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Report No. 70

19.21. Injunction.-

But the very fact that the breach of a covenant against assignment or underletting may be restrained by injunction1 shows the attitude of the law. It has also been held that the law will restrain the breach of a covenant not to assign without the landlord's consent.2 This is in contrast with the refusal of the law to grant specific performance in some cases such as breach of a covenant to repair or of a covenant to build, the assumption being that in such cases damages would be, in general, an adequate remedy. In short, the whole trend of the judicial attitude in England would seem to be in the direction that there is no categorical rule that every assignment in breach of a prohibition in nevertheless valid.

1. McBacharn v. Colton, 1902 AC 104 (PC).

2. Story Equity Jurisprudence, (1919), p. 369, para. 305.

19.22. Equity.-

The jurisdiction of equity by way of grant of injunctions, to restrain the alienation of property (in the largest sense of the word) is certainly exercised where the grant of the injunction is indispensable to secure the enjoyment of a specific property or to preserve the title to such property or to prevent frauds and irremediable injustice. It is on the same principle that courts of equality refuse to grant a relief against forfeiture for the breach of a covenant not to assign a lease without the landlord's consent, because from such breaches it is not possible to make a clear estimate of damages.1

1. Barrow v. Isacs & Sons, (1891) 1 QB 417.

19.23. Equity's attitude towards forfeiture.-

It is to be noted that the principle which governs the court in granting relief against the forfeiture of lease is that the court will grant relief only where the court can give compensation in lieu of the forfeiture. Therefore, in general, equity granted relief only when the forfeiture clause in substance was merely a security for the payment of a monetary sum.

Save in very exceptional circumstances, no relief was granted against forfeiture for breach of a covenant not to underlet without consent.1

No doubt, forfeiture in England, as in India, is now governed by statutory provisions,2 but the point to be made is that equity did take into account the aspect of compensability in exercising jurisdiction concerned with the consequences of an assignment of leases.

1. Barrow v. Isacs & Sons, (1891) 1 QB 417.

2. Section 146, Law of Property Act, 1925.

19.24. Story's view.- The following exposition of the position by Story is instructive1:

"1324. Be this as it may, it is clearly established, that courts of equity will not interfere, in cases of forfeiture for the breach of covenants and conditions, where there cannot be any just compensation decreed for the breach. Thus, for example, in the case of a forfeiture for the breach of a covenant, not to assign a lease without licence, or to keep leasehold premises insured, or to renew a lease within a given, time no relief could until lately have been had; for they admit of no just compensation or clear estimate of damages.2

"1324a. The power of courts of equity to relieve lessees from forfeiture for breaches of covenants in leases was enlarged by the 22 & 23 Vict., C. 35, section 4, which gives the courts power to relieve against forfeiture for breach of a covenant to insure, where no loss or damage has happened, and the breach has been committed through accident or mistake, and an insurance has been duly effected at the time of application. But this relief can only be given once, nor can it be given at all where a forfeiture shall have been already waived out of court in favour of the person seeking the relief.

1324b. Further, by the Conveyancing Act, 1881, section 14, the rights of re-entry or forfeiture for breaches of covenant are limited. For it is provided by that Act that previously to enforcing these rights by action or otherwise, the lessor must serve on the lessee a notice specifying the particular breach complained of, and if the breach is capable of remedy, requiring the lessee to remedy the breach, and, in any case, requiring the lessee to make compensation in money.

If the lessee either remedies the breach, or makes compensation in money, no right of re-entry or forfeiture will arise. Further, if the lesser proceeds to enforce his right of re-entry or forfeiture by action or otherwise, the lessee may apply to the court for relief, which the court may, having regard to all the circumstances, grant or refuse at its discretion. But the Act excludes from its operation: Covenants or conditions against the assigning, underletting, parting with the possession or disposing of the land leased."

1. Story Equity Jurisprudence, (1919), paras. 1324, 1324a, 1324b.

2. See Barrow v. Isacs & Sons, (1891) 1 QB 417.

19.25. Judicial attitude under section 146, L.P. Act.-

Even so far as section 146 of the Law of Property Act is concerned, in England, it has been pointed out1. by Harman J. that the power to grant relief to an assignee, where an assignee is in breach of a covenant not to assign, "remains a jurisdiction to be exercised sparingly, because it thrust upon the landlord a person whom he has never accepted as tenant".

1. Crocry v. Barmersell, etc. Co. Ltd., 1949 Chancery 751: Vol. 83, Solicitor Journal 357.

19.26. Need for change.-

Reverting to the topic of validity in India, we do not see any reason why the assignment should be regarded as valid merely because the conveyancer has not inserted a clause for re-entry. The insistence of the law on such a clause may be understandable where the question is of forfeiture. There is, however, no reason for such an insistence where the question is as to the validity of the assignment in breach of a covenant. Ordinarily, a covenant is intended to have legal effect. In the absence of compelling considerations of policy, the covenant should be given effect to.

Modern condition.-Indian social conditions also necessitate the approach suggested above.

Instead of insisting on a specific power of re-entry and then bringing into play the provision for forfeiture and then the provision for relief against forfeiture as a matter of discretion, it will be more consonant to Indian social conditions if the view is adopted that a covenant against assignment must always be regarded as a covenant "for the benefit of the landlord" so as to render the assignment void. We are using the expression "assignment" for brevity in this discussion. It will include cases of sub-letting and the like, also.

19.27. Mulla's view.-

At one place, Mulla1 states that the words "for the benefit of the lessor" refer to a condition giving the lessor a right of re-entry. For this, he relies on the amendment made in 1929 in section 111(g). In his commentary on section 108(g), however,2 he has stated that the covenant cannot be invalid, for such a covenant by itself will support a suit for injunction and damages.3 He adds that the words of section 10 ("benefit of the lessor") seem to be words of explanation rather than of limitation.

1. Mulla, (1973), p. 107, comment on section 12.

2. Mulla, (1973), p. 712, comment on section 108(g).

3. Gurushantappa v. Mallaya, AIR 1921 Born 27.

19.28. Reasons summed up.-

In our view, while in the absence of a power of re-entry, forfeiture may not be ordered, the covenant should be enforceable at least to the extent of nullifying the assignment. To sum up the reasons in favour of such a view-

(a) such a construction has been favoured by the Madras High Court, though not by the Calcutta High Court;

(b) it is, in general, what the parties intend, since any other view would amount to thrusting an unwanted tenant on, the landlord;

(c) it is, in consonance with justice;1

(d) it satisfies the wording of section 12.

Speaking realistically, one would think that when parties to a lease insert a stipulation against assignment, they intend that the stipulation is for the benefit of the lessor; it certainly is not for the lessee's benefit, and if it is for neither's benefit, there would hardly be any occasion for inserting it-save in the exceptional cases where the covenant is intended to assist a third party.

We may add that we consider it sufficient if the breach of condition is made to render the assignment or subletting voidable at the instance of the lessor. We recommend an amendment on these lines. This recommendation is subject to reservation by Shri Dhavan.2

1. Para. 19.18, supra.

2. Reservation by Shri Dhavan as to section 12.

19.29. The reason in support of this approach may be summarised again

(i) textual-based on section 7, read with section 108(j);

(ii) textual again-but based on section 108(j), which makes a specific provision that the right to assign the lease is only conferred in the absence of a contract to the contrary. Section 108 does not deal only with the contractual aspect. It deals with the rights of property;

(iii) juristic-any other approach would make property which is nontransferable, transferable;

(iv) effect of the contrary view on section 10;

(v) sociological;

(vi) support afforded by the Madras view.

This recommendation is subject to reservation by Shri Dhavan1

1. Reservation by Shri Dhavan.

19.30. Forfeiture.-

As regards forfeiture, there is a distinction between cases where there is a covenant in the lease against alienation, but no right of re-entry reserved in the landlord; and cases where there is a covenant in the lease against alienation coupled with a clause for re-entry. In the first class of cases,1 the remedy is of the landlord is either by way of injunction against an apprehended breach,2-4 or by recovery of damages for a breach already committed5-8

In the second class of cases, the lessor can9 forfeit the lease. But this distinction is for purposes of forfeiture only. It need not be material in regard to the validity of an assignment made in breach of a covenant.

1. Doe v. Godwin, (1815) 16 RR 463: 4 M&S 205.

2. Bibi Sahodra v. Rai fang Bahadur, (1882) 8 Cal 224: 8 IA 210 (PC).

3. Governors of Bridewell Hospital v. Pawkner, (1892) 8 TLR 637.

4. McRachan v. Colton, 1902 AC 104.

5. Williams v. Earle, (1863) 3 QB 739: 9 B&S 740: 37 LJQB 231.

6. Paul v. Nurse, (1828) 8 B&C 480: 2 Ma Ry 525.

7. Weatherall v. Geering, (1860) 12 Vos Jun 504: 8 RR 369.

8. Basarat Ali Khan v. Manirulla, (1909) 36 Cal 745: 2 IC 416.

9. On the wording of section 108(j), it can be followed-para. 19.13.

19.31. Recommendation to amend section 12, and to insert section 108A.- In the light of the above discussion, we recommend1 that to section 12, the following Explanation should be added:

"Explartation-For the purpose of section 10 and of this section, a condition prohibiting or restraining the assignment of a lease or subletting of the leased premises is a condition for the benefit of the lessor or those claiming under him."

A new section be inserted after section 108 to provide that the lease shall be voidable in such cases.2

1. This recommendation is subject to reservation by Member, Shri Dhavan.

2. See section 198A, infra.

The Transfer of Property Act, 1882 Back

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