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CASE NO.: Appeal (civil)  3484 of 1997

PETITIONER: Food Corporation of India & Ors.

RESPONDENT: M/s.Babulal Agrawal                              

DATE OF JUDGMENT: 05/01/2004

BENCH: Brijesh Kumar & Arun Kumar

JUDGMENT: JUDGMENT

WITH

CIVIL APPEAL NO. 3485 OF 1997

M/s.Babulal Agrawal                             Appellant

Versus

Food Corporation of India & Ors.                 Respondents

BRIJESH KUMAR, J.

Civil Appeal No.3484 of 1997 has been preferred by the  Food Corporation of India  and others against the judgment and  decree passed by the Madhya Pradesh High Court only partly  allowing their appeal and modifying the decree of the Trial Court  to a limited extent to the effect that the respondent would be  entitled to damages to be calculated after deducting 6% of the  amount payable.  The rest of the judgment and decree as passed  by the Trial Court has been upheld.  Whereas Civil Appeal No.3485 of 1997 has been preferred  by M/s.Babulal Agarwal (the plaintiff), against the same  judgment and order passed by the Madhya Pradesh High Court,  partly modifying  the decree of the Trial Court permitting  deduction of 6% from the amount of damages as decreed by the  Trial Court. For the sake of convenience, the parties shall be  referred as plaintiff and defendant as in the original suit filed by  M/s.Babulal Agrawal. The Food Corporation of India (for short ’FCI’) invited  tenders for hiring plinths for storing foodgrains. The plaintiff  submitted his tender which was ultimately accepted vide letter  dated 11.6.1985.  The rent was to be @40 paisa per sq.ft. The  acceptance of tender and the conditions of contract had again  been confirmed by the letter dated 19.8.1985 written by the  Regional Manager.  An agreement dated 12.2.1986 was entered  into between the parties.  The case of the plaintiff is that the  defendant had given out to hire the plinths for a period of three  years with an option to the defendant to extend by another year.   The construction of plinth etc. could not be constructed within  the time as agreed.  However, ultimately it is undisputed that the  same were completed and handed over to the defendant on  24.1.1987. No formal lease deed was executed.  The defendant on  26.9.1988 gave 15 days’ notice for vacating the plinths and  vacated the same on 10.10.1988.  The rent upto the said period  was paid.  According to the plaintiff it amounted to breach of the  terms of the contract by the defendant, hence filed a suit for  damages for an amount of Rs.17 lacs and odd.  The Trial Court

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decreed the suit for a total sum of Rs.17,32,709/- with an order  for refund of the security and interest thereon.  The plaintiff was  also allowed interest on the decreetal amount @6% p.a. from the  date of suit namely, 4.10.1991 till the date of payment.  Before entering into the points raised before us by the  parties, it will be worthwhile to peruse the relevant conditions of  the contract dated 12.2.1986.  The plinths were to be constructed  by the plaintiff over the land owned by him.  The relevant  conditions of the agreement are as under :- "1.     The opposite party no.1 would be solely  responsible for obtaining necessary permission  from the land ceiling authority and sanction for  the plan of plinths and other facilities to be  constructed from the local bodies like  municipal authorities or any other competent  authority before proceeding with the  constructions.

2.      The size and height of the plinths and other  facilities will be as per specifications laid down  in Appendix ’A’.

3.      The party no.1 shall be responsible for  providing services like electricity, water  supply, inner and approach road, fencing at the  site as per instructions of the party no.2 to be  given from time to time and no extra charges  would be claimed for the provision thereof.   However, the charges for consumption of  electricity would be met by the corporation  (party no.2) during the period plinths alongwith  other facilities remain on lease with the party  no.2.  The maintenance of the electric motor  utilized for the supply of water will be the  liability of the party no.1 on failure of water  facility through well or tube well the alternative  arrangement for supply of portable water shall  be made by the party no.1 at his court.

4.      xxxx                    xxxx            xxxx

5.      The layout plan indicating the plinths proposed  to be constructed, roads, office block etc.  should be got approved by party no.2 before  commencement of the work.

6.      The opposite party no.2 will have full right to  inspection the construction undertaken by the  party no.1 through his  agents/servants/contractors etc.  The party no.1  shall extend full facilities to the party no.2 and  its officer to inspect the work while in progress  to check the specification.

7.      xxxx            xxxx                    xxxx

8.      Upon completion of the construction of plinths  and other facilities referred to above in all  respects and after obtaining a completion  certificate from the party no.2 or any of its  officer nominated by party no.2 is this behalf,  party no.1, would hand over the plinths and  other facilities to the party no.2 under lease  agreement to be executed between the parties in  the prescribed proforma prescribed by the party

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no.2.  The necessary stamp duty as per  requirement for execution of lease deed shall be  borne by the party no.1.

9.      It is understood that the time is evence of this  agreement.  In the event of any delay the  completion of the plinth and other facilities or  if there is a faulty workmenship or the structure  is found to be defective, the party no.2 would  not be bound to take the plinths on lease and  the earnest money deposited by the party no.1  shall be forfeited.  The decision of the opposite  party no.2 would be final in this regard and  shall not be questioned by the party no.1.  The  earnest money shall also be forfeited in case the  party no.1 alters, modified the terms of the  agreement, withdraws and the offer, charges,  etc.

The construction of the ownership and/or fails  to complete the construction of plinth and other  facilities within the time stipulated for  constructions.

10. to 11       xxx                     xxx             xxx

12.     The period of lease will be three years from the  date of taking possession of the lease property.   The party no.2 will be entitled to extend it by a  further period up to one year on the same rates,  terms and conditions applicable to the lease."

               The case of the plaintiff was that the claim of the plaintiff  for damages is based on breach of conditions of the agreement dated  12.2.1986 since the defendant instead of occupying the plinth/platform  for a period of three years, vacated the same on 10.10.1988 after having  taken the possession only on 24.1.1987.  Therefore, the defendant was  liable to damages at the same rate as the rent for the plinth.  The case of  the defendant has been that no registered lease deed,  as envisaged in  the agreement, was executed for a period of three years, hence it was  only a tenancy for month to month and under the provisions of Section  106 of the Transfer of Property Act it was legally open for the  defendant to terminate the tenancy on fifteen days’ notice and vacate  the premises.  On the pleadings of the parties the court framed issues.   We are concerned with only issue nos. 3 and 4 in respect of which  arguments have been advanced before us, which are reproduced  below:- "3. Whether in the absence of the registration of the  alleged lease for three years the tenancy between the  parties was monthly and it was liable to termination  by notice?

4. Whether the defendants were bound to pay rent for  three years on the principle of ’Promissory  Estoppel’?"

On both issues noted above the Trial Court has recorded findings in  affirmative but in respect of issue no.3 it has been further held that  there was a breach of contract on the part of the defendant.  The Trial  Court has made a detailed discussion while recording the findings as  indicated above and came to a conclusion that once the plaintiff had  performed his part of the contract and altered his position, namely,  having constructed the plinth according to specification of defendant,  on a condition given out by the defendant that on completion of the  construction they would hire the premises for a period of three years,

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the defendant could not later on back out from such a promise.  It has  been noted, and rightly so, that in the tender notice as well as in the  correspondence it had been clearly given out time and again that the  defendant would utilize the plinths constructed by the plaintiff for a  period of three years.  As  a matter of fact, on completion of the  construction the defendant did occupy the plinth and had been paying  rent as agreed but terminated the tenancy by serving a notice of 15  days’ as per the provisions of Section 106 of the Transfer of Property  Act and vacated the premises on 10.10.1988. In connection with this  point it may be worthwhile to notice that the defendant itself had  admittedly written a letter dated 16.10.1986 to the United Commercial  Bank mentioning therein that the lease was a period of three years and  the rent payable to the plaintiff would be directly remitted to the bank  as against the loan advanced to the plaintiff.                 Learned counsel for the respondent has also taken us  through the correspondence showing that there was an arrangement for  deposit of the amount of rent by the defendant in the bank to adjust the  loan taken by the plaintiff from the bank for construction of the plinths.   The construction was also made in accordance with the design and  specifications as provided and prescribed by the FCI.  Considering all  such facts as were clearly indicated and given out by the defendant for  occupying the premises initially for a period of three years and the  plaintiff having arranged for the money accordingly by taking loan  from the bank, the Trial Court, in our view,  has rightly held, referring  to the earlier decisions of this Court that the defendant could not back  out from the promise held out and cannot escape when the liability for  damages for breach of the terms of the contract.   We may, however, point out that the learned counsel for the  defendant-appellant has laid much emphasis mainly on three points.   The first point is that there being no registered lease deed it was a  monthly tenancy and could validly be terminated by giving 15 days’  notice and since the tenancy was terminated accordingly, there was no  occasion to saddle the defendant appellant with liability of damages. In  absence of a registered lease deed, it is contended that it could not be  held that the property leased out to the defendant appellant was for a  period of three years.  The other objection which has been raised is that  the agreement dated 12.2.1986  required registration under the  provisions of the Indian Registration Act.  The unregistered agreement  would not be admissible in evidence, hence it could not be acted upon.   Yet another objection which has been raised is that the suit was filed  beyond the period of limitation.  In support of the first contention a  reference has been made to Section 107 of the Transfer of Property Act,  according to which the parties had to execute a registered lease deed  but the same was never done.  We find that the High Court has rightly  dealt with the question while holding that the plaintiff had not filed the  suit for enforcement of agreement of lease. It was a suit filed for  damages for the breach of contract.  It was not a suit for specific  performance of the contract.  A promise was definitely held out by the  defendant to the appellant, for occupying the premises for a period of  three years at a given rate of rent.  The premises were in fact  constructed in accordance with the instructions and specifications of the  defendant.  For raising the construction the plaintiff had raised loans  from the bank.  Everything happened in accordance with the terms of  the contract except that the period of tenancy was interdicted before  three years of taking over of the possession by the defendant.  It may be  observed that even a monthly lease may last for more than a year and  for any longer period.  In our view, the Trial Court and the High Court  have rightly held that in absence of any lease deed or a registered  lease  deed the nature of the lease would only be that of a monthly lease.  But  it does not mean that it would deprive the plaintiff of damages for  breach of terms of an agreement in accordance of which he had  performed his part of the obligation by creating a liability against  himself by taking loan from bank  later only to be told that it all will be  of no consequence as agreed in the agreement since no lease was  executed and registered.  The plinths were constructed in accordance

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with the design and specification given by the defendant.  It may be of  no use to any other person and for any other purpose.  In this  background as what was held out by the defendant, assumes importance  and in case one who holds out a promise, backs out, will have to  compensate the party who acted bonafidely on the basis of the promise  made.  As indicated earlier, even the tender notice, besides other  correspondence, all gave out that the defendant would occupy the  premises for a period of three years. Everything was acted upon  according to the agreement except the execution of lease deed, hence  there was termination of tenancy on 15 days’ notice.  The plaintiff is  not insisting that the defendant must retain possession for the remaining   period or that the tenancy was not terminable but termination of the  tenancy would not necessarily mean that the defendant would also not  be liable for compensating for the breach of promise held out in the  terms of the agreement which lead the plaintiff to undertake the  construction and invest money by raising loan. Therefore, in our view,  it would not be of much consequence as to whether a lease deed for a  lease of three years was executed and registered or not.  The execution  of the agreement and its existence and its terms and conditions are not  disputed.  Nor it has been disputed that it was held out by the defendant  that it would occupy the premises for a period of three years extendable  by one year at its option on the rate of rent as agreed between the  parties. In the case in hand, the plaintiff is not praying for relief  of  specific performance. In this view of the matter, we find that the  defence put up by the defendant appellant is not legally tenable.  The  Trial Court and the High Court have rightly relied upon the decisions of  this Court reported in AIR 1968 SC page 718 in the case of Union of  India & Ors. Vs. M/s.Anglo-Afghan Agencies etc., where it was held  that non-execution of the contract in terms of Article 299 of the  Constitution of India does not militate against the applicability of the  doctrine of promissory estoppel against the government.  We also find  that a reference to some other decisions of this Court namely, AIR 1979  SC p.621, M/s.Motilal Padampat Sugar Mills Co.Ltd. Vs. State of  U.P.&Ors. and AIR 1987 SC p.2414, Delhi Cloth and General Mills  Vs. Union of India,  has been rightly made for the proposition of  liability of a party on backing out of a promise held out, after making  the other party to alter his position.         On behalf of the appellant, a reference has also been made  to a decision of this Court reported in (2000) 6 SCC 394, Anthony Vs.  K.C.Ittoop & Sons & Ors.  An unregistered lease deed intended to be  operative for a period of 5 years, it was held that being an unregistered  deed, hence it could not create lease right in view of provisions as  contained in Section 107 of the Transfer of Property Act and Sections  17(1) and 49 of the Registration Act, 1908.  This decision, therefore,  would not help the appellant in the instant case since it is nobody’s case  that right of tenancy was created by virtue of agreement dated  12.2.1986.  The said agreement only provided for execution by a  registered sale deed.  The agreement has never been treated as a lease  deed by any Court or the respondents.  What has been found material in  this case is that right from the beginning with the publication of the  tender notice till the end, it was given out, including in the agreement,  that the appellant shall hire the premises for a period of three years.  This period of three years has been described as guarantee period by  the appellant itself during which lease was to continue.  We have  already held earlier that agreement dated 12.2.1986 itself not being a  lease deed was not registerable.  The case basically hinges on the  undisputed fact that a promise was held out by the appellant to the  respondent to hire the premises for three years in response whereof the  respondent had parted his possession, as held earlier.                 It may also be worthwhile to point out that the Board of  Directors of FCI considered the question of premature termination of  the lease and in its meeting it realized that though, may be legal, it  would be unjust and unfair, hence, issued a circular dated 4.5.1989  saying that the matter was considered in its 194th meeting and it was  decided that wherever guarantee period of three years has not expired

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the hiring of plinths may be continued upto the date of expiry of three  years by reducing its liability at least to the extent of 5%  in the amount  of rent, through negotiations with the owners of the plinths. The  defendant itself was well aware of promise of three years "guarantee  period", therefore, only wanted reduction in rent.                 The next submission made on behalf of the respondent is  that the agreement dated 12.2.1986 which provided for execution and  registration of lease for a period of three years, was  itself  required to  be registered according to Section 2(7) of the Registration Act, 1908.   Sub-section (7) of Section 2 is quoted below : "2. Definitions-.  In this Act, unless there is anything  repugnant in the subject or context,-

xxx             xxx                     xxx

(7) "lease" includes a counterpart, kabuliyat, an  undertaking to cultivate or occupy, and an agreement  to lease;"

It is submitted that since there was an agreement for lease it was  therefore, liable to be registered. In this connection two other  provisions, Section 17(1)(d) and Section 17(2)(v), which may be  relevant for the purposes of dealing with this point may also be  perused. Section 17(1)(d) reads as under : "17. Documents of which registration is  compulsory.(1) The following documents shall be  registered, if the property to which they relate is  situate in a district in which, and if they have been  executed on or after the date on which, Act No.XVI  of 1864, or the Indian Registration Act, 1866, or the  Indian Registration Act, 1871, or the Indian  Registration Act,1877, or this Act came or comes  into force, namely,  

xxx                     xxx                     xxx

(d)lease of immovable property from year to year, or  for any term exceeding one year, or reserving a  yearly rent;"

The other relevant provision is clause (v) of sub-section (2) of Section  17, which reads as under : "17(2) Nothing in clause (b) and (c) of sub-section  (1) applies to  

xxx                     xxx                     xxx

(v) "any document other than the documents  specified in sub-section (IA)" not itself creating,  declaring, assigning, limiting or extinguishing any  right, title or interest of the value of one hundred  rupees and upwards to or in immovable property, but  merely creating a right to obtain another document  which will, when executed, create, declare, assign,  limit or extinguish any such right, title or interest;  or\005."

The agreement dated 12.2.1986 would squarely be covered by clause  (v) of Sub-section (2) of Section 17 quoted above. Since it merely  creates a right to obtain another document which will when executed  would create such a right.  It would be necessary to refer to the  conditions of the agreement at this juncture.  Clause 8 of the agreement  quoted earlier is clear, in providing that upon completion of the plinths  etc. the premises would be handed over to the defendant under a lease  agreement to be executed between the parties in the prescribed

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proforma.  Thus clause 8 only talks of execution of a lease deed  between the parties in a prescribed proforma under which the defendant  would be entitled to get  possession of the premises on completion.   The necessary stamp duty was to be borne by the plaintiff.  It is thus  clear that agreement dated 12.2.1986 itself is not a lease deed requiring  registration.  It only creates a right of getting another document  executed creating rights and liabilities in respect of immovable  property.  The Trial Court as well as the High Court, has, in this  connection placed reliance upon a decision reported in AIR 1959 SC  p.620, Trivenibai and Anr. Vs. Smt.Lilabai.  Paragraph 15 of the  judgment reads as under : "15. In construing this document it is necessary to  remember that it has been executed by laymen  without legal assistance, and so it must be liberally  construed without recourse to technical  considerations.  The heading of the document, though  relevant, would not determine its character. It is true  that an agreement would operate as a present demise  although its terms may commence at a future date.   Similarly it may amount to a present demise even  though parties may contemplate to execute a more  formal document in future.  In considering the effect  of the document we must enquire whether it contains  unqualified and unconditional words of present  demise and includes the essential terms of a lease.   Generally if rent is made payable under an agreement  from the date of its execution or other specified date,  it may be said to create a present demise.  Another  relevant test is the intention to deliver possession.  If  possession is given under an agreement and other  terms of tenancy have been set out, then the  agreement can be taken to be an agreement to lease.   As in the construction of other documents, so in the  construction of an agreement to lease, regard must be  had to all the relevant and material terms; and an  attempt must be made to reconcile the relevant terms  if possible and not to treat any of them as idle  surplusage."

It is thus clear that if the agreement is  such which may amount to a  present demise even though the document may be contemplated to be  executed later on it may be a document or agreement creating the  rights.  There must be demise of the property in praesenti.  But an  agreement for securing another agreement or deed in future would not  be such an agreement or document which may require registration.   Clause 8 of the agreement did not create any right in praesenti  nor  there was any immediate demise of the property.  It was only an  executory agreement.  The construction of the plinth it seems had yet to  start with other facilities and amenities.  On completion, such a  certificate was to be obtained from the defendant.  It was thereafter that  the possession was to be handed over under the lease agreement which  was to be executed between the parties.  The construction was to be  strictly in accordance with the directions and specifications of the  defendant.  Condition no.9 also contemplated that if the structure was  found defective or workmenship was faulty the defendant could refuse  to take possession of the premises and the earnest money was liable to  be forfeited.  Hence it is evident that no possession, right or title had  passed on in praesenti at the time of execution of the agreement, and  there were many prior conditions attached thereto.  Such an agreement,  in our view, has been rightly held to be only an executory agreement  and not an agreement creating rights in the immovable property, hence  not compulsorily required to be registered.  It was a mere agreement  between the parties which was not registered but was admissible in  evidence.                 The next contention has been raised that the suit filed by

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the plaintiff was barred by time.  The tender was accepted by the  appellant on 11.6.1985.  The premises were handed over to the  defendant on 24.1.1987.  The defendant gave 15 days’ notice to vacate  the premises on 10.10.1988 on which date they vacated the premises  paying the rent up to 10.10.1988.  The suit was filed on 4.10.1991.                 In connection with this objection regarding limitation,  learned counsel for the plaintiff has submitted that no such plea was  ever raised by the defendant nor any facts or reasons were indicated as  to in what manner the suit was barred by limitation.  No issue was  framed on the question of limitation.  That point was not raised even in  the High Court nor in this Court too.  It is only in the list of  dates/synopsis it is vaguely stated that the suit was time barred.    Learned counsel for the defendant appellant, however, relying upon  Section 3 of the Limitation Act submits that it was the duty of the Court  to see as to whether the suit was within limitation or not. A suit filed  beyond limitation is liable to be dismissed even though limitation may  not be  set up  as a defence.  The above position as provided under the  law cannot be disputed nor it has been disputed before us.  But in all  fairness it is always desirable that if the defendant would like to raise  such an issue, he would better raise it in the pleadings so that  the other  party may also note the basis and the facts by reason of which suit is  sought to be dismissed as barred by time.  It is true that the Court may  have to check at the threshold as to whether the suit is within limitation  or not.  There is always an office report on the limitation at the time of  filing of the suit. But in case the Court does not prima facie find it to be  beyond time at that stage, it would not be necessary to record any such  finding on the point much less a detailed one.  In such a situation at  least at the appellate stage, if not earlier, it would be desired of the  defendant to raise such a plea regarding limitation.  In the present case  except for making a passing reference in the list of dates/synopsis no  such ground or question has been raised or framed on the point of  limitation.  It is quite often that question of limitation involves question  of facts as well which are supposed to be raised and indicated by the  defendant.  The objecting party is not supposed to conveniently keep  quiet  till the matter reaches the Apex Court and wake up in a non- serious manner to argue that the Court failed in its duty in not  dismissing the suit as barred by time.  The trial Court may not find the  suit to be barred by time and proceed with the case but in that event the  Court would not be required to record any such finding unless any plea  is raised by the defendant.  In this connection, learned counsel for the  respondent has placed reliance upon a decision reported in (1964) 1  SCR p.495 at page 506, Ittavira  Mathai Vs. Varkey Varkey & Anr.,  wherein it has been held that if it is a mixed question of fact and law, a  party would not be allowed to raise it later on, in case  such an  objection was not raised at the earliest.  We, however, find that the  period of limitation would be three years as the matter would be  covered by Article 55 of the Limitation Act as pointed out by the  learned counsel for the respondent.  Article 55 reads as under :

"--------------------------------------------------------------------------- Description of suit                     Period of        Time from which                                           Limitation        period begins to run --------------------------------------------------------------------------- 55. For compensation for the                    When the contract is breach of any contract, express                 broken or (where there or implied not herein                           are successive  specially provided for             three years     breaches) when the                                                         breach in respect of                                                         which the suit is                                                          instituted occurs or                                                         (where the breach is                                                         continuing) when it                                                         ceases." In the case in hand, as indicated above, the notice terminating the  contract is dated 26.9.1988 saying that "we are going to vacate your

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above plinths by October 10, 1988".   The plaintiff replied to the notice  saying that the defendant could not vacate the premises before  23.1.1990.  However, the defendant vacated the premises on  10.10.1988. This is the date when the contract was broken and cause of  action also accrued. The suit had been filed on 4.10.1991 i.e. within  three years of vacating the premises.  In view of the position indicated  above, we do not find any merit in the argument raised on behalf of the  appellant that the suit of the plaintiff was barred by time.  In the result,  we find no substance in the appeal preferred by the Food Corporation  of India.                 We also find no good reason to reduce the amount of  damages to the extent of 6% merely because the Board of Directors had  decided that the premises hired for three years may be continued for the  same period but negotiations may be held for reducing the liability  which may be not less than 5%.  The plaintiff appellant M/s.Babulal  had never agreed to any such suggestion.  Once the measure of  damages has been accepted as the amount of monthly rent of the  plinths, unless there was some logical and cogent reason to reduce the  same, it could not be done. The order of modification of the decree  passed by the Trial Court was not called in question.  In our view, the  decree has been modified without assigning any cogent reason for the  same.  Hence, that part of the judgment passed by the High Court is  liable to be set aside.                 In the result, Civil Appeal No.3484 of 1997 titled Food  Corporation of India & Ors.Vs. M/s.Babulal Agrawal is dismissed and  Civil Appeal No.3485 of 1997 titled M/s.Babulal Agrawal Vs. Food  Corporation of India & Ors. is allowed and the decree passed by the  Trial Court is restored.  Parties to bear their own costs.