LI Network
Published on: 30 September 2023 at 10:45 IST
The Supreme Court, with a bench comprising Justice Aniruddha Bose and Justice Vikram Nath, has ruled that to trigger the provisions of Section 106 of the Transfer of Property Act, 1882, which necessitates a six-month notice for the termination of a lease, the tenant must demonstrate that manufacturing activities were indeed conducted in the leased premises.
A mere assertion that manufacturing activities occurred is insufficient; the tenant must elucidate the nature of the work performed in the factory shed.
Background:
In 2003, a landlady and a tenant entered into an unregistered tenancy agreement for a property (“Premises”) for a five-year period. After five years, the tenancy agreement was not renewed, but the tenant continued to occupy the premises without paying rent. In 2008, the landlady issued a notice to the tenant (addressing him as a monthly tenant) instructing him to vacate the premises within 15 days, a demand that the tenant failed to meet.
Section 106 of the Transfer of Property Act, 1882 (“TP Act”) stipulates that in the absence of a contract, a lease of immovable property for agricultural or manufacturing purposes shall be considered a year-to-year lease, terminable by either the lessor or lessee with six months’ notice. It further specifies that a lease of immovable property for any other purpose is regarded as a month-to-month lease, terminable with fifteen days’ notice by either party.
Section 107 of the TP Act states that a lease of immovable property for a year or more, or one reserving an annual rent, can only be made through a registered instrument.
Section 17 of the Registration Act, 1908, lists documents that must be registered, including documents in which immovable property is leased for a term exceeding one year.
Section 49 of the Registration Act stipulates that an unregistered document, which is otherwise subject to compulsory registration, cannot be admitted as evidence in court.
When the tenant failed to vacate the premises, the landlady filed a civil suit seeking possession and a decree for mesne profits. During cross-examination, Defense Witness DW-1 stated that he was engaged in the rubber business.
The tenant argued that the premises were leased for manufacturing purposes, and therefore, as per Section 106 of the TP Act, termination required a six-month notice. Additionally, the lease agreement exceeded one year, requiring compulsory registration. Since it was unregistered, it could not be admitted as evidence in court, rendering the suit unsustainable.
The trial court ruled that the lease was month-to-month and governed by the TP Act, and it was not for manufacturing purposes. Consequently, a fifteen-day notice was valid, and the suit was maintainable. The judgment favored the landlady.
On appeal, the High Court’s division bench upheld the trial court’s decision. The tenant then appealed to the Supreme Court.
Supreme Court Verdict:
The bench noted that the tenancy agreement in question was subject to compulsory registration under Section 17 of the Registration Act, as the agreement specified a five-year term.
The primary issue revolved around the ‘nature and character of possession.’ To invoke Section 106 of the TP Act, which mandates a six-month notice for vacating the property, it had to be established whether the premises were leased for manufacturing purposes.
In Allenbury Engineers Pvt. Ltd. v. Ramkrishna Dalmia and Ors, (1973), the term ‘manufacturing purpose‘ was defined as “purposes for making or fabricating articles or materials through physical labor, skill, or mechanical power, for sale and use as such. Manufacturing or fabricating involves more than merely altering an existing article or material; it entails transforming it into a distinct article or material with a unique name, character, or use, or creating a previously known article using an innovative process.”
The bench observed that the premises were leased to the tenant “for the purpose of his business and/or factory.” The premises included a factory with a shed/godown area. However, such a description alone was insufficient to establish that the lease was intended for manufacturing purposes.
The decision in Park Street Properties Private Limited v. Dipak Kumar Singh and Anr., (2016) was cited, which stated that in the absence of a registered instrument, courts were not precluded from determining tenancy based on other evidence and the purpose of the tenancy.
The bench maintained that the existence of a tenancy was established, but it was impossible to establish the purpose of the tenancy to trigger the six-month notice requirement under Section 106 of the TP Act based on such evidence, where registration of the deed would have been mandatory.
“In this case, the fact of the creation of a tenancy has been established. But the purpose of the tenancy, so as to trigger the six months’ notice period under Section 106 of the 1882 Act, cannot be established by such evidence, as in such a situation, the registration of the deed would have been mandatory.”
Furthermore, the onus is on the defendant to prove that manufacturing activities were carried out on the premises by explaining the nature of the work conducted in the factory shed. A mere statement that manufacturing activities took place is insufficient.
“The burden would fall on the defendant to establish the fact that manufacturing activities were carried out on the demised premises. A mere statement by DW-1, as referenced earlier, or the purpose of the lease as specified in the leaseagreement would not be enough to demonstrate that the lease was for manufacturing purposes.
This could be proven by explaining the type of work conducted in the factory shed. In such a scenario, registration of the deed would also have been necessary. In the absence of such registration, the tenancy would be of a ‘month-to-month’ nature. For these reasons, we do not believe that the High Court erred in dismissing the defendant’s appeal.”
The court concluded that the tenant failed to prove that the premises were leased for manufacturing purposes. As a result, the 15-day notice issued by the landlady was valid. The Supreme Court upheld the High Court’s decision and dismissed the appeal.
Also From the Judgment: When Can an Unregistered Lease Deed, Which Is Compulsorily Registrable, Be Admitted to Show the Nature and Character of Possession? Supreme Court Explains
Case Title: M/S Paul Rubber Industries Private Limited V. Amit Chand Mitra & Anr.