1. The legal heirs of the original plaintiff, who died during the pendency of the suit came up with this Second Appeal challenging the reversal of the decree passed by the Munsiff's Court, Manjeri, dated 22.09.2006, in O.S.No.166/2003, by the Appellate Court (Subordinate Judge's Court, Manjeri) in A.S.No.51/2006 dated 19.02.2009.
2. The original suit was filed for recovery of possession of the plaint schedule shop room. The suit was decreed by the Trial Court granting a decree of recovery of possession of the plaint schedule building. It was reversed in appeal by the First Appellate Court and the suit was dismissed. Aggrieved by the said decree and judgment of the First Appellate Court, the plaintiffs came up with this appeal.
3. The dispute centered around Exhibit A1 document entered into by the parties, which, according to the plaintiffs, is only a licence deed, but, according to the defendants is a lease arrangement. Various clauses enumerated in Exhibit A1 were brought to the notice of this Court in support of the argument that it is a licence. Per contra, the defendants, based on the same clauses, claimed that it is a lease arrangement and the relationship is that of a lessor and lessee. Admittedly, the place wherein the plaint schedule building is situated is within the area wherein the Kerala Buildings (Lease and Rent Control) Act, is made applicable. Exhibit A1 contract was entered into by the parties with a nomenclature that it is a 'Rent Licence Deed'. The material question to be looked into is what actually intended by the parties while entering into such a document and whether they have intended to effect transfer of any interest in favour of the licensee and if there is transfer of interest it would fall under the category of lease. If there is no transfer of interest, it would be a mere license. It is also now settled that the nomenclature is not decisive. Parting with exclusive possession is also not decisive. It is the duty of the Court to find out the real relationship between the parties based on the clauses enumerated/incorporated in the document with the attending circumstances. Clause I of Exhibit A1 deed permits the defendants to hold the petition schedule shop room for conducting bakery. There is nothing in Exhibit A1 document to show that the possession of the shop room was retained by the owner and only a permission to occupy the shop room was given to the defendants. Clause I in Exhibit A1, on the other hand, shows that there is transfer of exclusive possession of the shop room to the defendants for the purpose of carrying out their business of bakery. Transfer of exclusive possession of the premises under the alleged arrangement alone is not decisive to find out creation of lease, but it would be a strong positive factor constituting creation of lease arrangement and when there is other factors supporting the existence of a lease arrangement, it can be safely acted upon. At this juncture, it has to be borne in mind that the difference lies on the question of creation of interest over the property and when it was established that grantee were given a right to hold the property or possession thereof as against the granter it would be a lease arrangement. A mere permission given to hold the property or to possess the property without having a right of possession as a matter of right would constitute only a licence. The material question to be looked into is the intention of the parties and whether exclusive possession was parted with at the time of creation of the relationship as a matter of right and if the answer is affirmative, it would be a lease. Clause V is so relevant as it gives a benefit to both the parties to have a notice of termination in three months advance. It is agreed that if any of the parties wants to terminate the arrangement/relationship, the party who wants to terminate the arrangement should give the other party an advance notice of three months. This would be a strong indication of the intention of parties to have a right of possession to the grantee unless the said condition was satisfied by giving notice of termination of arrangement three months in advance. In other words, a right to hold the property exclusively by the grantee against the will of granter for a period of three months agreed upon by the parties to the arrangement by the said clause. This would indicate the exclusive control and possession of the property by the grantee during the subsistence of the arrangement which would bring the matter within the purview of a lease rather than a licence.
4. Clause III is an extension clause and if the parties want to continue the relationship after the agreed period, it can be done by mutual consent. Clause IV prohibits sub lease of the property by the defendants. There is also an agreement to pay off the electricity charges by the defendants. Going by various clauses in the agreement it can be seen that mutual terms and conditions were agreed upon by the parties.
5. The characters which are well evident from Exhibit A1 are: (i) the plaintiffs have parted with exclusive possession of the shop room with the defendants, (ii) there is an agreement for payment of monthly premium, (iii) a right of three months' termination notice in advance agreed upon by the parties, (iv) there is a provision for extension of the relationship on expiry of the period agreed, (v) there is a provision not to sub-lease the building to any other person, (vi) the various clauses in the document satisfies an interdependent reciprocal relationship between the parties in its terms and conditions, an identifying character of lease rather than licence.
6. In Swarn Singh v. Madan Singh [1995 Supp (1) SCC 306] it was held by the Apex Court that the mere inclusion of a clause that the licensee will not sub let the subject matter to any other person is nothing more than an affirmation of the requirement that the licensee must use the property. The learned counsel for the appellants also relied on the decision drawn by a Division Bench of this Court in Ayurvedic Oushada Nirmana Vyavasaya Co. Op. Ltd. v. Abraham [1987 (1) KLT 853] wherein it was held that what is decisive is the intention of parties and exclusive possession alone is not sufficient. It should satisfy the creation of relationship by transfer of interest. Another decision rendered by the Apex Court in Suhas Yeshwant Chopde v. Sachhidanand D. Purekar [1999 KHC 1241] was also placed to show that the mere incorporation of the word 'rent' will not make the document or bring the document within the purview of lease arrangement.
7. The learned counsel for the appellants relied on the decision rendered by the Apex Court in Delta International Ltd. v. Shyam Sundar Ganeriwalla and Another [(1999) 4 SCC 545] wherein the Apex Court had an occasion to consider the tests to be applied in the determination of a document whether it is a licence or lease. Paragraphs 9, 15 and 16 of the said judgment are extracted below for reference:
'9. From the aforesaid submissions it is apparent that the common contention of the learned counsel for both the parties is that the Court has to gather and find out the true 'intention of the parties' as to whether the document creates a lease or a licence; the dominant irrespective of the labels that the parties may put upon it. It is to be stated that even though it is the common contention of the learned counsel for the parties that the dominant intention of the parties is to be gathered from the document, yet all throughout the question had remained a vexed one, having no easy solution and precise mathematical tests. Because ultimately 'intention of the parties' is to be inferred. For this purpose, we would first refer to the tests laid down by this Court in the case of Associated Hotels of India Ltd. v. R.N. Kapoor which are relied upon in subsequent decisions. In a minority judgment rendered by Subba Rao, J. the Court held that there is a clear distinction between a lease and a licence; the dividing line is clear, though sometimes it becomes very thin or even blurred and observed that for such a determination, the following propositions may 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 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.' …..............
15. Dealing with the contention that the intention of the parties is to be determined upon a proper construction of the deed entered into between the parties, and that alone is a decisive matter, the Court dealt with the said contention in para 32 and observed as under :(SCC p.34)
'Indeed learned counsel placed strong reliance on the following observations by this Court in M.N.Clubwala v. Fidda Hussain Saheb.
'Whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee the decisive consideration is the intention of the parties. This intention has to be ascertained on a consideration of all the relevant provisions in the agreement.'
The proposition of Dr Chitale as to the conclusiveness of what emanates from the construction of the documents has, in this case, its own limitations. The import, significance and conclusiveness of such documents making, or evidencing, the grants fall to be examined in two distinct contexts. The dispute may arise between the very parties to the written instrument, where on the construction of the deed one party contends that the transaction is a 'licence' and the other that it is a 'lease'. The intention to be gathered from the document read as a whole has, quite obviously, a direct bearing. But in cases where, as here, the landlord alleges that the tenant has sub-let the premises and where the tenant, in support of his own defence sets up the plea of a mere licensee and relies upon a deed entered into, inter se, between himself and the alleged licensee, the landlord who is not a party to the deed is not bound by what emanates from the construction of the deed. At best, it is a piece of evidence, the weight to be accorded to which will necessarily depend upon all the other circumstances of the case. The tenant and the subtenant, who jointly set up a plea of licence against the landlord may choose to camouflage the truth and substance of the transaction behind a facade of a selfserving and conveniently drafted instrument.'
16. Learned counsel for the respondent had also relied upon the decision of this Court in the case of Sohan Lal Naraindas v. Laxmidas Raghunath Gadit wherein the Court has observed as under:(SCC pp. 279-80, paras 6 & 9)
'6. An attempt was deliberately made to camouflage the true nature of the agreement, by reciting in several clauses that the agreement was for lease and licence and it emphasized the pretence, it was also recited that the defendant was not to have any right as tenant or sub-tenant in respect of the loft.
9. Intention of the parties to an instrument must be gathered from the terms of the agreement examined in the light of the surrounding circumstances. The description given by the parties may be evidence of the intention but is not decisive. Mere use of the words appropriate to the creation of a lease will not preclude the agreement operating as a licence. A recital that the agreement does not create a tenancy is also not decisive. The crucial test in each case is whether the instrument is intended to create or not to create an interest in the property the subject matter of the agreement. It it is in fact intended to create an interest in the property it is a lease, if it does not, it is a licence. In determining whether the agreement creates a lease or a licence the test of exclusive possession, though not decisive, is of significance.'
From the above said discussion what emerges is:
(1) To find out whether the document creates a lease or a licence the real test is to find out 'the intention of the parties', keeping in mind that in cases where exclusive possession is given, the line between a lease and a licence is very thin.
(2) The intention of the parties is to be gathered from the document itself. Mainly, the intention is to be gathered from the meaning and the words used in the document except where it is alleged and proved that the document is a camouflage. If the terms of the document evidencing the agreement between the parties are not clear, the surrounding circumstance and the conduct of the parties have also to be borne in mind for ascertaining the real relationship between the parties.
(3) In the absence of a written document and when somebody is in exclusive possession with no special evidence how he got in, the intention is to be gathered from the other evidence which may be available on record, and in such cases exclusive possession of the property would be the most relevant circumstance to arrive at the conclusion that the intention of the parties was to create a lease.
(4) If the dispute arises between the very parties to the written instrument, the intention is to be gathered from the document read as a whole. But in cases where the landlord alleges that the tenant has sub-let the premises and where the tenant in support of his own defence sets up the plea of a mere licensee and relies upon a deed entered into, inter se, between himself and the alleged licensee, the landlord who is not a party to the deed is not bound by what emanates from the construction of the deed; the tenant and the sub-tenant may jointly set up the plea of a licence against the landlord which is a camouflage; in such cases, the mask is to be removed or the veil is to be lifted and the true intention behind a facade of a self-serving conveniently drafted instrument is to be gathered from all the relevant circumstances. Same would be the position where the owner of the premises and the person in need of the premises executes a deed labelling it as a licence deed to avoid the operation of rent legislation.
(5) Prima facie, in the absence of a sufficient title or interest to carve out or to create a similar tenancy by the sitting tenant in favour of a third person, the person in possession to whom the possession is handed over cannot claim that the subtenancy was created in his favour; because a person having no right cannot confer any title of tenancy or sub-tenancy. A tenant protected under statutory provisions with regard to occupation of the premises having no right to sub-let or transfer the premises, cannot confer any better title. But, this question is not required to be finally determined in this matter.
(6) Further lease or licence is a mater of contract between the parties. Section 107 of the Transfer of Property Act, 1882 inter alia provides that leases of immovable property may be made either by a registered instrument or by an oral agreement accompanied by delivery of possession; if it is a registered instrument, it shall be executed by both the lessee and the lessor. This contract between the parties is to be interpreted or construed on the welllaid principles for construction of contractual terms, viz., for the purpose of construction of contracts, the intention of the parties is the meaning of the words they have used and there can be no intention independent of that meaning; when the terms of the contract are vague or having double intendment, one which is lawful should be preferred; and the construction may be put on the instrument perfectly consistent with his doing only what he had a right to do.'
8. On the other hand, the learned counsel for the defendants relied on the decision rendered by the Apex Court in Beena v. Ramachandra Rao [2004 (2) KLT 336 (SC)]. Paragraphs 4, 8, 9 and 10 of the said judgment are extracted below for reference:
'4. A brief resume of the relevant out of the nine clauses of terms and conditions agreed upon between the parties and as contained in the deed would suffice. Vide clause (1), the licence fee is appointed at Rs.500/- per mensem. The licensee is authorized 'to use the room as licensee for a period of one year from 1.4.1981'. Clause (2) enjoins the licensee not to make any structural alterations in the room. Clause (3) permits the licensee and his servants to use the bathroom and toilet facility in the building and also the telephone facilities subject to payment of the telephone charges. If the licensee requires any decorative electrification it may be provided by the licensor at the cost of the licensee. Clause (4) obligates the licensee to pay the current charges of electricity consumed. Vide Clause (5), the licensee must, at the end of one year, hand over possession to the licensor by removing all his goods and other immovable from the premises unless by mutual agreement a fresh contract is entered into between the parties. Clause (6) entails automatic termination of licence on non payment of licence fee. Clauses (7) and (8) were much relied on by the learned counsel for the licensor-respondent and hence are reproduced verbatim as under:
'7. It is also understood and agreed that if the Licensor desires to have the premises used as a car park or used for any purpose of his Hotel & Lodging Business it is open to the Licensor to terminate this Licence at any time after giving one month's Notice.
8. It is definitely understood that the Licence creates no estate or interest in the Licencee over the premises and the Licencee shall have only a permission to use the premises for his business'.
8. The crucial issue for determination is as to whether there is a lease or licence existing between the parties. Though a deed of licence may have been executed it is open for the parties to the document to show that the relationship which was agreed upon by the parties and was really intended to be brought into existence was that of a landlord and tenant though it was outwardly styled as a deed of licence to act as a camouflage on the Rent Control Legislation. 'Lease' is defined in S.105 of the Transfer of Property Act 1882 while 'licence' is defined in S.52 of the Indian Easements Act 1882. Generally speaking the difference between a 'lease' and 'licence' is to be determined by finding out the real intention of the parties as decipherable from a complete reading of the document, if any, executed between the parties and the surrounding circumstances. Only a right to use the property in a particular way or under certain terms given to the occupant while the owner retains the control or possession over the premises results in a licence being created; for the owner retains legal possession while all that the licensee gets is a permission to use the premises for a particular purpose or in a particular manner and but for the permission so given the occupation would have been unlawful (See Associated Hotels of India Ltd. v. R.N.Kapoor, AIR 1959 SC 1262). The decided cases on the point are legion. For our purpose it would suffice to refer to a recent decision of this Court in Corporation of Calicut. v. K.Sreenivasan, 2002 (2) KLT 291 (SC) - (2002) 5 SCC 361.
9. A few principles are well settled. User of the terms like 'lease' or 'licence', 'lessor' or 'licensor', 'rent' or 'licence fee' are not by themselves decisive of the nature of the right created by the document. An effort should be made to find out whether the deed confers a right to possess exclusively coupled with transfer of a right to enjoy the property. What has been parted with is merely a right to use the property while the possession is retained by the owner. The conduct of the parties before and after the creation of relationship is of relevance for finding out their intention.
10. Given the facts and circumstances of a case, particularly when there is a written document executed between the parties, question arises as to what are the tests which would enable pronouncing upon the nature of relationship between the parties. Evans & Smith state in The Law of Landlord and Tenant (Fourth Edition) '-'A lease, because it confers an estate in land, is much more than a mere personal or contractual agreement for the occupation of a freeholder's land by a tenant. A lease, whether fixed-term or periodic, confers a right in property, enabling the tenant to exclude all third parties, including the landlord, from possession, for the duration of the lease, in return for which a rent or periodical payment is reserved out of the land. A contractual licence confers no more than a permission on the occupier to do some act on the owner's land which would otherwise constitute a trespass. If exclusive possession is not conferred by an agreement, it is a licence.' '.....the fundamental difference between a tenant and a licensee is that a tenant, who has exclusive possession, has an estate in land, as opposed to a personal permission to occupy. If, however, the owner of land proves that he never intended to accept the occupier as tenant, then the fact that the occupier pays regular sums for his occupation does not make the occupier a tenant.'
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> 9. Going by the legal position settled above, the crucial question to be considered is what is the intention of parties while entering into the relationship, whether the exclusive possession was handed over to the other party and whether the terms and conditions included would satisfy the creation of a lease rather than a licence. Exhibit A1 satisfies all these requirements. By virtue of Clause I exclusive possession was given under the control of defendants. More specifically, under the exclusive control of the defendants and no clause was incorporated anywhere in Exhibit A1 document showing the actual possession of the property retained by the owner and reservation of any right with him except the right of reversion. There is no provision for any periodical inspection by the land owner or to have control over the possession of property. The clause incorporated in Exhibit A1 giving right of three months advance notice for terminating the arrangement is a crucial character showing the relationship of a lease. The clause for extension of period should be appreciated under the said circumstances and it would also support a creation of lease rather than licence. 10. It was also submitted that in an earlier suit in O.S.No.339/2000 the plaintiff has filed a suit for eviction of the defendant wherein a compromise was entered into by the parties. Then the question comes whether the defendants have submitted to the jurisdiction of that Court by accepting a relationship of licence rather than a lease. An arrangement by way of compromise alone was entered into by the parties in that suit and the suit was not proceeded with based on the compromise entered into by the parties and as such it cannot be said that the defendants have submitted to the jurisdiction of that court accepting the relationship of a licence. 11. Further, the suit was filed not for eviction of the licensee, but for recovery of possession of the property. It carries an admission that the plaintiffs are not in possession of the property and possession was parted with the defendants at the time of Exhibit A1 agreement which also shows probability of creation of a lease rather than a licence. Nothing else was brought to the notice of this Court to have an interference to the decree and judgment rendered by the First Appellate Court. Second Appeal hence fails, deserves only dismissal and I do so, but without costs.