RAMNATH AGRAWAL & ORS. versus FOOD CORPORATION OF INDIA & ORS.
[2020] 4 S.C.R. 552, Supreme Court of India, 2020
Outcome: Dismissed (Dismissed)
Segment: Ratio
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RAMNATH AGRAWAL & ORS.
v.
FOOD CORPORATION OF INDIA & ORS.
(Civil Appeal No. 1305 of 2010)
MAY 13, 2020
[N. V. RAMANA, SANJIV KHANNA
AND KRISHNA MURARI, JJ.]
Transfer of Property Act, 1872 – s.105 – Agreement when not
a lease – In 1976, Food Corporation of India (‘FCI’) invited offers
for construction of godowns on the lands of interested parties and
subsequently taking over possession of the godowns on lease –
Appellants’ offer accepted – Agreement dated 16.12.1976 entered
between the parties – Appellants had to construct six godowns, to
be taken over by FCI on rent – Appellants informed FCI that the
construction of godowns was complete and the possession be taken
over – Competent officer of FCI on inspection recommended taking
over the possession of only four out of six godowns and pointed
out defects in respect of remaining two – Appellants sought damages
from FCI on account of non-realization of rent towards the remaining
two godowns – Demand not complied with – Appellants filed suit
for damages – Decreed – High Court allowed appeal filed by FCI –
Held: For an agreement to be considered as a lease and not as an
agreement to lease it is important that there must be an actual demise
of property on the date of the agreement – Agreement dated
16.12.1976 was not a lease but simply an agreement giving rise to
contractual obligations – Terms and conditions clearly demonstrate
that the execution of the lease deed was
contingent upon the
construction of godowns being completed and the same being
approved by issuance of completion certificate by the Competent
Authority of FCI – Appellants did not dispute the facts that the
officers of FCI refused to take over the possession of the two
godowns in view of the defects pointed out by them and the said
defects were never rectified – As per Clause 6 of the agreement, in
case of defects, the findings of the officers of FCI were to be final
and there was no obligation to take such structure on lease – High
Court rightly discarded the evidence of PW-1, 2 & 5 (who issued
[2020] 4 S.C.R. 552
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certificates in respect of completion and fitness of the godowns) as
neither the inspection was carried out by an independent agency in
presence of the representatives of the appellants and respondents
nor the same was in accordance with the specifications laid down
by FCI in the agreement – Therefore, no rent was payable in respect
of the two disputed godowns as they were not completed as per
FCI’s specifications and the possession thereof were not taken over
by FCI at the time of filing of the suit by the appellants – No reason
to take a view different from the one taken by the High Court.
Dismissing the appeal, the Court
HELD: 1.1 For an agreement to be considered as a lease
and not as an agreement to lease it is important that there must
be an actual demise of property on the date of the agreement.
The agreement dated 16.12.1976 was not a lease but simply an
agreement giving rise to contractual obligations. The terms and
conditions clearly demonstrate that the execution of the lease
deed was contingent upon the construction of godowns being
completed and the same being approved by issuance of
completion certificate by the Competent Authority of FCI. [Paras
24, 25][562-F-H]
1.2 Clause 6 of the agreement dated 16.12.1976 made it
imperative for the appellants to obtain a completion certificate
from the competent officers of FCI, prior to execution of lease
agreement and handing over the possession of the godowns. In
case of defects and faulty
workmanships, the findings of the
officials of FCI were final. The appellants contended that letter
dated 02.12.1977 issued by FCI was the completion certificate
and no subsequent certificate was to be issued. However,
inspection was carried out on 05.01.1978, whereafter FCI vide
letter dated 14.02.1978 had recommended taking over the
possession of only four out of six godowns. There arises no
question of waiver, acquiescence or estoppel, as all along FCI
has contended that two godowns were defective and the
possession of the same can not be taken over till the rectification
of the defects. The reliance placed on the letter dated 15.05.1978,
wherein FCI is said to have acknowledged taking over
possession is totally misplaced. No reliance can be placed on the
said letter which was manufactured in connivance with the
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INDIA & ORS.
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delinquent officers of the FCI who were charge-sheeted and
subsequently punished in a departmental enquiry for the same.
The appellants have not disputed the facts that the officers of
FCI refused to take over the possession of the two godowns in
view of the defects pointed out by the officers of FCI and the said
defects were never rectified. As per Clause 6 of the agreement
dated 16.12.1976, in case of defects, the findings of the officers
of FCI were to be final and there was no obligation to take such
structure on lease. The High Court rightly discarded the evidence
of PW-1,2 & 5 as neither the inspection was carried out by an
independent agency in presence of the representatives of the
appellants and respondents nor the same was in accordance with
the specifications laid down by FCI in the agreement dated
16.12.1976. Therefore, no rent was payable in respect of the two
disputed godowns as they were not completed as per the
specifications of FCI and the possession of the disputed godowns
were not taken over by FCI at the time of filing of the suit by the
appellants. The appellants were not entitled for claim of rent prior
to 08.02.1978 as rent was payable only after taking over of
possession as per Clause 8 of the agreement dated 16.12.1976.
[Paras 27 -29][563-B-H; 564-A]
1.3 Further, there is no covenant in the agreement dated
16.12.1976, which admittedly is not a lease, stipulating
enhancement of the rent after
particular period once possession
of the godowns has been taken over by FCI, which may entitle
the appellants for payment of an enhanced rent. No reason to
take a view different from the one taken by the High Court while
allowing the first appeal of the respondents and dismissing the
Civil Suit of the appellants herein. [Paras 30-31][546-B-C]
Tiruvenibai v. Lilabai [1959] 2 Supp SCR 107; State of
Maharashtra & Ors. v. Atur India Pvt. Ltd. (1994) 2
SCC 497 : [1994] 1 SCR 881 – relied on.
Rani Hemanta Kumari Debi v. Midnapur Zamindari
Company Ltd AIR 1919 PC 79 – referred to.
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Case Law Reference
AIR 1919 PC 79
referred to
Para 20
[1959] Supp 2 SCR 107
relied on
Para 21
[1994] 1 SCR 881
relied on
Para 22
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1305
of 2010.
From the Judgment and Order dated 02.07.2008 of the High Court
of  Madhya Pradesh at Indore in F.A. No. 64 of 1990.
P.S. Narasimha, Sr. Adv., Gaurav Behl, Ms. Aditi Tripathi,
Sudhansu Palo, Advs. for the Appellants.
Ajit Pudussery, Vijayan K., Ajeet Singh Verma, Advs. for the
Respondents.
The Judgment of the Court was delivered by
KRISHNA MURARI, J.
1. The present appeal arises out of the judgment and final order
dated 02.07.2008 passed by the High Court of Madhya Pradesh, Bench
at Indore in first appeal bearing F.A. No. 64/90. The High Court vide
impugned order dated 02.07.2008 allowed the first appeal preferred by
the respondents – Food Corporation of India thereby dismissing the Civil
Suit No. 3-B/81 and setting aside the judgment and decree dated
29.04.1990  passed by the VI-Additional District Judge, Indore in favour
of the appellant – plaintiffs.
2. The facts giving rise to the dispute in brief can be summarized
as under :-
In 1976, Food Corporation of India (hereinafter referred to as
‘FCI’) invited offers for construction of godowns on the lands of
interested parties and subsequently taking over possession of the godowns
on lease. The offers so made also included a stipulation to provide
assistance for securing loan for the purpose of construction from State
owned banks. The loan was to be repaid in the form of FCI depositing
the rent with the banks.
3. The offer made by the appellants herein was accepted by the
FCI and accordingly an agreement dated 16.12.1976 was entered
between the parties. As per the terms and conditions of the agreement
RAMNATH AGRAWAL & ORS. v. FOOD CORPORATION OF
INDIA & ORS.
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the appellants had to construct six godowns, which would be subsequently
taken over by FCI on rent.  On 16.12.1976 itself, loan was sanctioned to
the appellant by State Bank of Indore on the recommendation of FCI.
4. FCI vide letters dated 06.02.1977, 27.07.1977, 06.11.1977 and
02.12.1977 notified the progress of the construction of the godowns to
the bank on the basis whereof the funds were disbursed to the appellants
by the bank. The appellants asserts that the letter dated 02.12.1977 of
the FCI certified cent percent completion of the godowns.
5.  However, FCI vide a subsequent letter dated 17.12.1977  called
upon the appellants to complete the construction of godowns and handover
the possession of the same latest by 31.12.1977. The appellants vide
letter dated 25.12.1977, informed FCI that the construction of the
godowns was complete and the possession of the same be taken over.
6. On 05.01.1978, inspection of the godowns was conducted by
the officials of the FCI and on the basis of the inspection report submitted
by one Shri K. N. Rao, the competent officer of FCI vide letter dated
14.02.1978, recommended taking over the possession of only four out of
six godowns by the FCI and pointed out certain defects in respect of
remaining two godowns. The case set up by the appellants is that
possession of the four godowns was already taken over on 08.02.1978.
7.  The appellant issued a legal notice dated 14.05.1978
calling
upon FCI to pay rent with interest @ 11% in respect of all six godowns
for the period of January to April, 1978 along with charges towards
electricity and wages for the security guard.
8. FCI vide its reply dated 09.06.1978, informed that rent is payable
from actual date of possession i.e., 08.02.1978 and not from 01.01.1978.
It was also stated that in respect of the four godowns, the appellants
have not issued the necessary bills for payment of the rent and as far as
the two disputed godowns are concerned, no rent is payable as  the
possession of the same was not taken over by FCI and the rent in respect
thereof would become payable only after the said two godowns are
handed over after rectification of the defects pointed out.
9. The possession of the remaining two godowns was subsequently
taken over by FCI on 14.05.1979 which fact was duly acknowledged by
FCI vide letter dated 15.05.1979. The appellants vide letter dated
11.08.1979, sought damages from FCI on account of non-realization of
rent towards the remaining two godowns.
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10. As the demands of the appellants were not complied with, the
appellants filed Civil Suit No.3-B/81 for damages amounting to
Rs. 5,90,000/- before the Trial Court at Indore, averring the above-
mentioned facts. The claim of the appellants consisted of arrears of rent
for the periods when the possession of the godowns was not taken over
by FCI, non-payment of rent at enhanced rates, along with wages for
security guard, electricity charges and interest.
11.  FCI filed its written statement before the Trial Court denying
the assertions of the appellants on the following grounds:-
i.
The letter dated 02.11.77 was not a certificate of final
completion as no inspection was carried out by the competent
officials of the FCI by the said date.
ii.
After carrying out the inspection on 05.01.1978, the Deputy
Manager had recommended taking over the possession of only
four godowns and had pointed out the defects in respect of
the other two godowns.
iii. Rent was payable to the plaintiffs as per measurements from
the date of actual possession i.e., 08.02.1978.  In respect of
the remaining two godowns no rent was payable as the
possession of the said godowns were not handed over to FCI,
after rectification of the defects pointed out in letter dated
05.01.1978.
iv. The alleged possession on 14.05.1979 was taken by  officials
of FCI who were not competent to do so and the said officials
were punished in departmental enquiry.
12. During the pendency of the suit before
the Trial Court, the
appellants and the FCI entered into a lease agreement dated 06.02.1986
in respect of all six godowns.
13. The Trial Court vide judgment and decree dated 29.04.1990
decreed the suit in favour of the appellants and directed the respondents
to pay a sum of Rs. 5,77,274.59/- along with interest @ 11% per annum
and also an enhanced rent of Rs. 20,68,950/- along with interest @ 11 %
per annum. According to the Trial Court, the plaintiff had proved the
completion of all the six godowns on the basis of the evidence of PW-1,2
& 5 who had issued certificates in respect of completion and fitness of
the godowns. While returning the finding, the Trial Court also placed
RAMNATH AGRAWAL & ORS. v. FOOD CORPORATION OF
INDIA & ORS. [KRISHNA MURARI, J.]
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reliance upon the letter dated 15.05.1979 issued by FCI, whereby it had
acknowledged the handing over the possession of the two godowns.
14. FCI preferred the first appeal bearing F.A. No. 64/90 before
the High Court challenging the judgment and decree of the Trial Court
dated 29.04.1990. Cross objections were also preferred by the appellants
herein in respect of certain claims which was rejected by the Trial Court.
15. The High Court vide impugned judgment dated 02.07.2008
allowed the appeal primarily on the ground that agreement dated
16.12.1976 was not a lease agreement and merely a contract simplicitor
and the rights and liabilities of the parties were governed strictly as per
the covenants prescribed by the agreement. Therefore, the claim for
arrears of the rent was not made out.
16. The evidence of PW-1,2 & 5 which was relied upon by the
Trial Court was discarded by the High Court on the grounds that the
inspection carried out by them was in the absence of the officials of FCI
and not in accordance with the specification laid down by FCI and as
agreed between the parties.
17. The sole question which arises for consideration before us is
whether the agreement dated 16.12.1976 was a lease agreement under
Section 105 of the Transfer of Property Act, 1882 or an agreement for
lease giving rise to only obligations arising out of the said contract.
18. It may be relevant to reproduce Clauses 6 and 7 of the
agreement
dated 16.12.1976, which read as under :-
“ 6. Upon completion of the godowns and the services referred
to above in all respect, and after obtaining a completion
certificate from party no. 2 or any of its officers nominated
by Party no. 2 in this behalf, party no. 1 would hand over the
godown/godowns to party no. 2 under a lease agreement to
be executed between parties in the standard form obtaining
in the FCI.
7. It shall be understood that in the event of any delay in
completion of the building or services or if there is a faulty
workmanship or the structure is defective on the basis of the
findings of the FCI officers, which will be final, party no. 2
would not be bound to take the structure on lease.”
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19. A perusal of the aforesaid, the two Clauses of the agreement
go to show that it was not a lease agreement but rather an agreement to
enter into lease.
20. One of the earliest precedent, wherein the question whether
an agreement can be termed as lease arose in the case of Rani Hemanta
Kumari Debi Vs. Midnapur Zamindari Company Ltd, AIR 1919
PC 79, wherein it was held as under :-
“Their Lordships are of opinion that it cannot be so regarded.
An “agreement to lease”, which a lease is by the statute
declared to include, must in their Lordships’ opinion be a
document  which  effects an  actual  demise and operates as
a lease. They think that Jenkins C.J.., in the case of
Panchanam Bose v. Chandra Charan Misra, correctly stated
the interpretation of s. 17 in this respect. The present agreement
is an agreement that upon the happening of a contingent event
at a date which was indeterminate and having regard to the
slow progress of Indian litigation, might be far distant, a lease
would be granted. Until the happening of that event it was
impossible to determine whether there would be any lease or
not. Such an agreement does not in their Lordships’ opinion,
satisfy the meaning of the phrase “agreement to lease,” which,
in the context where it occurs and in the statute in which it is
found must in their opinion relate to some document that
creates a present and immediate interest in the land.”
21. The decision of the Privy Council in Rani Hemanta Kumari
Debi
(supra) was referred to by this Court in Tiruvenibai v. Lilabai
[1959 Supp 2 SCR 107 : AIR 1959 SC 620) wherein at page 111,  it
was held as under:-
“Before dealing with these points, we must first consider what
the expression an agreement to lease’ means under Section
2(7) of the Indian Registration Act, hereinafter referred to as
the Act.  Section 2(7), provides that a lease includes a
counterpart, Kabuliyat, an undertaking to cultivate and
occupy and an agreement to lease. In Hemanta Kumari Debi
v. Midnapur Zamindari Co. Ltd. (LR (1919) 46 IA 240 : AIR
1919 PC 79) the Privy Council has held that ‘an agreement
to lease, which a lease is by the statute declared to include,
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must be a document which effects an actual demise and
operates as a lease’. In other words, an agreement between
two parties which entities one of them merely to claim the
execution of a lease from the other without creating a present
and immediate demise in his favour is not included under
Section 2, sub-section (7). In Hemanta Kumari Debi case (LR
(1919) 46 IA 240 : AIR 1919 PC 79) a petition setting out the
terms of an agreement in compromise of a suit stated as one
of the terms that the plaintiff agreed that if she succeeded in
another suit which she had brought to recover certain land,
other than that to which the compromised suit related she would
grant to the defendant a lease of that land upon specified
terms. The petition was recited in full in the decree made in
the compromised suit under Section 375 of the Code of Civil
Procedure, 1882. A subsequent suit was brought for specific
performance of the said agreement and it was resisted on the
ground that the agreement in question was an agreement to
lease under Section 2(7) and since it was not registered it
was inadmissible in evidence. This plea was rejected by the
Privy Council on the ground that the document did not effect
an actual demise and was outside the provisions of Section
2(7). In coming to the conclusion that the agreement to lease
under the said section must be a document which effects an
actual demise the Privy Council has expressly approved the
observations made by Jenkins, C.J., in the case of Panchanan
Bose v. Chandra Charan Misra (ILR (1910) 37 Cal 808 : 14
CWN 874) in regard to the construction of Section 17 of the
Act. The document with which the Privy Council was
concerned was construed by it as “an agreement that, upon
the happening of a contingent event at a date which was
indeterminate and, having regard to the slow progress of
Indian litigation, might be far distant, a lease would be
granted” and it was held that ‘until the happening of that
event, it was impossible to determine whether there would be
any lease or not’. This decision makes it clear that the meaning
of the expression ‘an agreement to lease’ ‘which, in the context
where it occurs and in the statute in which it is found, must
relate to some document that creates a present and immediate
interest in the land’. Ever since this decision was pronounced
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by the Privy Council the expression ‘agreement to lease’ has
been consistently construed by all the Indian High Courts as
an agreement which creates an immediate and a present demise
in the property covered by it.”
22. This court in State of Maharashtra & Ors. v. Atur India
Pvt. Ltd. (1994) 2 SCC 497, quoting Hill & Redman distinguished
between an agreement to lease and a lease. The relevant paragraph of
Atur India Pvt. Ltd. (supra) are reproduced as under:-
“25. Hill & Redman in Law of Landlord and Tenant, 17th
Edn., Vol. 1 at page 100 dealing with this aspect of the matter
states as under:-
22. “DISTINCTION BETWEEN LEASE AND AGREEMENT
FOR LEASE
40. (1) A lease is a transaction which as of itself creates a
tenancy in favour of the tenant.
(2) An agreement for a lease is a transaction whereby the
parties bind themselves, one to grant and the other to accept
a lease.
(3) If the agreement for a lease is one of which specific
performance will be granted the parties are, for most but not
all purposes, in the same legal position as regards each other
and as regards third parties as if the lease had been granted.
(4) Whether an instrument operates as a lease or as an
agreement for a lease depends on the intention of the parties,
which intention must be ascertained from all the relevant
circumstances.
50. An instrument in proper form (a); by which the conditions
of a contract of letting are finally ascertained, and which is
intended to vest the right of
exclusive possession in the lessee
- either at once, if the term is to commence immediately, or at
a future date, if the term is to commence subsequently - is a
lease which takes effect from the date fixed for the
commencement of the term without the necessity of actual entry
by the lessee (b). An instrument which only binds the parties,
the one to create and the other to accept a lease thereafter, is
an executory agreement for a lease, and although the
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intending lessee enters the legal relation of landlord and tenant
is not created.”
23. This Court in Atur India Pvt. Ltd. (supra) also relied upon
Mulla on The Transfer of Property Act to enumerate the distinction
between a lease and an executory agreement to lease in the Indian
Context, which is as under :-
27. We will now turn to Indian law. Mulla in The Transfer of
Property Act (7th Edn.) at page 647 dealing with agreement
to lease states as under:
“An agreement to lease may effect an actual demise in which
case it is a lease. On the other hand, the agreement to
lease may be a merely executory instrument binding the
parties, the one, to grant, and the other, to accept a lease
in the future. As to such an executory agreement the law in
England differs from that in India. An agreement to lease
not creating a present demise is not a lease and requires
neither writing nor registration.
As to an executory agreement to lease, it was at one time
supposed that an intending lessee who had taken
possession under an agreement to lease capable of specific
performance, was in the same position as if the lease had
been executed and registered. These cases have, however,
been rendered obsolete by the decisions of the Privy
Council that the equity in Walsh v. Lonsdale does not apply
in India.”
24. From the aforesaid it is evident that for an agreement to be
considered as a lease and not as an agreement to lease it is important
that there must be an actual demise of property on the date of the
agreement.
25. A perusal of the terms and conditions quoted herein above
and the legal position discussed clearly demonstrates that the agreement
dated 16.12.1976 was not a lease but simply an agreement giving rise to
contractual obligations. The terms and conditions clearly demonstrate
that the execution of the lease deed was contingent upon the construction
of godowns being completed and the same being approved by issuance
of completion certificate by the Competent Authority of FCI.
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26. The suit preferred by the appellants is a suit for damages
arising out of breach of agreement dated 16.12.1976. It is well settled
law that the rights and obligations of the parties have to be decided in
accordance with the terms and conditions of the contract.
27. Clause 6 of the agreement dated 16.12.1976 made it imperative
for the appellants to obtain a completion certificate from the competent
officers of FCI, prior to execution of lease agreement and handing over
the possession of the godowns. In case of defects and faulty
workmanships, the findings of the officials of FCI were final. The
appellants have contended that letter dated 02.12.1977 issued by FCI
was the completion certificate and no subsequent certificate was to be
issued.  However, it is noteworthy to point out that inspection was carried
out on 05.01.1978, whereafter FCI vide letter dated 14.02.1978 had
recommended taking over the possession of only four out of six godowns.
There arises no question of waiver, acquiescence or estoppel, as all
along FCI has contended that two godowns were defective and the
possession of the same can not be taken over till the rectification of the
defects. The reliance placed by the appellants on the letter dated
15.05.1978, wherein FCI is said to have acknowledged taking over
possession is totally misplaced. No reliance can be placed on the said
letter which was manufactured in connivance with the delinquent officers
of the FCI who were charge-sheeted
and subsequently punished in a
departmental enquiry for the same.
28. The appellants have not disputed the facts that the officers of
FCI refused to take over the possession of the two godowns in view of
the defects pointed out by the officers of FCI and the said defects were
never rectified. As per Clause 6 of the agreement dated 16.12.1976, in
case of defects, the findings of the officers of FCI were to be final and
there was no obligation to take such structure on lease.  The High Court
has rightly discarded the evidence of PW-1,2 & 5 as neither the inspection
was carried out by an independent agency in presence of the
representatives of the appellants and respondents nor the same was in
accordance with the specifications laid down by FCI in the agreement
dated 16.12.1976. Therefore, no rent was payable in respect of the two
disputed godowns as they were not completed as per the specifications
of FCI and the possession of the disputed godowns were not taken over
by FCI at the time of filing of the suit by the appellants.
RAMNATH AGRAWAL & ORS. v. FOOD CORPORATION OF
INDIA & ORS. [KRISHNA MURARI, J.]
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29. Insofar as claim for rent prior to 08.02.1978 is concerned, the
appellants were not entitled for any such claim as rent was payable only
after taking over of possession as per Clause 8 of the agreement dated
16.12.1976.
30. The other question which remains to be considered is whether
the appellants were entitled to claim enhanced rent in respect of the
godowns. We fail to find any such covenant in the agreement dated
16.12.1976, which admittedly  is not a lease, stipulating enhancement of
the rent after particular period once possession of the godowns has been
taken over by FCI, which may entitle the appellants for payment of an
enhanced rent.
31. In view of the above facts and discussions, we find no reason
to take a view different from the one taken by the High Court while
allowing the first appeal of the respondents and dismissing the Civil Suit
of the appellants herein. Accordingly, the appeal stands dismissed.
32. In the circumstances, we do not make any order as to costs.
Divya Pandey
Appeal dismissed.