Karnani Industrial Bank, Limited Vs.
The Province of Bengal & Ors [1951] INSC 34 (14 May 1951)
FAZAL ALI, SAIYID MUKHERJEA, B.K.
AIYAR, N. CHANDRASEKHARA
CITATION: 1951 AIR 285 1951 SCR 560
ACT:
Transfer of Property Act (IV of 1882), ss.
106, 116--Lease for a term--Acceptance of rent for further period before expiry
of term--New tenancy--Necessity of notice to quit--Lessee's property becoming
property of lessor by failure to remove within time-Injunction against
removal--Whether can be granted.
HEADNOTE:
The context in which the provision for
acceptance of rent finds a place in s. 116 of the Transfer of Property Act
shows that what is contemplated is that the payment of rent should be made at
such time and in such manner as to be equivalent to the landlord assenting to
the lessee continuing in possession. Where payment is made at a time when there
was no question of the lessor assenting to the lessee's continuing in
possession and neither party treated the payment as importing such assent the
case does not fall within s. 116.
A lease deed was executed on the 17th
February, 1928, in respect of a land for a period of ten years from 24th February,
1928, the annual rent of Rs. 6,000 being payable in advance every year. In
April, 1937, a cheque for Rs. 6,000, being the rent from 1st April, 1937, to
31st March, 1938, was sent by the lessee and accepted by the lessor: Held, that
as the rent was paid before the expiry of the lease and neither party treated
the payment of rent as importing assent on the part of the lessor to allow the
lessee 561 to continue in possession as a lessee after the period of the lease,
no new tenancy was created under s. 116 of the Transfer of Property Act. The
utmost that could be said was that by implied consent the period of the lease
was extended up to the 31st March, 1938, and even then no notice under s.
106 of the Transfer of Property Act was
necessary for terminating the lease.
K.B. Capadia v. Bai Jerbai Warden and Another
[1949] F.C,R. 262 distinguished.
Where in accordance with the terms of a lease
bricks and other materials manufactured by the lessee on the leased premises
had become the property of the lessor as they had not been removed by the
lessee within the period fixed by the lease: Held, that the lessor was entitled
to ask for an injunction restraining the lessee from removing the materials
even though he was not in possession of the leased premises.
Rathnasabhapathi Pillai and Others v.
Ramaswami Aiyer (I.L.R. 33 Mad, 452), Bhramar Lal Banduri & Others v. Nandalal
Chowdhuri (24 I.C. 199) and Valia Thamburatti v. Parvati and Others (I.L.R. 13
Mad. 455) distinguished.
CIVIL APPELLATE JURISDICTION. Civil Appeal
No. 58 of 1950.
Appeal against the Judgment and Decree dated the 13th February, 1948, of the High Court of Judicature at Calcutta (Mitter and Sharpe
JJ.) in Appeal No. 117 of 1942 arising out of Decree dated the 24th November, 1941, in Suit No. 85 of 1938.
N.C. Chatterjee and Harish Chandra (K. C.
Chopra and G.C. Mathut, with them) for the appellant.
Chandra Sekhar Sen (C. N. Laik, with him) for
respondent No. 1.
1951. May 4. The Judgment of the Court was
delivered by FAZL ALI J. The principal question for determination in this
appeal is whether a certain lease had validly terminated by efflux of time or
whether there was "holding over" by the lessee of the leasehold
property as contemplated in section 116 of the Transfer of ,Property Act. The
circumstances under which this question and several subsidiary questions to
which reference will be made later have arisen may be briefly stated as
follows:
562 The Province of Bengal, (hereinafter
referred to as the respondent No. 1 or plaintiff) is admittedly the owner of an
area of 1125 bighas and odd of land in village Akra. On the 17th February,
1928, the respondent No. 1 executed a lease (exhibit a) in respect of the said
land for 10 years for manufacture of bricks in favour of the appellant, at a
rental of Rs. 6,000 a year. The lease was to commence from the 24th February, 1928, and a year's rent was payable in advance. By the terms of the said lease,
the lessee was prohibited from assigning or subletting the premises or any part
thereof without the consent of the lessor except to a limited company and the
lease also contained a general provision that the lessee would at the
expiration of the lease restore to the lessor the demised premises in as good
condition as it was at the date of the lease, reasonable wear and tear
excepted. Two further clauses in the lease, which are material for the decision
of this appeal, may be reproduced verbatim :-Clause 11 of Part I of the
Schedule.
"The Secretary of State reserves the
right to terminate the lease at any time subject to six months' notice in the
event of the lessee's failing to observe and duly perform the conditions
hereinbefore and after mentioned and it is hereby agreed that the lessee shall
before the expiration or prior termination of the lease hereby granted remove
his boilers engines trucks kilns railway and tram lines bricks tools and plant
and all other materials whatsoever and yield up the said demised premises unto
the Secretary of State and that those bricks tools and plant and other
materials that shall not be removed before such expiration or prior termination
shall become the property of the Secretary of State." Clause 1 of Part 111
of the Schedule.
"The lessee shall be at liberty to keep
on the said premises hereby demised for three months after the expiration or
prior termination of the term of this 563 lease any bricks boilers engines
trucks kilns railway and tram lines and all other materials whatsoever as may
have been manufactured by him in the premises in accordance with the conditions
of these presents but any bricks and other materials left in contravention to
this condition shall become the absolute property of the Secretary of State
without payment." It may be stated here that at the time of the execution
of the lease, the lessee had purchased from the lessor for Rs. 50,000" all
the boilers, engines trucks, kilns, railway and tramway lines and all other
movable property, plant and machinery on the demised premises." The case
of the respondent No. 1, who is the plaintiff in the present litigation, is
that the appellant (defendant No. 1) had, in contravention of the terms of the
lease.
sublet the brickfield to
defendants-respondents 2 to 18 without the consent of respondent No. 1. and
they had caused serious damage to the brickfield in general and failed to
maintain the embankments, sluices, etc. in proper repair resulting in a total
loss of Rs. 16,840. It was further alleged that the defendants had refused to
deliver possession though the lease had terminated, and they had not removed
the bricks, pugmills and other materials within 3 months from the termination
of the lease. On these allegations, the respondent No. 1 prayed for the
following reliefs :-(a) a decree for ejectment and khas possession over the
brick field;
(b) damages amounting to Rs. 4,000 for the
period between the termination of the lease and institution of the suit and
mesne profits for the subsequent period;
(c) a decree for Rs. 16,840 for damages
caused to the field; and (d) a decree for permanent injunction restraining the
defendants from removing or otherwise disposing of the bricks, pugmills, etc.
which were claimed to have become the property of the plaintiff.
The suit was contested by the appellants, and
the other defendants, and their defence was that the 564 appellants had held
over with the implied consent of respondent No. 1, and hence the lease had not
validly terminated, that no damage or injury had been caused to the land, that
the respondent No. 1 was not entitled to forfeit the properties of the
appellants lying in the brickfield inasmuch as the term in the lease to that
effect was by way of penalty and as such unenforceable, and that the respondent
No. 1 was not entitled to the relief of injunction.
The trial Judge by his judgment dated the
24th November, 1941, held that there was no holding over with the assent of the
plaintiff and both parties were under a mistaken belief that the lease had
expired on the 23rd February, 1938. He however held that the evidence did not
show that there was any damage or injury caused to the property. On these findings,
the suit was decreed in part, and the respondent No. 1 was directed to be put
in possession of the brickfield and was also granted a decree for Rs. 4,000 as
mesne profits up to the date on which the respondent No. 1 was put in possession.
The prayer for damages for injury alleged to have been caused to the field and
the prayer for injunction were however disallowed. The trial Judge allowed the
appellants 3 months' time" to remove their belongings from the Akra brick
field including kilns, pugmills, bricks, coals and any other brick-making
material that may be lying there "; after this period these properties, if
any, left in the field, were to become the absolute properties of the
plaintiff.
The appellants thereafter preferred an appeal
to the High Court at Calcutta, and the respondent No. 1 also preferred a
cross-objection claiming that the prayer for injunction should have been
allowed and the claim for damages should have been decreed in full. The learned
Judges of the High Court who heard the appeal; by their judgment dated the 13th
February, 1948, dismissed the appellants' appeal and allowed the
cross-objection of the respondent No. 1 in part.
They held that on the facts established in
the case there was no holding over, and that the clause in the lease stating
that if the 565 appellants did not remove the bricks etc from the field within
3 months after the termination of the lease they would become the property of
respondent No. 1, was not a clause by way of penalty and should be given effect
to.
They further held that the claim of
respondent No. 1 for damages for injury caused to the demised premises was not
established. The present ' appeal is directed against the judgment of the High
Court.
The admitted facts of the case are briefly
these. The appellants duly paid Rs. 6,000 as rent to respondent No. 1 in
February, 1928. In February, 1929, a sum of Rs. 6,714 and odd was paid by the
appellants as rent for the period 17th February, 1929, to the 31st March, 1930,
and thereafter they continued to pay Rs. 6,000 as rent for the yearly period,
1st April to 31st March of the succeeding year, and the last payment was made
in April, 1937, by means of a cheque sent with a covering letter, the material
portion of which runs as follows :-"We beg to enclose herewith a cheque
for Rs. 6,000 in payment of rent of Akra brickfield for the year 1937-38 ending
31st March, 1938, and shall thank you to please favour us with your formal
receipt for the above." The cheque was duly cashed and the amount was
entered in the cash book of the plaintiff in the following terms :-"5-4-37
(date of receipt)... Received without prejudice from Karnani Industrial Bank
Ltd. on account of yearly rent for Akra brickfield for the year ending 31st
March, 1938." On the 27th August, 1937, the appellants applied to the
Secretary to the Government of Bengal, Public Works Department, for renewing
the lease for a further period of 10 years, but no reply was received to that
letter. After addressing several other letters, the appellants received a
letter dated the 23rd February, 1938, with which was enclosed a copy of an
extract from as letter addressed by the Executive Engineer 73 566 Suburban
Division to the Assistant Engineer, No. III Subdivision, which was as under:-"He
is requested to make arrangements with Messrs.
Karnani Industrial Bank Limited for vacant
possession of the Akra brickfield on the 24th instant as the lease with the
Bank will expire on the 23rd instant according to the terms of the
agreement." Ultimately, on the 17th March, 1938, the appellants received
the following communication from the Executive Engineer, Suburban Division :-"I
would inform you that it is not the intention of Government in this Department
to lease out the brickfields and arrangement is being accordingly made to make
over the lands to the Government in the Revenue Department for disposal."
In a subsequent letter dated the 14th September, 1938, the Executive Engineer
wrote to the appellants as follows :-"I am instructed to state that
Government have decided that you cannot be allowed to continue in occupation of
the premises any further ........ However, as a matter of grace Government will
allow you time till the 30th day of September next, to dismantle the kilns and
to remove all your bricks, boiler etc from the site, on which date Government
will take over possession of the property from you." The correspondence to
which reference has been made does not show that at any point of time the
plaintiff had assented to the appellant's continuance of possession. On the
other hand, some of the letters written by the appellants show that,
notwithstanding their having paid rent up to the 31st March, 1938, they had
proceeded all along on the footing that the lease was to expire in February,
1938. For instance, in the appellants' letter of the 23rd August, 1937, it is
stated: "we are desirous of renewing the lease of the brickfield for a
further period of 10 years from the date of the expiration of the period of the
lease dated 17-2-1928." Again, in the letter dated the 23rd October, 1937,
reference is made to the appellants' 567 application for renewal of the lease
for a further period of 10 years on its expiry. Even in the letter which was
written on behalf of the appellants on the 3rd March, 1938, after the expiry of
the date on which the lease was to terminate, the statement made in the earlier
letters was repeated, and it was further stated: "we applied for renewal
of the lease on the 23rd August, 1937, six months prior to the date of expiration
of the lease". In this letter, it is nowhere suggested that the appellants
were holding over by reason of the acceptance of rent up to the 31st March,
1938. On the other hand, at the end of this letter, we find the following
statement :'"We therefore pray that if the Government is not at all
inclined to renew the lease, time may be granted to us for dismantling and
removing till the end of December, 1938, and we shall pay the proportional rent
to the Government for seven months time in pursuance of the terms of the
lease." The reference to the period of 7 months shows that it was assumed
that the lease had expired in February, 1938.
The letters written on behalf of the
Government point to the same conclusion, namely, that both the parties were
acting on the assumption that the lease was to expire on the 23rd February,
1938. For instance in a letter written on behalf of the Government on the 25th
February, 1938, the following statement is made :-"I have the honour to
inform you that none of your agents was present at-the Akra brickfield today as
previously arranged to make over the possession of the brickfields.
You are therefore requested to please inform
me about as to what arrangements are being made by you to make over the
possession of the said brickfield to this department. The term of lease expires
on the afternoon of the 23rd February, 1938." Apart from the fact that the
appellants did not set up in any of their letters a case of holding over. we
have to see whether the plea can be said to have been 568 successfully made out
by them. There is no doubt that the appellants have established that the rent
was paid on their behalf up to the 31st March, 1938, and it was accepted by the
respondent No. 1. It has also been established that this payment was made by a
cheque and that cheque has been cashed by the Government. Section 1 IS of the
Transfer of Property Act, on which reliance was placed on behalf of the
appellants, runs as follows :-"If a lessee or underlessee of property
remains in possession thereof after the determination of the lease granted to
the lessee, and the lessor or his legal representative accepts rent from the
lessee or underlessee, or otherwise assents to his continuing in possession,
the lease is, in the absence of an agreement to the contrary, renewed from year
to year, or from month to month, according to the purpose for which the
property is leased ......... " This section was construed' by the Federal
Court in K.B. Capadia v. Bai Jerbai Warden and Another (1), and it was held that
where rent was accepted by the landlord after the expiration of the tenancy by
efflux of time, section 116 applied even though the landlord accepted the
amount remitted to him as "part deposit towards his claim for compensation
for illegal use and occupation, and without prejudice to his rights". It
is to be noted that in that case rent had been accepted after the expiry of the
tenancy. In our judgment, the present case cannot be governed by that decision,
because of the fact, which in our opinion is important; that here the payment
of rent up to the 31st March, 1938, was made not after the date of expiry of
the lease, but on the 5th April, 1937, nearly a year before the expiry of the
lease. A reference to section 116 of the Transfer of Property Act will show
that for the application of that section, two things are necessary:(1) the
lessee should be in possession after the termination of the lease; and (2) the
lessor or his representative should accept rent or otherwise assent to his
continuing in possession. The use of the word 'otherwise' (1) [1949] F.C.R.
262.
569 suggests that acceptance of rent by the
landlord has been treated as a form of his giving assent to the tenant's
continuance of possession. There can be no question of the lessee "continuing
in possession" until the lease has expired, and the context in which the
provision for acceptance of rent finds a place clearly shows that what is
contemplated is that the payment of rent and its acceptance should be made at
such a time and in such a manner as to be equivalent to the landlord assenting
to the lessee continuing in possession. Both the courts below, after dealing
with the matter elaborately, have concurrently held that in the circumstances
of the case the consent of respondent No. 1 to the appellants' continuing in
possession cannot be inferred, and we agree with this finding.
It was pointed out to us on behalf of the
respondent that the entry relating to this payment in the books of the
plaintiff contains the words: "received without prejudice from Karnani
Industrial Bank ...... "The same words however occur in several earlier
entries, and we are not inclined to attach any special significance to them.
But it seems to us that the very fact, that the payment was made at a time when
there was no question of the lessor assenting to the lessee's continuing in
possession and neither party treated the payment as importing such assent, is
sufficient to take the case out of the mischief of section 116 of the Transfer
of Property Act.
There is also another view which we think is
possible to take upon the facts of the case. As we have seen, the rent for the
first year was paid in advance near about the time of the execution of the
lease, and nothing turns upon it.
When however the second payment was made, the
sum paid was Rs. 6,714 and odd, and the payment was made in respect of rent up
to the 31st March, 1930. After this, all the subsequent payments were made up
to the 31st March of the succeeding year, evidently because the financial year,
which the parties considered themselves to be governed by, ran from the 1st
April to the 31st March of the succeeding year.
It was presumably in view of this fact that
the 570 plaintiff filed an application on the 6th November, 1941, for amending
the plaint so as to include the following statement :-"The plaintiff
submits that even assuming that the registered lease terminated on the 23rd
February, 1938, by an agreement between the plaintiff and the defendant No. 1,
the latter was allowed to hold over up to the 31st March, 1938." This
application however was rejected, because it was made at a very late stage,
that is to say, after the defendants' evidence had been closed and an
adjournment had been granted to the plaintiff to adduce rebutting evidence.
However that may be, the utmost that can be
said upon the evidence as it stands is that by the implied consent of the
parties the period of the lease was extended up to the 31st March, 1938. In
this view, the respondent No. 1 became entitled to re-enter after the 31st
March, and no notice under section 106 of the Transfer of Property Act was
necessary. In the circumstances, the decree for ejectment passed by the courts
below must be upheld.
The next question which arises in the case
turns on the proper construction of clause 11 of Part I and clause 1 of Part
III of the lease, which have already been quoted. It seems to us that clause 11
should be read as a whole, and, when it is so read, it becomes clear that it
was 'intended to be applicable only where the Secretary of State decided to
exercise his right to terminate the lease "at any time subject to 6
months' notice, in the event of the lessee failing to observe and duly perform
the conditions mentioned in the lease. In such a case, if the lessee did not
remove the boilers, engines and all other materials and yield up the premises
to the Secretary of State, those articles were to become the property of the
Secretary of State. This clause is evidently not applicable to the present
case. The clause which applies to this case is clause 1 of Part III, which is
intended to be applicable to the normal case of the lease expiring by efflux of
time. This clause, as we have seen, provides that the lessee 571 shall be at
liberty to keep on the demised premises for a months after the expiration of
the lease any bricks, boilers, etc., but it also provides that "any bricks
and other materials left in contravention of this condition shall become the
absolute property of the Secretary of State without payment." There can be
no doubt that under this clause, the bricks and other materials have become the
absolute property of the plaintiff. The only question is as to the meaning of
"other materials." It seems to us on an examination of the lease as a
whole that there must be a distinction between materials, and machinery and
tolos and similar articles, and the words "other materials" have no
reference to engines, trucks, railway and tramway lines and plant. They mean
building materials such as bricks, tiles and similar articles that might have
been manufactured by the appellants on the demised premises. That being so, the
decree under appeal should be modified accordingly.
The only other point which arises for
consideration relates to the plaintiff's prayer for a decree for permanent
injunction against the defendants, to restrain them from removing or otherwise
disposing of the articles in regard to which the decree is to be passed. It was
contended on behalf of the appellants that the respondent No. 1 not being in
possession of these properties could not ask for the relief of injunction
without asking for the declaration of its title in respect of them and
possession over them, and in support of this proposition, the following cases
were cited:--Ratnasabhapathi Pillai and Others v. Ramaswami Aiyar(1), Bhramar
Lal Banduri and Others v. Nanda Lal Chowdhuri(2) and Valia Tamburatti v.
Parvati and others(3). After reading and fully considering those cases, we find
them to be wholly inapplicable to the present case. In the present case, it has
been found that the bricks and other materials have become the property of the
plaintiff, and there can be no legal objection to the granting of an injunction
as prayed.
(1) I.L.R. 33 Mad. 482. (a) I.L.R, 13 Mad,
455, (2) 24 I.C. 199.
572 The, appeal therefore substantially fails
and it is dismissed with costs. But it should be made clear in the decree that
only the building materials such as bricks, tiles and similar articles that
might have been manufactured by the appellants on the demised premises shall
become the property of the respondent No. 1. As for the boilers, engines,
trucks, kilns, rail-way and tram lines, etc., three months' time is given from
the date of this decree to enable the appellants to remove them from the
demised premises.
Appeal dismissed.
Agent for the appellant: Rajinder Narain.
Agent for respondent No. 1: P.K. Bose.
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