BRIEF FACTS

A lease/ tenancy agreement (“Lease Agreement”) was executed between Ms. Sabita Mitra (deceased mother of the respondents) (“Lessor”) and Paul Rubber Industries Private Limited, (“Lessee/ Appellant”), whereby the Lessor had granted leasehold rights in respect of a premises in favour of the Lessee, for a period of 5 years expiring on October 31, 2007. Post the expiry of the Lease Agreement, the Lessee continued the possession of the leased premises without paying the lease rent. On March 06, 2008, the Lessor served a notice on the Lessee to vacate the leased premises by March 31, 2008 (“Notice”). The Lessee refused to vacate the leased premises on the pretext that the premises was leased for manufacturing purposes and hence as per Section 106 of the Transfer of Property Act, 1882 (“TPA”) it could only be terminated by serving 6 months’ notice.

Aggrieved from the reluctance of the Lessee to vacate the leased premises, the Lessor approached the court at Sealdah (“Trial Court”) for recovery of possession of the leased premises. In the Trial Court, the Lessee challenged the legality of the said Notice on the grounds that the Lessor had not served 6 months’ notice as required under 106 of the TPA, and further, the Lease Agreement lacks evidentiary value as it should have been registered under as per Section 107 of the TPA read with Section 17 of the Registration Act, 1908 (“Registration Act”) as its tenure exceeds 1 year. The Trail Court, held that the lease between the Lessor and the Lessee, was of month to month and was not for manufacturing purposes and the same can be terminated by serving 15 days’ notice under Section 106 of the TPA.

The Lessee filed an appeal before the Hon’ble High Court of Kolkata (“HC”) against the decision of the Trial Court, however, HC dismissed the said appeal. The HC viewed that since the Lease Agreement was unregistered, the same could not be used for determining the rights and liabilities of the parties and for its duration.

Aggrieved from the decision of the HC, the Appellant approached the Hon’ble Supreme Court of India (“SC”).

OBSERVATIONS AND JUDGEMENT BY THE SC.

The SC firstly dealt with the requirement of registration of the Lease Agreement under the TPA. Basis the legal provisions and following the judgement titled Anthony Vs. K.C. Ittoop & Sons and Others^[1], the SC viewed that since, the Lease Agreement was of a term of 5 years, it should have been registered under the provisions of the Registration Act.

Thereafter, the SC addressed the issue as to what extent the court can take cognizance of a clause relating to the purpose for which a lease is granted, mentioned in an unregistered lease deed. The SC, basis various judicial precedents, facts and contentions of the Appellant as discussed herein below, held that when the nature and character of possession constitutes the primary dispute, the court is excluded by law from examining the unregistered deed.

The counsel for the Appellant argued that the nature and character of the possession should be considered as collateral transaction in terms of Section 49 of the Registration Act and hence, the unregistered Lease Agreement could be admitted as evidence. The Appellant relied on the ratio of the judgement titled Sevoke Properties Limited vs. West Bengal State Electricity Distribution Company Limited^[2], wherein the SC considered the unregistered agreement for lease only for the purposes of assessing the nature and character of the possession, while clarifying that an indenture of lease is inadmissible in evidence. The SC in the present case examined Sevoke Properties (supra) and observed that the said case was decided based on an admission in the lessee’s written statement of the fact that it was in possession of the leased premises even after expiry of the agreement for lease. The SC viewed that the ratio of Sevoke Properties (supra) is not an authority for the proposition that nature and character of the possession in an unregistered lease deed could always constitute collateral purpose for examining the deed for that reason.

The meaning of the expression ‘collateral transaction’ mentioned in proviso to Section 49 of the Registration Act, was dealt by SC in K.B. Saha and Sons Private Limited vs. Development Consultant Limited^[3] wherein it was held that a collateral transaction must be independent of, or divisible from, the transaction which the law requires registration and that a collateral transaction must be a transaction not itself required to be affected by a registered document. It was further viewed that, if a document is inadmissible in evidence for want of registration, none of its terms can be admitted in evidence and that to use a document for the purpose of proving an important clause would not tantamount to using it as a collateral purpose.

Relying on the aforesaid judgement of K.B. Saha (supra), the SC in this case held that – “In our opinion, nature and character of possession contained in a flawed document (being unregistered) in terms Section 107 of the 1882 Act and Sections 17 and 49 of the Registration Act can form collateral purpose when the “nature and character of possession” is not the main term of the lease and does not constitute the main dispute for adjudication by the Court. In this case, the nature and character of possession constitutes the primary dispute and hence the Court is excluded by law from examining the unregistered deed for that purpose. In respect of the suit out of which this appeal arises, purpose of lease is the main lis, not a collateral incident”.

In this case, the Trial Court held that the leased premises was leased out to the Lessee for the purpose other than agricultural or manufacturing purposes, hence the tenancy of the Lessee shall be deemed to be a lease from month to month, terminable on the part of the Lessor by serving 15 days’ notice and the plaintiff i.e. the Lessor is entitled to get the relief prayed for. The HC and the SC, while dismissing the appeals filed by the Lessee before them, agreed with the view taken by the Trial Court and observed that the Lessee has failed to provide sufficient evidence to prove that the leased premises was taken on lease by the Lessee for the manufacturing purposes for which registration of the Lease Agreement is mandatory under Sections 106 read with 107 of the TPA. On the said premise, the SC held that in the absence of registration of the said Lease Agreement, what is deemed to be created is a month-to-month lease, terminable by serving 15 days’ notice.

OUR ANALYSIS

With this judgment the SC reiterated the position that in the cases where the nature and character of possession is not the main/ primary term of an unregistered lease and does not constitute the main dispute for adjudication by the court, such term may be considered as collateral purposes under proviso to Section 49 of the Registration Act and unregistered document may be admitted in court for the evidentiary purposes. However, in the cases where the nature and character of possession of the lease is a key term of a lease and the main dispute for adjudication by the court, an unregistered lease instrument cannot be admitted as evidence and thus cannot be relied upon for adjudicating.

This judgement provided relief to the Lessor on the basis of usage of the property, nonetheless the judgement may pose challenges for the eviction suits filed on the basis of the unregistered lease deeds, as in the said suits the nature and character of possession may be considered as a key dispute, which would prevent the courts to consider the unregistered lease deed for adjudicating the matter.

Endnotes:

[1] (2000) 6 SCC 394.
[2] (2020) 11 SCC 782
[3] (2008) 8 SCC 564