Madhya Pradesh High Court
Dr.Om Prakash Sharma vs M/S Sai Chhaya Autolink(P)Ltd on 30 March, 2012
1
HIGH COURT OF MADHYA PRADESH : JABALPUR
ARBITRATION CASE NO. 74 OF 2010
Dr. Sandeep Sharma and others Applicants
versus
M/s. Sai Chhaya Autolink (P) Ltd. Respondent
Present : Hon'ble Shri Justice Rajendra Menon
................................................................................................
Shri Sankalp Kochar, counsel for the applicants.
Shri Ravish Agrawal, Sr. counsel with Shri Kaustubh Jha,
counsel for the respondent.
................................................................................................
ORDER
(30/03/2012) This application has been filed under Section 11 (6) r/w Section 11 (4) of the Arbitration and Conciliation Act, 1996 seeking constitution of an Arbitral Tribunal for resolving the dispute between the parties. The application was originally filed by Dr. Om Prakash Sharma through his attorney holder and son Dr. Sandeep Sharma. However, during the pendency of this application as Shri Om Prakash Sharma has expired, his legal heirs namely his son Dr. Sandeep Sharma and his daughters have been brought on record.
2. Petitioners claim to be registered owners of a building situated in plot no. 191-A, Zone-I, M. P. Nagar, Bhopal. Respondent is a company registered under the provisions of the Indian Companies Act. Initially, a lease agreement was entered into between the petitioner and the respondent for the purpose of giving the building in question to the respondent for the purpose of establishing an Automobile Showroom and carrying out various business activities. After expiry of the lease, it was terminated and, thereafter, a fresh agreement termed as the 'Leave and License Agreement' was executed between the parties on 1st April, 2009.
2Annexure P-1 is a copy of the said 'Leave and License Agreement'. This agreement was executed for a period of 5 years commencing from 1/02/2009 to 31/01/2014 and according to the petitioner, the premises was given on license to the respondent on an agreed license fee of Rs. 1.21 Lakhs per month. It is stated that in the execution of the license agreement as certain disputes have risen between the parties, the petitioner sought for resolution of the dispute by appointment of an Arbitrator in accordance with Clause 19 of the Agreement and as the Arbitrator could not be appointed, the present application has been filed.
3. Initially, this Court after hearing all concerned on 5/09/11 appointed an Arbitrator namely one Shri V. K. Saxena, a Retired District and Sessions Judge as an Arbitrator. This Arbitrator was nominated by the respondent and one Shri Mahaveer Bhatnagar was nominated as an Arbitrator by the petitioner. Both the Arbitrators were directed to proceed in accordance with law. However, when the aforesaid order was passed on 5/09/11, an application for review was filed and placing reliance on a judgment of the Supreme Court in the case of M/s SMS Tea Estates Pvt. Ltd. Vs. M/s Chandmari Tea Co. Pvt. Ltd. 2011 (7) SCALE 747 , respondent came out with a case that the agreement in question Annexure P-1 is not a 'Leave and License Agreement'. It is a lease deed and as it is a lease deed, apart from the fact that it has to be compulsory registered, adequate stamp duty has not been paid and, therefore, in view of the principles laid down in the case of SMS Tea Estates (supra) , in the absence of payment of appropriate stamp duty and registration, the Arbitration agreement contained in the document Annexure P-1 cannot be acted upon and as this legal question was not considered, the order passed appointing an Arbitrator on 5/09/11 was recalled and the matter was heard again.
4. Having heard learned counsel for the parties, it now transpires that the only question now warranting consideration is as to whether agreement Annexure P-1 is a lease deed or a license agreement. If it is a lease deed, then in the light of the principles laid down in the case of SMS Tea Estates (supra) , in the absence 3 of the registration and payment of stamp duty, the Arbitration Clause in the said deed cannot be given effect to. However, if it is a 'Leave and License Agreement', then objection of the respondent would be unsustainable and then an Arbitration as per the Arbitration Clause can be enforced. Accordingly, the question to be considered now in this application is with regard to the nature of the document.
5. Shri Sankalp Kochar, learned counsel for the applicants emphasized that the agreement in question is a license and not a lease. He referred to the previous agreement entered into between the parties i.e. the lease agreement. The difference between the two agreements and certain judgments in support of his contention to show that the agreement in question is a license and not a lease deed.
6. Taking me through the judgments rendered by the Supreme Court in the following cases, Shri Sankalp Kochar emphasized that the agreement is a license agreement and, therefore, the Arbitration Clause can be invoked. The judgments relied upon are Sohan Lal Naraindas Vs. Laxmidas Raghunath Gadit, 1971 (1), SCC 276, Corporation of Calicut Vs. K. Sreenivasan, (2002) 5 SCC 361, New Bus-Stand Shop Owners Association Vs. Corporation of Kozhikode and another, (2009) 10 SCC 455, Shanta Talwar and another Vs. Union of India and others, (2011) 5 SCC 287 and finally Pradeep Oil Corporation Vs. Municipal Corporation of Delhi and another, (2011) 5 SCC 270 .
7. It is emphasized by Shri Sankalp Kochar that if the interest in the movable property is not transferred and if the transfer is only with regard to the right to enjoy the property, the agreement would be a license agreement and not a lease agreement. It is emphasized by him that as there is no transfer of right to use the property, the ingredients necessary for constituting a lease are not available.
8. Taking me through the provisions of Clauses 6, 8 and 9 of the License Agreement Annexure P-1 and the difference between the same and the first lease deed Annexure R-1 dated 5/05/03, Shri Sankalp Kochar tried to emphasize that the intention of the parties 4 in executing the agreement Annexure P-1 was to create a license and not a lease and, therefore, the document does not require any registration or payment of stamp duty. In the alternate, it was submitted by him that even if the principles laid down in the case of SMS Tea Estates (supra) is considered, the same only warrants payment of stamp duty and pending proceedings for recovery of stamp duty, the Arbitration Clause can be given effect to.
9. Accordingly, Shri Kochar emphasized that in the facts and circumstances of the case, the application be allowed and the Arbitrators appointed earlier be permitted to proceed in the matter.
10. Shri Ravish Agrawal, learned Senior Counsel refuted the aforesaid and pointed out that the agreement in question is not a license. It is a lease and in support thereof emphasized that the duration of the agreement is for 5 years. The consideration in the agreement is for more than one lakh and there is a right for succession to the agreement and, therefore, it does amount to a lease agreement. It is emphasized by him that in various parts of the agreement the same is referred to as the lease and as the right to enjoy the property is given, it is a lease. It is stated by him that the conditions for renewal maintenance and payment of the rent do indicate that it is not a license but a lease.
11. Placing reliance on the observations made by the Supreme Court in the judgment relied upon by Shri Sankalp Kochar i.e. Pradeep Oil Corporation (supra) , Shri Ravish Agrawal emphasized that as the agreement is a lease and as it is not stamped in accordance with the requirement of the Indian Stamp Act, the agreement cannot be given effect to and the Arbitration Clause enforced.
12. Shri Ravish Agrawal took me through the agreement and tried to emphasize that the condition stipulated in the agreement does not reflect that the intention of the parties was to enter into the license agreement and as there is transfer of the property and a renewal and maintenance clause, it is a lease and not a license.
13. Having heard learned counsel for the parties and on a perusal of the records, it is clear that the only dispute warranting 5 consideration in these proceedings for the present, is as to whether an agreement in question Annexure P-1 is a 'lease agreement' or a 'license' because further orders to be passed would depend upon the findings with regard to this question. It is a settled principle of law that the question with regard to a document being a 'lease' or a 'license' is to be determined after ascertaining the intention of the parties, the nature of the rights and liabilities created by the document and the subsistence of the document and not its form. If on examination of the document, it is found that it creates interest in the property, it would be a lease but if it only permits a party to make use of the property and if the legal possession continues with the owner, it is a license.
14. In this regard, the principles laid down by the Supreme Court in the cases relied upon by Shri Sankalp Kochar and Shri Ravish Agrawal has to be taken note of wherein the meaning of the word 'license' and 'lease' as defined in Section 52 of the 'Easements Act' 1882 and Section 105 of the Transfer of Property Act are taken note of and after considering the definition and various other aspects, the principles have been summarized. However, the question has been considered recently by a Division Bench of this Court in the case of Mangal Amusement (P) Ltd. and another Vs. State of M. P. & others and in para 16 and 17 most of the judgments referred to by learned counsel for the parties at the time of hearing is considered and the principle with regard to difference between the 'lease' and 'license' is discussed in para 16 and 17 by the Division Bench. The principle has been crystallized by the Division Bench in the case of Mangal Amusement (P) Ltd. (supra) in the following manner :-
16. We may now address ourselves to the first issue which is a core issue involved in the case, namely, whether the deed dated 6.5.1994 (Annexure-P/13) is a lease or licence . In Halsbury's Laws of England IVth edition, the expression "lease" is defined to mean "an instrument in proper form by which the conditions of a contract of letting are finally ascertained, and which is intended to vest the right of exclusive possession in the tenant , either 6 at once, if the term is to commence immediately, or at a future date, if the term is to commence subsequently, is a lease which takes effect from the date fixed for the commencement of the term without the necessity of actual entry by the tenant".
The term "Licence" has been defined in Halsbury's Laws of England IVth edition in following words -
"A licence is normally created where a person is granted the right to use premises without becoming entitled to exclusive possession of them , or where exceptional circumstances exist which negative the presumption of the grant of a tenancy. If the agreement is merely f or the use of the property in a certain way and on certain terms while the property remains in the owner's possession and control, the agreement operates as a licence, even through the agreement may employ words appropriate to a lease."
Section 105 of the Transfer of Property Act, 1882 defines "lease" of immovable property as under:-
"105. Lease def ined.-A lease of immovable property is a transf er of a right to enjoy such property, made f or a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other things of value, to be rendered periodically or on specif ied occasion, to the transf er or by the transf eree, who accepts the transf er on such term."
Section 52 of the Indian Easements Act, 1882 defines a "licence" to mean:-
"52. "Licence" def ined.-Where one person grants to another, or to a def inite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawf ul, and such right does not amount to an easement or an interest in the property, the right is called a licence."
17. Thus, a lease is essentially a transfer of an interest in immovable property entitling the lessee to the enjoyment of such immovable property which includes the right to possession thereof . Another essential feature of a lease is that the transfer must be for consideration, though it may be for a limited period or in perpetuity. A lease can be effected only by 7 a bilateral transaction in which both lessor and lessee should be the parties. On the other hand, the characteristics of licence are that it grants the licensee right to do something on the property which otherwise would have been unlawful for him to do so.
The distinction between the lease and licence has been considered by the Supreme Court in catena of decisions, namely, Associated Hotels of India Ltd.
(supra), Uttam Chand Vs. S. M. Lalwani, AIR 1965 SC 716, L. B. M. Lall (supra), Konchada Ramamurty Subudhi (dead) Vs. Gopinath Naik and others, AIR 1968 SC 919, Board of Revenue Vs. A. M. Ansari, (1976) 3 SCC 512, Khalil Ahmed Bashir Ahmed Vs. Tufelhussein Samasbhai Sarangpurwala, AIR 1988 SC 184, Capt. B. V. D'Souza Vs. Antonio Fausto Fernandes, AIR 1989 SC 1816, K. Sreenivasan(supra) and Chandy Varghese (supra). From a close scrutiny of the aforesaid decisions, following tests for determination whether a document creates a lease or licence can be taken as well established:-
(i) To ascertain whether a document creates licence or lease, substance of the document must be preferred to the form. The Court must refer to the object and the circumstances under which document is executed. The character of the transaction turns on the operative intent of the parties.
(ii) The real test is the intention of the parties. The Court must apply the test of dominant intention of the parties. The Court must determine the character of the document by asking itself as to what was the dominant intention of the parties in executing the document. The question whether a particular transaction creates a lease or licence is always the question of intention of the parties and, therefore, has to be inferred from the facts and circumstances of each case.
(iii) If a document creates an interest in the property, it is a lease but if it permits another party to make use of the property, of which the legal possession continues with the owner, it is a licence.
(iv) If under the document, a party gets exclusive possession of the 8 property, prima facie, he is considered to be a tenant, but circumstances may be established which negative the intention to create a lease. However, the test of exclusive possession is not conclusive by itself to arrive at the conclusion that the transaction in question is a lease. Merely exclusive possession is not decisive for drawing an inference that the document in question is a lease and not licence.
(v) A lease is a transfer of right to enjoy the premises whereas the licence is a privilege to do something on the premises which otherwise would be unlawful.
(vi) Occupation of licensee is permissive by virtue of a grant of licence in his favour, though he does not acquire any right in the property and the property remains in possession and control of the grantor, but by virtue of such a grant, he acquires a right to remain in occupation so long the licence is not revoked and/or he is not evicted from its occupation either in accordance with law or otherwise.
(Emphasis supplied)
15. Before adverting to consider the various provisions of the present agreement, in the backdrop of the aforesaid principle, it would be appropriate to take note of the agreement which was considered by the Division Bench in the case of Mangal Amusement (P) Ltd. (supra) . In that case, the document which was dated 6/05/94 was titled as a 'license' and land measuring 9 acres in area was transferred to the petitioner/company initially for a period of 15 years for the purpose of developing an infrastructure and establishing an amusement park. Clause 2 of the agreement in that case prescribes a time limit for commencement of the agreement and it also provide a renewal clause license fee and conditions to follow on default were indicated.
16. Apart from a clause for renewal after a period of 15 years, certain benefit for development and infrastructure construction and pathway road, boundary wall, landscaping, shopping and 9 construction of Food and Beverages Centres, administrative buildings, toilets were provided in the agreement.
17. After considering all these aspects of the matter as contained in the agreement, the finding recorded was that the document is a 'license' and not a 'lease' as the interest in the property continued to vest with the Indore Development Authority which gives the license to M/s Mangal Amusement (P) Ltd. If the terms and conditions of the present license agreement Annexure P-1 are taken note of, it would be seen that the title speaks about a 'leave and license agreement. It is executed as a 'license' and the licensor namely the respondent herein is shown as owner of the property.
The duration of the agreement is shown to be 5 years, even though the word 'lease' is used but it is indicated that the license month shall be the English Calendar Month. License fee is fixed. Provision for security deposit and extension are incorporated. Payment of taxes are by the Licensor and the Licensee is prohibited from sub-letting or making further construction in the area. The Licensee is only given the right to maintain the property in a good and tenable condition. The Terrace rights is vested with the Licensor who is given liberty to construct on the terrace and give it to any other company. The Licensee is prevented from making any structural alteration or addition or modification either temporary or permanently. If the license agreement Annexure P-1 and the earlier lease agreement Annexure R-1 entered into between the parties are taken note of, the following distinguishable feature emerge in the license agreement Annexure P-1 dated 1/04/09. Under Clause 6 for the purpose of payment of taxes, it is clearly indicated that it is the Licensor who shall pay all liability, who shall discharge all liability for payment of taxes as may be levied by the State Govt. or the Central Govt. In the agreement Annexure R-1, there was no such provision for payment of taxes by the Licensor. Under Clause 8 of the License agreement Annexure P-1, there is a total prohibition on the part of the Licensee to sub-let, assign or underlet any part of the property.
18. The conditions were not so strict in the lease agreement, use 10 of the property under the agreement Annexure P-1 is restricted for establishing a show-room cum workshop only and not for any other purpose. No such restriction is available in the earlier lease agreement. The prohibitions with regard to the use of the property as contained in Clause 9 and the bar on addition and alteration is incorporated in the present license agreement which indicates that strict conditions are imposed upon the Licensee for use of the property. If the terms and conditions of the license agreement and the difference in the intention of the parties as it existed when the lease agreement was executed for the first time vide Annexure R-1 and the difference made when the present license agreement is executed clearly shows that the intention of the parties was not to create any interest or right on the property on behalf of the Licensee but the Licensee was only given permission to enter the property and carry out certain activities as stipulated therein. A complete reading of the document indicates that it does not create any interest in the property on behalf of the Licensee. It only permits him to use the property but the dominant legal possession and the ownership of the property continued to remain with the respondent/company.
19. Accordingly, on a complete scrutiny of the documents and the terms and conditions and if it is analysed in the backdrop and the principles laid down by the Division Bench in the case of Mangal Amusement (P) Ltd. (supra) , I am of the considered view that the right created by the document Annexure P-1 is only a right to the petitioners herein to enjoy the property and use it and no interest in the property is created. Infact, the document in question is nothing but a license agreement and not a lease as canvassed by the respondent.
20. Accordingly, there is no necessity for payment of any stamp duty or registration as objected to by the respondent and as the document is a 'License' and it contemplates an Arbitration Clause, this application has to be allowed and the objections raised by Shri Ravish Agrawal on behalf of the respondent has to be rejected.
21. Accordingly, this application is allowed as already 11 considered earlier on 5/09/11 in accordance with the terms and conditions agreed to between the parties. Shri Mahavir Bhatnagar is appointed as an Arbitrator on behalf of the petitioner and as the respondent has not indicated their Arbitrator, Shri V. K. Saxena, a retired District and Sessions Judge posted in Bhopal is appointed as an Arbitrator. Both the Arbitrators may proceed to nominate an umpire in accordance with the statutory provisions and, thereafter, the Arbitral Tribunal so constituted shall proceed in the matter in accordance to law.
22. Registry is directed to forward a copy of this order to both namely, Shri V. K. Saxena and Shri Mahavir Bhatnagar for proceeding further in accordance with law.
23. With the aforesaid, the application stands allowed and disposed of.
(Rajendra Menon) Judge Vy/-