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C.A.@SLP(C) No. 24486 of 2014                 1

NON-REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

        CIVIL APPEAL NO. 8361 OF 2016  (Arising out of SLP (C) No.24486 of 2014)

M/S PARK STREET PROPERTIES (PVT) LTD.     ………APPELLANT Vs.

DIPAK KUMAR SINGH & ANR.         ……RESPONDENTS

J U D G M E N T

V. GOPALA GOWDA, J.   Leave granted.

2. The  present  appeal  arises  out  of  the  impugned

judgment and order dated 15.05.2014 passed by the High

Court of Calcutta in F.A. No. 151 of 2012, whereby the

High Court has set aside the order of the Trial Court and

remanded the matter to it for reconsideration from the

stage of examining the question of validity of the notice

dated 30.10.2008.

3. The relevant facts of the case required to appreciate

the  rival  legal  contentions  advanced  on  behalf  of  the

parties are stated in brief  hereunder:

One  Karnani  Properties  Limited,  a  company

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incorporated under the Companies Act, 1956 was the owner

of the suit premises. It had let out the suit premises in

favour of the appellant herein with the right to sublet

the  same  or  portions  thereof.  The  appellant  herein

entered  into  an  agreement  dated  15.10.2004  with  the

respondents subletting the suit premises for the purpose

of carrying out business from the ‘Blue Fox Restaurant’.

Subsequently, the respondents requested the appellant to

allow  them  to  run  franchise  or  business  dealing  with

McDonald’s family restaurant from the suit premises. In

pursuance of the same, the agreement dated 15.10.2004 was

terminated,  and  a  tenancy  of  the  suit  premises  was

created in favour of the respondents on the basis of an

unregistered agreement dated 07.08.2006 at a rent and on

the terms and conditions agreed therein. In terms of the

said agreement, the tenancy commenced from 01.08.2006, at

a  rent  of  Rs.  20,000/-  per  month,  payable  by  the

tenants-respondents  by  the  7th day  of  every  succeeding

month according to the English calendar. Further, as per

the terms of the agreement, in case of breach of the

agreement,  the  landlord-appellant  was  entitled  to

terminate the tenancy after serving a notice of period of

thirty days. On 30.10.2008, the appellant issued a notice

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under Section 106 of the Transfer of Property Act, 1882

(hereinafter referred to as the “Act”) terminating the

monthly  tenancy  of  the  respondents  in  respect  of  the

tenanted premises upon the expiry of 15 days from the

date of receipt of the said notice. Upon the expiry of

the period of 15 days, the respondents did not vacate the

suit  premises.  The  appellant  thus,  filed  suit  for

recovery of khas possession and mesne profits of the suit

premises  before  the  City  Civil  Court  at  Calcutta.  The

respondents contested the suit inter alia contending that

by necessary implication the parties had agreed to not

terminate the lease of the premises before 30 years, and

that it was for this reason, a clause was incorporated

for enhancement of monthly rent at the rate of 15% after

expiry of every 3 years. The respondents further urged

that  the  appellant  had  permitted  them  to  invest  a

substantial  sum  of  money  for  further  repair  and

renovation of the tenanted premises suitably for their

business. Thus, the appellant, by its declaration, acts

and omissions had intentionally caused and permitted the

respondents to believe that they will not terminate the

lease  of  the  respondents  in  respect  of  the  tenanted

premises before the expiry of the franchise agreement for

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running  the  McDonald’s  Family  Restaurant  from  the

tenanted premises. It was thus, urged by the respondents

that the notice of termination of lease is bad and not in

accordance with law. The Trial Court, after examining the

evidence on record, decreed the suit in favour of the

appellant.

“It  appears  that  clause  6  of  the unregistered Memorandum of Agreement dated 7th August,  2006,  is  an  important  clause which  deals  with  determination  or termination of the tenancy only in case of non-payment of rent for three consecutive months and the tenant in spite of notice to remedy such breach fails to make such payment. When the document is inadmissible in  evidence,  none  of  its  terms  can  be admitted  in  evidence  for  the  purpose  of proving  an  important  clause  contained therein including the clause 6. Reliance on clause 6 of the memorandum of Agreement dated 7th August, 2006 cannot be termed as using  the  document  for  a  collateral purpose,  in  as  much  as  proving  and/  or reliance on clause 6 is an important term of the agreement which cannot be proved by admission  of  an  unregistered  lease  deed into evidence. So the notice appears to be legal and valid.”  

                     (emphasis laid by this Court)

The respondents were accordingly, directed to vacate the

suit premises within three months from the date of the

order. Aggrieved of the judgment and order of the Trial

Court, the respondents challenged the correctness of the

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same by way of filing appeal before the High Court. The

High Court observed as under:

“It is the general proposition of law in view of the provisions of Section 49 of the Indian  Registration  Act  that  when  a document is required to be registered under a provision of law, it cannot be accepted in evidence of any transaction affecting an immovable  property  in  absence  of registration of that document. It is also true that in accordance with the provisions of Section 107 of the Transfer of Property Act, 1882, a lease of immoveable property from year to year or for any term exceeding one year or reserving a yearly rent can be made only by a registered instrument. But the above observation does not exhaust the scope of determination of a question as regards  admissibility  of  an  instrument which  has  been  improperly  admitted  in evidence. The decision of Javer Chand & Ors v. Pukhraj Surana reported in AIR 1961 SC 1655 is an authority for the proposition that once document has been marked as an exhibit  in  a  case  and  the  trial  has proceeded all along on the footing that the document was an exhibit in the case and has been used by the parties in examination and cross examination of their witnesses, it is not open either to the trial court itself or to a court of appeal or revision to go behind that order. The learned Court below committed an error in  passing  the  decree  in  favour  of  the respondent.  The  impugned  judgment  is, therefore, required to be interfered with and  the  validity  of  the  notice  dated October  30,2008  is  required  to  be reconsidered  by  the  learned  Court  below looking into the “Exhibit-4”

The  High  Court  accordingly,  allowed  the  appeal  and

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remanded  the  suit  back  to  the  Trial  Court  for

reconsideration from the stage of examining the question

of  validity  of  notice  dated  30.10.2008.  Hence,  the

present appeal filed by the appellant.

4. Mr. C.A. Sundaram, learned senior counsel appearing

on behalf of the appellant contends that the agreement

dated  07.08.2006  creates  a  monthly  tenancy.  It  is

submitted  that  in  terms  of  Section  17(1)(d)  of  the

Registration Act and Section 107 of the Act, the said

document would require registration only if it leases the

immoveable suit property from year to year or for any

term  exceeding  one  year  or  receiving  yearly  rent.

Therefore,  the  agreement  dated  07.08.2006  was  not

required to be registered. It is further contended that

it  is  not  even  the  case  of  the  appellant  that  the

agreement intended to grant lease of year to year. The

learned senior counsel further contends that a monthly

tenancy is terminable at will. In the instant case, the

monthly  tenancy  was  terminable  only  in  the  manner

stipulated  under  Clause  6  of  the  agreement  dated

07.08.2006. The learned senior counsel further contends

that it is the case of the appellant that in terms of the

lease, the same could not be terminated unless there was

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a breach of its provisions. It is contended that this

argument  cannot  be  accepted,  as  that  goes  against  the

very spirit of Section 106 of the Act. It is contended

that the term ‘contract to contrary’ in Section 106 of

the Act only envisages a valid contract, and that Section

106 of the Act cannot be subverted by way of a contract

which  is  contrary  to  the  provisions  of  law.  It  is

contended  that  parties  are  free  to  contract  out  of

Section  106  of  the  Act  only  by  way  of  a  registered

instrument and not otherwise. The learned senior counsel

places reliance on the decision of this Court in the case

of  Samir Mukherjee  v. Davinder K. Bajaj1,  the relevant

potion of which is extracted as hereunder: “Section 107 prescribes the procedure for execution of a lease between the parties. Under the first paragraph of this section a lease of immovable property from year to year or for any term exceeding one year or reserving yearly rent can be made only by registered  instrument  and  remaining classes  of  leases  are  governed  by  the second paragraph that is to say all other leases of immovable property can be made either by registered instrument or by oral agreement  accompanied  by  delivery  of possession. In the case in hand we are concerned with an oral lease which is hit by the first paragraph of Section 107 of the Transfer of Property Act. Under Section 107 parties have an option to enter into a lease in

1  (2001) 5 SCC 259

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respect  of  an  immovable  property  either for a term less than a year or from year to year, for any term exceeding one year or reserving a yearly rent. If they decide upon  having  a  lease  in  respect  of  any immovable  property  from  year  to  year  or for  any  term  exceeding  one  year,  or reserving yearly rent, such a lease has to be  only  by  a  registered  instrument.  In absence  of  a  registered  instrument  no valid  lease  from  year  to  year  or  for  a term  exceeding  one  year  or  reserving  a yearly rent can be created. If the lease is not a valid lease within the meaning of the opening words of Section 106 the rule of construction embodied therein would not be  attracted.  The  above  is  the  legal position on a harmonious reading of both the sections. In Ram Kumar Das (supra), Section 106 was considered by a bench of four judges of this  court.  This  court  held  that  this section  106  lays  down  the  rule  of construction which is to be applied when there is no period agreed upon between the parties and in such cases duration has to be  determined  by  the  reference  to  the object  for  purpose  for  which  tenancy  is created.  It  was  also  held  that  rule  of construction  embodied  in  this  section applies  not  only  to  express  leases  of uncertain  duration  but  also  to  leases implied by law which may be inferred from possession  and  acceptance  of  rent  and other circumstances.  It was further held that it is not disputed that a contract to the  contrary  as  contemplated  by  Section 106 of the Transfer of Property Act need not  be  an  express  contract;  it  may  be implied,  but  it  certainly  should  be  a valid contract. On the fact of that case, the  court  held  that  'the  difficulty  in applying  this  rule  to  the  present  case arises  from  the  fact  that  tenancy  from year to year or reserving an yearly rent

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can be made only by registered instrument as  lays  down  in  Section  107  of  the Transfer of Property Act.'”

                (emphasis laid by this Court)

The learned senior counsel further places reliance on the

decision of this Court in the case of  K.B. Saha & Sons

Pvt. Ltd v. Development Consultant Ltd.2, wherein it was

held as under: “34. From the principles laid down in the various  decisions  of  this  Court  and  the High Courts, as referred to hereinabove, it is evident that :-

1.  A  document  required  to  be registered,  if  unregistered  is  not admissible into evidence under Section 49 of the Registration Act.

2.  Such  unregistered  document  can however  be  used  as  an  evidence  of collateral purpose as provided in the proviso  to  Section  49  of  the Registration Act.

3.  A  collateral  transaction  must  be independent of, or divisible from, the transaction  to  effect  which  the  law required registration.

4. A collateral transaction must be a transaction not itself required to be effected  by  a  registered  document, that is, a transaction creating, etc. any  right,  title  or  interest  in immoveable  property  of  the  value  of one hundred rupees and upwards. 5. If a document is inadmissible in evidence  for  want  of  registration,

2  (2008) 8 SCC 564

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none of its terms can be admitted in evidence and that to use a document for  the  purpose  of  proving  an important clause would not be using it as a collateral purpose.  

35. In our view, the particular clause in the lease agreement in question cannot be called  a  collateral  purpose.  As  noted earlier, it is the case of the appellant that the suit premises was let out only for  the  particular  named  officer  of  the respondent and accordingly, after the same was  vacated  by  the  said  officer,  the respondent was not entitled to allot it to any  other  employee  and  was  therefore, liable to be evicted which, in our view, was an important term forming part of the lease agreement. Therefore, such a Clause, namely, Clause 9 of the Lease Agreement in this case, cannot be looked into even for collateral  purposes  to  come  to  a conclusion that the respondent was liable to  be  evicted  because  of  violation  of Clause  9  of  the  Lease  Agreement.  That being the position, we are unable to hold that  Clause  9  of  the  Lease  Agreement, which is admittedly unregistered, can be looked  into  for  the  purpose  of  evicting the respondent from the suit premises only because the respondent was not entitled to induct  any  other  person  other  than  the named officer in the same.”

The  learned  senior  counsel  submits  that  there  is  no

infirmity with the judgment and order of the Trial Court

and that the High Court was not justified in interfering

with the same and remanding the matter back to the Trial

Court on the ground that the terms of the agreement dated

07.08.2006 were not taken into consideration in a proper

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perspective.

5. On the other hand, Mr. Anindya Mitra and Mr. Gopal

Subramanium, learned senior counsel appearing on behalf

of the respondents contends that termination of lease is

by its definition meant to disrupt the contract between

the parties. Sections 106 and 107 of the Act provides for

duration of leases and how they are to be made. It is

submitted that Section 106 of the Act cannot be departed

from and that the operation of Section 107 of the Act can

be excluded by virtue of Section 106 of the Act only in

cases where there is a valid contract to the said effect.

The  learned  senior  counsel  places  reliance  on  the

decision of this Court in the case of  Ram Kumar Das  v.

Jagadish  Chandra  Deb  Dhabal3,  wherein  it  was  held  as

under: “The  section  lays  down  a  rule  of construction which is to be applied when there is no period agreed upon between the parties. In such cases the duration has to be determined by reference to the object or  purpose  for  which  the  tenancy  is created. The rule of construction embodied in  this  section  applies  not  only  to express leases of uncertain duration but also to leases implied by law which may be inferred from possession and acceptance of rent  and  other  circum-  stances.  It  is conceded that in the case before us the tenancy  was  not  for  manufacturing  or

3  1952 (3) SCR 269

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agricultural purposes. The object was to enable the lessee to build structures upon the land. In these circumstances, it could be  regarded  as  a  tenancy  from  month  to month unless there was a contract to the contrary.  The  question  now  is,  whether there was a contract to the contrary in the present case? Mr. Setalvad relies very strongly upon the fact that the rent paid here was an annual rent and he argues that from this fact it can fairly be inferred that the agreement between the parties was certainly not to create a monthly tenancy. It is not disputed that the contract to the contrary,  as  contemplated  by  section 106 of the Transfer of Property Act, need not  be  an  express  contract;  it  may  be implied,  but  it  certainly  should  be  a valid contract. If it is no contract in law,  the  section  will  be  operative  and regulate the duration of the lease. It has no doubt been recognised in several cases that the mode in which a rent is expressed to be payable affords a presumption that the tenancy is  of  a  character corresponding there to. Consequently, when the rent reserved is an annual rent, the presumption would arise that the tenancy was  an  annual  tenancy  unless  there  is something to rebut the presumption.”

6.  The learned senior counsel submits that in the instant

case, the requirements under Section 106 of the Act need

to be adhered to, as clause 6 of the agreement operates

as a contract to the contrary.

7. We have heard the learned senior counsel appearing on

behalf of the parties and have perused the evidence on

record.  The  essential  question  which  arises  for  our

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consideration  in  the  instant  case  is  whether  the

agreement dated 07.08.2006 can be read in evidence, and

whether it is a contract to contrary in terms of Section

106 of the Act.

8. At the outset, it would be useful to refer to the

statutory provisions at play in the instant case, which

are Sections 106 and 107 of the Act, which read as under: “106.  Duration  of  certain  leases  in absence  of  written  contract  or  local usage: In the absence of a contract or local law or  usage  to  the  contrary,  a  lease  of immovable  property  for  agricultural  or manufacturing purposes shall be deemed to be a lease from year to year, terminable, on the part of either lessor or lessee, by six months' notice expiring with the end of a year of the tenancy; and a lease of immovable property  for any other purpose shall be deemed to be a lease from month to  month,  terminable,  on  the  part  of either lessor or lessee, by fifteen days' notice expiring with the end of a month of the tenancy.

Every notice under this section must be in writing,  signed  by  or  on  behalf  of  the person giving it, and either be sent by post to the party who is intended to be bound by it or be tendered or delivered personally to such party, or to one of his family  or  servants  at  his  residence,  or (if  such  tender  or  delivery  is  not practicable) affixed to a conspicuous part of the property.

107. Leases how made: A lease of immovable property from year to

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year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registered instrument.

All other leases of immovable property may be made either by a registered instrument or  by  oral  agreement  accompanied  by delivery of possession. Where  a  lease  of  immovable  property  is made  by  a  registered  instrument,  such instrument  or,  where  there  are  more instruments than one, each such instrument shall be executed by both the lessor and the lessee:

PROVIDED  that  the  State  Government  from time  to  time,  by  notification  in  the Official  Gazette,  direct  that  leases  of immovable property, other than leases from year to year, or for any term exceeding one year, or reserving a yearly rent, or any class of such leases, may be made by unregistered  instrument  or  by  oral agreement without delivery of possession.”              (emphasis laid by this Court)

 9. A perusal of Section 106 of the Act makes it clear

that it creates a deemed monthly tenancy in those cases

where there is no express contract to the contrary, which

is terminable at a notice period of 15 days. The section

also  lays  down  the  requirements  of  a  valid  notice  to

terminate  the  tenancy,  such  as  that  it  must  be  in

writing,  signed  by  the  person  sending  it  and  be  duly

delivered. Admittedly, the validity of the notice itself

is not under challenge. The main contention advanced on

behalf of the respondents is that the impugned judgment

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and order is valid in light of the second part of Section

107 of the Act, which requires that lease for a term

exceeding  one  year  can  only  be  made  by  way  of  a

registered instrument.

10. At  this  stage,  it  will  also  be  useful  to  examine

Clause 6 of the agreement dated 07.08.2006, which reads

as under: “6. Default In the event of any default on the part of the Tenants in making payment of the rent for 3 consecutive months or in the event of  any  breach  of  any  the  terms  and conditions  herein  contained  and  on  the part of the tenants to be performed and observed  and  the  landlord  shall  be entitled to serve a notice on call upon the tenants to make payment of the rent and to remedy for the breach of any of the remaining  terms  and  conditions  herein contained  and  if  within  a  period  of  30 days, the Tenants shall fail to remedy the breach the landlord shall be entitled to determine or terminate the tenancy.”              (emphasis laid by this Court)

Thus, in terms of clause 6 of the agreement, the landlord

was entitled to terminate the tenancy in case there was a

breach  of  the  terms  of  the  agreement  or  in  case  of

non-payment of rent for three consecutive months and the

tenants  failed  to  remedy  the  same  within  a  period  of

thirty days of the receipt of the notice. The above said

clause  of  the  agreement  is  clearly  contrary  to  the

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provisions of Section 106 of the Act. While Section 106

of the Act does contain the phrase ‘in the absence of a

contract to the contrary’, it is a well settled position

of  law,  as  pointed  out  by  the  learned  senior  counsel

appearing on behalf of the appellant that the same must

be a valid contract.

11. It is also a well settled position of law that in the

absence of a registered instrument, the courts are not

precluded from determining the factum of tenancy from the

other evidence on record as well as the conduct of the

parties. A three Judge bench of this Court in the case of

Anthony v. KC Ittoop & Sons4, held as under: “A lease of immovable property is defined in Section 105 of the TP Act. A transfer of  a  right  to  enjoy  a  property  in consideration of a price paid or promised to  be  rendered  periodically  or  on specified  occasions  is  the  basic  fabric for a valid lease. The provision says that such a transfer can be made expressly or by  implication.  Once  there  is  such  a transfer of right to enjoy the property a lease stands created. What is mentioned in the three paragraphs of the first part of Section  107  of  the  TP  Act  are  only  the different modes of how leases are created. The  first  paragraph  has  been  extracted above and it deals with  the  mode  of creating  the  particular  kinds  of  leases mentioned therein. The third paragraph can be  read  along  with  the  above  as  it contains a condition to be complied with

4  (2000) 6  SCC 394

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if the parties choose to create a lease as per  a  registered  instrument  mentioned therein.  All  other  leases,  if  created, necessarily fall within the ambit of the second  paragraph.  Thus,  dehors  the instrument parties can create a lease as envisaged  in  the  second  paragraph  of Section 107 which reads thus……… When  lease  is  a  transfer  of  a  right  to enjoy the property and such transfer can be made expressly or by  implication, the mere fact that an unregistered instrument came into existence would not stand in the way  of  the  court  to  determine  whether there was in fact a lease otherwise than through such deed. ……………… Taking a different  view  would  be  contrary to  the  reality  when  parties  clearly intended to create a lease though the document which they executed had not gone

into  the  processes  of  registration. That lacuna had affected the validity of the  document,  but  what  had  happened between the parties in  respect  of  the property  became  a  reality.  Non registration of the document  had  caused onlytwo consequences. One  is  that  no lease  exceeding  one  year  was  created. Second  is  that  the  instrument  became useless so far as creation of the lease is concerned.  Nonetheless  the  presumption that a lease not exceeding one year stood  created  by  conduct  of  parties remains un-rebutted.”               (emphasis laid by this Court)

Thus, in the absence of registration of a document, what

is deemed to be created is a month to month tenancy, the

termination of which is governed by Section 106 of the

Act.

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12. Thus, the question of remanding the matter back to

the Trial Court to consider it afresh in view of the fact

that the same has been admitted in evidence, as the High

Court has done in the impugned judgment and order, does

not arise at all. While the agreement dated 07.08.2006

can be admitted in evidence and even relied upon by the

parties to prove the factum of the tenancy, the terms of

the same cannot be used to derogate from the statutory

provision  of  Section  106  of  the  Act,  which  creates  a

fiction of tenancy in absence of a registered instrument

creating the same. If the argument advanced on behalf of

the respondents is taken to its logical conclusion, this

lease can never be terminated, save in cases of breach by

the tenant. Accepting this argument would mean that in a

situation  where  the  tenant  does  not  default  on  rent

payment for three consecutive months, or does not commit

a breach of the terms of the lease, it is not open to the

lessor to terminate the lease even after giving a notice.

This  interpretation  of  the  clause  6  of  the  agreement

cannot be permitted as the same is wholly contrary to the

express provisions of the law. The phrase ‘contract to

the contrary’ in Section 106 of the Act cannot be read to

mean that the parties are free to contract out of the

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express provisions of the law, thereby defeating its very

intent. As is evident from the cases relied upon by the

learned  senior  counsel  appearing  on  behalf  of  the

appellant,  the  relevant  portions  of  which  have  been

extracted supra, the contract between the parties must be

in relation to a valid contract for the statutory right

under Section 106 of the Act available to a lessor to

terminate the tenancy at a notice of 15 days to not be

applicable.

13. In  view  of  the  above  reasoning  and  conclusions

recorded by us, the impugned judgment and order passed by

the  High  Court  is  set  aside.  The  judgment  and  order

passed by the Trial Court is restored. The Appeal is

accordingly allowed. No costs.

     …………………………………………………………J.

                              [V.GOPALA GOWDA]

…………………………………………………………J.                                [ADARSH KUMAR GOEL] New Delhi, August 29, 2016