The New Bus Stand Shop Owners Assn vs Corporation Of Kozhikode & Anr

Corporation of Kozhikode & another ...Respondent(s)

J U D G M E N T

GANGULY, J.

1. Leave granted.

2. 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.

18225 of 1997, P.A. Kuruvila and others Vs.

State of Kerala decided on 15.12.1999 and also

by another decision of the High Court in

Abdulrahiman Vs. Tirur Municipality - 2001 (2)

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.

3. 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

Corporation").

4. 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.

5. 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.

6. 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."

7. 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%.

In 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.

8. 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.

9. 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.

10. 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.

11. 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.

(2)(a) A 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;

(b) *[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;

(c) In all cases except renewal of licence or rehabilitation of a licensee, licence shall be granted only by public auction or tender.

(3) Every 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.

(4) No 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:

Provided 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 purposes".

12. 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.

The 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.

13. 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:

"The 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.

The 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) & (iii)".

(Emphasis supplied)

14. Clause 10 of the licence condition is also

relevant and is set out below:

"10. (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.

Provided 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.

(ii) In 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".

15. Clause 12 of the said licence condition which

is also relevant is set out below:

"The licensee without written consent of the licensor, shall not transfer his right or give possession of the premises to any other person under any circumstances".

16. Clause 25 of the said licence condition which

is also relevant is set out below:

"The 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".

17. 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).

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) Marayapattom;

(ii) Kanapattom;

(iii) an agreement or other undertaking in writing not being a counterpart of a lease, to cultivate, occupy, or pay or deliver rent for immovable property;

(iv) an agreement or other undertaking in writing, executed by the renters of abkari and opium farms.

(v) any instrument by which tolls of any description are let;

(vi) any writing on an application for a lease intended to signify that the application is granted; and

(vii) a patta;

(Emphasis supplied)

13

18. 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.

19. 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.

20. Reference in this connection may be made to

the decision of the Court of Appeal in

Errington Vs. Errington and Woods - reported

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

century in Thomas Vs. Sorrell - (1673) Vaughan

351. In the said judgment, Chief Justice

Vaughan outlined certain features of lease

which are as follows:

"A 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. Chamberlaine and Lynes v. Snaith), whereas if he had not exclusive possession he was only a licensee."

[(Peakin v. Peakin) 1895 - 2 I.R. 359]

21. 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.

22. The position has been further elucidated by

saying that it has to be ascertained whether

the occupier has exclusive possession or not.

The 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 decisive.

23. 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.

16

24. Relying on Errington (supra), the Court of

Appeal again dealt with this question in Cobb

and Another Vs. Lane - [1952] All E.R. 1199.

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.

The 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:

"...Did 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?..."

(Page 1202 of the report)

25. 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.

17 26. Relying on those two decisions of the Court of

Appeal, this Court in Associated Hotels of

India Ltd. Vs. R.N. Kapoor - 1960 (1) S.C.R.

368, discussed this issue in very lucid terms.

Justice 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:

"The 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...."

(Page 384-385 of the report)

27. 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.

19

28. Subsequently, in the case of Mrs. M.N.

Clubwala and Anr. Vs. Fida Hussain Saheb and

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:

"......We 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. Lane, 1952-1 All E.R. 1199".......

(Page 614 of the report)

29. Also a three-Judge Bench of this Court in

Board of Revenue etc. etc. Vs. A.M. Ansari

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).

30. Reference in this connection can be made also

to a later judgment of the Court of Appeal in

Marchant Vs. Charters - (1977) 3 All E.R. 918,

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:

"......It does not depend on whether he or she has exclusive possession or not. It does 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 worked out. Eventually the answer depends on the nature and quality of the occupancy. Was it 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?"

31. 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 lease.

32. In a rather recent judgment of this Court in

the case of C.M. Beena and another Vs. P.N.

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.

The 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.

33. 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.

34. This appeal is, therefore, allowed. Both the

judgments of the High Court, of the Single

Judge and of the Division Bench are quashed.

There shall be no order as to costs.

.......................J. (MARKANDEY KATJU)

.......................J. New Delhi (ASOK KUMAR GANGULY) September 18, 2009

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