: 1 : IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.1130 OF 2005 WITH CHAMBER SUMMONS NO.550 OF 2005 IN EXECUTION APPLICATION NO.18 OF 2004 IN HONG KONG ACTION NO.4761 OF 2001 Sumikin Bussan (Hong Kong) International Limited ..Appellant. (Orig.Plff./ Judgment Creditor) Vs. Manharlal Trikamdas Mody ..Respondent No.1 (Orig.Deft. No.2 And ING Bank, N.V. ..Respodnent No.2 (Orig. Applicant) Mr.R.Dada, Senior Counsel with Mr.Pratik Sekseria with Mr.Aditya Khonna with Ms.Trishna Thapliyal i/b.M/s.Khaitan & Co. for the Appellant. Mr.H.Toor with Mr.Jaydeep Raut i/b.Mr.Prem Ranga for Respondent No.1. Mr.P.K.Samdani, Senior Counsel with Mr.B.Saraf with Ms.Raksha Kothari with Mr.Nirav Shah with Mr.Munef Verjee i/b M/s.D.S.K. Legal for Respondent No.2. CORAM : DR.S.RADHAKRISHNAN & S.J. VAZIFDAR, JJ. DATED : 2ND MAY, 2006. ORAL JUDGMENT : (PER S.J. VAZIFDAR, J.) 1. This is an Appeal against the order of the learned Single Judge allowing the Chamber Summons : 2 : taken out by Respondent No.2 by directing the amendment of the terms and conditions of sale of a flat, in execution, recognising the right of Respondent No.2 therein under a leave and license agreement dated 8.10.2001. PRELIMINARY FACTS : 2. The Appellant is a judgment creditor having obtained a decree dated 31.5.2002 against Respondent No.1 passed by the High Court of the Hong Kong Special Administrative Region, Court of First Instance, in Action No.4761 of 2001 in the sum of US $ 618,331.26 with interest. Respondent No.1 is the judgment debtor. On 26.3.2003 the above Execution Application was taken out by the Appellant for execution of the decree of a sum of Rs.3,48,98,644.84 inter-alia against a flat owned, according to the Appellant, by Respondent No.1. According to Respondent No.1, he is the co-owner of Flat No.201, Silver Arch, Nepan Sea Road, Mumbai alongwith his wife. This is a dispute with which we are not concerned in this Appeal. A warrant of sale of the said flat was issued on 21.5.2004 and a proclamation of a sale thereof has also been issued. On 25.5.2005 the particulars and conditions of sale were finalised : 3 : by the Sheriff of Mumbai. 3. Respondent No.2, the Applicant to the above Chamber Summons, is the ING BANK, N.V., a banking company, incorporated under the Laws of Netherlands. Aggrieved by the fact that the particulars and conditions of sale finalised by the Sheriff of Mumbai do not mention their rights in respect of the said flat arising from the leave and license agreement Respondent No.2 filed the above Chamber Summons seeking to set aside the sale on the said terms and conditions. In the alternative Respondent No.2 sought an order amending the terms and conditions of sale to recognise their right to be in possession of the flat till the amount of the security deposit of Rs.3,25,00,000/- alongwith the contractual interest thereon is refunded to them as per the terms and conditions of the leave and license agreement. Respondent No.2 has also sought a declaration that they have a lien and charge over the flat and that they have a lien on possession, equivalent to a charge under the said agreement and for a right to possess, occupy and enjoy the same. 4. Respondent No.2 has based its claim upon the leave and license agreement dated 8.10.2001 entered : 4 : into between Respondent No.1 and his wife on the one hand (therein referred to as the licensors) and itself (therein referred to as the licensee) on the other. For convenience the reference to Respondent No.1 in this judgement will include a reference to his wife. Respondent No.1 granted to Respondent No.2 leave and license of the said flat and car parking spaces (therein referred to as the licensed premises) on the terms and conditions mentioned therein. As recorded in clause 25, Respondent No.2 deposited a sum of Rs.3,25,00,000/- (referred to therein and hereafter by us as the security deposit) with Respondent No.1 for due observance by Respondent No.2 of the terms of the agreement. Under clause 26 upon expiry or sooner determination of the agreement the security deposit is to be refunded without interest against Respondent No.2 handing over possession of the said flat. 5. We will refer to the relevant clauses of the agreement while dealing with the various submissions. At this stage it is necessary only to set out clauses 19 and 28 which form the fundamental basis of the second Respondent’s case. Clauses 19 and 28 read as under : : 5 : "19. In the event of the Licensors desiring to sell or dispose of the Licensed Premises during the period of the licence, the Licensors shall be entitled to do so without affecting the rights of the Licensee hereunder and such sale or disposal shall be subject to the rights of the Licensee under this Agreement. "28. In the event of failure on the part of the Licensors to refund the Security Deposit or any part thereof to the Licensee as aforesaid the Licensee shall, until the Licensors refund the entire Security Deposit, be entitled to continue to use and occupy the Licensed Premises without payment to the Licensors of any license fee or compensation and such staying over by the Licensee in the Licensed Premises shall not constitute a default by the Licensee under the Leave and License Agreement and the Licensors shall not be entitled to invoke the Bank Guarantee referred to hereinafter. Without prejudice to the aforesaid and notwithstanding anything herein contained, the Security Deposit shall thereupon from the date of expiry or termination of the licence and from the date on which the Licensee is willing to hand over vacant charge of Licensed Premises, bear and carry interest at the rate of 2% (two per cent) per month or part thereof till repayment or realization of the Security Deposit." 6. Admittedly, the security deposit has not been repaid by Respondent No.1 to Respondent No.2 despite the leave and license agreement having expired on 31.7.2003. : 6 : 7. The issue that arises therefore pertains to the rights of Respondent No.2 as a result of the admitted failure on the part of Respondent No.1 in having failed to refund the security deposit and interest thereon from 31.7.2003. SUBMISSIONS 8. Mr.Samdani, the learned Senior Counsel appearing on behalf of Respondent No.2 submitted that in view thereof Respondent No.2 is entitled to continue to remain in use and occupation of the said flat till the security deposit together with interest thereon is refunded. He further submitted that the said agreement created a mortgage in favour of Respondent No.2 over the said flat for the purpose of securing the repayment of the security deposit with interest. In the alternative, he submitted that the agreement created a charge over the said flat in favour of Respondent No.2 to secure the repayment of the said amounts. In the further alternative, he submitted that the agreement entitled Respondent No.2 to a possessory lien over the said flat till the said amounts are repaid by the licensors to Respondent No.2. : 7 : 9. Mr.Dada, the learned Senior Counsel appearing on behalf of the Appellant submitted that the agreement created a bare licence in favour of Respondent No.2 which came to an end on 31.7.2003 i.e. upon the expiry of the licence period. According to him even during the period of the license Respondent No.1 would have been entitled to revoke the license despite clause 23 of the agreement by which Respondent No.2 was entitled to continue to use and occupy the licensed premises during the twenty two months license period, upon payment of the monthly compensation. He further submitted that in the event of the said flat being sold the purchaser thereof would not be bound by the licence/terms and conditions of the leave and license agreement including clauses 23 and 28 thereof in view of section 59 of the Indian Easements Act. He submitted that the rights created under clauses 23 and 28 of the leave and licence agreement are contrary to the provisions of Sections 59 and 60 of the Indian Easements Act and are accordingly unenforceable against Respondent No.1 and any transferee/purchaser of the licensed premises either. According to Mr.Dada, sections 59 and 60 of the Indian Easements Act are not subject to a contract to the contrary. According to him, the only remedy of the licensee : 8 : would be a claim for damages and nothing more. The licensee would not be entitled to enforce the terms of the agreement permitting use and occupation of the premises for any period of time irrespective of any contract to the contrary. He denied the contention that the agreement created either a mortgage or a charge or a lien in favour of Respondent No.2. 10. The case therefore falls broadly into two parts : Whether Respondent No.2 is entitled under the leave and license agreement to continue to use and occupy the licensed premises till the security deposit and interest thereon is refunded by Respondent No.1. And whether the leave and license agreement creates a mortgage or a charge or security in respect of the licensed premises to secure the repayment of the security deposit and the interest thereon. Whether Respondent No.2 is entitled under the leave and license agreement to continue to use and occupy the licensed premises till the security deposit and interest thereon is refunded by Respondent No.1. 11. The first point, which is no longer : 9 : res-integra, requires a consideration of sections 59, 60 and 64 of the Indian Easements Act which read as under :- "59. Grantor’s transferee not bound 59. Grantor’s transferee not bound 59. Grantor’s transferee not bound by license.- by license.- by license.-When the grantor of the license transfers the property affected thereby, the transferee is not as such bound by the license." 60. License when revocable. - 60. License when revocable. - 60. License when revocable. - A license may be revoked by the grantor, unless - (a) it is coupled with a transfer of property and such transfer is in force ; (b) the licensee, acting upon the license, has executed a work of a permanent character and incurred expenses in the execution. "64. Licensee’s rights on 64. Licensee’s rights on 64. Licensee’s rights on eviction.- eviction.- eviction.- Where a license has been granted for consideration and the licensee, without any fault of his own, is evicted by the grantor before he has fully enjoyed, under the license, the right for which he contracted, he is entitled to recover compensation from the grantor." 12. Mr.Dada’s submissions raise three questions under the first part viz.(i) Whether parties can by agreement make a license irrevocable or revocable only on a given condition or in given circumstances. (ii) If the answer to the first question is in the affirmative, whether a transferee of the property is : 10 : bound by such an agreement. (iii) Whether the expression "security deposit" in clause 28 of the agreement includes interest payable under the said clause. 13. The learned single Judge did not consider these aspects, quite obviously in view of a judgment of another learned single Judge of this Court in Hongkong And Shanghai Banking Corporation Ltd. v. Diamant Borat India Private Ltd. 1998 (1) LJ 37 = 1998 (2) Mah.L.J. 35, the ratio of which supports the Appellant’s case. 14. Unfortunately neither the learned Judge who delivered the impugned judgement nor the learned Judge who delivered the judgement in HSBC’s case had been referred to three binding judgements which to our mind concludes the matter. . The Supreme Court in the case of Ram Sarup Gupta (dead) v. Bishun Narain Inter College & Ors., (1987) 2 SCC, 555, affirmed a judgment of a learned Single Judge of this Court in M.F. De Souza v. Childrens Education Uplift Society, AIR 1959 Bobby, 533 and a Division Bench judgment in Dominion of India v. Sohan Lal, AIR 1950 East Punjab, 40. Had : 11 : these judgements been cited before either of the learned Judges we are certain that they would have considered themselves bound by them and rejected Mr.Dada’s contentions based of the provisions of the Indian Easements Act. (i) Whether parties can by agreement make a license irrevocable or revocable only on a given condition or in given circumstances. 15. In M.F. De Souza v. Childrens Education Uplift Society, AIR 1959 Bombay, 533, affirmed by the Supreme Court, by virtue of a compromise decree passed in a previous litigation, the Defendant occupied a room as a licensee. Under the terms of the compromise, the licence in favour of the Defendants was irrevocable. It was contended on behalf of the Plaintiff that a licence must always be regarded as revocable at the will of the licensor except in the two cases set out under section 60 of The Indian Easements Act, 1882. It was contended that section 60 did not mention any third class of cases where a licence would be irrevocable, including an agreement that it shall be irrevocable. Mudholkar, J. rejecting the contention, held as under :- : 12 : "It is no doubt true that S. 60 mentions only two classes of cases in which the licence could be regarded as irrevocable. This means that where a case falls in either of these categories the licence is made irrevocable by operation of law, that is the Easements Act. But apart from the Easements Act, there is the law of contract and if parties enter into a contract and arrive at a solemn agreement to the effect that the licence shall be irrevocable or shall be limited for a particular duration, it follows that the licensor will be bound by his engagement and will not be entitled to terminate the licence or revoke the licence at his sweet will and pleasure. If authority were necessary for this proposition, I may refer to the following passage in Corpus Juris Secundum, Vol. LIII, pp. 815-16 : "As a general rule a mere licence, that is, one which is merely a personal privilege not coupled with an interest in the land, may be revoked by the licensor at any time, at his pleasure. This rule generally applies regardless of how long the use has been permitted, and although the intention was to confer a continuing right, and even though the licence was created by a deed or other written instrument. The general rule, however, is not without its modifications and exceptions, and does not apply where the licence is coupled with or partakes of the character of an easement and the rights under it are affirmatively and definitely fixed and settled, or where it constitutes part of a contract between the parties........." Now, here the consent decree to which I have referred earlier was passed in an appeal which the : 13 : plaintiff had brought to this Court from the dismissal of its suit for possession of the very room a portion of which is in the defendant’s occupation. The plaintiff, which had lost its suit in the first Court, agreed to allow the defendant to be in exclusive possession of one-third portion of that room, and further agreed that her right as a licensee to occupy the room will be irrevocable so long as the Bombay Rent Act remains in force. Now, it is clear that the plaintiff, which had lost earlier in the City Civil Court, wanted to rescue something out of its original claim and therefore it entered into the aforesaid compromise. The consideration for the compromise was apparently the defendant’s parting with her right to the use of two-thirds of the room, because as a result of the compromise she became entitled to use only one-third of the room. The plaintiff having thus received consideration for the compromise, cannot in equity and in all fairness be allowed to go back upon it. Therefore, I am of the opinion that, quite apart from S. 60 of the Easements Act, the Court will have to bear in mind in a suit of this nature whether the licensor is precluded from revoking the licence because of any contractual engagement into which he has entered. There being an engagement of this kind here, I am of the opinion that the plaintiff cannot claim to itself the right of revocation at its free will and pleasure. To hold otherwise and to decree possession in such circumstances would be nothing else than putting the Seal of approval of the Court to a breach of contract." (emphasis supplied) : 14 : 16(a). In Dominion of India v. Sohan Lal, AIR 1950 East Punjab, 40, also affirmed by the Supreme Court, the Division Bench came to the conclusion that the Railway authorities had granted in favour of the Respondent a licence to sell books and other publications, and for that purpose, to erect book stalls. The agreement was for a period of five years, renewable at the option of the Appellant for a further period of five years on the same terms and conditions and was to terminate on expiry of five years without any formal notice. For the present purpose, it is not necessary to consider certain facts regarding a separate understanding in view of the impending partition of India and the consequential possible division of the North Western Railway. (b). In paragraphs 12 and 13, the Division Bench held as under :- "[12] ............................ Be that as it may, the two tests of irrevocability established by the cases and referred to above, or by the Indian Easements Act will, however, give way to the special agreement, if any, of the parties. Thus a license which is prima facie irrevocable either because it is coupled with a grant or interest or because the licensee has erected works of a permanent nature there is nothing to prevent the parties from : 15 : agreeing expressly or by necessary implication that the license nevertheless shall be revocable. See Liggins v. Inge, (1831) 7 Bing, 682 at pp. 688, 694 which was applied by the Judicial Committee in Plimmer v. Wellington Corporation, (1884) 9 A. C. 699 at p. 714 : (53 J.P.C. 104), Gujarat Ginning and Manufacturing Co. Ltd., Ahmedabad v. Moti Lal Hirabhai Spinning & Manufacturing Co. Ltd., Ahemedabad, A.I.R. (23) 1936 P.C. 77 at p. 82 : (160 I. C. 837) and Ganga Sahai v. Badrul Islam, A.I.R. (29) 1942 ALL. 930 : (202 I.C. 676). On the same reasoning, I should think, there will be nothing to prevent the parties from agreeing expressly or impliedly that a license, which is prima facie revocable being not within either of the two categories of irrevocable license should nonetheless be irrevocable." "[13] As regards the remedy, even where the license is revocable the licensee is entitled to a reasonable notice before the license is revoked. If, however, the license is revoked without reasonable notice the remedy of the licensee is by way of damages and not by way of an injunction. Aldin v. Lehimer Clark Muirhead & Co. (1894) 2 Ch. 437 : (63 L.J. Ch. 601) and Wilson v. Tavener, (1901) 1 Ch. 598 : (70 L.J. Ch. 263), where an interlocutory injunction had been refused. Even if the license is obtained for consideration, yet if it is otherwise revocable and is revoked the remedy of the licensee is damages: Smart v. Jones, (1864) 83 L. J. C. P. 154 : (10 L.T. 271), Kerrison v. Smith, (1897) 2 Q.B. 445 : (66 L.J.Q.B. 762), Prosonna Coomar Singha v. Ram Coomar Ghose, 16 Cal. 640. The reason is obvious, for to restrain : 16 : the revocation of a revocable license is to make it (ir) revocable. If, however, the license is irrevocable and its enjoyment is obstructed by the licensor there is authority that the remedy of the licensee is either by way of injunction or in damages (see Peacock on Easement, 3rd Edn., p. 680). As already stated the Court of Equity will give relief by way of specific performance or injunction. An irrevocable license for a term implies an undertaking on the part of the licensor not to revoke it during its term and even if the license be not specifically enforceable for any reason, a threatened breach of the license may be prevented by enforcing this implied negative covenant by means of an injunction-a remedy which really gives effect to the irrevocability of the license." (emphasis supplied) (c). As we shall shortly indicate it is this ratio that has been affirmed by the Supreme Court in Ram Sarup Gupta (dead) v. Bishun Narain Inter College & Ors., (1987) 2 SCC, 555. (d). The Division Bench then, in paragraph 13, noted the argument that if the statute applies, it having prescribed a specific remedy of damages under section 64, no other remedy is available even if the case is of an irrevocable license. The Division Bench noted the judgments cited in this regard of the Calcutta High Court. Though the Division Bench : 17 : observed that the argument was not without force, it obviously did not accept the ratio of these judgments. The same is clear not merely from paragraphs 12 and 13 which we have extracted above, but also from what follows thereafter. In paragraph 15, the Division Bench held :- "I would be prepared to say that there is "included in that contract a contract not to. . . . . . . revoke the license" if the licensee performs all its obligations under the agreement and I would be inclined to hold, if that clause stood alone, that the parties by their special contract made the license, which was prima facie revocable under s. 60, an irrevocable license and that a threatened revocation thereof should be enforced by an injunction restraining the breach of the implied negative covenant." (e). The Division Bench however allowed the Appeal, thereby refusing the injunction sought by the Respondent on a finding that the licence was in fact not irrevocable. In view of the facts of the case, it was observed at the commencement of paragraph 15, that clause 1 of the agreement which conferred upon the Respondent licensee, license for a period of five years was not decisive of the question as to whether it was irrevocable. It was held that clause 22 implied that the licensee would be entitled to enjoy : 18 : the license for the full term only upon performing all the obligations under the agreement. It was alleged that the licensee had committed several breaches. Clause 11 of the agreement provided that if the licensee willfully commits any breach of the undertakings contained therein or if his work proves in any way to be unsatisfactory, or if he was found unable to conduct the business as a book stall contractor, it would be lawful for the licensor to terminate the license by giving one calender months notice. (f). What was found to be crucial by the Division Bench was that clause 11 also provided that on the question as to whether there was any such default by the licensee, the General Manager would be the sole judge. The General Manager had, in fact, decided that the Respondent had committed breaches and that the opinion of the General Manager could not be challenged in any Court. It was for these reasons that the Division Bench held that the licence was revocable and accordingly held that the licensee was not entitled to an injunction. (g). The ultimate decision therefore of the Division Bench, did not detract from the ratio in : 19 : paragraphs 12 and 13 which clearly held that Section 60 of the Indian Easements Act is subject to a contract to the contrary viz. a license which is revocable being not within the two categories specified in Section 60 may nonetheless be made irrevocable by agreement between the parties and that a threatened revocation of such a license may be prevented by the grant of an injunction. 17.