Karnataka High Court
Amar Promoters And Anr. vs J.S.A. Gajendra Reddy And Ors. on 24 June, 2005
Equivalent citations: 2005(5)KARLJ273, AIR 2005 (NOC) 423 (KAR), 2005 AIR - KANT. H. C. R. 1884, (2005) 2 RENCR 241, (2005) 3 RECCIVR 776, 2005 A I H C 3849, (2005) 4 CURCC 387, (2005) 2 RENCJ 399, (2005) 5 KANT LJ 273, (2005) 3 KCCR 2241
Author: Anand Byrareddy
Bench: Anand Byrareddy
JUDGMENT Anand Byrareddy, J.
1. This appeal by the contesting defendants 6 and 7 is preferred against the judgment and decree directing delivery of vacant possession of the plaint schedule property to the plaintiff and further directing an enquiry for mesne profits from date of suit till date of delivery of possession and subject to such determination, the defendants to pay a sum of Rs. 6,250/-per month.
2. The facts of the case are as follows.--
Respondent 1, the plaintiff before the Trial Court, is the owner of land at No. 1 (Old No. 34), I Cross, Gandhinagar, Bangalore, which is described under the schedule to the plaint, measuring approximately about 10,000 sq. ft. The same was conveyed under a registered lease deed dated 29-12-1983 in favour of M/s. Srinivasa Trust, defendant 1 in the suit, a private Trust. The broad terms of the lease deed, inter alia were as follows.--
(a) The term of lease was 40 years, commencing from the date of deed; (b) The lessee was to construct, as its cost, a multi-storeyed non-residential commercial building within a period of three years, failing which, the lessor was entitled to determine the lease under a six months notice and regain possession of the property; (c) The lessee was entitled to occupy the entire building and sub-let the same to third parties during the tenure of the lease. Except that, consent of the lessee was to be obtained after the 35th year of the lease, in respect of any fresh induction; (d) The rent payable by the lessee to the lessor was at Rs. 1,250/- during January to December 1984-1986 with periodical increments as follows.-- 1987-1991 -- Rs. 4,000/- 1992-1997 -- Rs. 5,000/- 1998-2003 -- Rs. 6,250/- 2004-2009 -- Rs. 7,812.50 2010-2015 -- Rs. 9,375/- 2016-2021 -- Rs. 11,250/- 2022-2023 -- Rs. 13,500/- It was agreed that:
"The Rent shall be paid by the lessees on or before tenth of every following month for the month for which the rent becomes payable. In the event of default for a period of three continuous months, the lessor shall be entitled apart from the rent, to an interest at 18% till the date of actual payment. Further in the event of default in payment of rent by the lessee for a continuous period of six months, apart from the above, the lessor shall be entitled to determine the lease, after giving a month's notice in writing".
(e) The lessor was to bear the property tax in respect of the land and the lessee was to bear taxes in respect of the superstructure;
(f) In the event of partial or total acquisition of the property by any authority during the term of lease, compensation payable was to be apportioned between the lessor and lessee.
The compensation in respect of the land was payable to the lessor.
The compensation allowable in respect of the superstructure was agreed to be divided between the lessor and the lessee "in the ratio of the period of lease expired and the period of lease unexpired";
(g) The lessee was permitted to raise loans on the security of the lease-hold rights of the superstructure subject to the same being discharged before the expiry of the term;
(h) A refundable security deposit of Rs. 3 lakh was paid by the lessee. The lessor was entitled to deduct any amounts due under the deed upon determination of the lease.
3. During October 1985, the above said Srinivasa Trust had executed a "Deed of Assignment of Lease" which was registered, in favour of one M/s. Amar Promoters, defendant 6, a partnership firm, with defendant 7 as a partner. In terms of the said deed, the Assignor transferred all its rights that was acquired from the lessor under the lease deed dated 29-12-1983, absolutely.
4. It transpires that M/s. Amar Promoters constructed a building consisting of a cellar floor, ground, first and second floors, as per a plan sanctioned by Bangalore City Corporation and various portions were let out to third parties by the year 1987. At this point of time, respondent 1 herein is said to have filed a suit seeking a restraint on such subletting in Case O.S. No. 616 of 1987 before the City Civil Court, Bangalore, as against the appellants and other respondents.
5. By an agreement dated 2-3-1988, between the respondent 1, the lessor, M/s. Srinivasa Trust, the lessee and M/s. Amar Promoters, the assignee, it was recorded that the lessor has no objection to the Deed of Assignment dated 3rd October, 1985. And that M/s. Amar Promoters could have the benefit of the property during the term of lease as envisaged. The suit by the lessor was agreed to be withdrawn as settled out of Court.
6. According to respondent 1, the assignee defaulted in the payment of rents from time to time, and ultimately paid such rents only upon issuance of legal notices through Counsel, on each occasion. By a legal notice dated 22-5-1999, the lessor had terminated the lease deed dated 28-12-1983 and the Deed of Assignment dated 3-10-1985 for non-payment of rent for a continuous period of six months from November 1998 to May 1999, and sought delivery of possession of the building complex. The notice was declared to be issued under Section 106 of the Transfer of Property Act, 1882 (the 'T.P. Act' for short).
7. The appellants tendered the rent in arrears. The lessor, however, instituted the suit for possession and compensation. Subsequent to such institution, the lessor has received the rents tendered earlier to its credit and has continued to receive monthly rents tendered by the appellants from time to time, during the pendency of the suit. The lessor has received the said sums without prejudice to its suit claim.
8. On consideration of the pleadings and the evidence on record, the Trial Court has found that there is a lawful determination of the lease and that the lessor is entitled to vacant possession of the suit schedule property. The (assignee) lessee is in appeal before us.
9. Learned Senior Advocate Mr. S. Vijayashankar appearing for the appellants contends:
(a) That the determination of the lease in terms of a notice under Section 106 of the T.P. Act is invalid. Section 106 of the T.P. Act was not applicable to a lease for a definite period;
(b) That a right of re-entry ought to be exercised in terms of the lease deed. A strict construction of the several terms of the lease deed does not contemplate the delivery of the superstructure to the lessor before the expiry of the term of lease;
(c) Pleadings in support of a purported determination of lease by forfeiture are totally absent. Therefore, the suit prayer for possession could not have been decreed;
(d) The clause providing for the consequence of default in payment of rent for a continuous period of six months does not provide for forfeiture and re-entry. Determination of the lease does not ipso facto enable the lessor to seek delivery of possession till the expiry of the term, in the absence of a definite intention expressed in the deed;
(e) The intention of the parties was not to treat a default in payment of rent as being a breach warranting forfeiture and re-entry. In any event, the Security deposit available with the lessor was capable of adjustment towards the arrears in default and hence the determination of lease was invalid;
(f) That there was a waiver of forfeiture by the lessor's conduct in admittedly receiving rents during the pendency of the suit.
10. On the other hand, Sri U.L. Bhat, learned Senior Advocate appearing for the respondent-lessor contends:
(a) The reference to Section 106 of the T.P. Act in the notice of determination of lease is obviously an inadvertent error. The determination of a lease by forfeiture does not, in any event, require to be preceded by notice;
(b) Default in payment of rent for a continuous period of six months inviting the consequence of a determination of the lease, delivery of possession is merely consequential and a logical corollary;
(c) There is no purported waiver of forfeiture by the receipt of rent or any sum by whatever name called, having regard to its patent intention and diligent prosecution of the suit. In the face of the lessor having received all payments tendered, without prejudice to the suit claim, there is no inconsistency or ambiguity in its conduct. Receipt of rent after the suit is not indicative of a continuing lease;
(d) The question of the lessor adjusting arrears of rent out of the refundable security deposit would not arise unless such intention was expressed by the lessee at the relevant point of time.
11. From a close consideration of the pleadings, the Trial Court's judgment, the rival contentions before us and the case-law cited by the parties -- we would say that the following questions of fact and law fall for our consideration.--
(I) Whether the lease was validity determined? (II) Whether in the event of such premature determination the lessor could claim a right to possession or re-entry before the expiry of the term prescribed under the deed? (III) Whether receipt of rent by the plaintiff-lessor, accruing subsequent to suit, would result in a waiver of forfeiture, even though such receipt is declared to be "without prejudice to the suit claim"? (IV) Whether the decree was executable in respect of the superstructure, on the suit schedule land, in the absence of any claim thereof?
12. The Trial Court has found that the lessee was a chronic defaulter in the payment of rent and the punctuality of such payments was according to the Trial Court, the "heartwood of the contract". The Trial Court has held that since the appellant had admitted default in payment of rents for earlier periods in respect of which termination notices were issued by the lessor dated 30-1-1996 and 18-6-1998, it is the reasoning of the Trial Court that the "Termination notice at Ex. P. 4 is in accordance with law". Ex. P. 4 is a notice dated 18-6-1998. The appellant had satisfied the demand under the said notice as recorded by the Trial Court itself.
13. It is unfortunate that the Trial Court has failed to consider and discuss Ex. P. 5 (Referred to in the deposition of P.W. 1 as Ex. P. 13) dated 22-5-1999, which was the latest termination notice, with reference to the lease deed and the law. The Trial Court goes on to accept the lessor's contention that the lessees have not delivered possession of the schedule property as required under Section 108(2) (sic) of the Transfer of Property Act, 1882 and has accordingly directed the lessee's to quit and deliver vacant possession of the plaint schedule property. In view of this serious lapse on the part of the Trial Court, it is necessary for this Court to re-appreciate the facts with reference to the material on record.
14. The intention of the parties under the lease deed dated 29-12-1983, read with the deed of assignment dated 3-10-1985, is apparent from a plain reading of the terms. The only clause under which the lessor is entitled to determine the lease prematurely and take back possession of the schedule property is Clause 1 (at internal page 4 of the lease deed). This is in the eventuality of the lessee failing to construct a multistoreyed building within a period of three years from the date of deed. The clause providing for payment of rent in respect of the land which is demised under the deed does state that in the event of default for a continuous period of three months the lessee shall be liable to pay interest at 18% on such arrears and if such default were to continue for a period of six months, the lessor could determine the lease deed. But unlike Clause 1, there is no provision for re-entry.
15. It is further noticed that other clauses of the lease deed contemplate a complete and uninterrupted term of 40 years -- whether in respect of attornment of tenancy of third party tenants in occupation as nominees of the lessee, whether for purposes of payment of property taxes (separately in respect of land and building by the lessor and lessee, respectively), whether entitlement in the event of compulsory acquisition by the State, whether for absolute transfer or possession of the building or for purposes of raising loans on the basis of leasehold rights. There is no condition, referable to default in payment of rent, imposed under any of the terms providing for the above eventualities, which made them inoperable.
16. It therefore follows that upon default in payment of rent, the lessor could at best have determined the lease as regards the rent reserved and possibly claimed such other sum as compensation for use and occupation of the suit land, from the lessee. Whether there was a default, in the face of a security deposit in the hands of the lessor to secure the due payment of all sums payable under the terms of the deed which would include arrears of rent, is yet another aspect that is presently discussed hereunder. The intention of the parties as per Ex. P. 1 does not indicate that there would be forfeiture and re-entry if the lessee defaulted in payment of rent.
17. Having held that the clause providing for determination of the lease on default of payment of rent did not provide for re-entry, we proceed to examine whether there was a default in payment of rent as claimed under Ex. P. 5, the notice dated 22-5-1999.
18. The claim of the lessor made under Ex. P. 5, a formal legal notice, is not clear. The statement, "The earlier notices issued by me on behalf of my client dated 30-1-1996, 30-1-1997, 18-6-1998 be read as part and parcel of this legal notice to avoid repetition of facts. Once again, you have committed default in payment of rents now you are due rent from November 1998 to till today. Hence you are a chronic defaulter in payment of rents". Admittedly the earlier notices spent themselves out and were not acted upon. The notice does not clearly indicate the actual months for which the rent was due. According to the plaintiff/lessor payments made by cheques towards the arrears of rent were acknowledged by him as per Ex. P. 15, dated 28-10-1999 (Actually marked as Ex. P. 25). This letter also does not contain the particulars of the cheques or the amounts for which the same were issued, nor the date of issue. The lessor has stated that he would be presenting "all the cheques" without prejudice to the suit in O.S. No. 6776 of 1999. However, there is no dispute that rents that were claimed to be in arrears under notice of determination dated 22-5-1999 were not received or credited to the account of the lessor till after the filing of suit namely 2-9-1999. However, as per order sheet dated 26-9-2001 it is recorded that the plaintiff has received rent upto the end of August 2001. It is also on record that the lessor/plaintiff has received rents from time to time, till the disposal of the suit.
19. Even assuming that the lessee was in arrears of rent for over six months as on 22-5-1999, the lessor did have the option of claiming an adjustment of such arrears from the security deposit outstanding with the lessor in a sum of Rs. 3 lakh. This would have been in consonance with Clause 17 of the lease deed. And this is the settled position of law. See M/s. Sarwan Kumar Onkar Nath v. Subhas Kumar Agarwalla, ; Kranti Swaroop Machine Tools Private Limited and Anr. v. Smt. Kanta Bai Asawa and Ors., ; K. Narasimha Rao v. T.M. Nasimuddin Ahnied, and Modern Hotel, Gudur v. K. Radhakrishnaiah and Ors., . Even though the above cases are with reference to cases arising under Rent Acts, the question of law, whether a lessee could be said to be in arrears when the lessor holds a sum of money to the account of the lessee, which is larger than the amount of arrears is concerned, the consistent view of the Apex Court is that the lessee in such cases cannot be said to be in arrears. In this view of the matter, it cannot be said that the lessee was in arrears of rent as on 22-5-1999 and hence the determination of the lease on this count is invalid and not enforceable.
20. The determination of lease said to be one under Section 106 of the T.P. Act is also not tenable. The legal notice at Ex. P. 5, the plaint and in the evidence of P.W. 1 this position is emphasised. The Trial Court has also accepted this.
21. It is to be noted that Section 106 of the T.P. Act is applicable only in respect of leases not evidenced by a written contract or local usage. Similarly Section 108 can be pressed into service only in the absence of a contract or local usage to the contrary. It was therefore an attempt on the part of the learned Senior Counsel Sri U.L. Bhat to contend that reference to the section was wholly immaterial having regard to the fact that an action brought upon forfeiture of lease requires no previous notice and therefore the irregularity if any in the reference to the statutory provision is not fatal to the suit. The learned Senior Counsel relies on the decision in Rattan Lal v. Vardesh Chander and Ors., for the proposition. In our opinion, this contention has to be rejected - as being a plea of convenience in the face of formal declarations and categorical pleadings to the contrary and even the judgment of the Trial Court proceedings on that basis. Further, in the decision cited above the Transfer of Property Act was held in applicable to the lease in question as the lease was entered into before the T.P. Act was made applicable to the area where the demised premises was situate and it is while examining Section 111(g) as it stood prior to 1929 that the Apex Court had held that no notice of forfeiture was required in that particular case. However, with regard to the Section as it stands, the Apex Court has held thus at para 14:
"14. Before the amending Act of 1929, all that was necessary for the lessor to determine the demise on forfeiture was to do 'some act showing his intention to determine the lease'. The Rule of English law before the enactment of the Law of Property Act, 1925 appears to be that a suit for ejectment is equivalent to a re-entry. It has been held in India that an act showing the lessor's intention to determine the lease can take the form of the institution of an action in ejectment. The statutory law, as it now stands, however is that the happening of any of the events specified in Section 111(g) does not, ipso facto, extinguish the lease but only exposes the lessee to the risk of forfeiture and clothes the lessor with the right, if he so chooses, to determine the lease, by giving notice in that behalf. Mulla states the law correctly thus:
"Forfeiture of a lease requires the operation of two factors: (1) A breach by the lessee of an express condition of the lease which provides for re-entry on such breach; and (2) a notice by the lessor expressing his intention to determine the lease (Mulla on T.P. Act, pp. 746-747, 6th Ed.)".
The notice has to be in writing. In Namdeo Lokman Lodhi v. Narmadabai, , this Court laid down the law to the same effect. Mahajan, J., observed:
"Section 111(g) in terms makes the further act an integral condition of the forfeiture. In other words, without this act there is no completed forfeiture at all. Under the old section an overt act evidencing the requisite intention was essential. As the law stands today, under the Act notice in writing by the landlord is a condition precedent to a forfeiture and the right of re-entry".
It cannot be gainsaid that a notice, envisaged in Section 111(g) not having been given to the lessee in the present case, determination of the demise under Section 111(g) cannot be claimed by the lessor. Thus, if the fortune of the landlord were to turn on the application of the T.P. Act as it stands now, the ejectment proceeding must be rebuffed".
22. Next we proceed to consider the question whether the lessor having terminated the lease could continue to receive the rents tendered by the lessee and yet claim there was no waiver of forfeiture. It may be that in the present case the lessor has religiously avoided receipt of rents or rather has not credited the same to his account between the date of notice of termination of lease and the date of institution of suit. In this light, learned Senior Advocate Sri U.L. Bhat would contend that the lessor diligently prosecuting his suit, receipt of sums tendered as rent by him, without prejudice to the suit claim, can only be construed as being receipt of money consistent with his claim for compensation for use and occupation of the suit property and cannot be treated as being a waiver of forfeiture. The second proviso to Section 112 of the T.P. Act, according to Sri U.L. Bhat, clearly provides for such a situation.
23. Sri Bhat has cited the following judgments in support of his contention that there is no waiver of forfeiture by virtue of receipt of rents accruing subsequent to notice and suit:
(1) Budh Singh v. Parbati, ILR( 1907)29 All. 652;
(2) M. Chengiah v. Raja of Kalahasti and Ors., (1912)24 MLJ 263;
(3) Hiranandan Ojha and Ors. v. Ramdhar Singh and Ors., AIR 1922 Pat. 528;
(4) K. G. Pandit v. Narsinghdas Sitaram, AIR 1951 Nag. 207 ;
(6) Moot Chand and Ors. v. Smt. Brijmani Devi and Ors., ;
(7) Puran Mal Jaiswal v. Onkar Nath Choudhary and Ors., ;
(8) Pandit Janki Nath Kaul v. Pt. Jia Lal, AIR 1962, J and K 2;
24. The following decisions are, however, to the contrary.--
(1) Basant Kumar Choudhuri v. Secretary of State, (1921)59 IC 273;
(2) Lalit Mohan Bhattacharjee v. Noni Lal Sarkar and Ors., AIR 1923 Cal. 662 (3) Chotu Mia v. Mst. Sundri, AIR 1945 Pat. 260 (FB);
(4) Bengal Nagpur Railway Company Limited v. Firm Bal Mukunda Bijeswar Lal, (1924)80 IC 200 ;
(5) Rukmini Vithu v. Rayaji Dattatraya Pai, AIR 1924 Bom. 454;
(6) Raja Sri Amar Krishna Narain Singh v. Sheik Nazir Hasan, AIR 1939 Oudh 257.
25. Upon a perusal of the above judgments and having regard to the facts of the present case the legal position, in our view, is as under:
"Rent" as defined under Section 105 of the Act is the consideration under a contract of lease. Upon termination of the contract - it would be a contradiction in terms to receive any further consideration. The lessor having chosen to recover damages or compensation for use and occupation of the premises, under the occupation of the lessee, seeks to do so through the medium of the Court. A voluntary and independent act on the part of the lessor to receive sums paid as rent by the lessee cannot be appropriated as being compensation for use and occupation which has not been determined or considered by the Court. Hence receipt of "rent" accruing subsequent to suit would amount to a waiver of forfeiture as contemplated under Section 112 of the T.P. Act. Receipt of such rent stated to be without prejudice to the suit claim is, immaterial.
26. Insofar as the second proviso to Section 112 of the T.P. Act is concerned, it only clarifies that receipt of "rent" after the institution of suit but which was payable as consideration during the subsistence of the contract of lease, ought not to be construed as a waiver.
27. The legal position with regard to payment and receipt of rent after institution of eviction proceedings under Rent Act is not to be extended to a lease governed by the provisions of the Transfer of Property Act.
28. In conclusion, we hold as follows.--
(a) The notice of determination Ex. P. 5 is neither in accordance with Clause 4(1) of the lease deed which contemplates a month's notice, nor is it in accordance with the law as it is purported to be issued under Section 106 of the T.P. Act;
(b) Clause 4(1) of the lease deed does not provide for re-entry upon determination of the lease. Other clauses of the deed providing for other eventualities are unconditional with regard to a fixed period of a 40 year tenure. Such other clauses do not contain a stipulation that the same are subject to Clause 4(1) of the deed. And hence the lessor is not entitled to exercise a right of re-entry prematurely;
(c) Receipt of rent subsequent to institution of suit, even though stated to be without prejudice to the suit claim, results in waiver of forfeiture even if it could be said that such a forfeiture was impliedly averred in the suit;
(d) The Trial Court has neglected to consider Ex. P. 5 and examine the validity of the same. The Trial Court also ignored the fact that there was a sum of Rs. 3 lakh with the lessor as security deposit and that the same, far exceeded the amount claimed as arrears for a period of six months at Rs. 6,250/- per month and hence the lessee could not have been in arrears. There was no cause for determination of lease on that count;
(e) The frame of suit in claiming possession of land only without reference to the superstructure rendered the suit and consequently the decree a nullity.
29. The judgment and decree of the Trial Court is accordingly set aside on all of the above counts. The appellant is entitled to costs.