Mrs. M. N. Clubwala And Anr vs Fida Hussain Saheb And Ors

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 151 of 1963

Decision Date: 3 February 1964

Coram: J.R. Mudholkar, K. Subbarao

In this matter the Supreme Court heard an appeal filed by Mrs M N Clubwala and another respondent against Fida Hussain Saheb and several other respondents. The judgment was delivered on 3 February 1964 by Justice J R Mudholkar, who sat with Justice Subbarao K. The case is reported in 1965 AIR 610 and 1964 SCR (6) 642, and it has been subsequently cited in R 1968 SC 919, R 1974 SC 396, RF 1976 SC 1860 and F 1988 SC 1845. The dispute concerned the legal character of the relationship between the appellants, who owned a private market building, and the respondents, who were stall‑holders in that market. The respondents claimed that they occupied the stalls under leases and therefore were entitled to the protection of landlord‑tenant law, while the appellants asserted that the stall‑holders were merely licensees. The respondents had executed agreements in which the consideration was described as rent, and these documents were signed solely by the stall‑holders. The market premises, although owned by the appellants, could not be used for the sale of meat or comestibles without permission from the municipal council, which imposed a number of duties on the owners, including the power to close the market. The market operated only within the hours prescribed by the council. The lower Court, a City Civil Court, concluded that the respondents were bare licensees and dismissed the suit. This decision was affirmed on appeal. The High Court, however, reversed the earlier findings, holding that the general tenor of the written instruments created a tenancy rather than a mere licence, because provisions relating to payment of rent, eviction for default of more than three days, an obligation on the landlord to carry out annual repairs, a requirement that repairs caused by the respondents’ carelessness be borne by them, and a clause requiring thirty days’ notice before the landlord could require the respondents to vacate, were inconsistent with a simple licence and indicated a lease relationship.

The Supreme Court, on special leave, examined the nature of the agreement and the intention of the parties. It held that although a licence is inherently revocable at the will of the grantor, a clause requiring the licensee to receive notice before being asked to vacate does not make the agreement inconsistent with a licence, and such a notice requirement alone does not demonstrate that the arrangement is a lease. The Court emphasized that the decisive factor is the parties’ intention, which must be determined by looking at all relevant provisions in the agreement. In the absence of a formal document, the intention must be inferred from the surrounding circumstances and the conduct of the parties. The Court also observed that exclusive possession, by itself, is not conclusive proof of a lease; however, when exclusive possession is coupled with an interest in the property, the agreement would be construed as a lease rather than a mere licence. The decision therefore clarified that the presence of a notice‑to‑vacate provision does not, by itself, transform a licence into a lease, and that the overall intention and the totality of the contractual terms must be considered to ascertain the true character of the relationship.

The Court explained that the essential factor in determining whether an arrangement creates a relationship of licensor and licensee or of landlord and tenant is the intention of the parties. That intention must be discovered by examining all of the relevant terms contained in the written agreement. When no formal written document exists, the Court must infer the parties’ intention from the surrounding circumstances and from the conduct of the parties. The Court further observed that the mere fact that a person enjoys exclusive possession of premises does not, by itself, prove that the person is a lessee. However, when exclusive possession is granted under an agreement and is accompanied by an interest in the property, the arrangement will be treated as a lease rather than a simple licence. The Court cited several authorities that have addressed this issue, including Associated Hotels of India Ltd. v. R. N. Kapur, Errington v. Errington and Woods, Cobb v. Lane, Clove v. Theatrical Proprietors Ltd. and Westby & Co. Ltd., Smith & Son v. The Assessment Committee for the Parish of Lambeth, and Vutrum Subba Rao v. The Eluru Municipal Council. Applying these principles to the present case, the Court held that, given the duties imposed on the landlord and the facts of this case, the parties intended only to create a licence and not a lease, and that the term “rent” employed in the agreement was used in a loose sense to mean “fee.”

The judgment arose in Civil Appeal No. 151 of 1963, which was filed by special leave against a decree dated 17 February 1959 of the Madras High Court in Second Appeal No. 252 of 1957. The appeal was heard on 3 February 1964, and the judgment was delivered by Justice Mudholkar. The appellant‑respondents were the owners of a private market in Madras known as Zam Bazar Market, which contained roughly five hundred stalls where meat, fish, vegetables and other goods were sold. The owners normally farmed out the right to collect dues from stall users to contractors. At the time the suit was instituted, the contractors who collected the rents were the respondents numbered one to three. Two of those contractors died, and their legal representatives were not joined as parties to the appeal because they had no interest in the dispute. The third contractor remained a party and was listed as respondent No. 7 in the appeal. The lower courts had ruled that the plaintiffs‑respondents were lessees of the appellants, who were defendants four and five in the trial court, but the appellate Court examined whether the relationship was in fact that of lessee‑lessor or of licensee‑licensor. After reviewing the facts and applying the legal test for intention, the Court concluded that the arrangement was a licence and not a lease, and accordingly set aside the earlier judgments that had granted relief on the basis of a tenancy.

The appeal noted that at the time the special leave petition was filed the three individuals were recorded as appellants 1 to 3; however, after the deaths of two of those persons, the court removed their names from the record, and the surviving individual was redesignated as Respondent No 7. The Court then explained that, although the appellants own the building in which the market operates, the premises cannot be used for selling meat or any other consumable food items without first obtaining permission from the municipal council pursuant to section 303 of the Madras City Municipal Act, 1919 (hereinafter referred to as the Act). In order to secure such permission, the owner must apply for a licence from the Municipal Commissioner and must covenant to observe all conditions stipulated in that licence. The licence is granted for a period of one year and may be renewed upon its expiry, provided the holder continues to satisfy the statutory requirements. Section 306 of the Act empowers the Commissioner to direct the owner, occupier or farmer of a private market that deals in animal products or food articles to undertake various duties, such as maintaining the market in a clean and proper condition and removing all filth and rubbish from the premises. If the licence holder breaches any condition of the licence or fails to comply with any order issued by the Commissioner, section 307 provides that the licence may be suspended, rendering it unlawful for the person to continue operating the market. Further, section 308 authorises the Commissioner to formulate regulations governing markets for diverse purposes, including fixing the days and hours during which a market may be held, designating separate areas within the market building for different classes of articles, ensuring that each market building is kept clean by removing filth and rubbish, providing adequate ventilation, and maintaining passages of sufficient width between stalls for convenient use. The Court was informed that the Commissioner had indeed exercised the powers under section 308 to promulgate such regulations. Consequently, the Act together with the regulations imposes a series of obligations on owners of private markets, and non‑compliance with any statutory or regulatory requirement can result in suspension or even cancellation of the licence. The Court emphasized that these statutory duties are relevant to interpreting the documents relied upon by the plaintiffs, who contend that their relationship with the appellants is that of tenant and landlord rather than that of a licencee. The suit from which this appeal originates was originally instituted because disputes arose between the plaintiffs and defendants 1 to 3, who had been appointed as contractors for the collection of market dues.

The dispute originated from claims that the contractors, who had been collecting rent since 9 February 1956, were demanding additional charges for carcass disposal and for a Sunday activity known as Gutha. The respondents contended that their connection with the appellants was that of tenants and landlords, whereas the appellants maintained that the respondents were merely holders of licences. The respondents also contested the extra levies that had been imposed by the contractors identified as defendants 1 to 3, who were no longer parties to the proceedings. Consequently, the respondents sought an injunction that would prevent both the appellants and the former contractors from enforcing the extra levies and from interfering with the respondents’ possession of their stalls, provided that the respondents continued to pay the stipulated dues.

The First Additional City Civil Court judge ruled in favour of the respondents on the ground that the additional fees demanded by the contractors were not authorized by any provision of the Municipal Act nor by established usage. However, because the judge considered the respondents to be bare licencees, the suit was dismissed. The appellate bench of the City Civil Court affirmed this decision. The High Court later reversed the findings of the lower courts and, in its decree, granted several reliefs to the respondents. The present appeal concerns only those reliefs identified as clauses (ii)(e), (f) and (g), since the appellants were not interested in the remaining reliefs. Clause (e) restrained any interference with the respondents’ possession and enjoyment of their stalls at Zam Bazar Market in Rovapettah, Madras, as long as the respondents paid the rents fixed for each stall. Clause (f) prohibited any increase in the rents fixed under the written agreements between the respondents and defendants 4 and 5. Clause (g) barred the eviction of the respondents or any disturbance of them and their goods by defendants 1 to 3. The Court noted that the controversy centred solely on the relationship between the meat‑selling stall‑holders, who were the respondents, and the appellants as landlords, and that the relationship between the appellants and other stall‑holders dealing in different commodities was irrelevant to the determination of this specific dispute.

The Court noted that the licence issued by the Municipal Corporation required the market to be open from four a.m. until eleven p.m., and that at the close of each day every stall‑holder had to leave the premises, after which the market was to be swept, disinfected and the gates locked. No stall‑holder or any of his servants was allowed to remain in the market after the prescribed closing time. Historically the market had opened at five a.m. and closed at ten p.m., by which hour all stall‑holders had to vacate. The stalls were open and were separated only by a low brick wall, so a stall‑holder could not lock his individual stall before departing at the end of the day. The stall‑holders were obliged to remove the animal carcasses they brought for sale before the market closed. Because meat decayed quickly, the stall‑holders usually completed their vending activities in the afternoon and removed the carcasses at that time. Nevertheless they left behind wooden blocks for chopping meat, weighing scales, meat choppers and other implements necessary for their business. These items were kept either in boxes or in almirahs placed inside the stall and were locked inside those containers. It was an admitted fact that some stall‑holders had been conducting business uninterruptedly in the same stalls for as long as forty years, while others had occupied stalls for no more than five years. Evidence showed that whenever a new contractor was engaged by the appellants for the collection of rents, the stall‑holders executed fresh agreements governing the use and occupation of the stalls and the payment of what the agreements described as rent, not as a fee. The dues under these agreements accrued on a daily basis; for example, Exhibit A‑1 stipulated that a rent of one rupee was payable each day by one p.m. Each agreement contained a clause that if a stall‑holder failed to pay rent for three consecutive days, the landlord could evict him after giving a twenty‑four‑hour notice. Another clause allowed the landlord to require a stall‑holder to vacate the stall after providing a thirty‑day notice. The agreements also dealt with repairs. The landlord bore the responsibility for annual repairs, which were normally carried out in the month of June each year, whereas any repairs necessitated by the carelessness of a stall‑holder were to be borne by that stall‑holder. Finally, the contracts were obtained by the contractors from the stall‑holders in favour of the landlord and bore only the signatures of the stall‑holders.

The Court noted that where a stall‑holder was responsible for repairs caused by his own negligence, the cost of those repairs had to be borne by that stall‑holder. It was further observed that the agreements in dispute were prepared by the contractors on behalf of the landlord, and that they carried only the signatures of the stall‑holders; the landlords or contractors did not sign them. Counsel for one side, Mr. R. Gopalakrishnan, argued that the true nature of the relationship between the appellants and the respondents could be determined solely by examining the written agreements, and that the Court should not consider any extraneous material such as the surrounding circumstances. Respondents, on the other hand, asserted that the lease they possessed was of a permanent character. The Court explained that if the lease were indeed permanent, the lack of a registered instrument would defeat that claim, and the respondents would be barred from proving the existence of such a lease by way of oral evidence. The Court further pointed out that each time the contractor changed, a new agreement was executed by the stall‑holders, which indicated that whatever right the agreement conferred could not be interpreted as granting permanent occupation of the stalls. Consequently, the Court held that the right could either be a licence, as the appellant suggested, or a month‑to‑month tenancy. In either of those situations, there would be no requirement for a written document signed by both parties; yet the agreements under consideration were in writing, although they bore only the stall‑holder’s signature. Accordingly, the Court applied section 92 of the Evidence Act and held that oral evidence to explain the terms of the agreements was inadmissible. To that extent, the Court agreed with Mr. Gopalakrishnan’s submission. However, the Court also observed that under the sixth proviso to that section, the surrounding circumstances may be taken into account in construing the meaning of the word “rent” used in the agreements. The Court emphasized that the fact that rent was payable daily and that a stall‑holder who failed to pay rent for three days could be evicted after a mere twenty‑four‑hour notice made it difficult to treat the payment as rent falling due under a lease. The Court suggested that the “rent” might in reality be a fee payable under a licence. This circumstance, the Court said, created an ambiguity in the document, and therefore the surrounding circumstances could legitimately be examined to determine the actual relationship between the parties. The Court observed that the City Civil Court had examined those surrounding circumstances and, based largely on its view of them, had decided in favour of the appellants. By contrast, the High Court had relied solely on the written agreements. The Court agreed with the High Court’s initial observation, which it considered correct, that the use of the word “rent” in Exhibit A‑1 did not advance the respondents’ case. The Court then proceeded to consider the reasons advanced by the High Court for concluding that the transaction constituted a lease.

In the High Court’s analysis, five principal provisions were extracted from the agreements. First, the documents required that the stall‑holder be served with a notice before any demand could be made for him to vacate the premises, even where the alleged ground for eviction was failure to pay rent. Second, the agreements stipulated that the landlord alone was responsible for carrying out the annual repairs, and that such repairs were to be performed exclusively in the month of June each year. Third, the stall‑holder was made liable to bear the cost of any repairs that resulted from his own carelessness, and he was required to bear those expenses himself. Fourth, the contracts provided that if the landlord desired to reclaim the stalls for his own purposes, he could not take immediate possession; instead, he was obliged to give the stall‑holder at least thirty days’ notice before possession could be taken. Fifth, the court observed that the respondents had remained in continuous and uninterrupted possession of the stalls in accordance with the terms of the original agreement, and that there was no evidence that the original agreement had been replaced by any subsequent agreements executed by the respondents. Having set out these five points, the High Court concluded that, when the overall tenor of the documents was considered, it was clear that the relationship between the appellants and the respondents created a tenancy rather than a mere licence or a permissive occupation.

The Court further explained that if the occupation were merely permissive, certain clauses would appear inconsistent or irrelevant. Specifically, the conditions relating to payment of rent, the provision that eviction could occur only after a default of more than three days in rent payment, the clause placing the duty of annual repairs on the landlord, the requirement that any repairs caused by the respondent’s carelessness be borne by the respondent, and the explicit thirty‑day notice period for vacating the stalls at the landlord’s request, would all be unnecessary in a licence arrangement. The Court therefore observed that no evidence existed to show that any of the plaintiffs had ever been removed from possession of their stalls either at the will of the landlords or for breach of any contractual term. The presence of a specific provision mandating a thirty‑day notice before vacating and delivering possession was deemed conclusive that the plaintiffs were intended to occupy the stalls as permanent tenants rather than as licencees. Moreover, the agreements disclosed that the plaintiffs were to enjoy exclusive possession of the stalls for the purpose of conducting their trade, provided they complied with the contractual terms, and that their occupation would continue until a proper notice of termination of the tenancy was served. The language of the agreements, the intention expressed therein, and the degree of control imposed by the contractual terms all pointed to the conclusion that the plaintiffs were entitled to undisturbed and exclusive possession of the stalls for as long as they paid the rent, and that such possession would cease only upon a valid termination of their tenancy. While acknowledging that the essence of a licence is its revocability, the Court noted that this characteristic did not alter the conclusion that the arrangement in question was a tenancy.

In this matter, the Court observed that a licence may remain a licence even though it contains a provision requiring the licensee to receive notice before being asked to vacate. English authority has held that a contractual licence can be either revocable or irrevocable depending on the express or implied terms agreed by the parties. Moreover, English law provides that where a revocable licence permits the licensee to bring property onto the land, the licensee is entitled to receive notice of revocation and a reasonable period to remove the property and to arrange alternative premises for the business, as explained in Halsbury’s Laws of England, third edition, volume 23, page 431. Consequently, the mere requirement to give notice to a licensee does not, by itself, transform the arrangement into a lease. The Court further noted that section 62(c) of the Indian Easements Act 1882 expressly states that a licence is deemed revoked when it is granted for a limited time or is conditional upon the occurrence or non‑occurrence of a specified act, and either the period expires or the condition is fulfilled. In the agreements under scrutiny, the notice requirement functions as such a condition; when the condition is satisfied, the licence is regarded as revoked under section 62. The Court indicated that this particular notice clause appears to have strongly influenced the High Court’s conclusion that the arrangement was a lease rather than a licence.

The Court then turned to the question of whether the parties intended to create a landlord‑tenant relationship or merely a licensor‑licensee relationship. It held that the decisive factor is the intention of the parties, which must be ascertained by examining all relevant provisions of the agreement. In the absence of a formal, signed document, the intention must be inferred from the surrounding circumstances and the parties’ conduct, as noted in the Indian Law Reports, page 427. Because the documents relied upon were unilateral agreements executed only by the stall‑holders in favour of the landlords, they could not be regarded as formal contracts between the two sides. Accordingly, the Court examined the surrounding facts, including whether actual possession of the stalls remained with the landlords or had passed to the stall‑holders. While exclusive possession by a person is an important consideration, it is not conclusive proof of a tenancy, a principle affirmed in Errington v Errington and Woods and in Cobb v Lane. The Court therefore emphasized that exclusive possession alone does not determine the existence of a lease, and the overall relationship must be assessed in light of the totality of the agreement and the conduct of the parties.

The Court referred to the principles set out in two earlier decisions, namely Close v. Theatrical Properties Ltd. and Westby & Co. Ltd., and also in Smith & Son v. The Assessment Committee for the Parish of Lambeth. Counsel for the appellants also relied on the decision of the High Court reported at [1957] 1 K.B. 290, [1952] 1 All. E.R. 1190, [1936] 3 All. E.R. 483, and (1882‑83) 10 Q.B.D. 327 at 330. In addition, the Court cited the case of Vurum Subba Rao v. The Eluru Municipal Council, reported at I.L.R. [1956] A.P. 515 at pp. 520‑4, which laid down the same proposition. In that case the High Court held that stall‑holders in a municipal market who were required to pay rent to the municipality were not lessees but merely licensees. Consequently, the fact that a stall‑holder possesses exclusive possession of a stall does not, by itself, prove the existence of a lease. The Court further noted that where exclusive possession granted under an agreement with a landlord is coupled with an interest in the property, the agreement must be construed as a lease rather than a mere licence, as explained in Associated Hotels of India Ltd. v. R. N. Kapoor, reported at [1960] 1 S.C.R. 368. Applying these principles to the present case, the Court observed that although each stall‑holder was entitled to the exclusive use of his stall during the day, he did not have the right to use the stall whenever he chose, to sleep in it after the market closed, or to enter it after 11.00 p.m. at his pleasure. The stall‑holder could use the premises only within the prescribed daily hours and subject to several conditions. Moreover, the duties of cleaning, disinfecting, and closing the market were imposed on the landlords by the governing Act, the regulations made thereunder, and the licence issued to the landlords. These duties indicated that legal possession of the stalls remained with the landlords, not the stall‑holders. The stall‑holders’ right was limited to exclusive use during the specified hours and did not extend beyond that. The Court reasoned that it could not have been the parties’ intention to grant anything more than a licence, because the landlords were burdened with onerous obligations, including free access to the stalls, ensuring that the market operated only within the stipulated hours, restricting the premises to vending comestibles, and guarding the market entrance. Such duties could not be effectively performed if the landlords had relinquished possession to the stall‑holders.

In the present case the Court observed that if the landlord were to relinquish physical possession of the market stalls to the stall‑holders, the landlord’s ability to discharge the duties and obligations imposed on it by the governing Act would be severely compromised. The Court explained that such duties could become impossible to perform whenever the stall‑holders adopted an unreasonable attitude, because the landlord would no longer have control over the premises. Moreover, the Court noted that a failure on the part of the landlord to perform those statutory duties would expose the landlord to penalties provided in the Act and would also place the landlord in jeopardy of having its licence under the Act revoked. In view of these considerations the Court asked whether, under such circumstances, the landlord could ever have intended to part with possession in favour of the stall‑holders and thereby render itself dependent on the conduct of those persons. After analysing the contractual language and the surrounding circumstances, the Court held that the parties had intended only to create a licence rather than a lease, and that the term ‘rent’ appearing in the agreement was used in a loose sense to mean a fee. On the basis of this conclusion the Court allowed the appeal, set aside the decree of the High Court, and dismissed the suit filed by the respondents to the extent that it sought the reliefs identified as (ii)(e), (f) and (g) that had been granted by the High Court against the appellants. The Court further stated that all other reliefs granted by the High Court would remain in force. Finally, the Court directed that the costs of the proceedings be borne by the parties in proportion to the costs they had incurred, and it recorded that the appeal was partly allowed.