IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE M.SASIDHARAN NAMBIAR TUESDAY, THE 2ND FEBRUARY 2010 / 13TH MAGHA 1931 SA.No. 134 of 1996 ------------------------------- AS..109/1992 of II ADDL.SUB COURT, ERNAKULAM OS..1520/1988 of I ADDL.M.C., ERNAKULAM .................... APPELLANT/RESPONDENT/DEFENDANT: M/S.HINDUSTAN PETROLEUM CORPORATION LIMITED REP. BY ITS SENIOR REGIONAL MANAGER, TATA ROAD, P.B.NO.2612, COCHIN – 11. BY ADV. SRI.A.M.SHAFFIQUE, SR. RESPONDENTS/APPELLANT/2ND PLAINTIFF: P.C.PAPOO, PANATTU HOUSE, MARKET ROAD, EDAPPALLY, COCHIN-682 024 (DIED). ADDL.R2 IMPLEADED SRI.TOMY, S/O P.C.PAPPU, PANATTU HOUSE, MARKET ROAD, EDAPPALLY, COCHIN-682 024. Impleaded as LR of deceased respondent as per order dated 2.6.09 on IA 545/09 ADDL.R2 BY ADV. SRI.KURIAN GEORGE KANNANTHANAM SR. SRI.THOMAS GEORGE FOR ADDL.R2 THIS SECOND APPEAL HAVING BEEN FINALLY HEARD ON 02/02/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: M.Sasidharan Nambiar, J. -------------------------- S.A.No.134 of 1996 -------------------------- JUDGMENT Defendant M/s.Hindustan Petroleum Corporation Limited is the appellant. Second plaintiff, who alone survived after the death of the other two plaintiffs, who died during the pendency of the suit, is the first respondent. On the death of the first respondent, second respondent was impleaded as the legal representative of the first respondent. The suit was instituted for a decree declaring that period of Exhibit A1 lease agreement dated 26.8.1968 expired and a mandatory injunction directing appellant to give back vacant possession of the plaint schedule property. 2. Plaint schedule property is 2¾ cents being part of thirty seven cents and 16½ cents being part of 58.4 cents in Sy.No.15/2 of Edappally Vadakkumbhagom Village. Under Exhibit A1 agreement entered into by M/s.ESSO Eastern Inc, a Company SA 134/96 2 duly organised under the Laws of the State of Delaware, United States of America and the plaintiffs, the plaint schedule property was granted on lease to ESSO on the terms and conditions provided therein. The period of lease provided therein was five years. It was also provided under clause 3(d) that tenant has an option to continue the lease for a further period of five years from the date of expiration of the original term of five years. It also provides for a further option to continue the lease for a further period of ten years from the date of expiration of the extended period of five years. The suit was filed contending that by 31.10.1988, even the extended period of lease expired and therefore, appellant has no right to continue in possession of the property and hence, a mandatory injunction is to be granted directing appellant to surrender vacant possession of the property. 3. Appellant resisted the suit contending that rights of the lessee were taken over by Government SA 134/96 3 of India under the provisions of ESSO (Acquisition of Undertakings in India) Act, 1974 (hereinafter referred to as 'the Act'). The Act provides for continuation of tenancy for a further period and therefore, after the extended period of lease provided under Exhibit A1, appellant is entitled to continue in possession of the property as a lessee, exercising the statutory option and hence, the suit is not maintainable. 4. Learned Munsiff found that under Section 5 (2) read with Section 7(3) of the Act, which provides for an option to the tenant to continue the lease for a further period of twenty years from 21.10.1988, the date on which the extended period of lease expired, respondent is not entitled to the decree sought for and the suit was dismissed. 5. First respondent challenged the decree before II Additional Sub Court, Ernakulam in A.S. No.109/1992. Learned Additional Sub Judge found that trial court has not considered the factual and legal evidence available in the case and the Act is SA 134/96 4 a beneficial legislation to protect the interest of the lessee with a view to ensure some public objects stated in the preamble and conscious of the benefits available under the enactment and once the option available under the contractual obligation was exercised by the lessee and such a lessee cannot subsequently invoke the benefit provided under Section 5(2) of the Act. It was, therefore, found that once the extended period of lease expired, on the lessee exercising the option available under the contract, he cannot continue in possession of the property. A decree directing the appellant to surrender vacant possession of the property with damages was passed. This second appeal is filed challenging the said judgment and decree. 6. Second appeal was admitted formulating the following substantial questions of law: 1. Whether the first appellate court was right in holding that defendant had waived their right to exercise the statutory option by exercising the right to renew the lease as per the contract? SA 134/96 5 2. Whether the defendant company can exercise the statutory option to continue the lease on the same terms and conditions by virtue of the provisions contained in Section 7(3) of the Act before the expiry of the contractual terms of lease? 7. Learned counsel appearing for the appellant and the respondent were heard. 8. It was under Exhibit A1 appellant obtained the land from the plaintiffs, the lessors. Clause (2) of Exhibit A1 deals with the covenants to be complied by the tenant and clause (3) deals with the covenants to be complied by the landlord. Sub- clause (d) of Clause (3) provides that landlord, on the written request of the tenant, may, before the expiry of the term created under the agreement, if, there shall not, at the time of such request, be an existing breach or non observance of any of the covenants on the part of the tenant, will grant a lease for a further period of five years from the expiration of the said term, at the rate of Rs.275/- per month. It also provides that tenant has a statutory option for a further period of ten SA 134/96 6 years from the expiration of the said extended term at the rate of Rs.300/- per month. Therefore, even though the period provided under Exhibit A1 was five years, under clause (3)(d), tenant has an option to continue the lease for a further period of five years and again for a further period of ten years. Hence, under the terms of Exhibit A1, if the tenant has opted the right provided under clause (3)(d), he could continue in possession of the land as a lessee for a total period of twenty years from 1.11.1968, as provided in Exhibit A1. That period, admittedly, expired on 31.10.1988. It is on that basis plaintiff instituted the suit claiming a declaration that period of lease expired and a mandatory injunction to get vacant possession of the property. 9. Meanwhile, ESSO (Acquisition of Undertakings in India) Act, (Act 4 of 1974), came into force, having received the assent of the President, on 13.3.1974. Therefore, before the expiration of the extended period of lease, Act 4 to 1974 came into SA 134/96 7 existence. Under Section 2(a) of the Act, the appointed day means the date of commencement of the Act, namely, 13.3.1974. Under Section 3 of the Act, on the appointed day, the right, title and interest of ESSO, in relation to the undertakings in India, shall stand transferred to and shall vest in the Central Government. Section 5 of the Act provides for transfer of lease in favour of Central Government under certain circumstances. Under sub- section (1), where any property is held in India by ESSO under any lease or under any right of tenancy, Central Government shall, on and from the appointed day, be deemed to have become the lessee or the tenant, as the case may be, in respect of such property as if the lease or tenancy in relation to such property had been granted to the Central Government and thereupon all the rights under such lease or tenancy shall be deemed to have been transferred to and vested in the Central Government. Under sub-section (2) of Section 5, on the expiry of the term of any lease or tenancy as SA 134/96 8 provided under sub-section (1), such lease or tenancy shall, if so desired by the Central Government, be renewed on the same terms and conditions on which the lease or tenancy was held by ESSO immediately before the appointed day. 10. Section 7 of the Act deals with the power of Central Government to direct vesting of the undertaking of ESSO in a Government company. Under sub-section (1), notwithstanding anything contained in Sections 3 to 5, Central Government may, if it is satisfied that a Government company is willing to comply or has complied with such terms and conditions, as that Government may think fit, to impose direct, by notification, that the right, title and interest and liabilities of ESSO in relation to any undertaking in India shall, instead of continuing to vest in the Central Government, vest in the Government company either on the date of the notification or on such earlier or later date as specified in the notification. Under sub- section (2), where the right, title and interest SA 134/96 9 and liabilities of ESSO in relation to its undertakings in India vest in a Government company, under sub-section (1,) Government company shall, on and from the date of such vesting, be deemed to have become the owner, tenant or lessee, as the case many be, in relation to such undertakings and all the rights and liabilities of the Central Government in relation to such undertakings shall, on and from the date of such vesting, be deemed to have become the right and liabilities respectively of the Government company. Under sub-section (3), provisions of sub-section (2) of Section 5, which grants an option to the Central Government to renew the lease on the same terms and conditions, shall apply to a lease or tenancy vested in the Central Government and reference therein to the Central Government shall be construed as a reference to the Government company. 11. It is not in dispute that appellant company, by virtue of sub-section (3) of Section 7 of the Act, was substituted to the Central SA 134/96 10 Government as provided under sub-section (2) of Section 5 and by virtue of Section 3, on 13.3.1974, the appointed day, the right, title and interest of ESSO, the tenant under Exhibit A1, stood transferred and vested in the appellant company, by virtue of Section 7(3) of the Act. Under sub- section (2) of Section 5, appellant is, therefore, entitled to renew the lease “on the same terms and conditions on which Exhibit A1 lease was held by the original tenant ESSO immediately before 13.3.1974”. When Exhibit A1 provides for a lease of twenty years, including the two extended period of lease, appellant company could be in possession of the property as a lessee for twenty more years from 31.10.1988. 12. Learned Additional Sub Judge set aside the decree granted by Munsiff on the ground that tenant has opted the extended period provided under Exhibit A1 twice and therefore, appellant is not entitled to the statutory option available under Section 5(3) of the Act again, as the appellant SA 134/96 11 exercised the option after coming into force of Act 4 of 1974. 13. The question is whether the statutory option could be denied to the appellant company on the ground that they opted the option available under Exhibit A1 agreement or on the ground that the lessee exercised the option under the contract after coming into force of Act 4 of 1974. 14. A Division Bench of this Court in Hindustan Petroleum Corporation Ltd. v. John (2000 (2) KLT 116) had considered this question in detail and settled the dispute as follows: “When a contractual option is available to the tenant, it is not possible to compel the tenant not to exercise that option but to exercise only an option conferred on it by a statute. The decisions referred to by learned counsel for the plaintiffs mostly are cases where after the exercise of the contractual option, the lessee was trying to exercise the statutory option and the validity of the provisions were upheld on the ground that the right to option was not a right to be in possession perpetually but it was only a one-time option. The latest decision of the Supreme court also clearly suggests that the right to opt under the lease is different and distinct from the right to opt under the statute. Here, on facts, the defendants have clearly exercised their SA 134/96 12 option under the lease deed by issuing Exhibit B1 notice and thus getting the benefit of a renewal for ten years. The subsequent exercise of option on 27.2.1990 was the option available to the company under the statute and hence the company was entitled to be in possession for a further period of ten years from 1.6.1990. The decree for recovery granted by the trial court and confirmed by the learned Single Judge cannot therefore be said to be correct.” 15. In view of the law, as settled by the Division Bench, it can only be held that, fact that appellant had exercised the option available under the contract will not take away the rights of the appellant to exercise the statutory option available under Act 4 of 1974. As appellant could exercise the statutory option available under Section 5(2), appellant could be in possession of the property as a lessee for a further period of twenty years from 31.10.1988. In such circumstances, during the subsistence of the tenancy, suit is, therefore, not maintainable. The decree granted by the appellate court is not sustainable as it was granted during subsistence of SA 134/96 13 the lease. 16. Learned counsel appearing for the respondent then argued that even the extended period of lease expired and therefore, respondent is entitled to the decree. But, such a decree cannot be granted at this stage. It is for the respondent to seek a decree, by instituting a fresh suit in accordance with law. Appeal is allowed. The judgment and decree in A.S.No.109/1992 on the file of II Additional Sub Court, Ernakulam are set aside. O.S.No.1520/1988 on the file of I Additional Munsiff's Court, Ernakulam stands dismissed. Dismissal of the suit will not affect the rights of the respondent to seek appropriate remedy available under law. 2nd February, 2010 (M.Sasidharan Nambiar, Judge) tkv SA 134/96 14 M.Sasidharan Nambiar, J. -------------------------- S.A.No.134 of 1996 -------------------------- JUDGMENT 2nd February, 2010