Chhatu Ram Horil Ram Ltd. Vs.
State of Bihar & ANR  INSC 20 (31 January 1968)
31/01/1968 SHAH, J.C.
CITATION: 1969 AIR 177 1968 SCR (2) 881
R 1976 SC1978 (9,24,33) R 1976 SC2520 (17)
Bihar Land Reforms Act (30 of 1950), ss. 3, 4
and 10-Lease of mica bearing lands-Covenant for renewal of lease-Vesting of
estate in State Government under the Act-Whether lessee entitled to renewal.
The appellant-company obtained a lease of
certain mica bearing land from the owners for a period of fifteen years.
The lease deed provided for a renewal of the
lease on the expiry of the period at the option of the lessee. The land was
within an estate and by virtue of a notification under the Bihar Land Reforms
Act, 1950, the estate vested in the State Government under s. 4, free from all
encumbrances and free from all rights of the lessees. But the appellant
continued in occupation for the remaining period of the contractual lease,
under a statutory lease deemed to have been granted by the State under s. 10 of
On the question whether the appellant was
entitled to specific performance of the covenant of renewal,
HELD : The agreement of renewal of the lease
in future was not binding upon the State Government after the vesting of the
(1) The Original contractual lease came to an
end by the operation of s. 4 and under s. 10 a fresh statutory lease for there main
der of the term of that lease, in favour of the lessee, came into being with
terms and conditions mutatis mutandis the 'same as the conditions of the
original lease. But the covenant granting an option of renewal of the lease on
the expiry of the period of the lease is merely a covenant running with the
land, and does not create any interest in land. It being in the nature of an
encumbrance and by virtue of s. 4 it was extinguished and the land vested in
the State free from the obligation created by the renewal clause. [885 C-E] The
State of Bihar v. Indian Copper Corporation Ltd. I.L.R.
38 Pat. 1160, approved.
(2) Rule 40 of the Mineral Concession Rules,
1949, under which a lessee of a mining lease is entitled to at least one
renewal for a period not exceeding the duration of the original lease, applies
to grants made by Government and not to statutory leases. Therefore, the rule
has no application. Even assuming the rule was applicable, the duration of the
original lease in the case of such a statutory lease must be deemed to be no
longer than the period between the date of vesting and the date of expiry of
the original lease and that period, for which renewal may have been claimed,
expired many years ago. [885 G; 886 A-B]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 47 of 1965.
Appeal from the judgment and decree dated
December 12, 1962 of the Patna High Court in Appeal from Original Decree No.
433 of 1959.
H. R. Gokhale, S. N. Prasad and B. P. Singh,
for the appellant.
883 emption and not of renewal was granted to
the appellant Company. The High Court of Patna confirmed the decree passed by
the Trial Court but on different grounds. The High Court held that the right
granted by cl. 29 gave rise to an "encumbrance" which was
extinguished when the interest of the owners in the land vested in the State.
With certificate granted by the High Court, this appeal has been preferred by
A notification under s. 3(1) of the Bihar
Land Reforms Act, 1950, on June 27, 1953 was issued in respect of the land of
the owners. Section 4 of the Act prescribes the consequences of the publication
of the notification under s.
3(1) : it provides, insofar as it is relevant
"Notwithstanding anything contained in
any other law for the time being in force or in any contract, on the
publication of the notification under sub-section (1) of section 3, or sub-section
(1) or (2) of section 3A the following consequences shall ensue, namely :
(a) Such estate or tenure including the
interests of the proprietor or tenure-holder in any building or part of a
building comprised in such estate or tenure and used primarily as office or
cutchery for the collection of rent of such estate or tenure, and his interests
in trees, forests, fisheries, jalkars, hats, bazar, mela and ferries and all
other sairati interests as also his interest in all sub-soil including any rights
in mines and minerals, whether discovered or undiscovered, or whether being
worked or not, inclusive of such rights of a lessee of mines and minerals
comprised in such estate or tenure (other than the interests of raiyats and
under-raiyats) shall, with effect from the date of vesting, vest absolutely in
the State free from all encumbrances and such proprietor or tenure-holder shall
cease to have any interests in such estate or tenure, other than the interests
expressly saved by or under the provisions of this Act." The opening words
of this clause "Subject to the subsequent provisions of this Chapter"
were omitted by Bihar Act 16 of I 959, but that omission has no practical
significance in this case. Section 10 of the Act provides :
"(1) Notwithstanding anything contained
in this ,Act, where immediately before the date of vesting of the estate or
tenure there is a subsisting lease of mines or minerals comprised in the estate
or tenure or any part thereof, the whole or that part of the estate or tenure 884
comprised in such lease shall, with effect from the date of vesting, be deemed
to have been leased by the State Government to the holder of the said
subsisting lease for the remainder of the term of that lease, and such holder
shall be entitled to retain possession of the leasehold property.
(2) The terms and conditions of the said
lease by, the State Government shall mutatis mutandis be the same as the terms
and conditions of the subsisting lease referred to in sub-section (1), but with
the additional condition that, if in the opinion of the State Government the
holder of the lease had not, before the date of the commencement of this Act,
done any prospecting or developing work, the State Government shall be entitled
at any time before the expiry of one year from the said date to determine the
lease by giving three months notice in writing Provided (3) Counsel for the
appellant Company contended that cl. 29 created an interest in the demised land
in favour of the Company and the State of Bihar as successor-in-title of the
original owners took the land subject to that interest. In the alternative,
counsel contended, the Company acquired immediately on execution of the
indentures of lease an indefeasible right to obtain renewal and that right was
enforceable against the owners and their successors-in interest alike. We are
unable to agree with those contentions. The covenant granting an option of
renewal of the lease on the expiry of the period of the lease outstanding is a
covenant running with the land : it creates no interest in land. In The, State
of Bihar v. Indian Copper Corporation Ltd.(1) the High Court of Patna held that
a clause for renewal of a lease on the expiry of it% period has not the effect
of a present demise nor does it operate to create an interest in land on the
date on which the original lease was executed : a covenant for renewal is not
tantamount to an actual demise and therefore "no leasehold interest is
created for the renewed term when the original lease is granted." Under
the terms of the lease dated September 30, 1940, the appellant Company became
entitled to a lease for a period of fifteen years. On the expiry of that period
the Company could have entorced their right to get a renewal of the lease for a
period of fifteen years against the owners if their interest had not been
extinguished. If the owners declined to carry out their obligation, the Company
could sue for specific performance and claim a right to remain I ) I.L.R. 38
Pat. 1160, 885 in possession for a period of fifteen years stipulated in cl.
29. But the provisions of the Bihar Land Reforms Act intervened. By the express
terms of s. 4 (a) of the Act all the interests of the owners in all sub-soil
including any rights in mines and minerals, whether discovered or undiscovered
or whether being worked or not, inclusive of such rights of the lessee of mines
and minerals comprised in such estate or tenure became vested in the State with
effect from the date of vesting absolutely and free from all encumbrances. Even
the interest of the lessees of the mines and minerals comprised in the estate
therefore ceased, and all encumbrances on the interest of the owners' estate
were extinguished and the State took the estate free from all the rights of the
lessees. The original contractual lease came to an end by the operation of s. 4
(1 )(a,) of the Act, and a fresh statutory lease for the remainder of the term
of that lease in favour of the lessee came into being under s.1 0 ( 1 ) of the
The appellant Company therefore acquired the
rights of a statutory lessee for the period between June 27, 1953 and September
30, 1955, with terms and conditions mutatis mutandis the same as the conditions
of the original lease granted by the owners on September 30, 1940. But by
virtue of s. 4 that covenant by which ,he owners had agreed to renew the lease
at the option of the lessee being merely of the nature of an encumbrance and
not an interest in the land was extinguished, the land vested in the State free
from the obligation created by the renewal clause.
We agree with the High Court that "a
clause for renewal of the lease at a future date was a limitation imposed upon
the lessor. His freedom as an absolute owner was sought to be curtailed by such
agreement. It was thus an encumbrance and all encumbrances were wiped out by
section 4...................... Taking all these provisions into consideration,
an agreement for renewal of a lease in future cannot be binding upon the State
Government after the vesting of the estate".
Counsel for the appellant relied upon r. 40
of the Mineral Concession Rules, 1949, and contended that under the scheme of
the Rules a lessee of a mining lease is entitled to at least one renewal. Rule
40, insofar as it is material, provides :
"(1) The period for which a mining lease
may be granted shall be 30 years in the case of coal, iron-ore and bauxite for
manufacture of aluminium, and 20 years in the case of any other minerals,
unless the applicant himself asks for a shorter period. The lease shall be
renewable at the option of the lessee, for one or two periods, each not
exceeding the duration of the original lease, in the case of iron-ore and
bauxite for manufacture of aluminium, and one period not exceeding the 8 8 6
duration of the original lease in the case of other minerals." But r. 40
has no application. Manifestly, the rule applies to grants made by the
Government : it has no application to statutory leases arising by virtue of s.
10 of the Bihar Land Reforms Act. Even assuming that r. 40 applies to such a
statutory lease, the duration of the "original lease" may be deemed
to be no longer than the period between the date of vesting and September 30,
1955. That period for which renewal may have been claimed has expired many
years ago, and recognition of the rights of the appellant Company will be of no
practical significance in this appeal.
The appeal fails and is dismissed with costs.