:1: IN THE HIGH COURT OF JUDICATE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO. 651 OF 2004 IN SUIT NO. 1637 OF 1980 Shri Ravi Jagannath Mahanti Bombay, heir & Legal Representative of deceased Shri.Jagannath mahanti residing at 2, Ram Kripa Building, Dilip Gupte Road, Mahim, Bombay – 400 016. ..Appellant Versus 1. Parshuram Tukaram Shinde 2. Smt.Pushpabai Parshuram Shinde both of Bombay, Indian Inhabitant residing at 5th Floor, Jer Mahal Estate, Dhobi Talao, Mumbai – 400 002. 3. Smt.Satyabhama wd/o Jagannath Mahanti 4. Aruna Samal 5. Savita Pradhan 6. Jyostna Das 7. Bina Mahapatra all of Bombay Nos.3 to 7 heirs and Legal Representatives of deceased Jagannath Mahanti, residing at Ram Krupa Building Dilip Gupte Road, Mahim, Bombay – 400 016. ..Respondents :2: Mr.H.J.Thakkar with N.Shah and M.P.Narayan Swamy i/b.Shroff & Co. for the Appellant. Mr.M.S.Bhandari with Garmaine Vaz and Pranjali Bhandari i/b.Harakchand & Co. For Respondent No.1. Mr.V.A.Thorat, Senior Advocate with Rekha Shinde i/b.Rekha Mehta for Respondent No.2. Mr.V.A.Almeida i/b.A.K.Gupta for Respondent No.3. CORAM : DR.S.RADHAKRISHNAN & ANOOP V.MOHTA,JJ. JUDGMENT RESERVED ON : 18TH FEBRUARY,2008 JUDGMENT DECLARED ON : 6TH MAY,2008 JUDGMENT :(PER : DR.S.RADHAKRISHNAN,J.) 1. The present Appeal is filed against the Judgment and Order dated 13th August,2004, passed by the learned Single Judge, whereby the suit was decreed and the Appellant was directed to handover the possession of the business of the hotel along with the premises and the articles therein. The Appellant was also directed to pay Rs.66,500/- towards royalty charges. Mesne profits were also directed to be computed. The Respondent No. 1 is the executor and administrator of the estate of the late Shri H.N. Zulpuri (“the deceased”) and has been granted the probate of the latter’s will dated 27/9/1976. The deceased was running the business of a residential hotel known as M/s Kashmir Hotel. He was a tenant of the said premises. By an agreement dated 1/10/1976, the deceased had given the hotel business to the original defendant Jagannath Mahanti, who died during the pendency of the suit, on payment of royalty of Rs. 1900 per month, for a period of 5 years, ie, upto 1981. The Respondents were also :3: beneficiaries under the said will in respect of the residential hotel business. 2. The Respondents alleged that immediately after the death of the deceased, the Appellants ceased to pay any amount towards the royalty charges due under the agreement and had also carried out certain alterations to the said premises in breach of the agreement, causing the landlord to serve a notice dated 30/8/1980 on the Respondent No.1. 3. Mr.Thakkar, the learned Senior Counsel on behalf of the Appellant, strongly assailed the judgment and decree of the learned Single Judge on the following grounds: a) The Learned Single Judge ought to have dismissed the suit and returned the Plaint, as the present suit involves a question as to whether the appellant was a sub-lessee or/a “protected licensee” of the suit premises, and as such, the said issue should have been decided by the Court of Small Causes at Mumbai and this Court would not have jurisdiction to decide the present suit. b) The Learned Single Judge ought to have considered that the Respondents had suppressed material facts in the present suit, viz, that the father of the Appellant was conducting the total business and was in possession of the suit premises since 1957. On this ground also the suit was liable to be dismissed. :4: c) The Learned Single Judge ought to have considered that the Appellant, in fact, produced Police Licence, Shops and Establishments Licence and Trade Licence which clearly establishes that the new licences were taken out by the father of the Appellant and there was no renewal of old licences. This clearly shows that the appellant was not a conductor of a running business. In fact, the Police and Trade Licences did not mention the name of the deceased. Also, all the licence fees and taxes were paid by the Appellant in respect of the total business. d) The Appellant contends that there was no question of payment of royalty to the Respondent Nos. 1 and 2 as the deceased had expired in 1976 and the Respondents obtained probate in the year 1979. Therefore, during this period, their status was not known. Moreover, Respondent No.1 was an employee of the deceased and had not indicated that he was a beneficiary under the will until he served notice of termination of the conducting agreement in 1980. Sufficient time should have been given to the father of the Appellant to make payment of the arrears as demanded by the Respondents since the father of the Appellant was required to verify the title or rights of the Respondent before making such payment. e) The Learned Single Judge ought to have considered the fact that there was no sufficient ground to terminate the agreement on the grounds and submissions mentioned in the plaint that the appellant had sub-divided the suit premises :5: into two by brick-masonry walls. The Appellant contends, however that he has not carried out any additions or alterations to the suit premises of a permanent nature and the existing rooms are divided by temporary wooden partitions. The Appellant also contends that before 1970, no structural changes had been made by him. In any case, the Appellant alleges that the Respondents were not able to prove that a telegram had been sent by the landlord, such telegram allegedly giving rise to a cause of action for the present suit. f) The Learned Single Judge ought to have considered that the landlord had already filed a suit for eviction in the Hon’ble Small Causes Court in which the Appellant and Respondent Nos. 3-7 were made party defendants as sub- tenants. Further, the receipts for payment made to the deceased and produced by the Appellant indicate the payment of ‘lease money’ to the deceased. This proves that the deceased had actually sublet the premises to the father of the Appellant and Respondent Nos. 3-7. The Learned Single Judge should also have noted that the Appellant had also made certain payments directly to the landlord towards rent of the premises. g) The Learned Single Judge ought to have appreciated that the suit premises could not have been bequeathed to Respondent Nos.1 and 2 inasmuch as the deceased himself was a tenant of the suit premises and Respondent Nos. 1 and 2 were in no way related to the deceased, and such a tenancy right could never be bequeathed. :6: 4. Mr. V. R. Thorat, the learned Senior Counsel, made the following submissions on behalf of the Respondent No.2: a) On a plain reading of the plaint and the terms of agreement, the Small Causes Court has no jurisdiction as there is no relationship of licensor and licensee between the parties. b) The plaint reveals that the cause of action is breach of conducting agreement. The suit is for the recovery of running business, along with premises, furniture and paraphernalia of Kashmir Hotel. A conducting agreement is in the nature of an agency agreement upon the termination of which goodwill, licenses, premises, furniture and other paraphernalia has to be returned. The suit should therefore be filed in a civil court. c) The suit is not covered by Section 41 of the Presidency Small Causes Courts Act, 1882 since the suit is for recovery of business and not immoveable property simpliciter. The licence granted by the owner is in relation to business and not property and the use thereof is only incidental to the main grant, i.e. business. d) A conducting agreement is an agreement related to business and not premises, and the learned Senior Counsel relied upon C.I.T. Vs. Bosetto Brothers AIR 1940 Madras 366. :7: e) The relationship of owner and conductor is not that of a licensor and licensee as contemplated under Section 41 of the Presidency Small Causes Courts Act, 1882. The following judgments were relied upon by Mr.Thorat, the learned Senior Counsel, wherein it was held that where the terms of the agreement amply show that the dominant purpose is conducting of business, and the handing over of the premises was only incidental thereto, Section 41 would not apply: i) Mohammad Haisiyat v. Ebrahim Hasan ii) Radhabai, w/o. Balkrishna Gangaram Chavan and ors. Vs. Smt. Parvati Mahadeo Pawar and ors. iii) Ratanlal Bhati v. Himmatlal Parihar, 1987(1)B.C.R. 458 iv) Fatimabai v. Khalil Ahmed 1990 Bom.R.C. 366: In this case, the evidence placed on record showed that the agreement was a conducting agreement. For instance, one of the clauses provided that the owner was to renew the said licence every year and attend to all the matters concerning the license of the said business during the tenure of the agreement. Another clause provided that the furniture and other articles lying in the suit premises belonged to the owner- petitioner. Further, the running expenses of the business were to be borne by the conductor-respondent. v) Anusayabai Ghate v. Maktumbi Nadaf, 1999(2) B.C.R 374 :8: vi) Varden T.James V. Farhang Azhar,2005(2)ALL MR 1. In this case the Court further held that as the agreement was for conducting business, hence no protection was available to the Defendant under Rent Legislation. vii) Sagir A. Nanhe v. Maria P. Gonsalves, 2003(4) Bom C.R.635 viii) Kumble Achutrao Ramrao (deceased) V. Shantilal Pranjivandas Dalal (deceased) 1998 (5) Bom C.R. 686: In this case, the Court considered the jurisdiction of the Court prior to the 1973 amendment with regard to a conducting agreement. It was recognized that at the time of the filing of the suit in 1966, there was no protection to licensees under the Bombay Rents Act, 1947, as was subsequently created by the 1973 amendment. Therefore, the suit was held rightly filed in the City Civil Court. ix) Southern Roadways Limited, Madurai V. S.M. Krishnan AIR 1990 SC 673: Herein, the Court held that it was unnecessary for the principal to file a suit for the recovery of possession against the agent, as the latter had no right to remain in possession of the premises after the termination of agency. x) Conrad Dias v Joseph Dias AIR 1995 Bom. 210: A person residing with his parents cannot claim any legal :9: character, much less the character of a licensee as defined in Section 52 of the Easements Act, 1882. 5. Mr.Bhandari, the learned Counsel for Respondent No.1 made the following submissions: a) According to the Respondent, the Appellant contends that he is either (a) a protected licensee in view of the 1973 amendment to the Bombay Rent Act, 1947and therefore, the Small Causes Court has exclusive jurisdiction under Section 28 of the Bombay Rent Act; or (b) a licensee of premises and therefore, the Small Causes Courts Act has jurisdiction under Section 41 of the Small Causes Courts Act. b) The Respondents refute the contention of the Appellants that what was originally given in the year 1957 to Motiram Nanekchand and Mahanti and which later on continued in favour of Mahanti alone, was an interest in the premises simpliciter. Moreover, the Appellants contended that conducting agreements were never intended to be acted upon and that Mahanti was the owner of the business of Kashmir Hotel. The Respondents, instead, assert that it was only the running of the business (to which the premises were merely incidental) that was given to the Appellants. c) The Respondents contend that Exhibit 1 (Receipt for surrender of business signed by Motiram Nanekchand and Mahanti on 1/10/1961), Exhibit F (Receipt issued to Zalpuri issued by the License Department of the B.M.C. on :10: 30/7/1957), Exhibit D1 and D2 (Income Tax Assessment Orders), Exhibit Q (MTNL Status Report) and Exhibit S (BEST Requisition Form) show that the business was being run prior to 1957 by Zalpuri and that it belonged to him, and not Mahanti, as alleged by the Appellant. The abovementioned documents show H.N. Zalpuri as the owner. d) The Appellants had sought to pursue a two-pronged argument: the first being that the conducting agreements were a sham and not intended to be acted upon. Consequently, the premises were actually sub-let in favour of the Appellant. However, the appellant is not pursuing this argument any further and now merely seeks to prove that he is a licensee of the premises and is thus protected under Section 15A of the Bombay Rents Act, 1947, by virtue of the 1973 amendment. The appellant can seek the protection of this amendment since the conducting agreement was subsisting in his favour as on 1/2/1973. The Respondents however contend that despite the 1973 Amendment to the Bombay Rent Act, Mahanti entered into the Conducting Agreement in 1976 and cannot, therefore, claim the protection of the said amendment. Further, Mahanti has not claimed to be a protected licensee until the death of Zalpuri in 1977. e) The Appellants contend that having admitted the execution of the conducting agreement dated 1/10/1976, the burden of proving that what was given was only the premises, without any business, lies on Respondents. :11: f) In order to prove that it was merely the business which was given to Mahanti, the Respondents have relied upon a number of factors: (a) that both parties had a substantial knowledge of the hotel business,(b) that the parties were aware that their rights might be affected by future laws and further, that their 1976 agreement shows awareness of the amendment to the Bombay Rent Act in 1973. This awareness is highlighted by the absence of the clauses in the 1961 and 1966 agreements, (c) the conduct of the parties before the agreement was entered into and that Zalpuri was relying upon the competency of the Appellant’s father to run his hotel. Also, Zalpuri’s will also refers to Mahanti as the conductor of his business; (d) that the nature of the Appellant’s agreement should be determined by reference to the original agreement with the Appellant’s father, under which the latter merely obtained a right to conduct the business. g) Several clauses in the conducting agreement show that the intention of the parties was only to transfer the running business and not the premises, and moreover, that the ownership of the business was still retained by the Respondent. Clauses in the agreement which enable the appellant to look after the day to day management of the business strengthen the proposition that he is a mere conductor, and not an owner of the business. The primary purpose of entering into a conducting agreement is to relieve the owner of the daily affairs of management, while reserving to himself the right to guard his :12: right and interest in the business. These clauses include : (i) 4, 10, 11 and 22, which protect the owner’s rights in his business licenses (ii)clauses 4 and 14 to protect his goodwill in the business (iii) Clauses 9, 17 and 18 for the general protection of his rights in the business (iv) Clause 15 for the protection of his tenancy rights in his premises (v) Clause 23, which provides for the termination of the contract in case of breach. The owner also reserves the right to interfere with the management of the hotel if it is affected by the negligence of the conductor. h) The Respondents also refute the contention of the Appellants, who submit that since the burden of paying municipal and other taxes, license fees, bills, permitted increases in rent and taxes falls on the Appellant, the conducting agreement is in fact a license agreement. The Respondents, however, contend that such expenses are payable by the conductor merely as a business expense. i) The reliance, by the Appellant, on receipts wherein the royalty amount under the conducting agreement is referred to as ‘lease money’ (Exhibit D-2 dated 15/7/1961) is unfounded. The Respondents submit that these receipts are to be interpreted in the context of the conducting agreement and cannot be given another connotation. Moreover, these receipts were not relied upon by the Appellant until 2001, which shows that the original deceased Defendant (Jagannath Mahanti, the Appellant’s father) understood the receipts only as receipts :13: under conducting agreements for royalty and not for rent. The Appellant has not disclosed the receipt dated 29/3/1973 (Exhibit- D-8) which clearly refers to payment for ‘conducting the Hotel.’ 6. Mr.Bhandari, the learned Counsel for Respondent No.1, dealt with all the contentions raised by the Mr.Thakkar for the Appellant, as under: Contention 1: That the term ‘conductor’ has been defined to mean and include his heirs, executors and administrators and therefore, a heritable right is sought to be created, therefore not merely business was handed over: Reply: The word ‘conductor’ being personal in nature, the words ‘heirs, legal representatives, executors and administrators’ are repugnant to the context and therefore, not applicable to the present case. Contention 2: The Appellant emphasizes the italicized words in clause (1) of the agreement: “that the owner hereby gives to the conductor his hotel ….which consists of…for the purposes of conducting the same on the following terms and conditions.” The Appellant contends that the exclusive possession of the hotel premises is given and the italicized words show that it is a license agreement. Reply: The Respondent submits, however, that what the abovementioned clause confers is the business of the hotel and not the hotel premises. This is implied from the use of the words :14: conducting the same. It is apparent that only a business, and not its premises can be conducted. Contention 3: Clause (4) of the agreement shows that the proprietor shall not normally interfere in the business. Reply: Clause (4) merely safeguards the right of the owner to take charge of the business if the conductor is not diligent in performing the terms of the contract. This, and the following clauses strengthen the proposition that the agreement is a conducting agreement, not a license agreement. Contention 4: The right of the owner to inspect only during business hours and not to exercise such right unreasonably shows that permission was required. Reply: Rather than requiring the owner to obtain permission, this clause merely records and reserves the inherent right of inspection. Contention 5: The payment by the conductor of municipal taxes and license fees, as also the permitted increase in rent, shows his interest in the premises as such. Reply: Since conducting agreements were generally for a term of five years, it became impossible to predict increase in rateable value and other factors and the burden of expenses was cast on the conductor only to ensure a stable income to the owner. Such a generic/standard clause of conducting agreements does not serve to prove an interest of the conductor in the premises. :15: Contention 6 : Since Clause 14 of the agreement provides that the conductor shall not permit the use of the hotel for any purpose other than the running of the hotel business himself, shows that the conductor had such control over the property that he could have changed its use. Reply: This clause reinforces the right of the owner over that of the conductor and cannot be interpreted to mean that the conductor could have changed its use. Contention 7: Since Clause 16 provides that the conductor has to carry out necessary repairs in the premises, when required, at his own cost, with the knowledge of the owner, shows that the conductor had complete charge of the premises and could have carried out renovations without asking the owner. Reply: This clause must be read with Clauses 13 and 15. The former provides for inspection by the owner, while the latter does not allow the conductor to make permanent alterations without the owner’s permission. These clauses impose liability on the conductor for the regular wear and tear of assets in the running of the business, and do not permit him to make permanent alterations. The emphasis should be on the words of the clause: “necessary repairs, when they are required.” Contention 8: Since Clause 17 provides that the conductor is not to give the benefit of the agreement to a third party, it proves that the conductor had the right to give such benefit to a third party. :16: Reply: Rather, such a clause shows the control of the owner over the business as regards the person in charge of it. It did not permit the conductor to give benefit to a third party. Contention 9: Since Clause 18 provides that a deposit of Rs. 20, 000 is to be returned to the conductor by the owner at the determination of the agreement, upon the conductor returning possession, it shows that exclusive possession of the hotel premises had been given to the conductor. Reply: The security deposit is only for the due performance of the terms and conditions of the contract by the conductor, and not for the premises, as contended. Contention 10: Since Clause 24 exempts the owner from liability for losses incurred due to damage to the premises by an act in the nature of force majeure , it proves that the conductor had rights in the premises and was in fact, required to bear the burden of all the losses suffered by the premises. Reply: The losses required to be borne by the conductor are merely in the nature of business losses, not losses to the premises. The premises can only suffer damage, not loss. Such a clause should be interpreted either to protect the owner from the conductor claiming compensation for the non-conduct of business due to an unforeseen event or it should be interpreted to mean that the owner is not liable to make good damage to the premises, since the owner is himself only a tenant. :17: Contention 11: Since Clause 25 of agreement allows the owner and his family the right to use the hotel premises for toilet and other purposes, when desired, it shows that the conductor actually had exclusive possession of the premises and the owner was required to seek his permission to use the same. Reply: This clause shows rather the reservation of the right of the owner to use the hotel for himself and his family. The clause merely records his existing right. Contention 12: Since there exists four agreements for five years, the lengthy period of twenty years goes to show that exclusive possession of the premises was given. Reply: The Respondents submit that the length of time is an irrelevant criterion. On the contrary, the practice in those days was to grant a license for a period of less than a year, while a genuine conducting agreement for running a business was always for a longer period of three-five years. Contention 14: The Income Tax orders show decreasing profits and therefore, what was given was the premises and not the business. Reply: On the contrary, the Respondent contends that a running business was given to the conductor, as supported by the surrender receipt dated 1/10/1961. The Income Tax orders do not prove any decrease in the profits of the business. :18: Contention 15: The police license shows Mahanti as the owner, proving that he was the owner of the business, as also licensee of the premises. The Trade license also shows Mahanti as the conductor; however, the name of the owner is not shown, therefore proving that the business belonged to Mahanti and that he was the licensee. The Shops and Establishments Registration Certificate also bears the name of Zalpuri as owner and Mahanti as conductor. The name of Mahanti as conductor shows his interest in the business and premises. Reply: The very proof of Mahanti as conductor, falsifies his claim that he was the owner of the business. Moreover, the representation of his name as conductor only goes to prove that the conducting agreements have been acted upon as such. Since non-compliance with the provisions of the police license entails criminal liabilities, even the fact that the police license is exclusively in the name of the conductor does not make him a licensee of the premises.