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PETITIONER: R. KEMPRAJ

       Vs.

RESPONDENT: M/S. BARTON SON & CO.

DATE OF JUDGMENT: 29/08/1969

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. RAMASWAMI, V.

CITATION:  1970 AIR 1872            1970 SCR  (2) 140  1969 SCC  (2) 594

ACT: Transfer of Property Act, 4 of 1882, s. 14-Lease of premises with  option to lessee to renew it every ten  years-Covenant whether  offends rule against perpetuity.

HEADNOTE: The respondent by a deed executed in 1951 took on lease from the  appellant  certain  premises  in  Bangalore.   It   was stipulated in the deed that the lease would be for a  period of  10  years in the first instance with an  option  to  the lessee  to  renew  the,  same every ten  years  so  long  as desired.  When in 1961 the first  period  of ten  years  was about   to expire the respondent asked for a renewal of  the lease.   On the appellant refusing to do so, the  respondent filed a suit for specific performance, The suit was  decreed by  the trial court, the first appellate court and the  High Court.   Appeal  in this Court was filed by  special  leave. The  contention  of  the ’appellant was that  the  lease  in question being in the first instance for ten years only  was not  a lease in perpetuity as contemplated by s. 105 of  the Transfer  of Property Act; however the clauses  relating  to renewal which were covenants that ran with the land offended the rule against perpetuity in s. 14 of the Act. HELD: The ’appeal must be dismissed.     (a) Section 14 of the Act is applicable only where there is  transfer of property.  Even if creation of a lease  hold interest is a transfer of a right in property and would fall within  the expression ’transfer of property’  the  transfer was for a period of ten years only by means of the indenture in  the present case.  The stipulation relating  to  renewal could not be regarded as transferring property or any rights therein. [143 B]     (b) The option of renewal given to the lessee  did   not contain   a  covenant  which  created  an  interest  in  the property of the nature  that would fail within the ambit  of s. 14. [143 F]     Ganesh  Sonar v. Purnendu Narayan Singha &  Ors.  (1962) Pat. 201, applied. Woodall v. Clifton, [1905]2 Ch. 257, referred to. (c)  In  English  law  the, court would  give  effect  to  a

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covenant  for perpetual renewal so long as the intention  is clear and it will not be open to objection on the ground  of perpetuity.  In India the equitable rule that the burden  of a covenant runs with the land is to be found in s. 40 of the Transfer of Property Act, but that section its.elf expressly says that the right of the covenanted is not an interest  in the  land bound by the covenant nor an easement.  It is  not ’an  interest because the Act does not  recognise  equitable estate. [143 G; 144 F]     Thus  even on the footing that the clauses  relating  to renewal  in  the  lease,  in  the  present  case,  contained covenants running with the land the 141 rule against perpetuity contained in s. 14 of the Act  would not  be  applicable  as no interest  in  property  had  been created of the nature contemplated in the provision. [144 G]     Muller  v. Trafford, [1901]1 Ch. 54, Weg Motors Ltd.  v. Hales  & Ors. [1961] 3 A.E.L.R. 181, 188 and London &  South Western Rly. v. Goreto, (1882) 20 Ch. D. 56.2, 580, referred to.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION:  Civil Appeal No..  1655  of 1968.     Appeal  by  special leave from the  judgment  and  order dated December 20, 1967 of the Mysore High Court in  Regular Second Appeal No. 811 of 1965.     A.  K.  Sen, Shyamala Pappu and Vineet  Kumar,  for  the appellant.     S.V.  Gupte, Janendra Lal, B.R. Agarwala and   Kumar  M. Mehta, for the respondent. The Judgment of the Court was delivered by     Grover,  J.  This is an appeal by special leave  from  a judgment  of the Mysore High Court in which   the   question involved  is whether an option given to a lessee to get  the lease,, which is initially for a period of 10 years, renewed after every 10 years is hit by the rule of perpetuity and is void.     The  respondent entered into a deed of lease on  October 26, 1951 with the appellant in respect of premises Nos. 8  & 9,  Mahatma  Gandhi  Road, (South  Parade),  Civil  Station, Bangalore.  It was stipulated that the lease would be for  a period  of 10 years in the first instance with  effect  from November 1, 1961 "with ,an option to the lessee to renew the same  as  long as desired as provided".  Clauses  9  and  10 which are material may be reproduced:--                      "9. The lessee shall have the right  to               renew  the lease of the scheduled premises  at               the  end  of the present period of  ten  years               herein secured on the same rental of Rs. 450/-               per  month,  for  a  similar  period  and  for               further similar periods thereafter on the same               terms and conditions as are set forth  herein;               and  the Lessee shall be permitted  and  shall               have the right to remain in occupation of  the               premises on the same terms and conditions  for               any  further periods of ten years as  long  as               they desire to do so.                      10.  The  Lessor shall  not  raise  any               objection whatsoever to the Lessee  exercising               his option to renew the lease for any  further               periods  of  ten years on the same  terms  and               conditions as long as they desire to be in

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142 occupation, provided that the Lessee shah not have the right to transfer the lease or alienate any right thereunder. ’ ’     It  appears that before the expiry of the period of  ten years  from  the date of the commencement of the  lease  the lessee wrote to the lessor informing him of the intention to exercise  the option given to the lessee under the  deed  of lease  to  get  the  same renewed  on  the  same  terms  and conditions as before for a period of ten years from November 1, 1961.  The lessor did not comply with the request.  After serving  a  notice the lessee  filed  a  suit  for  specific performance  of the covenant in the lease for  renewal.   It was  prayed  that  the  lessor  be  directed  to  execute  a registered  deed to lease in favour of the lessee and if  he failed  to  do  so the court should execute a  deed  in  his favour.  The lessor pleaded, inter alia, that the  condition relating to renewal was hit     the rule against perpetuity. Certain  other  pleas  were  taken with  which  we  are  not concerned.   The  trial court  decreed the suit.  The  first appellate court and the High Court affirmed the decree.     The rule against perpetuity is embodied in s. 14 of  the Transfer  of  Property  Act,  hereinafter  called  the  Act. According  to  it  no transfer of property  can  operate  to create  an  interest  which  is to  take  effect  after  the lifetime  of one or more persons living at the date of  such transfer  and  the minority of some person who shall  be  in existence  at the expiration of that period and to whom,  if he attains full age, the interest created is to belong.   It is well known that the rule against perpetuity is rounded on the  principle that the liberty of alienation "shall not  be exercised  to its own destruction and that all  contrivances shall  be  void which tend to create a perpetuity  or  place property for ever out of the reach of    the exercise of the power  of  alienation".  The words  "transfer  of  property" have been defined by s. 5 of the Act to mean an act by which a living person conveys property in present or in future  to one  or  more other living persons etc.  The  words  "living persons"  include  a  Company  or  association  or  body  of individuals.  Section  105 of the Act  defines  "lease".   A lease  of  immovable property is a transfer of  a  right  to enjoy  such  property  made for a certain  time  express  or implied or in perpetuity in consideration of a price paid or promised or of money, a share of crops, service or any other thing of value.  A lease is not a mere contract but it is  a transfer of an interest in land and creates a right in  rem. Owing to the provisions of s. 105 a lease in perpetuity  can be  created but even then an interest still remains  in  the lessor which is called a reversion.     It  is  not disputed on behalf of the appellant  that  a lease in perpetuity could have been created but the lease in the present case 143 was not of that kind and was for a period of ten years  only in  the  first instance.  It is said that  the  mischief  is created  by  the  clauses  relating  to  renewal  which  are covenants  that  run  with the land. It is pointed out  that on a correct construction of the renewal clauses the rule of perpetuity   contained  in  s.  14  would   be   immediately attracted.    We  are  unable  to  agree.   Section  14   is applicable  only where there is transfer of property.   Even if  creation  of a lease-hold interest is a  transfer  of  a right  in  property  and would fall  within  the  expression "transfer of property" the transfer was for a period of  ten years  only  by  means  of  the  indenture  Exh.  P-I.   The stipulation relating to the renewal could not be regarded as

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transferring property or any rights therein.     In Ganesh Sonar v. Purnendu Narayan Singha & Ors.(1)  in the  case of lease of land an option had been given  to  the lessor determine the lease and take possession of the lease- hold  land  under specified conditions.   The  question  was whether such a covenant would fall within the rule laid down in  the English case Woodall v. Clifton(2) in which  it  was held  that  a  proviso in a lease giving an  option  to  the lessor  to purchase the fee simple of the land at a  certain rate was invalid as infringing the rule against  perpetuity. The  Patna  High Court distinguished  the  English  decision quite  rightly  on the ground that after the  counting  into force  of  the  Act a contract for  the  sale  of  immovable property did not itself create an interest in such  property as  was  the case under the English law.  According  to  the Patna decision the option given by the lessee to the  lessor to resume the lease hold land was merely a personal covenant and was not a covenant which created an interest in land and so.  the rule against perpetuity contained in s. 14  of  the Act was not applicable.  The same principle would govern the present case.  The clauses containing the option to get  the lease renewed on the expiry of each term of ten years can by no means be regarded as creating an interest in property  of the nature that would fall within the ambit of s. 14.     Even  under the English law the court would give  effect to a covenant for perpetual renewal so long as the invention is clear and it will not be open to objection on the  ground of perpetuity; see Halsbury’s Laws of England, 3rd Edn. Vol. 23,  p 627. In Muller v. Traf Jword(3) it was held that  the covenant  in  a  lease for  renewal  was  not   strictly   a covenant   for   renewal.  But  Farwell,  J.,  proceeded  to observe that a covenant to renew had been held for at. least two centuries to be a covenant running with the land. If so, then no question of perpetuity would arise.  It appears that in  England  whatever  might  have  been  the  reason,   the objection of perpetuity had never been taken to cases (1) (1962) Patna 201.                 (2) (1905) 2. Ch. 257. (3)(1901) 1 Ch. 54. of  covenants for renewal.  The following   observations  of Farwell,  J.,  which  were quoted with  approval   by   Lord Evershed,   M.R.   in   Weg  Motors   Ltd.   v.   Hales    & Others(1)  are  note-worthy:                     "But  now I will assume that this  is  a               covenant  for renewal running with  the  land;               it  is then in my opinion free from any  taint               of  perpetuity  because it is annexed  to  the               land. See Rogers v. Hosegood, (1900)               2 Ch. 388."                   The  equitable rule that the burden  of  a               covenant runs with the land is to be found  in               s. 40 of the Act.  This section reads:                      40.  "Where  for  the  more  beneficial               enjoyment  of his own immoveable  property,  a               third   person,  has,  independently  of   any               interest in the immoveable property of another               or  of  any  easement  thereon,  a  right   to               restrain the enjoyment in a particular  manner               of the latter property, or                      where a third person is entitled to the               benefit  of  an  obligation  arising  out   of               contract,  and  annexed to  the  ownership  of               immoveable  property, but not amounting to  an               interest therein or easement thereon,                      such   right  or  obligation   may   be               enforced  against  a  transferee  with  notice

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             thereof  or  a gratuitous  transferee  of  the               property  affected thereby, but not against  a               transferee   for  consideration  and   without               notice of the right or obligation nor  against               such property in his hands." As pointed out in Mulla’s Transfer of Property Act, 5th Edn. at  page  194, s. 40 expressly says that the  right  of  the covenantee      not  an interest in the land  bound  by  the covenant nor an easement.  It is not an interest because the Act  does not recognise equitable estates and it  cannot  be said  as  Sir George Jessal said in London &  South  Western Rly.  v.  Gomm(2)  that if a covenant  "binds  the  land  it creates an equitable interest in the land."  The  expression "covenant  runs  with  the land" has  been  taken  from  the English  law  of real property.  It is an exception  to  the general  rule that all covenants are personal. Even  on  the footing  that the clauses relating to renewal in the  lease, in the present case, contain covenants running with the land the  rule against perpetuity contained in s. 14 of  the  Act would not be applicable as no interest in property has  been created of the nature contemplated by that provision.     For  the  above  reasons  the appeal  fails  and  it  is dismissed with costs. G.C.                                 Appeal dismissed. (1)  [1961] 3, A.E.L.R. 181,188. (2) [1882] 20 Ch.  D.  562, 580. 145