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C.A.@SLP(C) No.23215 of 2007

and carrying on with trade in petro and petroleum  

product with a right to carry on the said trade  

through its local dealers or agents and to use  

the property so demised at all times and for all  

purposes  for an initial period of 20 years from  

1.07.1960 renewable and determinable as provided  

in the lease deed on the monthly rent of Rs.50/-.  

The said lease deed was registered on 06.01.1961.  

The said property was mortgaged to one Ram Gopal,  

S/o Ramdayal on 12.01.1962.   

4. In the year 1977, the Parliament enacted the  

law, namely, the Caltex [Acquisition of Shares of  

Caltex  Oil  Refining  (India)  Ltd.  and  of  the  

undertakings in India of Caltex (India) Limited]  

Act 1977, being Act No. 17 of 1977 (hereinafter  

referred to as ‘the Caltex Act’) as well as of  

M/s Hindustan Petroleum Corporation Ltd. as the  

successor of the original lessee.

5. The  first  respondent  Hindustan  Petroleum  

Corporation Ltd.  is  the  successor  of  original  

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lessee.  On  15.04.1983,  the  appellant  (since  

deceased)  redeemed  the  said  mortgaged  property  

and  the  same  was  accordingly  informed  to  the  

first respondent.

6. On 13.06.1983, the appellant issued a notice  

under Section 106 and 111 (g) of the Transfer of  

Property Act (hereinafter referred to as the T.P.  

Act) to respondent No.1 determining the tenancy  

of suit schedule property and directed the first  

respondent to vacate the same upon the expiry of  

the period of the notice and to hand over vacant  

possession  of  the  same  to  him.   The  first  

respondent  never  sent  any  reply  to  the  said  

notice.  

7. A suit for ejectment of the respondents and  

for the possession of the suit schedule property  

was filed on 27.01.1984 despite service of notice  

of  determination  of  tenancy  which  was  neither  

replied  nor  complied  with  the  demand  for  

delivering the vacant possession of the leased  

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property in favour of the appellant. The original  

suit  was  filed  by  the  appellant  seeking  for  

arrears of rent and decree of eviction against  

the first respondent and to pass an appropriate  

decree against it.

8. During  the  pendency  of  the  suit,  on  

27.06.1984 the first respondent sent a notice to  

the  appellant to  execute the  renewal of  lease  

deed and in the said notice it had made reference  

about their notice dated 1.04.1980, wherein it is  

stated that it has sent a notice to the appellant  

for renewal of lease deed and undisputedly the  

notice  was  not  sent  to  the  mortgagee  as  the  

leased property was mortgaged in his favour and  

the  rent  was  being  paid  to  him  and  he  was  

receiving rent upto April, 1983 in respect of the  

suit schedule property.   

9. The first respondent filed written statement  

denying the allegations made in the plaint and  

further specifically pleaded that the lease deed  

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contemplated a provision for the renewal of the  

lease of the plot for a period of 20 years and a  

plea was taken that the notice for renewal of the  

lease was sent to the appellant. The respondent  

No. 2 filed an application for impleadment in the  

original suit proceeding which was allowed by the  

trial court. He also filed a written statement in  

the original suit.

10. On  09.02.1987,  the  trial  court  framed  the  

issues and case went for trial where the suit for  

arrears of rent of Rs. 450/- was decreed but held  

that the appellant was not entitled to terminate  

the tenancy in view of the Act of 1977 as the  

said Act is a Special Act and prevails over the  

Transfer of Property Act.  

11. On 13.03.1987, aggrieved by the judgment and  

decree  of the  trial court  the appellant  filed  

Civil  Appeal  No.  45  of  1987  before  the  Ist  

Additional  District  Judge  Mainpuri.   The  Ist  

appellate  court  vide  its  judgment  dated  

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10.08.1988, allowed the appeal by setting aside  

the judgment and decree of the trial court after  

holding that the provisions of the Transfer of  

Property Act apply to the property in question  

and  the  tenancy   of  the  first  respondent  has  

rightly been determined by the appellant.  The  

respondents herein being aggrieved by the said  

order of the appellate court filed second appeal  

No.  1812  of  1988  before  the  High  Court  of  

Judicature at Allahabad.   The said second appeal  

was  admitted  on  the  following  substantial  

question of law:

“(1) Whether under clause 3 (d) of the  lease deed executed between Mansa Ram  and M/s Caltex India Ltd., the lessor  was  under  the  legal  obligation  to  renew  the  lease  term  for  further  period of 20 years, if the conditions  of clause 3 (d) were complied with?”

12. The second appeal was allowed by the High  

Court  by  answering  the  aforesaid  substantial  

question  of  law  in  favour  of  the  first  

respondent.

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13. During  pendency  of  the  second  appeal,  the  

appellant  Ram  Bharosey  Lal  Gupta  expired.  An  

application  for  substitution  of  legal  

representatives  of  the  deceased  appellant  was  

filed  by  them  along  with  applications  for  

condonation  of  delay  in  filing  the  said  

substitution  application  and  setting  aside  

abatement.   The  High  Court  after  hearing  the  

parties answered the substantial question of law  

in the second appeal and set aside the judgment  

of the first appellate court and allowed the same  

by its judgment dated 04.07.2007.   

14. The learned senior counsel Mr. Nagendra Rai  

has placed strong reliance upon the decision of  

this  Court  in  the  case  of  Bharat  Petroleum  Corporation Ltd. Vs. Maddula Ratnavalli and Ors.  1    

questioning  the  correctness   of  the  finding  

recorded on the substantial question of law as  

erroneous in law and error in law. Further, he  

has urged that it is the duty cast upon the court  

1 (2007) 6 SCC 81

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to construe the provisions of the Act 17 of 1977,  

strictly  as  the  Act  being  expropriatory  

legislation.  Further,  it  is  contended  that  

whether interpretation of provisions of Section 7  

of  the  Caltex  Act  be  permitted  to  overlook  

fairness, reasonableness and non-arbitrariness in  

action on the part of the first respondent as it  

is  ‘State’  in  terms  of  Article  12  of  the  

Constitution of India.

15. He  further  contended  that  no  notice  was  

issued to the mortgagee to invoke the right by  

the first respondent under Clause 3 (d) of the  

lease deed for renewal of lease of the property.  

It is an undisputed fact that rent was being paid  

by  the first  respondent to  the mortgagee  till  

1.04.1983 and therefore, there is no compliance  

of  the  requirement  under  clause  3  (d)  of  the  

lease deed seeking for renewal of the lease of  

the property for a period of another 20 years as  

per the terms and conditions laid down in the  

said clause. The conduct of the first respondent  

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Corporation  in continuing  with the lease for a  

third term of 20 years commencing from 1.07.2000  

to 30.06.2020 in the absence of any notice for  

renewal  for  the  said  period,  is  illegal,  

arbitrary and unreasonable. The High Court has  

failed to take into consideration the conduct of  

the first respondent in holding over the property  

of  the  appellants  herein  under  the  garb  of  

automatic renewal of lease which action of the  

Corporation reflects undue enrichment for itself  

especially when the property as on date has a  

market value of crores of rupees.  

16. It is further contended by the learned senior  

counsel  that  reasonableness,  fairness  and  non-

arbitrariness in action on the part of the first  

respondent Corporation should be there as it is a  

‘State’ within the meaning of Article 12 of the  

Constitution. The same is not reflected in the  

case in hand as it has claimed renewal of lease  

under the Caltex Act 17 of 1977. The High Court  

has  erred  in  law  while  interpreting  the  

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C.A.@SLP(C) No.23215 of 2007

compliance of the conditions of the clause 3 (d)  

of the lease deed by the first respondent. The  

High Court has erred in not following the law  

laid  down  by  this  Court  in  Bharat  Petroleum  Corporation Ltd. case (supra) where duty has been  cast upon the courts to construe the provisions  

of expropriatory legislation strictly. The High  

Court has also failed to take into consideration  

that the first respondent Corporation again took  

the  shield  of  “special  Act”  and  it  cannot  be  

permitted  to  enjoy  any  lease  property  in  

perpetuity. Further, the interpretation of clause  

3 (d) of the lease deed, particularly the word  

“will” is not synonymous to words “obligatory” or  

“mandatory”.  The High  Court has  also erred  in  

holding  that  there  was  deemed  presumption  of  

renewal on the part of the lessor without giving  

two months’ advance notice before expiry of the  

original  lease  period  as  contemplated  under  

clause 3 (d) of the lease deed and indisputably  

upon the mortgagee who had stepped into the shoes  

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of the mortgagor as he was being paid rent by the  

first respondent during the relevant period of  

time.  Therefore, the interpretation made by the  

High Court in holding that there was a deemed  

presumption of renewal on the part of the lessor  

in relation to the leased property is erroneous  

in law.   Further, the High Court has failed in  

interpreting the provisions of Section 7 of the  

Caltex Act and the first respondent Corporation  

cannot  be  permitted  to  over  look  fairness,  

reasonableness and non-arbitrariness on its part.

17. The  High  Court  has  failed  to  take  into  

consideration the conduct of the first respondent  

in continuing with the lease of the property for  

the  third  term  of  20  years  commencing  from  

1.07.2000  to 30.06.2020  in the  absence of  any  

notice for renewal for the said period to the  

owners of the property. Therefore, the learned  

senior counsel has prayed for setting aside the  

impugned judgment and decree of the High Court.

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18.  On the other hand, Mr. H.P. Raval, learned  

Additional  Solicitor  General  appearing  for  the  

first  respondent  contended  that  the  impugned  

judgment and order passed by the Ist appellate  

court  is perfectly legal and valid as the same  

is in accordance with the provisions of Section 7  

of the Caltex Act and the conduct of the first  

respondent  is  fair  and  reasonable  and  he  has  

offered a sum of Rs. 5000/- per month as the rent  

for the period  having regard to the valuation of  

the property and further he has contended that  

beyond Rs.5000/- the Corporation cannot give rent  

to the appellants herein.  Therefore, they have  

offered Rs.5000/- as rent against the demand of  

more  than  Rs.30,000/-  per  month  made  by  the  

appellant’s  counsel  in  respect  of  the  suit  

schedule property.    

19. With reference to the above said rival legal  

contentions urged on behalf of the parties this  

Court is required to examine as to whether the  

substantial question of law framed by the High  

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Court  and  findings  recorded  in  favour  of  the  

first respondent is vitiated in law and whether  

application of Section 7 of the Caltex Act to the  

leased property in question applies even though  

there  is  no  fairness,  reasonableness  and  non-

arbitrariness on the part of the first respondent  

Corporation, is legal and valid?    

20.  The aforesaid points are answered in favour  

of  the  appellants  by  assigning  the  following  

reasons:-

The  rent  for  the  year  1960  for  the  vacant  

property was Rs.50/-. As per Clause 3 (d) of the  

lease  deed,  the  renewal  of  the  lease  of  the  

property for a period of 20 years is permissible  

if a desire is expressed by the lessee by issuing  

two months’ notice to the lessor prior to expiry  

of the lease period of the property. Further, the  

renewal of lease must be for a further period of  

20  years  at  the  rate  of  10%  increase  in  the  

rental and containing the like covenants.  This  

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Court  has examined  whether the  High Court  was  

justified  in  setting  aside  the  judgment  and  

decree of the first appellate court, by holding  

that there is deemed renewal of the lease of the  

demised property for a period of 20 years from  

1.07.1980 to 1.07.2000, in the absence of renewal  

notice issued to the mortgagee on the date of  

expiry of the original lease period?

21. The lease of the demised premises is of  

the  year  1960  renewable  on  a  monthly  rent  of  

Rs.50/-. The lease deed was executed in favour of  

M/s Caltex India Ltd.  The Caltex Act was enacted  

in  the  year  1977  and  the  first  respondent  

Corporation was the automatic successor of the  

original lessee.

22. It is an undisputed fact that the appellant  

had  executed a  mortgage deed  on 12.01.1962  in  

favour of Ram Gopal S/o Ramdayal, with possession  

and he had been receiving rent from the first  

respondent up to 1.04.1983.  The Caltex Act of 17  

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C.A.@SLP(C) No.23215 of 2007

of 1977 was enacted by the Parliament and the  

first respondent Corporation became successor in  

place  of  the  original  lessee.   It  is  an  

undisputed  fact  that  the  first  respondent  

Corporation sent a notice to the appellant for  

renewal  of  the  lease  in  its  favour.   It  is  

necessary for us to appreciate the correctness of  

the finding recorded by the High Court on the  

substantial question of law regarding the deemed  

renewal  of  the  lease  in  favour  of  the  first  

respondent  for  a  period  of  20  years  from  

1.07.1980  to  1.7.2000.   The  sub-clause  3  (d)  

reads thus:

“That the lessor will on the written  request of the lessee made two calendar  months before the expiry of the terms  hereby created, and if there shall not  at  the  time  of  such  request  by  any  existing  breach  or  non-observance  of  any  of  the  covenants  on  the  part  of  lessee  herein  before  contained,  grant  to it a tenancy of the demised premises  for a further term of twenty years from  the expiration of the said term at the  rent  of  Rs.  50/-  per  month  and  containing  the  like  covenants  and  provisos  as  are  herein  contained  including a clause for renewal for the  

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C.A.@SLP(C) No.23215 of 2007

further  term  of  twenty  years  at  10%  increase in rental and containing the  like  covenants  and  provisos  as  are  herein  contained  so  as  to  give  the  lessee  in  its  option  two  further  renewals each of twenty years.”

23. By careful reading of the said clause of the  

lease deed having regard to the undisputed fact  

that the demised premises was mortgaged in favour  

of the mortgagee with possession as the appellant  

had  executed  mortgage  deed  in  his  favour  on  

12.01.1962, he continued to be a mortgagee till  

the  property  was  redeemed  in  his  favour  on  

15.4.1983.  It is also the case of the first  

respondent that it had sent a notice for renewal  

of the lease deed to the appellant, but not to  

the mortgagee as he had stepped into the shoes of  

the owner of the mortgaged property till the same  

was redeemed to the appellant on 15.04.1983.  In  

view of the above undisputed fact to avail the  

benefit of Clause 3 (d) of the lease deed, the  

first respondent should have sent the notice to  

the mortgagee of the property seeking renewal of  

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lease of the demised property as provided under  

the  above  clause.   Therefore,  the  first  

respondent Corporation has failed to exercise its  

right to get the renewal of lease in respect of  

the demised premises. This aspect of the matter  

has been overlooked by both the trial court as  

well as the High Court though the first appellate  

court considered this aspect of the matter in its  

judgment. Therefore, the determination of tenancy  

of the demised property by the appellant under  

Section 106 of the T.P. Act is perfectly legal  

and valid. Further, it has been held that the  

first  respondent  after  termination  of  tenancy  

continued  in  possession  of  the  property  as  a  

tenant  of  holding-over.  Thus,  in  law,  holding  

over of the suit schedule property by the first  

respondent after the termination of lease is that  

of a trespasser not a tenant and therefore, it  

becomes liable to pay mesne profits by way of  

damages to the appellants.

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24.   The above important aspect of the matter  

has  not  been  properly  considered  by  the  High  

Court while answering the substantial question of  

law.  The High Court has committed serious error  

both on facts and in law in holding that there is  

deemed renewal of the demised premises in favour  

of the first respondent and it has not properly  

interpreted Section 7 of the Caltex Act regarding  

the  fairness,  reasonableness  and  non  

arbitrariness on the part of the first respondent  

Corporation though it has not complied with the  

requirements as provided under Clause 3 (d) of  

the  lease  deed.   Therefore,  framing  of  

substantial question of law itself in the second  

appeal by the High Court is bad in law as the  

same does not arise at all. Having regard to the  

undisputed facts of the case in hand, the second  

appellate  court  has  not  rightly  interpreted  

clause 3 (d) of the lease deed and the same is  

contrary to the facts and therefore, the finding  

recorded on the substantial question of law and  

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holding that there is a deemed renewal of the  

demised property for a period of 20 years in view  

of  the  notice  dated  1.4.1980  sent  to  the  

appellant but not to the mortgagee is not only  

erroneous but also error in law, therefore, the  

said finding is liable to be set aside. In the  

case  of  Bharat  Petroleum  Corporation  Ltd.  Vs.  Maddula Ratnavalli and Ors. (supra) this Court  has interpreted the provisions of Section 5(2)  

and  7  (3)  of   Burmah  Shell  (Acquisition  and  

Undertakings in India) Act, 1976 and Section 7  

(3) of the Caltex Act 1977, with reference to the  

provisions of T.P. Act.  Indisputably, 1976 Act  

is a special statute. No doubt, it over rides the  

provisions  of  Section  107  of  the  T.P.  Act.  

Undisputedly, the first respondent Corporation is  

a ‘State’ as it is a successor of Caltex India  

Ltd. in terms of the definition of Article 12 of  

the Constitution of India.  In the above referred  

case, vide para 13, this Court has laid down the  

legal principles after referring to its earlier  

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decision  in  the  case  of  Bharat  Petroleum  Corporation  Ltd.  Vs.  P.Kesavan  and  Anr.2  The  legal principle evolved therein shows that the  

finding  recorded  by  the  High  Court  in  the  

impugned judgment on the substantial question of  

law is contrary to the decision of this Court as  

well as terms and conditions of clause 3(d) of  

the lease deed. The said paragraph is extracted  

hereunder:-  

  “13. The  appellant  company  is  a  “State”  within  the  meaning  of  Article  12  of  the  Constitution  of  India.  It  is,  therefore,  enjoined  with  a  duty  to  act  fairly  and  reasonably.  Just  because  it  has  been  conferred with a statutory power, the same  by  itself  would  not  mean  that  exercise  thereof in any manner whatsoever will meet  the requirements of law. The statute uses  the  words  “if  so  desired  by  the  Central  Government”. Such a desire cannot be based  upon a subjective satisfaction. It must be  based on objective criteria. Indisputably,  the  1976  Act  is  a  special  statute.  It  overrides the provisions of Section 107 of  the Transfer of Property Act. The action of  the State, however, must be judged on the  touchstone  of  reasonableness.  Learned  counselfor  both  the  parties  have  relied  upon a three-Judge Bench decision of this  Court in Bharat Petroleum Corpn. Ltd. v. P.  

2 (2004) 9 SCC 772

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Kesavan wherein this Court in para 11 has  held as hereunder:  

 11. The said Act is a special statute  vis-à-vis the Transfer of Property Act  which is a general statute. By reason  of the provisions of the said Act, the  right,  title  and  interest  of  Burmah  Shell vested in the Central Government  and  consequently  in  the  appellant  Company. A lease of immovable property  is also an asset and/or right in an  immovable  property.  The  leasehold  right,  thus,  held  by  Burmah  Shell  vested in the appellant. By reason of  sub-section (2) of Section 5 of the  Act, a right of renewal was created in  the appellant in terms whereof in the  event of exercise of its option, the  existing  lease  was  renewed  for  a  further  term  on  the  same  terms  and  conditions.  As  noticed  hereinbefore,  Section 11 of the Act provides for a  non obstante clause.”

25.  In view of the undisputed facts referred to  

supra and the clause 3 (d) of the lease deed  

regarding the renewal of lease for a period of 20  

years  after  expiry  of  the  initial  period  of  

renewal  it  has  come  to  an  end  on  1.7.2000.  

Therefore, the first appellate court was right in  

holding  that  the  possession  of  the  demised  

property by the first respondent Corporation is  

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holding over month to month and therefore it is a  

trespasser  of  the  said  schedule  property  and  

therefore invoking Section 106 of the T.P. Act by  

the appellant and determining the tenancy by him  

and filing the suit for arrears of rent and also  

decree of ejectment of the first respondent from  

the  demised  premises  is  legally  justified.  

Further,  with  reference  to  Section  7  of  the  

Caltex Act the action of the first respondent is  

unfair as there is no fairness, reasonableness  

and non- arbitrariness on its part to avail the  

right under the above provision for continuing as  

a  tenant  in  respect  of  the  demised  property.  

Hence, we are required to set aside the impugned  

judgment  of  the  second  appellate  court  and  

restore  the  judgment  and  decree  of  the  first  

appellate court. The first respondent Corporation  

is not even willing to give fair and reasonable  

rent as it has offered only Rs.5000/- per month  

whereas the rental market value of the property  

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according to the appellants counsel is  more than  

Rs.30,000/- per month.   

26. Therefore,  we  are  of  the  view  that  the  

aforesaid decision of this Court on all fours be  

applicable to the fact situation in favour of the  

appellants.  Accordingly, for the reasons stated  

supra  we  set  aside  the  impugned  judgment  and  

order dated 04.07.2007 of the second appellate  

court passed in Second Appeal No.1812 of 1988 and  

restore the judgment and decree dated 10.08.1988  

of the first Additional District Judge in Civil  

Appeal No. 45 of 1987. The appeal is allowed with  

no order as to costs.

…………………………………………………………J.     [CHANDRAMAULI KR. PRASAD]

…………………………………………………………J.     [V. GOPALA GOWDA]

New Delhi, April 17, 2013.

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