Bus Stand Shop Owners Assn. Vs. Corporation of Kozhikode & ANR  INSC
1615 (18 September 2009)
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) Corporation of Kozhikode & another
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 1
judgment of Kerala High Court in O.P. No. State of Kerala decided on 15.12.1999
and also by another decision of the High Court in 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.
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 2
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
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.
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 3 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.
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 4 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."
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. 5 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%.
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 6 placed on Section 2(1) (iii) of the said Act.
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.
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.
In order to ascertain whether the licence granted to the appellant
is actually a lease 7 we must look into the statutory provisions under which it
is granted and some terms and conditions of the licence.
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.
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;
*[xxx] 8 Provided that after the said period, a licence may be renewed subject
o such terms and conditions as may be fixed at that time;
all cases except renewal of licence or rehabilitation of a licensee, licence
shall be granted only by public auction or tender.
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.
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:
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
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 9 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.
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.
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:
Commissioner shall be in legal possession of the licensed premises 10 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.
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)
Clause 10 of the licence condition is also relevant and is set out
(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.
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.
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 11 period of licence and further use of the premises by him shall
be deemed to be unauthorized use and occupation".
Clause 12 of the said licence condition which is also relevant is
set out below:
licensee without written consent of the licensor, shall not transfer his right
or give possession of the premises to any other person under any
Clause 25 of the said licence condition which is also relevant is
set out below:
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".
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 12 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) of the Kerala Stamp Act is thus set out below:- "S.2 (1)
"lease" means a lease of immovable property, and includes also- (i)
agreement or other undertaking in writing not being a counterpart of a lease,
to cultivate, occupy, or pay or deliver rent for immovable property;
agreement or other undertaking in writing, executed by the renters of abkari
and opium farms.
instrument by which tolls of any description are let;
writing on an application for a lease intended to signify that the application
is granted; and (vii) a patta;
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.
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.
Reference in this connection may be made to the decision of the
Court of Appeal in 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 14 Chief
Justice Vaughan in the seventeenth 351. In the said judgment, Chief Justice
Vaughan outlined certain features of lease which are as follows:
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.
and Lynes v. Snaith), whereas if he had not exclusive possession he was only a
v. Peakin) 1895 - 2 I.R. 359]
Relying on the said principle, Lord Denning explained that the
difference between a tenancy and a licence is that, in a tenancy, 15 an
interest passes in the land, whereas, in a licence, it does not.
The position has been further elucidated by saying that it has to
be ascertained whether the occupier has exclusive possession or not.
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
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.
Relying on Errington (supra), the Court of Appeal again dealt with
this question in Cobb 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.
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:
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?..."
1202 of the report)
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.
Relying on those two decisions of the Court of Appeal, this Court
in Associated Hotels of 368, discussed this issue in very lucid terms.
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:
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 18 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...."
384-385 of the report)
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.
Subsequently, in the case of Mrs. M.N. 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:
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.
1952-1 All E.R. 1199".......
of the report)
Also a three-Judge Bench of this Court in 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).
Reference in this connection can be made also to a later judgment of the Court
of Appeal in 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:
does not depend on whether he or she has exclusive possession or not.
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 21 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
the answer depends on the nature and quality of the occupancy.
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?"
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
In a rather recent judgment of this Court in 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 22 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.
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.
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, 23 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.
This appeal is, therefore, allowed. Both the judgments of the High
Court, of the Single Judge and of the Division Bench are quashed.
shall be no order as to costs.
.......................J. (MARKANDEY KATJU)