SUPREME COURT HOLDS THAT UNREGISTERED LEASE AGREEMENTS CANNOT BE USED AS EVIDENCE TO DETERMINE NATURE OF POSSESSION

A two Judge Bench of the Supreme Court comprising of Justice Aniruddha Bose and Justice Vikram Nath passed a Judgment dated 25-09-2023 in the matter of M/s Paul Rubber Industries Private Limited vs. Amit Chand Mitra & Anr. Civil Appeal No. 15774 / 2022 and observed that an unregistered lease agreement cannot be used as evidence to determine the nature of possession of the leased premises. Further, property laws can differ by region, which can lead to variations in the treatment of lease deeds and leave licenses regarding stamp duties, registration requirements, and enforceability based on state-specific regulations and statutes.

Facts:

i) That the aforesaid Appeal filed before the Apex Court by one, M/s Paul Rubber Industries Private Limited (Appellant) against one, Amit Chand and one, Udit Chand Mitra (Respondents), challenged the decision of the Hon’ble High Court of West Bengal, at Calcutta (High Court), that such an unregistered deed cannot be used as evidence for any transactions concerning the leased property.

ii) That one Sabita Mitra, the landlady (now Deceased), entered into a “Tenancy Agreement dated 23.03.2003” with Paul Rubber Industries Private Limited (hereinafter referred to as the Defendant), a duly incorporated Company. The property, situated at Radha Madhab Dutta Garden Lane in Kolkata, encompasses an area of approximately 16 Cottahs (equivalent to approximately 720 sq. ft.) of land (Property). The Agreement was originally established for a term of five years, with the option for renewal for an additional five years, subject to the conditions agreed upon by both Parties as specified in clause of the Agreement. However, no such renewal was executed.

iii) Thereafter, the Tenant had rented the Property for a decade, with the first five years ending on 31.10.2007. On 07.11.2007, the landlady requested a rental increase, but thereafter, the Tenant did not pay rent, stating that the Tenant had previously collected rent from the sub-tenant on behalf of the landlady but they had stopped collecting rent since October 2007. Thus, the landlady sent a Notice dated 06.03.2008 to the Tenant, stating that as the Tenant was not paying monthly rent, so she needed the premises for her own use and business purposes of her family members. The sub-tenants i.e. the Respondents argued that this Letter serves as a fifteen-day Notice under Section 106 of the Transfer of Property Act, 1882 (Duration of certain leases in the absence of written contract or local usage).

iv) The Deceased filed a law suit on 04.09.2008, before the Ld. Civil Judge, Senior Division at Sealdah (Trial Court), seeking to regain possession of the Property and obtain a decree for mesne profit, as it was the Tenant’s failure to vacate the premises.

v) Thus, the Defendant-Tenant raised various defenses in their written statement. One of their arguments was that since the Agreement for Lease was unregistered, the Suit was not maintainable. They also claimed that the Property had vested in the State under the Thika tenancy law, although this issue was not raised before the High Court or in the current proceedings. Additionally, the Defendant denied that the tenancy had expired on 31.01.2007, and they disputed the allegations of default in rent payment.

vi) The Trial Court framed five issues in the case, with the first two pertaining to the maintainability of the Suit and the subsistence of the cause of action. These two issues were not pursued during the trial, and the Trial Court found the Suit to be maintainable. The remaining three issues revolved around whether the Plaintiff (landlady) was entitled to the relief sought.

vii) The main argument before the Ld. Trial Court centered on the legality of the Notice, with the Defendant contending that, as the premises was used for manufacturing purposes, a six-month notice was required under Section 106 of the Transfer of Property Act, 1882. The Ld. Trial Court, after examining the evidence, concluded that the Property was not let out for agricultural or manufacturing purposes.

TRIAL COURT FINDINGS:

a) As per the Transfer of Property Act, 1882, the Trial Court has determined that the Defendant’s tenancy was on a month-to-month basis. The Court has further concluded that the initial lease term specified in the Agreement dated 27.03.2003 had expired, and no mutual agreement was made to extend the tenancy. Therefore, the Defendant’s occupation of the premises was considered a month-to-month tenancy, which may be terminated by either party with a 15-day notice.

b) With regard to the issue of Thika tenancy, the Ld. Trial Court has taken note of the fact that the Thika Controller had previously conducted proceedings and determined that the Plaintiff was the rightful owner of the Suit Property. This finding has supported the Plaintiff’s claim of ownership and has strengthened their case for seeking relief, including possession of the Property, in the lawsuit.

HIGH COURT FINDINGS:

Aggrieved by the Order passed by the Ld. Trial Court the Appellant filed a First Appeal No. 36/2021 before the Hon’ble High Court of West Bengal, (Calcutta). The Hon’ble High Court vide Order dated 20.07.2022 made the following observations:

(i) The High Court concurred with the Trial Court’s assessment that the unregistered nature of the agreement rendered it inadmissible for the purpose of determining the rights and obligations of the parties, as well as the duration of the tenancy. In many legal systems, including this one, unregistered agreements may not be used as substantive evidence in disputes.

(ii) Thereafter, with respect to the question whether the purpose of the lease was for “manufacturing” or for some other use, the High Court placed the burden of proof on the Appellant (Defendant). The Appellant- Tenant, failed to present any evidence supporting their claim that the premises were intended for manufacturing purposes. Due to this lack of evidence, the High Court drew an adverse inference against the Appellant- Tenant on this matter.

In respect of the aforementioned observations and considerations, the Hon’ble High Court concluded that there were no grounds for interference with the Trial Court’s judgment. Consequently, the Appeal was dismissed, and the Trial Court’s decision stood affirmed.

SUPREME COURT OBSERVATION:

Aggrieved by the Order dated 20.07.2022 passed by the Hon’ble High Court, the Appellant filed a Civil Appeal No. 15774 / 2022 before the Hon’ble Supreme Court on 29.08.2022. The Apex Court, in its observations, addressed the crucial issues which are as follows:

1) The Apex Court emphasized the importance of complying with the registration requirements for lease agreements, as mandated by Sections 107 (Leases how made) and 17 (Direction for accumulation) of the Transfer of Property Act, 1882, and Section 49 of the Registration Act, 1908 (Effect of non-registration of documents required to be). It reiterated that unregistered lease deeds are generally inadmissible as evidence unless they serve a collateral purpose unrelated to the primary transaction.

2) Thereafter, the Bench discussed the crucial issue of establishing the purpose of the lease, particularly whether it was for manufacturing purposes, as defined by Section 106 of the Transfer of Property Act. It pointed out that the burden of proving the purpose of the lease rests on the party claiming it to be for a specific purpose. Further, mere statements in the lease agreement or pleadings are insufficient; there must be credible evidence demonstrating the actual nature of activities conducted on the leased premises.

3) Subsequently, the Hon’ble Supreme Court clarified that, in certain cases, the “nature and character of possession” in an unregistered lease deed may be considered as a collateral purpose, as per the proviso to Section 49 of the Registration Act. This can only be done when the nature and character of possession are not the main terms of the lease and do not constitute the primary dispute for adjudication by the court.

4) Hence, the Apex Court concluded that in this case, the nature and character of possession constituted the primary dispute, and therefore, the Court was precluded by law from examining the unregistered lease deed for that purpose. It underscored that the admissibility of such documents depends on whether they serve a collateral purpose in the context of the dispute.

CONCLUSION:

Thus, based on aforesaid observations, the Apex Court’s judgment in this case ruled that an unregistered lease agreement cannot be used as evidence to determine the nature of possession in a case. As the purpose of the lease was not established, the burden of proof falls on the Defendant-Tenant. The Supreme Court dismissed the Defendant’s Appeal and stated that registration of the Lease Agreement was necessary to prove the manufacturing purpose. Failing which, the tenancy is considered month-to-month.

The Apex Court upheld the High Courts’ decision for the aforesaid reasons, and observed that the High Court did not commit any error in law in dismissing the Defendant-Tenant’s Appeal. The present Appeal was, therefore, dismissed on the same rationale.

 

Sakshi Raghuvanshi

Legal Associates

The Indian Lawyer