1 Judgment in Appeal No.118 of 2007 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION APPEAL NO.118 OF 2007. IN SUIT NO.1097 OF 1983 APPELLANT : Allahabad Bank, A Body Corporate Constituted under the Banking Companies (Acquisition and Transfer of Undertakings Act, V of 1970 having its Head Office at 2,Netaji Subhash Road, Calcutta – 700 001 and a Branch at Manish Commercial Centre, Worli, Bombay – 400 026. VERSUS RESPONDENTS: 1. Rewachand Ladharam Ramchandani of Bombay, Indian Inhabitant carrying on business in the name and style of M/s Sharan Builders at 71/72, Atlanta, 209, Backbay Reclamation, Bombay – 400 021. 2. Cozihome Co-operative Housing Society Ltd., A Co-operative Society registered under the Maharashtra Co-operative Societies Act, 1960 having its registered office at 251, Pali Hill Road, Bombay – 400 050. =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-=-=-=-=-=-=-= Mr.H.J.Thakkar, Sr. Advocate with Mr.Jayesh Patel and Ms.Sheela Mistry Advocate for the appellant. Mr.P.K.Dhakephalkar, Sr.Advocate i/by Jaydeep Deo for resp.no.1. =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= CORAM : J.N.PATEL, ACTING C.J. & Smt.R.P. SONDURBALDOTA, J. JUDGMENT RES.: 30/11/2009. JUDGMENT PRO.: 25/01/2010. 2 Judgment in Appeal No.118 of 2007 JUDGMENT: (Per Smt.R.P.SondurBaldota,J.) 1. This appeal is directed against the Judgment and decree dated 30th November, 2006 of the learned Single Judge of this court dismissing the suit filed by the appellant. The respondents are the original defendants. The parties will hereinafter be referred to by their original nomenclature. 2. The brief facts of the case are that defendant no.1 the owner of the suit flat i.e. flat no.12/A in 'B' building on the first floor of Cozihome at Pali Hill Road, Bandra had entered into the agreement dated 1st August, 1978 with United Industrial Bank Limited, the original plaintiff for giving the suit flat on leave and licence basis for period of three years on the monthly licence fee of Rs.1400/-. Original plaintiff no.1 was put in possession of the suit flat immediately on execution of the agreement. Two clauses of the agreement on which the entire matter hinges are clauses 21 and 22. It will be convenient to reproduce the two clauses at this stage for further narration of facts. 21. The licensee assures and agrees with the Licensor that it will vacate the said flat on the expiry of the license period and in the event of not vacating the said flat the licencsee will be bound to buy over the said flat for Rs. 2,00,000/- (Rupees two lakhs) being the purchase price in 3 Judgment in Appeal No.118 of 2007 respect of the said flat. In that event the licensee will pay to G.G.Mirchandani brokerage of Rs.4,000/- at the rate of 2% of the purchase price. 22. The aforesaid license will be renewable for a further period of three years at the option of the Licensee provided the terms and conditions of the fresh licence is mutually agreed upon between the Licensor and the Licensee failing which the Licensee would vacate the flat or buy over the flat as stated in clause 21 above. 3. The period of leave and licence was to expire on 31st July, 1981. More than a month before that i.e. on 26th June, 1981 the original plaintiff allegedly gave notice to defendant no.1 that it was exercising the option under clause 21 above to buy the suit flat at the price mentioned therein. Defendant no.1, however, did not respond in any way. The original plaintiff also after expiry of the licence period neither vacated the suit flat nor got the licence renewed. On 17th of December, 1981 it wrote to defendant no.2 Society enquiring about the dues payable by defendant no.1. On receiving information vide Society's Letter dated 23rd of February, 1981 it paid the dues to the Society. As defendant no.1 did execute the sale deed, original plaintiff filed the suit herein, inter alia, for a declaration that defendant no.1 had agreed to 4 Judgment in Appeal No.118 of 2007 sell the suit flat to the original plaintiff and sought specific performance of the same. During the pendency of the suit, the original plaintiff, United Industrial Bank Ltd., was amalgamated with Allahabad Bank w.e.f. 31st of October, 1989. As a result of acquisition, the original plaintiff came to be replaced by Allahabad Bank, the appellant herein. 4. Defendant no.1 denied the entire case of the plaintiff and contended that an incorrect interpretation was sought to be placed by the plaintiff on Clauses 21 and 22. According to him, clause 21 of the agreement does not and was never intended to give the original plaintiff any right or option to purchase the suit flat. Instead it was introduced for the protection of defendant no.1. In the event of the original plaintiff not vacating the suit flat on expiry of the licence period and also not getting the term of the licence extended, defendant no.1 was to have an option to compel the plaintiff to buy over the suit flat for Rs. 2,00,000/-. This clause, therefore, was for the benefit of defendant no.1 and not to give benefit to the original plaintiff for committing the wrong of not vacating the suit flat. It was further contended by defendant no.1 that even if clause 21 of the Agreement was to be treated as an agreement of sale, as claimed by the plaintiff, the option to be exercised thereunder was only on expiry of the licence period and not before that. 5 Judgment in Appeal No.118 of 2007 The plaintiff claimed to have exercised the option even before the expiry of the license period on 31st of July, 1981. Such exercise of option was not in accordance with the agreement. 5. Defendant no.2 Society did not file any written statement to contest the suit. 6. The learned Single Judge on appreciation of the pleadings and evidence rejected the entire case of the plaintiff and dismissed the suit. For that purpose he read the leave and licence agreement dated 1st of October, 1978 in its entirety. He took note that clause 1 to 15 provided for the various terms of leave and licence. Clause 16 sets out that the plaintiff shall on expiry of the licence period or on sooner determination thereof by the licensor deliver back the licenced premises to defendant no.1 in the same condition in which they were delivered, together with all the furniture, fixtures and fittings. Clauses 17 and 19 empower defendant no.1 to enter upon the licensed premises to repossess the same in the event of breach of any of the terms of the licence. He took note of the opening words of clause 21 which assures and agrees with defendant no.1 that the plaintiff will vacate the suit flat on expiry of the licence period. The further wordings of the clause mention as to what would happen in the event the plaintiff failed to 6 Judgment in Appeal No.118 of 2007 vacate the suit plot. It provides that in that event the plaintiff would be bound to buy over the suit flat for Rs.2,00,000/-. The next clause No.22 provides for renewal of the leave and licence for a further period of three years at the option of the plaintiff, provided, the terms and conditions of the fresh licence are mutually agreed upon. After taking note of all these clauses, the learned Single Judge opined that the terms and conditions of the agreement made it clear that on expiry of the period of licence the plaintiff was bound to vacate the flat unless the period of leave and licence was extended on the mutual terms. If this did not happen and if it appeared to defendant no.1 that there was no use in going into litigation he could decide to sell the suit flat and thereupon offer the same to the plaintiff in which case the plaintiff had no choice but to purchase the suit flat, having already agreed to purchase the same under clause 21. The learned Judge also found that the so called option allegedly exercised by the plaintiff under Clause 21 was premature and hence not tenable. The Clause 21 specifically provides that the option was to be exercised only after expiry of the licence period i.e. after 31st of July, 1981 whereas the plaintiff exercised the option one month before that. Such exercise could not have been treated as an exercise under Clause 21. Admittedly, there is no exercise 7 Judgment in Appeal No.118 of 2007 of option after 31st of July, 1981. 7. Being aggrieved by the above interpretation of Clause 21, the plaintiff filed the present appeal to challenge the same. It has been submitted by Mr.Thakkar, the learned Senior Counsel that clause 21 contained in the leave and licence agreement is the complete agreement of sale by itself. He submits that though the main agreement arrived at between the parties is of leave and licence agreement giving the suit flat on leave and licence basis to the plaintiff for the period of three years, there can be no impediment in including an agreement of sale in such an agreement. The clause, according to him, is an offer by defendant no.1 for sale of the suit flat with an option for the plaintiff to accept the same at the time mentioned in the Clause. The plaintiff exercised the option by sending letter dated 26th of June, 1981 to defendant no1, and defendant no.1 cannot be allowed to back out to the detriment of the plaintiff. He also submits that the agreement dated 1st August, 1978 is a commercial document and hence it must be interpreted in such a manner as to give efficacy to the contract rather than invalidate it. In this connection he relies upon the decision of the Hon'ble Supreme Court in Union of India Vs. D.N.Revri & Co. reported in AIR 1976 SC Page 2257. In that case the Hon'ble Supreme Court while considering 8 Judgment in Appeal No.118 of 2007 challenge to the award made by an arbitrator on the ground that he was validly appointed observed as follows ; : It must be remembered that a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it. It would not be right while interpreting a contract, entered into between two lay parties, to apply strict rules of construction which are ordinarily applicable to a conveyance and other formal documents. The meaning of such a contract must be gathered by adopting a commonsense approach and it must not be allowed to be thwarted by a narrow pedantic and legalistic interpretation 8. Mr.Dhakephalkar the learned Senior Advocate on the other hand supports the impugned order submitting that the learned Single Judge has correctly looked at the agreement in its entirety to hold that it is only an agreement for leave and licence. In any case, he points out that, the exercise of the so called option by the plaintiff was not in accordance with the clause. 9. We are now required to see whether an agreement of sale of the suit flat can be read into the agreement of leave and licence dated 1st August, 1978. We have carefully gone through the entire agreement. We notice that the tenor of the entire agreement is only of the 9 Judgment in Appeal No.118 of 2007 agreement to allow the plaintiff to occupy the suit flat on leave and licence basis. There are two recitals to the agreement. The first recital is about ownership of defendant no.1 of the suit flat. The second recital which is most crucial, states that the plaintiff had approached defendant no.1 for giving the suit flat with furniture, fixtures and fittings on leave and licence basis for a period of three years from 1st August, 1978 in consideration of monthly licence fee of Rs.1400/- payable by the plaintiff to defendant no.1 subject to the terms and conditions mentioned in the agreement. The recitals of an agreement are indicative of the purpose of the agreement that the parties to the agreement had in mind at the time of entering thereinto. The recitals of the agreement in this case refer only to the transaction of leave and licence. There is no whisper in the recitals of the agreement of sale of the suit flat. Turning to the main agreement we see that every clause therein including the first part of Clause 21 relates only to the transaction of leave and licence. The later part of Clause 21 says that “..... in the event of not vacating the said flat the licence will be bound to buy over the said flat …..”. The clause does not give any option to the plaintiff to be exercised at its desire. Instead there is compulsion on the happening of an event of holding on to the suit flat despite the 10 Judgment in Appeal No.118 of 2007 assurance and agreement of vacating it on the expiry of the agreement. Therefore it is obvious that this was meant to act only as a deterrent factor as contended by defendant No.1. On the event mentioned therein happening, if defendant No.1 desired to sell the suit flat, the plaintiff was bound to purchase it at the price mentioned therein. Thus, the unsaid option therein is for defendant No.1 to sell and not for the plaintiff to purchase. Therefore,Clause 21 cannot be read as an agreement to sell the suit flat. One also cannot lose sight of the fact that Clause 22 providing for an option of renewal (which is the only option available to the plaintiff under the agreement) of the licence for a further period of three years comes after the so called agreement of sale. The renewal is dependent upon fresh terms and conditions to be agreed upon by the parties. In these circumstances, we are entirely in agreement with the learned Single Judge that no agreement of sale can be read into the leave and licence agreement dated 1st August, 1978, and that the agreement binding the plaintiff to purchase the suit flat could have been exercised by the original plaintiff only when defendant No.1 had offered to sell it and not otherwise. Hence, the appeal is dismissed with costs. 11 Judgment in Appeal No.118 of 2007 (Smt.R.P.SondurBaldota,J) ( J.N. Patel ) Acting C.J.