R. Kempraj Vs. M/S. Barton Son &
Co  INSC 209 (29 August 1969)
29/08/1969 GROVER, A.N.
CITATION: 1970 AIR 1872 1970 SCR (2) 140 1969
SCC (2) 594
Transfer of Property Act, 4 of 1882, s.
14-Lease of premises with option to lessee to renew it every ten years-Covenant
whether offends rule against perpetuity.
The respondent by a deed executed in 1951
took on lease from the appellant certain premises in Bangalore. It was
stipulated in the deed that the lease would be for a period of 10 years in the
first instance with an option to the lessee to renew the, same every ten years
so long as desired. When in 1961 the first period of ten years was about to
expire the respondent asked for a renewal of the lease. On the appellant
refusing to do so, the respondent filed a suit for specific performance, The
suit was decreed by the trial court, the first appellate court and the High
Court. Appeal in this Court was filed by special leave.
The contention of the 'appellant was that the
lease in question being in the first instance for ten years only was not a
lease in perpetuity as contemplated by s. 105 of the Transfer of Property Act;
however the clauses relating to renewal which were covenants that ran with the
land offended the rule against perpetuity in s. 14 of the Act.
HELD: The 'appeal must be dismissed.
(a) Section 14 of the Act is applicable only
where there is transfer of property. Even if creation of a lease hold interest
is a transfer of a right in property and would fall within the expression
'transfer of property' the transfer was for a period of ten years only by means
of the indenture in the present case. The stipulation relating to renewal could
not be regarded as transferring property or any rights therein. [143 B] (b) The
option of renewal given to the lessee did not contain a covenant which created
an interest in the property of the nature that would fail within the ambit of
s. 14. [143 F] Ganesh Sonar v. Purnendu Narayan Singha & Ors. (1962) Pat.
Woodall v. Clifton, 2 Ch. 257, referred
(c) In English law the, court would give
effect to a covenant for perpetual renewal so long as the intention is clear
and it will not be open to objection on the ground of perpetuity. In India the
equitable rule that the burden of a covenant runs with the land is to be found
in s. 40 of the Transfer of Property Act, but that section its.elf expressly
says that the right of the covenanted is not an interest in the land bound by
the covenant nor an easement. It is not 'an interest because the Act does not
recognise equitable estate. [143 G; 144 F] Thus even on the footing that the
clauses relating to renewal in the lease, in the present case, contained
covenants running with the land the 141 rule against perpetuity contained in s.
14 of the Act would not be applicable as no interest in property had been
created of the nature contemplated in the provision. [144 G] Muller v.
Trafford, 1 Ch. 54, Weg Motors Ltd. v. Hales & Ors.  3 A.E.L.R.
181, 188 and London & South Western Rly. v. Goreto, (1882) 20 Ch. D. 56.2,
580, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No.. 1655 of 1968.
Appeal by special leave from the judgment and
order dated December 20, 1967 of the Mysore High Court in Regular Second Appeal
No. 811 of 1965.
A. K. Sen, Shyamala Pappu and Vineet Kumar,
for the appellant.
S.V. Gupte, Janendra Lal, B.R. Agarwala and
Kumar M. Mehta, for the respondent.
The Judgment of the Court was delivered by
Grover, J. This is an appeal by special leave from a judgment of the Mysore
High Court in which the question involved is whether an option given to a
lessee to get the lease,, which is initially for a period of 10 years, renewed
after every 10 years is hit by the rule of perpetuity and is void.
The respondent entered into a deed of lease
on October 26, 1951 with the appellant in respect of premises Nos. 8 & 9,
Mahatma Gandhi Road, (South Parade), Civil Station, Bangalore. It was
stipulated that the lease would be for a period of 10 years in the first
instance with effect from November 1, 1961 "with ,an option to the lessee
to renew the same as long as desired as provided". Clauses 9 and 10 which
are material may be reproduced:-- "9. The lessee shall have the right to
renew the lease of the scheduled premises at the end of the present period of
ten years herein secured on the same rental of Rs. 450/- per month, for a
similar period and for further similar periods thereafter on the same terms and
conditions as are set forth herein;
and the Lessee shall be permitted and shall
have the right to remain in occupation of the premises on the same terms and
conditions for any further periods of ten years as long as they desire to do
10. The Lessor shall not raise any objection
whatsoever to the Lessee exercising his option to renew the lease for any
further periods of ten years on the same terms and conditions as long as they
desire to be in 142 occupation, provided that the Lessee shah not have the
right to transfer the lease or alienate any right thereunder. ' ' It appears
that before the expiry of the period of ten years from the date of the
commencement of the lease the lessee wrote to the lessor informing him of the
intention to exercise the option given to the lessee under the deed of lease to
get the same renewed on the same terms and conditions as before for a period of
ten years from November 1, 1961. The lessor did not comply with the request.
After serving a notice the lessee filed a suit for specific performance of the
covenant in the lease for renewal. It was prayed that the lessor be directed to
execute a registered deed to lease in favour of the lessee and if he failed to
do so the court should execute a deed in his favour. The lessor pleaded, inter
alia, that the condition relating to renewal was hit the rule against
Certain other pleas were taken with which we
are not concerned. The trial court decreed the suit. The first appellate court
and the High Court affirmed the decree.
The rule against perpetuity is embodied in s.
14 of the Transfer of Property Act, hereinafter called the Act.
According to it no transfer of property can
operate to create an interest which is to take effect after the lifetime of one
or more persons living at the date of such transfer and the minority of some
person who shall be in existence at the expiration of that period and to whom,
if he attains full age, the interest created is to belong. It is well known
that the rule against perpetuity is rounded on the principle that the liberty
of alienation "shall not be exercised to its own destruction and that all
contrivances shall be void which tend to create a perpetuity or place property
for ever out of the reach of the exercise of the power of alienation". The
words "transfer of property" have been defined by s. 5 of the Act to
mean an act by which a living person conveys property in present or in future
to one or more other living persons etc. The words "living persons"
include a Company or association or body of individuals. Section 105 of the Act
defines "lease". A lease of immovable property is a transfer of a
right to enjoy such property made for a certain time express or implied or in
perpetuity in consideration of a price paid or promised or of money, a share of
crops, service or any other thing of value. A lease is not a mere contract but
it is a transfer of an interest in land and creates a right in rem.
Owing to the provisions of s. 105 a lease in
perpetuity can be created but even then an interest still remains in the lessor
which is called a reversion.
It is not disputed on behalf of the appellant
that a lease in perpetuity could have been created but the lease in the present
case 143 was not of that kind and was for a period of ten years only in the
first instance. It is said that the mischief is created by the clauses relating
to renewal which are covenants that run with the land. It is pointed out that
on a correct construction of the renewal clauses the rule of perpetuity
contained in s. 14 would be immediately attracted. We are unable to agree.
Section 14 is applicable only where there is transfer of property. Even if
creation of a lease-hold interest is a transfer of a right in property and
would fall within the expression "transfer of property" the transfer
was for a period of ten years only by means of the indenture Exh. P-I. The
stipulation relating to the renewal could not be regarded as transferring
property or any rights therein.
In Ganesh Sonar v. Purnendu Narayan Singha
& Ors.(1) in the case of lease of land an option had been given to the
lessor determine the lease and take possession of the lease- hold land under
specified conditions. The question was whether such a covenant would fall
within the rule laid down in the English case Woodall v. Clifton(2) in which it
was held that a proviso in a lease giving an option to the lessor to purchase
the fee simple of the land at a certain rate was invalid as infringing the rule
The Patna High Court distinguished the
English decision quite rightly on the ground that after the counting into force
of the Act a contract for the sale of immovable property did not itself create
an interest in such property as was the case under the English law. According
to the Patna decision the option given by the lessee to the lessor to resume
the lease hold land was merely a personal covenant and was not a covenant which
created an interest in land and so. the rule against perpetuity contained in s.
14 of the Act was not applicable. The same principle would govern the present
case. The clauses containing the option to get the lease renewed on the expiry
of each term of ten years can by no means be regarded as creating an interest
in property of the nature that would fall within the ambit of s. 14.
Even under the English law the court would
give effect to a covenant for perpetual renewal so long as the invention is
clear and it will not be open to objection on the ground of perpetuity; see
Halsbury's Laws of England, 3rd Edn. Vol. 23, p 627. In Muller v. Traf Jword(3)
it was held that the covenant in a lease for renewal was not strictly a
covenant for renewal. But Farwell, J., proceeded to observe that a covenant to
renew had been held for at. least two centuries to be a covenant running with
the land. If so, then no question of perpetuity would arise. It appears that in
England whatever might have been the reason, the objection of perpetuity had
never been taken to cases (1) (1962) Patna 201. (2) (1905) 2. Ch. 257.
(3)(1901) 1 Ch. 54.
of covenants for renewal. The following
observations of Farwell, J., which were quoted with approval by Lord Evershed,
M.R. in Weg Motors Ltd. v. Hales & Others(1) are note-worthy:
"But now I will assume that this is a
covenant for renewal running with the land;
it is then in my opinion free from any taint
of perpetuity because it is annexed to the land. See Rogers v. Hosegood, (1900)
2 Ch. 388." The equitable rule that the burden of a covenant runs with the
land is to be found in s. 40 of the Act. This section reads:
40. "Where for the more beneficial
enjoyment of his own immoveable property, a third person, has, independently of
any interest in the immoveable property of another or of any easement thereon,
a right to restrain the enjoyment in a particular manner of the latter property,
or where a third person is entitled to the benefit of an obligation arising out
of contract, and annexed to the ownership of immoveable property, but not
amounting to an interest therein or easement thereon, such right or obligation
may be enforced against a transferee with notice thereof or a gratuitous
transferee of the property affected thereby, but not against a transferee for
consideration and without notice of the right or obligation nor against such
property in his hands." As pointed out in Mulla's Transfer of Property
Act, 5th Edn.
at page 194, s. 40 expressly says that the
right of the covenantee not an interest in the land bound by the covenant nor
an easement. It is not an interest because the Act does not recognise equitable
estates and it cannot be said as Sir George Jessal said in London & South
Western Rly. v. Gomm(2) that if a covenant "binds the land it creates an
equitable interest in the land." The expression "covenant runs with
the land" has been taken from the English law of real property. It is an
exception to the general rule that all covenants are personal. Even on the
footing that the clauses relating to renewal in the lease, in the present case,
contain covenants running with the land the rule against perpetuity contained
in s. 14 of the Act would not be applicable as no interest in property has been
created of the nature contemplated by that provision.
For the above reasons the appeal fails and it
is dismissed with costs.
G.C. Appeal dismissed.
(1)  3, A.E.L.R. 181,188. (2)  20
Ch. D. 562, 580.