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Commercial Auto Sales (P) Ltd v/s Auto Sales (Properties), Allahabad

    Civil Revision No. 275 of 2003

    Decided On, 15 December 2010

    At, High Court of Judicature at Allahabad

    By, THE HONOURABLE MR. JUSTICE SANJAY MISRA

    For the Appearing Parties: Shashi Nandan, Naveen Sinha, Pankaj Naqvi, Pallavi Gupta, Manoj Mishra, Siddhartha, Advocates.



Judgment Text

Sanjay Misra, J.

A memorandum of understanding understood by the parties thereto differently has given rise to these proceedings that have travelled from the court of Judge Small Causes to the High Court then to the Supreme Court and now pending here. The plaintiff-opposite party claims that a relationship of landlord and tenant or lessor and lessee came into existence whereas the defendant-revisionist denies any such relationship. That they are related to each other and belong to the same family is however accepted by all of them. The intention of the parties at the time of recording the memorandum is differently put forth hence the exercise undertaken to come to an understanding has come on the verge of being a futile exercise.

The Judge Small Causes, Allahabad in SCC No. 13 of 1997 found the relationship of landlord and tenant to be established between the parties and he decreed the suit for eviction and arrears of rent on 05.02.2003. He held that the provisions of UP Act no. 13 of 1972 (U.P. Urban Buildings [Regulation of Letting Rent and Eviction] Act 1972) were not applicable to the building. In Civil Revision No. 275 of 2003 filed under Section 25 of the Provincial Small Cause Courts Act the High Court affirmed the order vide the judgement dated 10.12.2007. The defendant-revisionist filed Civil Appeal Nos. 6142-6143 of 2009 (Arising out of SLP (C) no. 1591-1592/2008) before the Supreme Court wherefrom the matter has been sent back for fresh decision upon setting aside the judgement dated 10.12.2007.

Paragraph 12 and 13 of the judgement dated 09.09.2009 of the Supreme Court in the Civil Appeal is quoted here under:-

(12) The true nature of relationship between the parties concerning the occupation of subject premises by the appellant was required to be ascertained from the family arrangement which the High Court failed to do and thereby committed grave error in not considering the matter in right perspective. As a matter of fact, a material clause like clause 8 of the family settlement has been overlooked altogether affecting decision in the matter.

(13) We do not intend to deal with the matter elaborately as, in our considered judgement, the matter needs to be reconsidered by the High Court, interalia, on the aspects as to whether under the family settlement dated August 23, 1993, a relationship of lessor or lessee ( or for that matter landlord and tenant) came into existence between the parties and, if answer to the said question is in the affirmative, whether such lease is determinable.

Sri Manoj Misra learned counsel for the defendant-revisionist argues that there was no lease in existence hence the suit for eviction and arrears of rent were not maintainable before the Judge Small Causes, Allahabad. He states that exclusive possession is not a conclusive test to determine whether a person is a lease. The intention of the parties herein, according to him, was never to create a lease. It was a permissive possession for monthly rent. The defendant-revisionist was already occupying the premises from before and he was not put in possession or given possession as a lessee by the plaintiff-opposite party so as to create a lease. He places reliance on the decisions of the Supreme Court in the cases of Vayallakath Muhammedkutty Vs Illikkal Moosakutty reported in (1996) 9 SCC 382 and Puran Singh Sahni Vs Sundari Bhagwandas Kripalani and others reported in (1991) 2 SCC 180. His submission is based on paragraph 20 of Puran Singh Saini's case (supra). It is quoted here under:-

(20) It has been submitted for the appellant that the very fact of exclusive possession of the flat being given to the appellant was sufficient to make him lessee and Advani his landlord. We do not agree with the submission in an unqualified form. There have been cases where exclusive possession has been given outside the Rent Act. In Isaac v. Hotel De Paris, Ltd., [1960] (1) All E.R. 348, the respondent company owning the hotel de Paris where the lessees of another building called the P.Hotel, it was held that the respondent company were entitled to an order for possession because the relationships between the parties was not that of landlord and tenant but of licensor and licensee, even though there was exclusive possession by the appellant and the acceptance of the amount of the rent by the respondent company, the circumstances and the conduct of the parties showing that all that was intended was that the appellant should have a personal privilege of running a night bar at the P.Hotel with no interest in the land at all, and this privilege came to an end with the notice of May, 1956 and that after the notice the appellant remained in occupation at sufferance, and, in the circumstances,the acceptance of rent by the respondent company did not waive their right to immediate possession. It was observed that there were many cases in the books where exclusive possession had been given of premises outside the Rent Restriction Acts and yet there had been held to be no tenancy. Lord Denning quoted from Booker v.Palmer, [1942] 2 All E.R. 674 (677):

"There is one golden rule which is of very general application, namely, that the law does not impute intention to enter into legal relationship where the circumstances and the conduct of the parties negative any intention of the kind.'

The following passaged was also cited with approval:

"It is clear from the authorities that the intention of the parties is the paramount consideration and while the fact of exclusive possession together with the payment of rent is of the first importance, the circumstances in which exclusive possession has been given and the character in which money paid as rent has been received are also matters to be considered."

On the other hand Sri Navin Sinha learned Senior Counsel has argued that the possession of the defendant-revisionist under the memorandum dated 23.8.1993 was in the capacity of a lessee as he enjoyed exclusive possession and was also paying rent for use and occupation of the premises. He states that the nature of possession prior to the memorandum dated 23.8.1993 was that of a co-owner which became that of a lessee upon payment of rent with delivery of constructive possession as contemplated in the second para of Section 107 of the Transfer of Property Act. He has argued that since the memorandum dated 23.8.1993 is unregistered hence a protected lease for an uncertain term cannot be deemed to have come into existence and the occupation of lessee of an unprotected lease can be determined under Section 106 of the Transfer of Property Act. He has placed reliance on a decision of the Supreme Court in the case of Biswabani Pvt. Ltd Vs Santosh Kumar Dutta reported in AIR 1980 SC 226.

The memorandum of understanding dated 23.8.1993 is the document that was interpreted by the parties in their own ways as per the averments made by them in the plaint as also in the written statement. Therefore, the true nature of relationship between the parties has to be determined from its contents.

The memorandum dated 23.8.1993 was entered into between B.M. Gupta his wife Madhu Gupta and his son Sanskar Gupta of the first part and Anil Gupta his wife Manju Gupta of the second part. B.M. Gupta and Anil Gupta are both sons of Late Devi Chand Gupta.

As per the normal rule a deed contains recitals immediately after the description of the parties and their addresses. The recitals narrate the past history of the property and set out the facts necessary to show the title or interest and relation of the parties. Recitals could play an important role when the operative part of the deed is ambiguous since they may control it as good evidence of the facts recited. It is when the operative part of a deed is clear and unambiguous that the recitals cannot control it.

Here in the present case the parties disagree about the operative part of the memorandum in view of the differing stands taken by the parties. Therefore, the recitals in the deed have to be seen as an aid to find out whether the operative part of the deed is truly ambiguous as alleged by one party or clear and unambiguous as alleged by the other party. Recitals can also disclose and explain the motive for the execution of the deed.

The first recital in the memorandum dated 23.8.1993 is introductory in nature and speaks about the diversified business activities carried on in a partnership under the name and style of Autosales. The partners were six sons of Late Devi Chand Gupta and one more descendant. The place of business was at 18, P.D. Tandon Road, Allahabad and branch office was at G.T. Road, Allaipur, Varanasi.

The second recital informs of a family arrangement whereby the partnership firm Autosales was dissolved with effect from 31.10.1978 and the business activities along with assets and liabilities got split among different members/descendants of Late Devi Chand Gupta.

The third recital sets out the facts regarding the family arrangement dated 31.10.1978 to the effect that B.M. Gupta and Anil Gupta were jointly allotted the dealership of TELCO Ltd. which was earlier being run and had been promoted by them jointly in the name of Commercial Auto Sales (P) Ltd. Both of them alongwith Pankaj Gupta (their brother) were allotted a part of the property belonging to Autosales situate at 18, P.D. Tandon Road, Allahabad.

The forth and fifth recital informs that after the family arrangement dated 31.10.1978 another arrangement was made wherein this part of the property at 18, P.D. Tandon Road, Allahabad came to be owned and vested in B.M. Gupta and Anil Gupta in equal proportion. The two brothers including their respective family members jointly started running and managing the business, properties moveable and immoveable as had fallen to their share under the subsequent arrangement.

The sixth and seventh recital of the memorandum details the motive for recording the understanding that was disputes and dissensions between the brothers and their families and their collective intention was to

''have their joint interests in various business activities, property moveable and immoveable etc. severed and identified and put under the control and ownership of the parties concerned broadly in the manner laid down herein below'

The property at 18, P.D. Tandon Road, Allahabad was also mentioned when it was recorded that it has become impossible to carry on the management of properties in a joint set up.

These recitals further intended that the dealership business and other activities being run and managed in the name and style of Commercial Autosales (P) Ltd shall be run and managed exclusively by B.M. Gupta, his wife Madhu Gupta and his son Sanskar Gupta . The business activities in the name of Commercial Autosales (workshop) shall be run and managed exclusively by Anil Gupta and his wife Manju Gupta. Their intention was further recited that the management and ownership of the property situate at 18, P.D. Tandon Road, Allahabad shall vest exclusively in Anil Gupta and his wife Manju Gupata and they shall be entitled to exercise all the rights of lawful owners thereof. There was a further clarification of the intention relating to the partnership firm Auto Sales (Properties) including the right in the property situate at 18, P.D. Tandon Road, Allahabad. The recital records the intention of the parties that Auto Sales (Properties) and rights in 18, P.D. Tandon Road, Allahabad shall vest in Anil Gupta and his wife Manju Gupta.

Having recorded the motives and intentions the memorandum of understanding provided for the implementation of the understanding. That is the operative part. It was that:-

Anil Gupta was to withdraw from Commercial Auto Sale (P) Ltd and in lieu thereof he would be paid the value of his shares at a price to be mutually agreed etc. B.M. Gupta, his wife Madhu Gupta and his son Sanskar Gupta were to withdraw from the partnership firms Commercial Auto Sales (Workshop) and Auto Sales (Properties) and their right, title and interest therein was to cease including in their assets, rights and hereditaments. The mangement and ownership of 18, P.D. Tandon Road, Allahabad was to vest exclusively in Anil Gupta and his wife Manju Gupta free from all charges and encumbrances. B.M. Gupta and his family or any person claiming under them were expressly excluded and would not have any right, title or interest in 18, P.D. Tandon Road, Allahabad. Commercial Auto Sales (P) Ltd of B.M. Gupta was given an option to carry on business activities from the show room in their possession on agreeing to pay monthly rent of Rs. Ten Thousand with a provision for increase at the rate of 10% after expiry of three years and so on however the parties could enter into a formal agreement if they so desired.

From a close perusal of the memorandum dated 23.08.1993 there can be no doubt about the motive for recording the understanding. It is disputes and dissensions between the two brothers and their families.

They recorded their intention in a very clear and unambiguous manner. They intended to have their joint interests in business and property (subject-matter of the memorandum) severed and identified. They further intended that the business and property should be put under the control and ownership of the respective parties.

They have used words to convey their intentions and have used operative words to implement their understanding. Intention of the parties has to be gathered from the expressions used in the deed. Words used have to be given their literal meaning. The plain meaning of the words used has to be seen and understood with the exception that only when the plain and ordinary meaning of the word leads to some absurdity or inconsistency with other expressions in the deed then the plain or ordinary meaning of the word can be modified. But such modification can be made in interpretation only to avoid the absurdity or inconsistency and for no other purpose.

The recital part of the memorandum dated 23.08.1993 has used words to show the motive and intention of the parties. They are as detailed herein below:-

(1) ''disputes and dissensions' have arisen

(2) It has become ''impossible' to carry on management of the properties including property at 18, P.D. Tandon Road, Allahabad.

(3) to have joint interests ''severed and identified'

(4) put under ''control and ownership'

(5) run and managed ''exclusively'

(6) ''vest exclusively'

(7) exercise all ''rights' of ''lawful owners'

In the operative part of the memorandum dated 23.8.1993 similar operative words have been used to implement the understanding. They are as quoted here under:-

(a) ''withdraw' from Directorship

(b) ''transfer' his entire holding

(c) ''pay'------value of shares

(d) ''discharge' all credit balances

(e) ''cease to have right, title or interest'

(f) ''management and ownership'

(g) ''free from all charges or encumbrances'

(h) other person ''claiming' for or under trust

Clause (5) of the memorandum dated 23.08.1993 (which appears to have created the dispute) has used words such as ''option to carry on business', ''on agreeing to pay monthly rent', ''increase at the rate of 10% ''after expiry of every period of 3 years' ''formal agreement if so desired'

Clause (8) of the memorandum dated 23.08.1993 makes the understanding on its implementation irrevocable and binding.

The memorandum dated 23.08.1993 has been implemented and it is not the case of the parties that it is not irrevocable and binding. It is also not the case of the parties that they are re-opening the understanding.

It will be seen from the recital part as also from the operative part (implementation clauses) that the parties were quite clear in their intentions to severe their joint interests in business and property moveable and immoveable.

The immoveable property that is subject matter of these proceedings is 18, P.D. Tandon Road, Allahabad. This property was intended to be vested in Anil Gupta and his wife Manju Gupta. Clause (c) of the recital is quoted here under:-

(c) ''the management and ownership of the property situated at 18, P.D. Tandon Road, Allahabad shall vest exclusively in the parties of the second part and they shall be entitled to exercise all the rights of lawful owners there of and ''

This intention of the parties was re-iterated in clause (d) of the recitals. Clause (d) of the recitals made in the memorandum of understanding dated 23.08.1993 is reproduced here under:-

(d) ''in consequence of the understanding mentioned at serial no. (c) above the business of the partnership firm M/s Auto Sales (Properties) together with all its properties (Including the right in the property situated at 18 P.D. Tondon Road, Allahabad shall vest in the PARTIES OF THE SECOND PART.

Having so intended clearly and unambiguously the operative part of the Memorandum implemented the understanding. Item number (4) under the testatum component of the memorandum dated 23.08.1993 reads as follows:-

4." It is specifically agreed that the management and ownership of the property situated at 18 P.D. Tondon Road, Allahabad as was earlier jointly owned by Sri Brij Mohan Gupta and Anil Gupta shall exclusively vest in the parties of the SECOND PART free from all charges and encumbrances and PARTIES of the FIRST PART OR any other person (s) claiming for or under trust shall not have any kind of right title or interest in the same."

From the above quoted and referred clauses there can be no doubt that the memorandum dated 23.08.1993 was clear and unambiguous in its intent and implementation.

It is thus quite clear that Commercial Auto Sales (p) Ltd. which is the business of the parties of the First Part had no propriety right, title or interest in the premises No. 18, P.D. Tondon Road, Allahabad upon implementation of the memorandum of understanding dated 23.08.1993. They were in occupation from before and their show room was occupying the premises. Under the understanding what so ever propriety interest they had in the property was extinguished. But it was agreed that they shall have the option to carry on their business there in on payment of rent which was to be enhanced every three years. That the parties did not enter into a formal agreement later on relating to occupation and rent would not in any manner give any better status to them since Commercial Auto Sales (P) Ltd. exercised its option to carry on business from the property in question and also paid the rent hence onwards till default was committed.

The true nature of relationship between the parties concerning the occupation of the premises in question was created after the right, title and interest of Commercial Auto Sales (P) Ltd and the parties of the first part were extinguished from the property 18, P.D. Tandon Road, Allahabad. They were earlier in possession jointly with their co-owner but after the memorandum of understanding dated 23.08.1993 they continued in occupation not as owners but only by the understanding recorded in clause (5) of the operative part of the memorandum dated 23.08.1993. Clause (5) is quoted here under:-

(5)'M/S Commercial Autosales (P) Limited which will be taken over by Sri Brij Mohan Gupta shall have an option to carry on its business activities from the show room which is presently in its possession as per the site plan enclose herewith, on his agreeing to pay a monthly rent of Rs. 10,000/- with a provision for increase at the rate of 10% after the expiry of every period of 3 years and for the purpose of calculating increase of 10% the rent paid for the immediately preceding block of 3 years will be relevant. For this purpose a forma agreement, is so desired by the parties here into shall be drawn up and executed.'

The stipulation in this clause is for grant of an ''option'. At this stage an option has been given. No relationship as lessee or licencee was created. The option was exercised by Commercial Auto Sales (P) Ltd. It was not unconditional. It was an option to pay monthly rent of Rs. Ten Thousand then stay in possession of the show room constructed by them existing in the premises which was already in their possession from before the memorandum dated 23.08.1993.

In these circumstances delivery of constructive possession of the show room as contemplated in Section 107 of the Transfer of Property Act was effectuated. They were already in possession of the premises in another capacity hence it would be an empty formality to ask them to vacate the premises and once again take possession of their own show room in the premises in pursuance of Clause (5) of the memorandum dated 23.08.1993. Definitely they acquired a new status. The option was to carry on business in the existing show room belonging to them but situate in the premises now not owned by them.

Clause (5) also provided for enhancement of rent by 10% every three years. Therefore as long as the defendant-revisionist paid the enhanced rent by ten percent after expiring of a bloc of three years he could continue in lawful possession of his own show room in the premises and there was no fixed time period for him to vacate the premises. It was a condition where the plaintiff opposite party had no say provided the rent as enhanced periodically was duly paid. The defendant-revisionist could continue in possession of his own show room upon not committing any default. Such a relationship was thus established.

Section 107 of the Transfer of Property Act provides for making of a lease of immoveable property. A lease of one year or more, on payment of rent, can only be made by a registered instrument. A lease can also be made by oral agreement by delivery of possession. When such a lease is not made by registered instrument then a presumption under Section 106 of the Transfer of Property Act, about its duration would apply. Section 106 of the Transfer of Property Act contemplates duration of leases in the absence of any written contract. Apart from agricultural or manufacturing purpose all other leases of immoveable property shall be deemed to be a lease from month to month which will be terminable by fifteen days notice of either side.

In the present case the memorandum relates to immoveable property. It was not a registered document. It did not provide for any period for remaining in possession.

If default was committed it would be in violation of condition no. (5) of the memorandum of understanding and the defaulter would be not entitled to continue to carry on his business on the premises on the strength of the understanding. He himself exercised the option granted to him under the understanding and he cannot resile from it on the one hand and still claim more rights on the other hand. If such submission is accepted it would amount to permitting the defendant to blow hot and cold in the same breath. That cannot be permitted.

The possession of Commercial Auto Sales (P) Ltd prior to the memorandum dated 23.08.1993 was as a co-owner hence all the propriety rights were lawfully vested. Subsequent to the memorandum dated 23.08.1993 the rights of possession to carry on business continued under Clause (5). It was a bilateral contractual relationship that came into being between two distinct personalties.

An interest of right to the property to carry on business was created as against a permission to stay on as a licensee till the permission was revoked. There was no curtailment of the rights enjoyed in the property prior to the memorandum. The right to enjoy the property wherein the show room of the defendant revisionist was situate was given. The rights enjoyed earlier as a co-owner although stood extinguished but the rights to enjoy the property occupied by the show room were transferred by permitting constructive possession and were never taken away. It was a transfer of right to enjoy the property in favour of Commercial Auto Sales (P) Ltd. It could extinguish when Commercial Auto Sales (P) Ltd ceased to exist or otherwise in accordance with law. The right would have all the trappings of a hereditary right in the hands of successive owners/partners of Commercial Auto Sales (P) Ltd which is a firm and a juristic entity.

Therefore when exclusive possession itself is not a decisive factor the question whether a relationship is in the nature of a lease or a licence is determined on the operative intention of the parties. In the present case the recital as also the operative part of the memorandum dated 23.08.1993 and the conduct of the parties indicates of an intention to transfer the rights to enjoy the property on payment of monthly rent.

In short the relationship of the parties relating to the occupation of the premises number 18, P.D. Tandon Road, Allahabad was that of a lessor and lessee. In case there is violation of the terms of payment of monthly rent the lessor could determine the lease by notice.

The Judge Small Cause Court has upheld the relationship between the parties as that of a lessor and lessee. Surely he had jurisdiction to try the suit.

The question that would arise after a finding has been recorded that the relationship between the parties was of a lessor and lessee where no time has been fixed then whether it would be a lease in perpetuity. A lease in perpetuity can be created by an express grant or a presumed grant. In case a contract of lease provides that the tenant is to continue in possession so long as he pays the rent it would be a tenancy for the life time of the tenant. It would not be a permanent tenancy. If it were a lease in perpetuity it cannot cease merely because there is a forfeiture clause. The forfeiture clause in a perpetual lease can be considered to be merely for a security for payment of rent. But if it is not a perpetual lease then the rent clause would attract all consequences of a tenancy. If it is a tenancy it would be governed by the laws applicable.

In the present case the lease on the strength of which Commercial Auto Sales (P) Ltd was occupying the show room built by them in the premises in question was given with a condition for payment of rent. There was no forfeiture clause contemplated in the memorandum which otherwise provided in Clause (8) of the operative part that the memorandum on its implementation shall be irrevocable and binding. It would not be competent for the parties or any other person claiming under trust to re-open the understanding. Clause (8) is quoted here under:-

(8)' The understanding arrive at amongst the PARTIES of the FIRST PART and SECOND PART on its implementation shall be irrevocable and binding on them and none of them and/or any other persons claiming for on under trust shall be entitled to re-open the same.'

This clause upon being given a plain and ordinary meaning brings within its ambit the parties as also any other person claiming for or under trust. It is therefore obvious that Commercial Auto Sales (P) Ltd being a firm could under law effect changes in its constitution due to retirement or appointment of new partners or there could be a change of proprietor. The clause made the memorandum of understanding binding on all such persons therefore to read the words ''irrevocable and binding' as contemplating the creation of a lease in perpetuity would be inconsistent with the intention of the parties. The rent clause no. (5) Cannot be read as a forfeiture clause for the purpose of security of rent and such interpretation cannot give the correct meaning to the understanding.

Clause (8) only makes the understanding irrevocable and binding on the parties as also persons claiming under them. Clause (5) was a condition to carry on the business and it cannot be interpreted in any other manner. Hence there was no permanent tenancy created and it was a lease which gave rights for enjoyment of the property for the life time of the lessee firm but did not create a permanent tenancy. Clause (5) related to payment of rent alone and the parti

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es would be governed by the law as applicable to them and as enforceable on the premises in question. The lease would therefore be determinable. From a perusal of the judgment impugned in this Civil Revision it appears that the consideration was on the question whether the (U.P. Urban Buildings [Regulation of Letting Rent and Eviction] Act 1972) was applicable to the building or not. The Trial Court found that the suit itself was filed on the basis of a relationship of landlord and tenant between the parties. In the written statement it was pleaded that there is a permanent tenancy created. The relevant paragraphs of the written statement are reproduced here under:- It is hereby also asserted that in view of the family settlement dated 18.12.1993 this rent was fixed by way of compensation for the use of premises by the defendant but it was designated as a rent. The alleged notice does not terminate the alleged tenancy of the defendant. Moreover the tenancy of the defendant cannot be terminated and it will be treated as permanent tenancy." (16)"That in view of these facts and circumstances the premises in suit was not let out but was given in lieu of a family settlement. Any way even if it is being treated to be a letting it is a letting of permanent nature till Sri B.M. Gupta is carrying on the business of M/s Auto Sales (P) Ltd." From the above pleading of the defendant-revisionist it is his own case that if it is treated as a letting then it is a letting of permanent nature till B.M. Gupta is carrying on business. As has already been held here-in-above it was not a permanent tenancy. It was a lease/transfer of right to enjoy the property by Commercial Auto Sales (P) Ltd. till it existed. The Trial Court recorded that the provisions of (U.P. Urban Buildings [Regulation of Letting Rent and Eviction] Act 1972) do not apply to the building and hence the suit before the Judge Small Cause Court was maintainable. In case the relationship of the parties was on the basis of licence no suit under the Provincial Small Cause Court Act would have been maintainable. It not being established that the defendant was a licensee a deemed month to month tenancy was created. On the question of arrears of rent and mense profit the Trial Court found the defendant revisionist to be in arrears and in default and has decreed the suit for arrears of rent and mense profits and possession. In this Revision under Section 25 of the Provincial Small Cause Court Act the jurisdiction of the revisional court is limited and is not as if the impugned judgment is being considered under an appellate jurisdiction. Whether the judgment is according to law has to be seen. There is nothing on record to indicate that the findings recorded by the Judge Small Cause Court on arrears of rent and default is in any manner illegal. That being so the suit was rightly decreed and no interference in the impugned judgment is required in these proceedings under Section 25 of the Provincial Small Cause Court Act. This Revision has no force and for the reasons given herein above it is hereby dismissed. Parties to bear their own cost.
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