
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judgment of Kerala High Court in O.P. No.
18225 of 1997, P.A. Kuruvila and others Vs.
State of Kerala decided on 15.12.1999 and also
by another decision of the High Court in
Abdulrahiman Vs. Tirur Municipality – 2001 (2)
KLT 716. In the judgment of the learned
Single Judge of the High Court dated 8.7.2004,
from which appeal was taken to Division Bench,
the learned Single Judge also dismissed the
writ petition by referring to certain
judgments. In paragraph 5 of the judgment of
the learned Single Judge it was held that
looking at the nature of the arrangement
between the parties it has to be held that it
is a lease despite a different nomenclature
being given to it.
3. However, before this Court the matter has been
argued at length. After hearing learned
counsel for the parties the controversy
between the parties appears to be that the
appellant is an Association of New Bus Stand
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Shop Owners and they are occupying various
shops and offices in the Municipality Bus
Stand Building which is owned by the
Corporation of Kozhikode in the State of
Kerala (hereinafter referred to as “the
Corporation”).
4. The case of the appellant-Association is that
for the use of the shops which were
constructed by the first respondent, licences
were issued to the appellant-Association in
terms of Section 215 of the Kerala
Municipalities Act, 1994 (hereinafter called
“the said Act”). Pursuant to such licences
issued by the said Corporation, licence
agreements have been entered into with
individual shop owners.
5. By referring to the provision of Section 215
of the said Act and also the terms of the
licence agreements, the learned counsel for
the appellant submitted that they were all the
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time paying licence fee in accordance with the
relevant statutory provisions at the time of
renewal of the licences. Suddenly, the State
of Kerala insisted that the said licences
should be treated as lease and at the time of
renewal of the same, stamp duty which is
payable on lease has to be given.
6. In the counter affidavit which has been filed
in this proceeding on behalf of the Municipal
Authority, the following stand has been taken
in paragraphs 4 and 5 of the said counter
affidavit. The same are set out below:-
“4. I beg to submit that the
Government of Kerala vide letter No.
12980/E2/91/T.C. dated 04.07.1991
stipulates that while issuing shop
rooms in shopping complexes owned by
Local Self Government Institutions, an
agreement is to be executed in stamp
appear worth 2.5% of the total value
of annual license fee which was
subsequently enhanced to 5% through an
amendment to the Kerala Stamp Act
through the Kerala Finance Bill, 1996
which came into force w.e.f.
20.07.1996. I further beg to submit
that almost all licensees, including
those in the I.G. Road Bus Stand
Shopping Complex complied with the
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direction and submitted revised rent
accordingly.
5. It is submitted that this
respondent which comes under the Local
Self Government Department of the
State Government is bound to comply
with the direction of the State
Government. I further beg to submit
that an enhancement to the tune of 20%
on licence fee is being effected while
renewing agreement, which is accepted
by the licensees as well.”
7. The State of Kerala also filed an affidavit
wherein the stand is that in the New Bus Stand
Building at Indira Gandhi Road, Kozhikode the
said Corporation for commercial purposes let
out rooms which were offered and allotted to
the bidders in a public auction. An amendment
was introduced in the Kerala Stamp Act which
came into effect from 29.07.1996. In the
light of the said amendment, the Secretary of
the said Corporation directed the occupants of
the rooms to execute agreements on stamp
papers worth 5% of the annual licence fee for
continuous occupation of the rooms. In
paragraph 4 of that affidavit it has been
stated that State Government vide letter No.
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12980/E2/91/TD dated 4.7.1991 stipulated that
while letting out shop rooms in shopping
complex owned by local self Governments, an
agreement is to be executed on stamp paper
worth 2.5% of the total value of annual
licence fee. The said rate was subsequently
enhanced to 5% as per amendment in the Kerala
Stamp Act which came into force with effect
from 29.07.1996. Accordingly, pursuant to the
direction by the State Government, the
Corporation informed all the licensees to
execute agreement at the revised rate of 5%.
In paragraph 5, it has been stated even though
it is actually a licence, the nomenclature is
not decisive. It is also stated that
agreement creates a “lease” within the meaning
of Transfer of Property Act. Alternatively,
it was also urged even if the said agreement
does not create a lease under Section 105 of
the Transfer of Property Act, it will be
covered within the definition of “Lease” under
the Kerala Stamp Act, 1959 and reliance was
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placed on Section 2(1) (iii) of the said Act.
8. It was also stated that Entry 5(c) of the
Kerala Stamp Act is not applicable in the
facts of this case and the case of the
appellant should be governed under Entry 33 of
the Kerala Stamp Act.
9. Therefore, the main question which falls for
determination before this Court is, whether
the agreement under which the appellant-
Association has been granted shops and is
carrying on business is an agreement for lease
or it is a licence. If it is lease then rate
of stamp duty will be different and if it is
licence, such duty will be different. Even
though the State is insisting that the same is
lease but the stand of the Corporation in its
affidavit is that it is a licence.
10. In order to ascertain whether the licence
granted to the appellant is actually a lease
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we must look into the statutory provisions
under which it is granted and some terms and
conditions of the licence.
11. Admittedly, the licence has been granted to
the appellant-Association under Section 215 of
the Kerala Municipality Act, 1994. The said
Section is set out below:-
“ 215. Power of Municipality to
acquire and dispose of property.- (1)
A Municipality may, with the previous
sanction of the Government, acquire
any property whether land or building
within or without its Municipal area
for any public purpose for providing
any convenience, service or facility
or may dispose of by sale or otherwise
any property belonging to it or vested
in it in the manner as may be
presceibed.
(2)(a) A Municipality may construct
commercial or other buildings and let
them out to the public who need them
on licence and may charge such fees as
it may fix for the use and occupation
of the same, subject to such
restriction as or limitations if any,
as may be imposed by the Government in
that behalf;
(b) *[xxx]
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Provided that after the said period, a
licence may be renewed subject o such
terms and conditions as may be fixed
at that time;
(c) In all cases except renewal
of licence or rehabilitation of a
licensee, licence shall be granted
only by public auction or tender.
(3) Every licence under sub-section
(2) shall contain terms and conditions
governing the use and occupation of
the building or room or space therein
and the rate and time of payment of
fees and such terms and conditions
shall be reduced in writing in the
form of an agreement in stamp paper of
the appropriate value.
(4) No building or room or space
let out under sub-section (2) shall be
sub-let by the licensee to any person
nor the nature of use changed without
the prior approval of the
Municipality:
Provided that the Municipality may at
the instance of a licensee transfer
the licence to any other person
subject to such terms and conditions
as it may deem fit to impose and upon
such transfer, it shall be deemed to
be a fresh licence for all purposes”.
12. From a perusal of the said Section, it appears
that the charges which a licensee has to pay
has been described as fees in Sections
215(2)(a), 215(3), 215(7) and 215(8). The
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right of construction is solely that of the
Municipality as it appears from Section
215(2)(a). It is also made clear that licence
shall be granted by public auction or tender.
The licensee has been specifically prohibited
under Section 215(5) from letting out to any
other person the space given to him. In the
event of such letting out, the Secretary by an
order may cancel the licence and in that event
licensee will have to vacate the premises.
13. Apart from the aforesaid statutory provision
under Section 215, the conditions of licence
are also very important. It is made clear
that the same is granted for a period of three
years and it has been specifically stipulated
that the amount the licensee has to pay is
licence fee. Clause 6 of the licence
condition is very important and reads as
under:
“The Commissioner shall be in legal
possession of the licensed premises
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and hence licensee shall not enjoy the
exclusive possession of the same. The
licensee shall have the right only to
use the premises as per the terms and
conditions enunciated in this
agreement.
The Commissioner or other
Corporation Officers with or without
workmen shall have right at all time
to enter upon the said premises to
view the conditions thereof and if any
loss or damages are found it shall be
lawful to the Commissioner to make
good the loss in the manner prescribed
in clause 4 (ii) & (iii)”.
(Emphasis supplied)
14. Clause 10 of the licence condition is also
relevant and is set out below:
“10. (i) The licence granted to the
licensee under this agreement shall
expire on the date specified in the
agreement and he shall have no
authority to use the premises
thereafter and shall vacate the
premises on the expiry of the licence.
Provided that the authority
competent may at its discretion renew
the licence subject to such terms and
conditions as it may fix, but such
renewal of licence shall not be
claimed as a matter of right.
(ii) In case the licence of
the premises is not renewed before the
expiry of the licence under this
agreement, the licensee shall vacate
the premises on the expiry of the
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period of licence and further use of
the premises by him shall be deemed to
be unauthorized use and occupation”.
15. Clause 12 of the said licence condition which
is also relevant is set out below:
“The licensee without written consent
of the licensor, shall not transfer
his right or give possession of the
premises to any other person under any
circumstances”.
16. Clause 25 of the said licence condition which
is also relevant is set out below:
“The licence hereby granted shall not
create any interest or title over the
property in favour of the licensee
except for the beneficial enjoyment of
the same during the period of
licence”.
17. On a perusal of the provision of Section 215
and the aforesaid conditions of licence the
intention of the parties is clear. It has
always been held that in order to determine
whether a document is a lease or licence what
is most important to be considered is the
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intention of the parties. Keeping in mind the
aforesaid terms and conditions of licence, if
we try to ascertain whether the agreement
between the appellant-Association and the
Corporation is a lease or licence within the
meaning of lease as defined under Section 2(l)
of the Kerala Stamp Act, we have to consider
the definition of lease under Section 2(l).
Section 2(l) of the Kerala Stamp Act is thus
set out below:-
“S.2 (1) “lease” means a lease of
immovable property, and includes also-
(i)
Marayapattom;
(ii) Kanapattom;
(iii) an agreement or other undertaking
in writing not being a counterpart
of a lease, to cultivate, occupy,
or pay or deliver rent for
immovable property;
(iv)
an agreement or other undertaking
in writing, executed by the
renters of abkari and opium farms.
(v) any instrument by which tolls of
any description are let;
(vi)
any writing on an application for
a lease intended to signify that
the application is granted; and
(vii) a patta;
(Emphasis supplied)
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18. From the aforesaid definition of lease under
the Kerala Stamp Act, one thing is clear that
it must be an agreement in writing to
cultivate, occupy, or pay or deliver rent for
immovable property.
19. In the instant case, the amount which the shop
holders are paying has not been described as
rent either in Section 215 of Kerala Municipal
Act or in the conditions of licence. The said
amount has been described as fees which is one
of the vital features in this case which
persuade us to construe the agreement between
the parties as one for licence and not of
lease.
20. Reference in this connection may be made to
the decision of the Court of Appeal in
Errington Vs. Errington and Woods - reported
in 1952 1 KB 290. Lord Denning in deciding the
issue whether an agreement is a lease or
licence referred to the decision given by
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Chief Justice Vaughan in the seventeenth
century in Thomas Vs. Sorrell – (1673) Vaughan
351. In the said judgment, Chief Justice
Vaughan outlined certain features of lease
which are as follows:
“A dispensation or licence properly
passeth no interest nor alters or
transfers property in any thing, but
only makes an action lawful, which
without it had been unlawful.” The
difference between a tenancy and a
licence is, therefore, that, in a
tenancy, an interest passes in the
land, whereas, in a licence, it does
not. In distinguishing between them,
a crucial test has sometimes been
supposed to be whether the occupier
has exclusive possession or not. If
he was let into exclusive possession,
he was said to be a tenant, albeit
only a tenant at will (see Doe v.
Chamberlaine and Lynes v. Snaith),
whereas if he had not exclusive
possession he was only a licensee.”
[(Peakin v. Peakin) 1895 – 2 I.R. 359]
21. Relying on the said principle, Lord Denning
explained that the difference between a
tenancy and a licence is that, in a tenancy,
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an interest passes in the land, whereas, in a
licence, it does not.
22. The position has been further elucidated by
saying that it has to be ascertained whether
the occupier has exclusive possession or not.
The learned Judge also explained that the test
of exclusiveness sometimes gives rise to
misgivings and that the test of exclusive
possession is by no means decisive.
23. In the instant case we have found from the
conditions of licence that exclusive
possession is not given to the members of the
appellant-Association and possession is always
retained with the Corporation. Even though,
exclusive possession is not a decisive test
but the absence of exclusive possession is
certainly one of the indications to show that
the agreement is one of the licence and not of
lease.
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24. Relying on Errington (supra), the Court of
Appeal again dealt with this question in Cobb
and Another Vs. Lane – [1952] All E.R. 1199.
Here also Lord Denning held that the
distinction between lease and licence has
become very important as several Rent
Restrictions Acts have come into operation.
The learned Judge held whether the agreement
is a lease or a licence must depend on the
intention of the parties. Therefore, in all
such cases the following questions should be
posed by the Court:
“...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?...”
(Page 1202 of the
report)
25. If we follow the said principle in the instant
case, we find that what was given to the shop
holders was merely a licence and not a lease.
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26. Relying on those two decisions of the Court of
Appeal, this Court in Associated Hotels of
India Ltd. Vs. R.N. Kapoor – 1960 (1) S.C.R.
368, discussed this issue in very lucid terms.
Justice K. Subba Rao, who was in minority,
discussed this question with a clarity which
is often associated with His Lordship’s
opinion. The learned Judge referred to
Section 105 of the Transfer of Property Act
and then compared it with Section 52 of the
Indian Easements Act. After referring to
those two Sections and also after referring to
the decision in Errington (supra) the learned
Judge pointed out the distinction between the
lease and the licence by expressly approving
the tests laid down by Lord Denning and which
may better be quoted:
“The following propositions may,
therefore, 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
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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....“
(Page 384-385 of the report)
27. 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 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.
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28. Subsequently, in the case of Mrs. M.N.
Clubwala and Anr. Vs. Fida Hussain Saheb and
Ors. – AIR 1965 SC 610, the same propositions
have been reiterated by Justice Mudholkar in
para 12 of the report after relying on the
decisions in Errington (supra) and also Cobb
(supra) and also the decision of this Court in
Associated Hotels of India Ltd. (supra). The
principle laid down by the learned Judge is as
follows:
“……We must, therefore, look at the
surrounding circumstances. One of
those circumstances is whether actual
possession of the stalls can be said
to have continued with the landlords
or whether it had passed on to the
stall-holders. Even if it had passed
to a person, his right to exclusive
possession would not be conclusive
evidence of the existence of a tenancy
though that would be a consideration
of first importance. That is what was
held in Errington v. Errington and
Woods, 1952-1 K.B. 290 and Cobb v.
Lane, 1952-1 All E.R. 1199”…….
(Page 614 of the report)
29. Also a three-Judge Bench of this Court in
Board of Revenue etc. etc . Vs. A.M. Ansari
etc. - AIR 1976 SC 1813, relied on the
20
decision in Errington (supra) and Cobb (supra)
and expressively approved the opinion of Lord
Denning in Cobb (supra) in paragraph 10. The
same passage was approved by Justice Subba Rao
(as His Lordship then was) in Associated
Hotels of India Ltd. (supra).
30. Reference in this connection can be made also
to a later judgment of the Court of Appeal in
Marchant Vs. Charters – (1977) 3 All E.R. 918,
where again Lord Denning reiterated these
principles in a slightly different form by
holding that the true test is the nature and
quality of the occupation and not always
whether the person has exclusive possession or
not. The true test in the language of the
learned Judge is as follows:
“……It does not depend on whether he or
she has exclusive possession or not.
It does not depend on whether the room
is furnished or not. It does not
depend on whether the occupation is
permanent or temporary. It does not
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depend on the label which the parties
put on it. All these are factors
which may influence the decision but
none of them is conclusive. All the
circumstances have to be worked out.
Eventually the answer depends on the
nature and quality of the occupancy.
Was it intended that the occupier
should have a stake in the room or did
he have only permission for himself
personally to occupy the room, whether
under a contract or not, in which case
he is a licensee?”
31. If we apply these tests in the facts of this
case, it will be clear that the agreement
between the parties is one for licence and not
of a lease.
32. In a rather recent judgment of this Court in
the case of C.M. Beena and another Vs. P.N.
Ramachandra Rao – 2004 (3) SCC 595, the
learned Judges relied on the ratio in
Associated Hotels of India Ltd. (supra) in
deciding the difference between lease and
licence. In paragraph 8 of the said judgment,
learned Judges held that difference between
lease and the licence is to be determined by
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finding the real intention of the parties from
a total reading of the document, if any,
between the parties and also considering the
surrounding circumstances. The learned Judges
made it clear that use of terms “lease” or
“licence”, “lessor” or “licencor”, “rent” or
“licence fee” by themselves are not decisive.
The conduct and intention of the parties
before and after the creation of relationship
is relevant to find out the intention. The
learned Judges quoted from the treaties of
Evans and Smith on “The Laws of Landlord and
Tenant” and of Hill & Redman on “Law of
Landlord and Tenant” in support of their
proposition.
33. Following the aforesaid tests and in view of
the discussions made hereinabove, it is clear
that the intention of the parties in the case
is to create a licence and not a lease and the
right of exclusive possession was retained by
the Corporation. In that view of the matter,
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relationship which is created between the
Corporation and the shop holders is that of a
licensor and licensee and not that of a lessor
or a lessee. The stamp duty on licence
agreement should be governed by Entry 5(c) of
the Kerala Stamp Act, which is a residuary
Clause in the Schedule and not by Entry 33.
34. This appeal is, therefore, allowed. Both the
judgments of the High Court, of the Single
Judge and of the Division Bench are quashed.
There shall be no order as to costs.
.......................J.
(MARKANDEY KATJU)
.......................J.
New Delhi (ASOK KUMAR GANGULY)
September 18, 2009
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