Wednesday, 31 August 2016

Whether parties are free to contract out of express provisions of law ?

 While the agreement dated 07.08.2006
can be admitted in evidence and even relied upon by the
parties to prove the factum of the tenancy, the terms of
the same cannot be used to derogate from the statutory
provision of Section 106 of the Act, which creates a
fiction of tenancy in absence of a registered instrument
creating the same. If the argument advanced on behalf of
the respondents is taken to its logical conclusion, this
lease can never be terminated, save in cases of breach by
the tenant. Accepting this argument would mean that in a
situation where the tenant does not default on rent
payment for three consecutive months, or does not commit
a breach of the terms of the lease, it is not open to the
lessor to terminate the lease even after giving a notice.
This interpretation of the clause 6 of the agreement
cannot be permitted as the same is wholly contrary to the
express provisions of the law. The phrase ‘contract to
the contrary’ in Section 106 of the Act cannot be read to
mean that the parties are free to contract out of the
express provisions of the law, thereby defeating its very
intent. As is evident from the cases relied upon by the
learned senior counsel appearing on behalf of the
appellant, the relevant portions of which have been
extracted supra, the contract between the parties must be
in relation to a valid contract for the statutory right
under Section 106 of the Act available to a lessor to
terminate the tenancy at a notice of 15 days to not be
applicable.
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
 CIVIL APPEAL NO. 8361 OF 2016
(Arising out of SLP (C) No.24486 of 2014)
M/S PARK STREET PROPERTIES (PVT) LTD. ………APPELLANT
Vs.
DIPAK KUMAR SINGH & ANR. ……RESPONDENTS

V. GOPALA GOWDA, J.
Dated:August 29, 2016
Citation:AIR 2016 SC 4038



2. The present appeal arises out of the impugned
judgment and order dated 15.05.2014 passed by the High
Court of Calcutta in F.A. No. 151 of 2012, whereby the
High Court has set aside the order of the Trial Court and
remanded the matter to it for reconsideration from the
stage of examining the question of validity of the notice
dated 30.10.2008.
3. The relevant facts of the case required to appreciate
the rival legal contentions advanced on behalf of the
parties are stated in brief hereunder:
One Karnani Properties Limited, a company
incorporated under the Companies Act, 1956 was the owner
of the suit premises. It had let out the suit premises in
favour of the appellant herein with the right to sublet
the same or portions thereof. The appellant herein
entered into an agreement dated 15.10.2004 with the
respondents subletting the suit premises for the purpose
of carrying out business from the ‘Blue Fox Restaurant’.
Subsequently, the respondents requested the appellant to
allow them to run franchise or business dealing with
McDonald’s family restaurant from the suit premises. In
pursuance of the same, the agreement dated 15.10.2004 was
terminated, and a tenancy of the suit premises was
created in favour of the respondents on the basis of an
unregistered agreement dated 07.08.2006 at a rent and on
the terms and conditions agreed therein. In terms of the
said agreement, the tenancy commenced from 01.08.2006, at
a rent of Rs. 20,000/- per month, payable by the
tenants-respondents by the 7th day of every succeeding
month according to the English calendar. Further, as per
the terms of the agreement, in case of breach of the
agreement, the landlord-appellant was entitled to
terminate the tenancy after serving a notice of period of
thirty days. On 30.10.2008, the appellant issued a notice
under Section 106 of the Transfer of Property Act, 1882
(hereinafter referred to as the “Act”) terminating the
monthly tenancy of the respondents in respect of the
tenanted premises upon the expiry of 15 days from the
date of receipt of the said notice. Upon the expiry of
the period of 15 days, the respondents did not vacate the
suit premises. The appellant thus, filed suit for
recovery of khas possession and mesne profits of the suit
premises before the City Civil Court at Calcutta. The
respondents contested the suit inter alia contending that
by necessary implication the parties had agreed to not
terminate the lease of the premises before 30 years, and
that it was for this reason, a clause was incorporated
for enhancement of monthly rent at the rate of 15% after
expiry of every 3 years. The respondents further urged
that the appellant had permitted them to invest a
substantial sum of money for further repair and
renovation of the tenanted premises suitably for their
business. Thus, the appellant, by its declaration, acts
and omissions had intentionally caused and permitted the
respondents to believe that they will not terminate the
lease of the respondents in respect of the tenanted
premises before the expiry of the franchise agreement for
running the McDonald’s Family Restaurant from the
tenanted premises. It was thus, urged by the respondents
that the notice of termination of lease is bad and not in
accordance with law. The Trial Court, after examining the
evidence on record, decreed the suit in favour of the
appellant.
“It appears that clause 6 of the
unregistered Memorandum of Agreement dated
7
th August, 2006, is an important clause
which deals with determination or
termination of the tenancy only in case of
non-payment of rent for three consecutive
months and the tenant in spite of notice
to remedy such breach fails to make such
payment. When the document is inadmissible
in evidence, none of its terms can be
admitted in evidence for the purpose of
proving an important clause contained
therein including the clause 6. Reliance
on clause 6 of the memorandum of Agreement
dated 7th August, 2006 cannot be termed as
using the document for a collateral
purpose, in as much as proving and/ or
reliance on clause 6 is an important term
of the agreement which cannot be proved by
admission of an unregistered lease deed
into evidence.
So the notice appears to be legal and
valid.”
 (emphasis laid by this Court)
The respondents were accordingly, directed to vacate the
suit premises within three months from the date of the
order. Aggrieved of the judgment and order of the Trial
Court, the respondents challenged the correctness of the
same by way of filing appeal before the High Court. The
High Court observed as under:
“It is the general proposition of law in
view of the provisions of Section 49 of the
Indian Registration Act that when a
document is required to be registered under
a provision of law, it cannot be accepted
in evidence of any transaction affecting an
immovable property in absence of
registration of that document. It is also
true that in accordance with the provisions
of Section 107 of the Transfer of Property
Act, 1882, a lease of immoveable property
from year to year or for any term exceeding
one year or reserving a yearly rent can be
made only by a registered instrument.
But the above observation does not exhaust
the scope of determination of a question as
regards admissibility of an instrument
which has been improperly admitted in
evidence. The decision of Javer Chand & Ors
v. Pukhraj Surana reported in AIR 1961 SC
1655 is an authority for the proposition
that once document has been marked as an
exhibit in a case and the trial has
proceeded all along on the footing that the
document was an exhibit in the case and has
been used by the parties in examination and
cross examination of their witnesses, it is
not open either to the trial court itself
or to a court of appeal or revision to go
behind that order.
The learned Court below committed an error
in passing the decree in favour of the
respondent. The impugned judgment is,
therefore, required to be interfered with
and the validity of the notice dated
October 30,2008 is required to be
reconsidered by the learned Court below
looking into the “Exhibit-4”
The High Court accordingly, allowed the appeal and
remanded the suit back to the Trial Court for
reconsideration from the stage of examining the question
of validity of notice dated 30.10.2008. Hence, the
present appeal filed by the appellant.
4. Mr. C.A. Sundaram, learned senior counsel appearing
on behalf of the appellant contends that the agreement
dated 07.08.2006 creates a monthly tenancy. It is
submitted that in terms of Section 17(1)(d) of the
Registration Act and Section 107 of the Act, the said
document would require registration only if it leases the
immoveable suit property from year to year or for any
term exceeding one year or receiving yearly rent.
Therefore, the agreement dated 07.08.2006 was not
required to be registered. It is further contended that
it is not even the case of the appellant that the
agreement intended to grant lease of year to year. The
learned senior counsel further contends that a monthly
tenancy is terminable at will. In the instant case, the
monthly tenancy was terminable only in the manner
stipulated under Clause 6 of the agreement dated
07.08.2006. The learned senior counsel further contends
that it is the case of the appellant that in terms of the
lease, the same could not be terminated unless there was
a breach of its provisions. It is contended that this
argument cannot be accepted, as that goes against the
very spirit of Section 106 of the Act. It is contended
that the term ‘contract to contrary’ in Section 106 of
the Act only envisages a valid contract, and that Section
106 of the Act cannot be subverted by way of a contract
which is contrary to the provisions of law. It is
contended that parties are free to contract out of
Section 106 of the Act only by way of a registered
instrument and not otherwise. The learned senior counsel
places reliance on the decision of this Court in the case
of Samir Mukherjee v. Davinder K. Bajaj1, the relevant
potion of which is extracted as hereunder:
“Section 107 prescribes the procedure for
execution of a lease between the parties.
Under the first paragraph of this section
a lease of immovable property from year to
year or for any term exceeding one year or
reserving yearly rent can be made only by
registered instrument and remaining
classes of leases are governed by the
second paragraph that is to say all other
leases of immovable property can be made
either by registered instrument or by oral
agreement accompanied by delivery of
possession.
In the case in hand we are concerned with
an oral lease which is hit by the first
paragraph of Section 107 of the Transfer
of Property Act. Under Section 107 parties
have an option to enter into a lease in
1
(2001) 5 SCC 259
respect of an immovable property either
for a term less than a year or from year
to year, for any term exceeding one year
or reserving a yearly rent. If they decide
upon having a lease in respect of any
immovable property from year to year or
for any term exceeding one year, or
reserving yearly rent, such a lease has to
be only by a registered instrument. In
absence of a registered instrument no
valid lease from year to year or for a
term exceeding one year or reserving a
yearly rent can be created. If the lease
is not a valid lease within the meaning of
the opening words of Section 106 the rule
of construction embodied therein would not
be attracted. The above is the legal
position on a harmonious reading of both
the sections.
In Ram Kumar Das (supra), Section 106 was
considered by a bench of four judges of
this court. This court held that this
section 106 lays down the rule of
construction which is to be applied when
there is no period agreed upon between the
parties and in such cases duration has to
be determined by the reference to the
object for purpose for which tenancy is
created. It was also held that rule of
construction embodied in this section
applies not only to express leases of
uncertain duration but also to leases
implied by law which may be inferred from
possession and acceptance of rent and
other circumstances. It was further held
that it is not disputed that a contract to
the contrary as contemplated by Section
106 of the Transfer of Property Act need
not be an express contract; it may be
implied, but it certainly should be a
valid contract. On the fact of that case,
the court held that 'the difficulty in
applying this rule to the present case
arises from the fact that tenancy from
year to year or reserving an yearly rent
can be made only by registered instrument
as lays down in Section 107 of the
Transfer of Property Act.'”
 (emphasis laid by this Court)
The learned senior counsel further places reliance on the
decision of this Court in the case of K.B. Saha & Sons
Pvt. Ltd v. Development Consultant Ltd.2, wherein it was
held as under:
“34. From the principles laid down in the
various decisions of this Court and the
High Courts, as referred to hereinabove, it
is evident that :-
1. A document required to be
registered, if unregistered is not
admissible into evidence under Section
49 of the Registration Act.
2. Such unregistered document can
however be used as an evidence of
collateral purpose as provided in the
proviso to Section 49 of the
Registration Act.
3. A collateral transaction must be
independent of, or divisible from, the
transaction to effect which the law
required registration.
4. A collateral transaction must be a
transaction not itself required to be
effected by a registered document,
that is, a transaction creating, etc.
any right, title or interest in
immoveable property of the value of
one hundred rupees and upwards.
5. If a document is inadmissible in
evidence for want of registration,
2
(2008) 8 SCC 564
none of its terms can be admitted in
evidence and that to use a document
for the purpose of proving an
important clause would not be using it
as a collateral purpose.
35. In our view, the particular clause in
the lease agreement in question cannot be
called a collateral purpose. As noted
earlier, it is the case of the appellant
that the suit premises was let out only
for the particular named officer of the
respondent and accordingly, after the same
was vacated by the said officer, the
respondent was not entitled to allot it to
any other employee and was therefore,
liable to be evicted which, in our view,
was an important term forming part of the
lease agreement. Therefore, such a Clause,
namely, Clause 9 of the Lease Agreement in
this case, cannot be looked into even for
collateral purposes to come to a
conclusion that the respondent was liable
to be evicted because of violation of
Clause 9 of the Lease Agreement. That
being the position, we are unable to hold
that Clause 9 of the Lease Agreement,
which is admittedly unregistered, can be
looked into for the purpose of evicting
the respondent from the suit premises only
because the respondent was not entitled to
induct any other person other than the
named officer in the same.”
The learned senior counsel submits that there is no
infirmity with the judgment and order of the Trial Court
and that the High Court was not justified in interfering
with the same and remanding the matter back to the Trial
Court on the ground that the terms of the agreement dated
07.08.2006 were not taken into consideration in a proper
perspective.
5. On the other hand, Mr. Anindya Mitra and Mr. Gopal
Subramanium, learned senior counsel appearing on behalf
of the respondents contends that termination of lease is
by its definition meant to disrupt the contract between
the parties. Sections 106 and 107 of the Act provides for
duration of leases and how they are to be made. It is
submitted that Section 106 of the Act cannot be departed
from and that the operation of Section 107 of the Act can
be excluded by virtue of Section 106 of the Act only in
cases where there is a valid contract to the said effect.
The learned senior counsel places reliance on the
decision of this Court in the case of Ram Kumar Das v.
Jagadish Chandra Deb Dhabal3, wherein it was held as
under:
“The section lays down a rule of
construction which is to be applied when
there is no period agreed upon between the
parties. In such cases the duration has to
be determined by reference to the object
or purpose for which the tenancy is
created. The rule of construction embodied
in this section applies not only to
express leases of uncertain duration but
also to leases implied by law which may be
inferred from possession and acceptance of
rent and other circum- stances. It is
conceded that in the case before us the
tenancy was not for manufacturing or
3
1952 (3) SCR 269
agricultural purposes. The object was to
enable the lessee to build structures upon
the land. In these circumstances, it could
be regarded as a tenancy from month to
month unless there was a contract to the
contrary. The question now is, whether
there was a contract to the contrary in
the present case? Mr. Setalvad relies very
strongly upon the fact that the rent paid
here was an annual rent and he argues that
from this fact it can fairly be inferred
that the agreement between the parties was
certainly not to create a monthly tenancy.
It is not disputed that the contract to
the contrary, as contemplated by section
106 of the Transfer of Property Act, need
not be an express contract; it may be
implied, but it certainly should be a
valid contract. If it is no contract in
law, the section will be operative and
regulate the duration of the lease. It has
no doubt been recognised in several cases
that the mode in which a rent is expressed
to be payable affords a presumption that
the tenancy is of a character
corresponding there to. Consequently, when
the rent reserved is an annual rent, the
presumption would arise that the tenancy
was an annual tenancy unless there is
something to rebut the presumption.”
6. The learned senior counsel submits that in the instant
case, the requirements under Section 106 of the Act need
to be adhered to, as clause 6 of the agreement operates
as a contract to the contrary.
7. We have heard the learned senior counsel appearing on
behalf of the parties and have perused the evidence on
record. The essential question which arises for our
consideration in the instant case is whether the
agreement dated 07.08.2006 can be read in evidence, and
whether it is a contract to contrary in terms of Section
106 of the Act.
8. At the outset, it would be useful to refer to the
statutory provisions at play in the instant case, which
are Sections 106 and 107 of the Act, which read as under:
“106. Duration of certain leases in
absence of written contract or local
usage:
In the absence of a contract or local law
or usage to the contrary, a lease of
immovable property for agricultural or
manufacturing purposes shall be deemed to
be a lease from year to year, terminable,
on the part of either lessor or lessee, by
six months' notice expiring with the end
of a year of the tenancy; and a lease of
immovable property for any other purpose
shall be deemed to be a lease from month
to month, terminable, on the part of
either lessor or lessee, by fifteen days'
notice expiring with the end of a month of
the tenancy.
Every notice under this section must be in
writing, signed by or on behalf of the
person giving it, and either be sent by
post to the party who is intended to be
bound by it or be tendered or delivered
personally to such party, or to one of his
family or servants at his residence, or
(if such tender or delivery is not
practicable) affixed to a conspicuous part
of the property.
107. Leases how made:
A lease of immovable property from year to
year, or for any term exceeding one year
or reserving a yearly rent, can be made
only by a registered instrument.
All other leases of immovable property may
be made either by a registered instrument
or by oral agreement accompanied by
delivery of possession.
Where a lease of immovable property is
made by a registered instrument, such
instrument or, where there are more
instruments than one, each such instrument
shall be executed by both the lessor and
the lessee:
PROVIDED that the State Government from
time to time, by notification in the
Official Gazette, direct that leases of
immovable property, other than leases from
year to year, or for any term exceeding
one year, or reserving a yearly rent, or
any class of such leases, may be made by
unregistered instrument or by oral
agreement without delivery of possession.”
 (emphasis laid by this Court)
9. A perusal of Section 106 of the Act makes it clear
that it creates a deemed monthly tenancy in those cases
where there is no express contract to the contrary, which
is terminable at a notice period of 15 days. The section
also lays down the requirements of a valid notice to
terminate the tenancy, such as that it must be in
writing, signed by the person sending it and be duly
delivered. Admittedly, the validity of the notice itself
is not under challenge. The main contention advanced on
behalf of the respondents is that the impugned judgment
and order is valid in light of the second part of Section
107 of the Act, which requires that lease for a term
exceeding one year can only be made by way of a
registered instrument.
10. At this stage, it will also be useful to examine
Clause 6 of the agreement dated 07.08.2006, which reads
as under:
“6. Default
In the event of any default on the part of
the Tenants in making payment of the rent
for 3 consecutive months or in the event
of any breach of any the terms and
conditions herein contained and on the
part of the tenants to be performed and
observed and the landlord shall be
entitled to serve a notice on call upon
the tenants to make payment of the rent
and to remedy for the breach of any of the
remaining terms and conditions herein
contained and if within a period of 30
days, the Tenants shall fail to remedy the
breach the landlord shall be entitled to
determine or terminate the tenancy.”
 (emphasis laid by this Court)
Thus, in terms of clause 6 of the agreement, the landlord
was entitled to terminate the tenancy in case there was a
breach of the terms of the agreement or in case of
non-payment of rent for three consecutive months and the
tenants failed to remedy the same within a period of
thirty days of the receipt of the notice. The above said
clause of the agreement is clearly contrary to the
provisions of Section 106 of the Act. While Section 106
of the Act does contain the phrase ‘in the absence of a
contract to the contrary’, it is a well settled position
of law, as pointed out by the learned senior counsel
appearing on behalf of the appellant that the same must
be a valid contract.
11. It is also a well settled position of law that in the
absence of a registered instrument, the courts are not
precluded from determining the factum of tenancy from the
other evidence on record as well as the conduct of the
parties. A three Judge bench of this Court in the case of
Anthony v. KC Ittoop & Sons4, held as under:
“A lease of immovable property is defined
in Section 105 of the TP Act. A transfer
of a right to enjoy a property in
consideration of a price paid or promised
to be rendered periodically or on
specified occasions is the basic fabric
for a valid lease. The provision says that
such a transfer can be made expressly or
by implication. Once there is such a
transfer of right to enjoy the property a
lease stands created. What is mentioned in
the three paragraphs of the first part of
Section 107 of the TP Act are only the
different modes of how leases are created.
The first paragraph has been extracted
above and it deals with the mode of
creating the particular kinds of leases
mentioned therein. The third paragraph can
be read along with the above as it
contains a condition to be complied with
4
(2000) 6 SCC 394
if the parties choose to create a lease as
per a registered instrument mentioned
therein. All other leases, if created,
necessarily fall within the ambit of the
second paragraph. Thus, dehors the
instrument parties can create a lease as
envisaged in the second paragraph of
Section 107 which reads thus………
When lease is a transfer of a right to
enjoy the property and such transfer can
be made expressly or by implication, the
mere fact that an unregistered instrument
came into existence would not stand in the
way of the court to determine whether
there was in fact a lease otherwise than
through such deed.
………………
Taking a different view would be contrary
to the reality when parties clearly
intended to create a lease though the
document which they executed had not gone
into the processes of registration.
That lacuna had affected the validity of
the document, but what had happened
between the parties in respect of the
property became a reality. Non
registration of the document had caused
onlytwo consequences. One is that no
lease exceeding one year was created.
Second is that the instrument became
useless so far as creation of the lease is
concerned. Nonetheless the presumption
that a lease not exceeding one year
stood created by conduct of parties
remains un-rebutted.”
 (emphasis laid by this Court)
Thus, in the absence of registration of a document, what
is deemed to be created is a month to month tenancy, the
termination of which is governed by Section 106 of the
Act.
12. Thus, the question of remanding the matter back to
the Trial Court to consider it afresh in view of the fact
that the same has been admitted in evidence, as the High
Court has done in the impugned judgment and order, does
not arise at all. While the agreement dated 07.08.2006
can be admitted in evidence and even relied upon by the
parties to prove the factum of the tenancy, the terms of
the same cannot be used to derogate from the statutory
provision of Section 106 of the Act, which creates a
fiction of tenancy in absence of a registered instrument
creating the same. If the argument advanced on behalf of
the respondents is taken to its logical conclusion, this
lease can never be terminated, save in cases of breach by
the tenant. Accepting this argument would mean that in a
situation where the tenant does not default on rent
payment for three consecutive months, or does not commit
a breach of the terms of the lease, it is not open to the
lessor to terminate the lease even after giving a notice.
This interpretation of the clause 6 of the agreement
cannot be permitted as the same is wholly contrary to the
express provisions of the law. The phrase ‘contract to
the contrary’ in Section 106 of the Act cannot be read to
mean that the parties are free to contract out of the
express provisions of the law, thereby defeating its very
intent. As is evident from the cases relied upon by the
learned senior counsel appearing on behalf of the
appellant, the relevant portions of which have been
extracted supra, the contract between the parties must be
in relation to a valid contract for the statutory right
under Section 106 of the Act available to a lessor to
terminate the tenancy at a notice of 15 days to not be
applicable.
13. In view of the above reasoning and conclusions
recorded by us, the impugned judgment and order passed by
the High Court is set aside. The judgment and order
passed by the Trial Court is restored. The Appeal is
accordingly allowed. No costs.

…………………………………………………………J.
 [V.GOPALA GOWDA]
 …………………………………………………………J.
 [ADARSH KUMAR GOEL]
New Delhi,
August 29, 2016
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