Karnani Industrial Bank, Limited vs The Province Of Bengal And Others
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeal No. 58 of 1950
Decision Date: 14 May 1951
Coram: Saiyid Fazal Ali, B.K. Mukherjea, N. Chandrasekhara Aiyar
In the matter of Karnani Industrial Bank, Limited versus The Province of Bengal and others, the Supreme Court of India delivered its judgment on 14 May 1951. The opinion was authored by Justice Saiyid Fazal Ali, who was joined by Justices B.K. Mukherjea and N. Chandrasekhara Aiyar. The petition was brought by Karnani Industrial Bank, Limited, and the respondents were the Province of Bengal along with other parties. The case is reported in the 1951 volume of the All India Reporter at page 285 and also in the 1951 Supreme Court Reporter at page 560. The adjudication concerned provisions of the Transfer of Property Act of 1882, specifically sections 106 and 116, and addressed issues relating to a lease for a term, the effect of accepting rent for a period that extends beyond the original lease term, the necessity of a notice to quit, the consequences when a lessee’s property becomes the lessor’s property by failure to remove it within the stipulated time, and whether an injunction to restrain removal could be granted.
The Court’s headnote explained that section 116 of the Transfer of Property Act contemplates that the payment of rent should be made at a time and in a manner that signifies the landlord’s assent to the lessee’s continued possession. If rent is paid at a time when there is no question of the lessor’s assent to the lessee’s continued possession, and neither party treats the payment as implying such assent, the situation does not fall within the scope of section 116. In the facts before the Court, a lease deed had been executed on 17 February 1928 for a parcel of land, granting the lessee a term of ten years beginning on 24 February 1928, with an annual rent of Rs 6,000 payable in advance each year. In April 1937 the lessee sent a cheque for Rs 6,000 covering rent from 1 April 1937 to 31 March 1938, and the lessor accepted the cheque.
The Court held that because the rent was paid before the original lease expired and because neither party regarded the payment as indicating the lessor’s consent to allow the lessee to remain in possession after the lease term, no new tenancy arose under section 116. At most, the lease was deemed to have been extended by implied consent up to 31 March 1938, and even then a notice under section 106 was not required to terminate the lease. The Court distinguished the earlier decision in K.B. Capadia v. Bai Jerbai Warden and Another (1949 F.C.R. 262). The Court further held that where, pursuant to the lease terms, bricks and other materials manufactured by the lessee on the premises were not removed within the period fixed by the lease and therefore became the property of the lessor, the lessor was entitled to seek an injunction restraining the lessee from removing those materials, even though the lessor was not in possession of the premises at that time. The judgment also referenced the case of Rathnasabhapathi Pillai and Others v. Ramaswami Aiyer (I.L.R.
In this case, the Court noted that the authorities cited in earlier decisions, namely Bhramar Lal Banduri & Others v. Nanda-lal Chowdhuri (24 I.C. 199), Valia Thamburatti v. Parvati and Others (I.L.R. 13 Mad. 455), and the cases referenced at 33 Mad. 452, were distinguished. The judgment fell under the civil appellate jurisdiction and concerned Civil Appeal No. 58 of 1950, which challenged the judgment and decree dated 13 February 1948 issued by the High Court of Judicature at Calcutta (Mitter and Sharpe JJ.) in Appeal No. 117 of 1942, itself arising out of a decree dated 24 November 1941 in Suit No. 85 of 1938. Counsel for the appellant comprised N.C. Chatterjee and Harish Chandra, assisted by K.C. Chopra and G.C. Mathut, while counsel for respondent No. 1 was Chandra Sekhar Sen, assisted by C.N. Laik. The judgment was delivered on 4 May 1951 by Justice Fazl Ali. The principal issue for determination was whether the lease in question had lawfully terminated by the mere passage of time or whether the lessee had continued to occupy the premises in a manner described as “holding over” under section 116 of the Transfer of Property Act. The factual backdrop, briefly outlined, stated that the Province of Bengal, hereinafter respondent No. 1 or plaintiff, owned an area of 1,125 bighas and an additional portion of land in the village of Akra. On 17 February 1928, respondent No. 1 executed a lease (exhibit A) covering that land for a term of ten years for the purpose of brick manufacturing in favour of the appellant, at an annual rent of Rs. 6,000 payable in advance, with the lease commencing on 24 February 1928. The lease expressly prohibited the lessee from assigning or sub-letting any part of the premises without the lessor’s consent, except to a limited company, and required the lessee, at the lease’s expiration, to return the demised premises to the lessor in as good a condition as at the lease’s inception, allowing for reasonable wear and tear. Two clauses of particular importance were reproduced verbatim. Clause 11 of Part I of the Schedule provided: “The Secretary of State reserves the right to terminate the lease at any time subject to six months’ notice in the event of the lessee’s failing to observe and duly perform the conditions hereinbefore and after mentioned and it is hereby agreed that the lessee shall before the expiration or prior termination of the lease hereby granted remove his boilers, engines, trucks, kilns, railway and tram lines, bricks, tools and plant and all other materials whatsoever and yield up the said demised premises unto the Secretary of State and that those bricks, tools and plant and other materials that shall not be removed before such expiration or prior termination shall”.
Clause 1 of Part 111 of the Schedule provided that the lessee was permitted to retain on the demised premises any bricks, boilers, engines, trucks, kilns, railway and tram lines and any other materials that he might have manufactured there, for a period of three months after the expiration or earlier termination of the lease, provided that this retention was in accordance with the conditions of the lease. The clause further stipulated that any bricks or other materials left on the premises in violation of this condition would become the absolute property of the Secretary of State without any payment being required.
It was noted that when the lease was executed, the lessee had purchased from the lessor, for a sum of Rs 50,000, all the boilers, engines, trucks, kilns, railway and tramway lines and all other movable property, plant and machinery situated on the demised premises.
The plaintiff, identified as respondent No 1, alleged that the defendant, appellant and respondent No 2, had contravened the lease by sub-letting the brickfield to respondents numbered 2 through 18 without obtaining the consent of the plaintiff. According to the plaintiff, the sub-lessees caused serious damage to the brickfield, failed to keep the embankments and sluices in proper repair, and thereby incurred a total loss estimated at Rs 16,840. The plaintiff further claimed that after the lease had terminated, the defendants refused to surrender possession of the brickfield and did not remove the bricks, pugmills and other materials within the three-month period prescribed by the lease.
On the basis of these allegations, the plaintiff prayed for four orders: (a) a decree of ejectment and possession of the brickfield; (b) damages of Rs 4,000 for the period from the lease termination to the filing of the suit together with mesne profits for the subsequent period; (c) a decree for Rs 16,840 to compensate for the damage caused to the field; and (d) a permanent injunction restraining the defendants from removing or otherwise disposing of the bricks, pugmills and other materials that the plaintiff claimed had become its property.
The defendants contested the suit and advanced several defenses. They asserted that the lessee had held over with the implied consent of respondent No 1, and therefore the lease had not been validly terminated. They further denied that any damage or injury had been caused to the land, contended that the plaintiff was not entitled to forfeit the defendants’ property in the brickfield because the forfeiture clause operated as a penalty and was therefore unenforceable, and maintained that the plaintiff was not entitled to an injunction.
The trial judge, delivering judgment on 24 November 1941, held that there was no evidence of holding over with the plaintiff’s assent. He observed that both parties had been under the mistaken belief that the lease had expired on 23 February 1938. Consequently, the judge concluded that the lease had indeed terminated, rejecting the defendants’ claim of implied consent.
In the trial, the judge determined that the lease on the brickfield had terminated on 23 February 1938 and that the evidence did not establish any damage or injury to the property. Accordingly, the court issued a partial decree, ordering that respondent No 1 be placed in possession of the brickfield and granting a decree for Rs 4,000 as mesne profits payable up to the date of possession. The suit’s claims for damages to the field and for an injunction were both rejected. The trial judge then directed the appellants to remove all of their belongings—kilns, pugmills, bricks, coal and any other brick-making material—from the Akra brickfield within three months, specifying that any items remaining after that period would become the absolute property of the plaintiff. The appellants subsequently filed an appeal before the Calcutta High Court, while respondent No 1 filed a cross-objection seeking to uphold the injunction and to obtain a full decree for damages. By a judgment dated 13 February 1948, the High Court dismissed the appellants’ appeal and, in part, allowed the respondent’s cross-objection. The High Court held that, on the facts, there was no holding over by the appellants and that the lease provision stating that unremoved bricks and related items would vest in respondent No 1 after three months was not a penalty clause but a valid term that should be enforced. The court also concluded that the respondent’s claim for damages relating to alleged injury to the demised premises had not been proved.
The present appeal challenges the decision of the High Court. The facts admitted by the parties are that the appellants paid Rs 6,000 as rent to respondent No 1 in February 1928. In February 1929 they paid a sum of Rs 6,714 and a little more for the period from 17 February 1929 to 31 March 1930, after which they continued to remitte Rs 6,000 annually for each year running from 1 April to 31 March of the following year. The final payment was made in April 1937 by way of a cheque accompanied by a covering letter that read: “We beg to enclose herewith a cheque for Rs 6,000 in payment of rent of Akra brickfield for the year 1937-38 ending 31 March 1938, and shall thank you to please favour us with your formal receipt for the above.” The cheque was duly presented, cleared and the receipt was entered in the plaintiff’s cash book on 5 April 1937 with the notation: “Received without prejudice from Karnani Industrial Bank Ltd. on account of yearly rent for Akra brickfield for the year ending 31 March 1938.”
On the cash book entry dated the day of receipt, it was recorded that the amount was received without prejudice from Karnani Industrial Bank Limited as yearly rent for the Akra brickfield for the year ending 31 March 1938.
On 27 August 1937 the appellants addressed a petition to the Secretary of the Government of Bengal, Public Works Department, seeking a renewal of the lease for an additional ten-year term, but they never obtained a response to that petition.
After forwarding several further letters, the appellants obtained a communication dated 23 February 1938 which included a copy of a letter from the Executive Engineer, Suburban Division, addressed to the Assistant Engineer, No III Sub-division. The letter instructed that arrangements be made with Messrs Karnani Industrial Bank Limited for vacant possession of the Akra brickfield on 24 February, because the lease with the bank would terminate on 23 February according to its terms.
Subsequently, on 17 March 1938 the Executive Engineer, Suburban Division, sent another notice stating that the Government did not intend to lease out the brickfields and that the lands were being prepared to be transferred to the Revenue Department for disposal.
In a later letter dated 14 September 1938 the Executive Engineer informed the appellants that the Government had resolved that they could not continue occupying the premises. The letter added, as a grace measure, that the appellants would be permitted to remain until 30 September to dismantle the kilns, remove bricks, boiler and other equipment, after which the Government would take possession.
The correspondence on record does not contain any indication that the plaintiff ever consented to the appellants’ continued possession after the lease expiry.
Conversely, several letters written by the appellants demonstrate that, despite having paid rent up to 31 March 1938, they consistently proceeded on the assumption that the lease would terminate in February 1938.
For example, the appellants’ letter of 23 August 1937 stated that they were desirous of renewing the lease of the brickfield for a further ten-year period from the date of expiry of the lease dated 17 February 1928.
A further letter dated 23 October 1937 again referred to their application for renewal of the lease for ten years upon its expiry, reinforcing the same belief.
Even a letter dated 3 March 1938, written after the alleged termination date, repeated the earlier position and declared that they had applied for renewal of the lease, thereby confirming that the appellants continued to regard the lease as having expired in February 1938.
The Court observed that the letter dated 23 August 1937, which stated that the lease was applied for renewal six months before its expiration, never implied that the appellants were holding over because the Government had accepted rent up to 31 March 1938. At the conclusion of that letter the appellants prayed that, if the Government chose not to renew the lease, they be allowed time to dismantle and remove the brickfields by the end of December 1938 and that they would pay proportionate rent for seven months in accordance with the lease terms. The reference to a seven-month period indicated that the appellants assumed the lease had terminated in February 1938. Correspondingly, the letters written on behalf of the Government reflected the same assumption that the lease would end on 23 February 1938. For example, a Government letter of 25 February 1938 informed the appellants that none of their agents were present at the Akra brickfield as previously arranged to transfer possession and requested information about the arrangements for surrendering possession, while expressly stating that the lease term expired on the afternoon of 23 February 1938. The Court noted that the appellants never pleaded a case of holding over in any of their letters. Consequently, the Court considered whether the appellants had successfully made out a claim of holding over. The Court affirmed that the appellants had established that rent had been paid on their behalf up to 31 March 1938 and that this payment had been accepted by Respondent No. 1. The payment had been made by cheque, which had been honoured and cashed by the Government. The Court then referred to Section 116 of the Transfer of Property Act, which provides: “If a lessee or under-lessee of property remains in possession thereof after the determination of the lease granted to the lessee, and the lessor or his legal representative accepts rent from the lessee or under-lessee, or otherwise assents to his continuing in possession, the lease is, in the absence of an agreement to the contrary, renewed from year to year, or from month to month, according to the purpose for which the property is leased ….” The Court further cited the Federal Court decision in K.B. Capadia v. Bai Jerbai Warden and Another (1), wherein it was held that acceptance of rent by the landlord after the tenancy had expired by the lapse of time gave rise to renewal under Section 116.
The Court observed that in the earlier decision the landlord had accepted the amount described as “part deposit towards his claim for compensation for illegal use and occupation, and without prejudice to his rights,” and that in that case the rent was accepted after the tenancy had already expired. The present matter, however, could not be governed by that precedent. The critical distinction noted by the Court was that the rent covering the period up to 31 March 1938 was actually paid on 5 April 1937, which was almost a full year before the lease was scheduled to terminate. Section 116 of the Transfer of Property Act, the Court explained, requires two conditions for its operation: first, the lessee must remain in possession after the lease has terminated; second, the lessor or his authorized representative must accept rent or otherwise give assent to the lessee’s continued possession. The use of the word “otherwise” indicates that the landlord’s acceptance of rent is treated as a form of assent to the tenant’s ongoing occupation. The Court stressed that there can be no question of the lessee “continuing in possession” until after the lease has actually expired, and that the provision concerning acceptance of rent is intended to apply only when the rent is paid and accepted in a manner that equates to the landlord’s approval of the tenant’s continued occupancy. Both lower courts, after a comprehensive examination, concluded that under the facts of this case the consent of respondent No 1 to the appellants’ continued possession could not be inferred, and the Court agreed with that finding. The respondent drew attention to an entry in the plaintiff’s books that recorded the payment as “received without prejudice from Karnani Industrial Bank ….” The Court noted that the same wording appeared in several earlier entries and therefore did not assign any special significance to it. Moreover, the Court held that the very fact that the payment was made at a time when there was no question of the lessor assenting to the lessee’s continued possession, and that neither party treated the payment as implying such assent, was sufficient to remove the case from the ambit of section 116. The Court also indicated that an alternative view was conceivable: the rent for the first year had been paid in advance at the time the lease was executed, a matter that did not affect the present issue, whereas the second payment of Rs 6,714 and an odd amount was made under different circumstances, the discussion of which continued beyond the present excerpt.
Payments that were made after the initial rent covered the period up to 31 March 1930. Following that payment, every subsequent rental remittance was made for the period ending on 31 March of each succeeding year. This pattern was evidently due to the parties’ understanding that their financial year began on 1 April and concluded on 31 March of the next year. In view of this understanding, the plaintiff submitted an application on 6 November 1941 requesting permission to amend the plaint so that it would contain the following statement: “The plaintiff submits that even assuming that the registered lease terminated on 23 February 1938 by an agreement between the plaintiff and defendant No. 1, the latter was allowed to hold over up to 31 March 1938.” The court rejected this application because it was filed at a very late stage, namely after the defendants’ evidence had been closed and an adjournment had been granted to the plaintiff to present rebutting evidence. Nevertheless, on the basis of the evidence that had been placed before the court, the most that could be said was that, by the implied consent of the parties, the lease term had been effectively extended until 31 March 1938. Under this view, respondent No. 1 acquired the right to re-enter the premises after 31 March 1938, and no notice under section 106 of the Transfer of Property Act was required. Consequently, the decree for ejectment that had been passed by the lower courts was to be affirmed.
The next issue that arose concerned the correct construction of clause 11 of Part I and clause 1 of Part III of the lease, both of which had already been quoted. The court held that clause 11 should be read in its entirety. When read as a whole, the clause was intended to apply only in circumstances where the Secretary of State chose to exercise the power to terminate the lease, doing so at any time by giving six months’ notice, and only if the lessee failed to observe and duly perform the conditions specified in the lease. In such a scenario, if the lessee did not remove the boilers, engines and all other materials and did not surrender the premises to the Secretary of State, those articles would become the property of the Secretary of State. Because those conditions were not present in the present case, clause 11 was not applicable. Instead, the clause that governed the present dispute was clause 1 of Part III, which dealt with the ordinary situation of a lease ending by the mere passage of time. That clause provided that the lessee was permitted to retain on the demised premises, for a period of one month after the lease expired, any bricks, boilers, and similar items. However, it also stipulated that any bricks and other materials left in violation of this condition would become the absolute property of the Secretary of State without any payment required. There can be no
In this case, the Court found that, pursuant to the lease clause, the bricks and other materials had become the absolute property of the plaintiff. The remaining issue was the interpretation of the term “other materials.” Upon a detailed examination of the lease as a whole, the Court concluded that a clear distinction existed between “materials” and “machinery and tools and similar articles.” Accordingly, the words “other materials” were read as referring only to building supplies such as bricks, tiles and comparable items that might have been manufactured by the appellants on the demised premises, and not to engines, trucks, railway or tramway lines, or other plant. Because of this construction, the Court held that the decree under appeal required modification to reflect that only the building materials identified above would vest in the plaintiff. The Court further noted that the lease provision expressly allowed the lessee to retain such building materials for a period of three months after lease expiry, after which they would become the plaintiff’s property without any payment.
The Court then turned to the plaintiff’s request for a permanent injunction to restrain the defendants from removing or otherwise disposing of the articles covered by the decree. The appellants argued that respondent No. 1, not being in possession of the property, could not seek an injunction without first obtaining a declaration of title and possession. To support this position, the appellants cited the decisions in Ratnasabhapathi Pillai and Others v. Ramaswami Aiyar (I.L.R. 33 Mad. 482), Bhramar Lal Banduri and Others v. Nanda Lal Chowdhuri (I.L.R. 13 Mad. 455), and Valia Tamburatti v. Parvati and others (24 I.C. 199). After carefully considering those precedents, the Court found them wholly inapplicable to the present facts. Since the Court had already determined that the bricks and other building materials had become the plaintiff’s property, there was no legal impediment to granting the injunction as prayed for. Consequently, the appeal was dismissed with costs. The decree was clarified to state that only the building materials such as bricks, tiles and similar articles manufactured on the premises would vest in respondent No. 1, while the boilers, engines, trucks, kilns, railway and tram lines, and similar plant would remain subject to removal by the appellants within three months from the date of the decree. Counsel for the appellant was noted, and counsel for respondent No. 1 was also noted.