REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6391/2009  (@ SPECIAL LEAVE PETITION (CIVIL) NO.11051 OF 2006)

The New Bus Stand Shop Owners Association ...Appellant(s)

Vs.

Corporation of Kozhikode & another     ...Respondent(s)

J U D G M E N   T   

GANGULY, J.

1. Leave granted.

2. The  subject  matter  of  challenge  in  this  

proceeding  is  the  judgment  and  order  dated  

21.02.2006 whereby the learned Judges of the  

Division Bench held that the controversy in  

this  case  is  covered  by  the  Division  Bench  1

judgment  of  Kerala  High  Court  in  O.P.  No.  

18225 of 1997,  P.A. Kuruvila and others Vs.  State of Kerala decided on 15.12.1999 and also  by  another  decision  of  the  High  Court  in  

Abdulrahiman Vs. Tirur Municipality – 2001 (2)  KLT  716.   In  the  judgment  of  the  learned  

Single Judge of the High Court dated 8.7.2004,  

from which appeal was taken to Division Bench,  

the learned Single Judge also dismissed the  

writ  petition  by  referring  to  certain  

judgments. In paragraph 5 of the judgment of  

the  learned  Single  Judge  it  was  held  that  

looking  at  the  nature  of  the  arrangement  

between the parties it has to be held that it  

is a lease despite a different nomenclature  

being given to it.   

3. However, before this Court the matter has been  

argued  at  length.   After  hearing  learned  

counsel  for  the  parties  the  controversy  

between  the  parties  appears  to  be  that  the  

appellant is an Association of New Bus Stand  

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Shop  Owners  and  they  are  occupying  various  

shops  and  offices  in  the  Municipality  Bus  

Stand  Building  which  is  owned  by  the  

Corporation  of  Kozhikode  in  the  State  of  

Kerala  (hereinafter  referred  to  as  “the  

Corporation”).   

4. The case of the appellant-Association is that  

for  the  use  of  the  shops  which  were  

constructed by the first respondent, licences  

were  issued  to  the  appellant-Association  in  

terms  of  Section  215  of  the  Kerala  

Municipalities  Act,  1994  (hereinafter  called  

“the said Act”).  Pursuant to such licences  

issued  by  the  said  Corporation,  licence  

agreements  have  been  entered  into  with  

individual shop owners.  

5. By referring to the provision of Section 215  

of the said Act and also the terms of the  

licence  agreements,  the  learned  counsel  for  

the appellant submitted that they were all the  

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time paying licence fee in accordance with the  

relevant statutory provisions at the time of  

renewal of the licences.  Suddenly, the State  

of  Kerala  insisted  that  the  said  licences  

should be treated as lease and at the time of  

renewal  of  the  same,  stamp  duty  which  is  

payable on lease has to be given.   

6. In the counter affidavit which has been filed  

in this proceeding on behalf of the Municipal  

Authority, the following stand has been taken  

in  paragraphs  4  and  5  of  the  said  counter  

affidavit.  The same are set out below:-

“4.  I  beg  to  submit  that  the  Government of Kerala vide letter No.  12980/E2/91/T.C.  dated  04.07.1991  stipulates  that  while  issuing  shop  rooms in shopping complexes owned by  Local Self Government Institutions, an  agreement is to be executed in stamp  appear worth 2.5% of the total value  of  annual  license  fee  which  was  subsequently enhanced to 5% through an  amendment  to  the  Kerala  Stamp  Act  through the Kerala Finance Bill, 1996  which  came  into  force  w.e.f.  20.07.1996.  I further beg to submit  that  almost  all  licensees,  including  those  in  the  I.G.  Road  Bus  Stand  Shopping  Complex  complied  with  the  

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direction  and  submitted  revised  rent  accordingly.

5. It  is  submitted  that  this  respondent which comes under the Local  Self  Government  Department  of  the  State  Government  is  bound  to  comply  with  the  direction  of  the  State  Government.  I further beg to submit  that an enhancement to the tune of 20%  on licence fee is being effected while  renewing agreement, which is accepted  by the licensees as well.”

7. The State of Kerala also filed an affidavit  

wherein the stand is that in the New Bus Stand  

Building at Indira Gandhi Road, Kozhikode the  

said Corporation for commercial purposes let  

out rooms which were offered and allotted to  

the bidders in a public auction.  An amendment  

was introduced in the Kerala Stamp Act which  

came  into  effect  from  29.07.1996.   In  the  

light of the said amendment, the Secretary of  

the said Corporation directed the occupants of  

the  rooms  to  execute  agreements  on  stamp  

papers worth 5% of the annual licence fee for  

continuous  occupation  of  the  rooms.   In  

paragraph  4  of  that  affidavit  it  has  been  

stated that State Government vide letter No.  5

12980/E2/91/TD dated 4.7.1991 stipulated that  

while  letting  out  shop  rooms  in  shopping  

complex owned by local self Governments, an  

agreement  is  to  be  executed  on  stamp  paper  

worth  2.5%  of  the  total  value  of  annual  

licence fee.  The said rate was subsequently  

enhanced to 5% as per amendment in the Kerala  

Stamp Act which came into force with effect  

from 29.07.1996.  Accordingly, pursuant to the  

direction  by  the  State  Government,  the  

Corporation  informed  all  the  licensees  to  

execute agreement at the revised rate of 5%.  

In paragraph 5, it has been stated even though  

it is actually a licence, the nomenclature is  

not  decisive.   It  is  also  stated  that  

agreement creates a “lease” within the meaning  

of Transfer of Property Act.  Alternatively,  

it was also urged even if the said agreement  

does not create a lease under Section 105 of  

the  Transfer  of  Property  Act,  it  will  be  

covered within the definition of “Lease” under  

the Kerala Stamp Act, 1959 and reliance was  

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placed on Section 2(1) (iii) of the said Act.  

8. It  was  also  stated  that  Entry  5(c)  of  the  

Kerala  Stamp  Act  is  not  applicable  in  the  

facts  of  this  case  and  the  case  of  the  

appellant should be governed under Entry 33 of  

the Kerala Stamp Act.   

9. Therefore, the main question which falls for  

determination  before  this  Court  is,  whether  

the  agreement  under  which  the  appellant-

Association  has  been  granted  shops  and  is  

carrying on business is an agreement for lease  

or it is a licence.  If it is lease then rate  

of stamp duty will be different and if it is  

licence, such duty will be different.  Even  

though the State is insisting that the same is  

lease but the stand of the Corporation in its  

affidavit is that it is a licence.   

10. In  order  to  ascertain  whether  the  licence  

granted to the appellant is actually a lease  

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we  must  look  into  the  statutory  provisions  

under which it is granted and some terms and  

conditions of the licence.

11. Admittedly, the licence has been granted to  

the appellant-Association under Section 215 of  

the Kerala Municipality Act, 1994.  The said  

Section is set out below:-

“215. Power  of  Municipality  to  acquire and dispose of property.- (1)  A Municipality may, with the previous  sanction  of  the  Government,  acquire  any property whether land or building  within or without its Municipal area  for any public purpose for providing  any  convenience,  service  or  facility  or may dispose of by sale or otherwise  any property belonging to it or vested  in  it  in  the  manner  as  may  be  presceibed.

(2)(a)  A  Municipality  may  construct  commercial or other buildings and let  them out to the public who need them  on licence and may charge such fees as  it may fix for the use and occupation  of  the  same,  subject  to  such  restriction as or limitations if any,  as may be imposed by the Government in  that behalf;

(b) *[xxx]

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Provided that after the said period, a  licence may be renewed subject o such  terms and conditions as may be fixed  at that time;

(c) In  all  cases  except  renewal  of  licence  or  rehabilitation  of  a  licensee,  licence  shall  be  granted  only by public auction or tender.

(3)  Every  licence  under  sub-section  (2) shall contain terms and conditions  governing  the  use  and  occupation  of  the building or room or space therein  and the rate and time of payment of  fees  and  such  terms  and  conditions  shall  be  reduced  in  writing  in  the  form of an agreement in stamp paper of  the appropriate value.

(4) No building or room or space  let out under sub-section (2) shall be  sub-let by the licensee to any person  nor the nature of use changed without  the  prior  approval  of  the  Municipality:

Provided that the Municipality may at  the  instance  of  a  licensee  transfer  the  licence  to  any  other  person  subject to such terms and conditions  as it may deem fit to impose and upon  such transfer, it shall be deemed to  be a fresh licence for all purposes”.

12. From a perusal of the said Section, it appears  

that the charges which a licensee has to pay  

has  been  described  as  fees in  Sections  

215(2)(a),  215(3),  215(7)  and  215(8).  The  9

right of construction is solely that of the  

Municipality  as  it  appears  from  Section  

215(2)(a).  It is also made clear that licence  

shall be granted by public auction or tender.  

The licensee has been specifically prohibited  

under Section 215(5) from letting out to any  

other person the space given to him.  In the  

event of such letting out, the Secretary by an  

order may cancel the licence and in that event  

licensee will have to vacate the premises.   

13. Apart from the aforesaid statutory provision  

under Section 215, the conditions of licence  

are also very important.  It is made clear  

that the same is granted for a period of three  

years and it has been specifically stipulated  

that the amount the licensee has to pay is  

licence  fee.   Clause  6  of  the  licence  

condition  is  very  important  and  reads  as  

under:

“The  Commissioner  shall  be  in  legal  possession  of  the  licensed  premises  

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and hence licensee shall not enjoy the  exclusive possession of the same.  The  licensee shall have the right only to  use the premises as per the terms and  conditions  enunciated  in  this  agreement.

The  Commissioner  or  other  Corporation  Officers  with  or  without  workmen shall have right at all time  to  enter  upon  the  said  premises  to  view the conditions thereof and if any  loss or damages are found it shall be  lawful  to  the  Commissioner  to  make  good the loss in the manner prescribed  in clause 4 (ii) & (iii)”.

(Emphasis supplied)

14. Clause  10  of  the  licence  condition  is  also  

relevant and is set out below:

“10. (i) The  licence  granted  to  the  licensee  under  this  agreement  shall  expire on the date specified in the  agreement  and  he  shall  have  no  authority  to  use  the  premises  thereafter  and  shall  vacate  the  premises on the expiry of the licence.

Provided  that  the  authority  competent may at its discretion renew  the licence subject to such terms and  conditions  as  it  may  fix,  but  such  renewal  of  licence  shall  not  be  claimed as a matter of right.

(ii)In  case  the  licence  of  the premises is not renewed before the  expiry  of  the  licence  under  this  agreement,  the  licensee  shall  vacate  the  premises  on  the  expiry  of  the  

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period of licence and further use of  the premises by him shall be deemed to  be unauthorized use and occupation”.  

15. Clause 12 of the said licence condition which  

is also relevant is set out below:

“The licensee without written consent  of  the  licensor,  shall  not  transfer  his right or give possession of the  premises to any other person under any  circumstances”.

16. Clause 25 of the said licence condition which  

is also relevant is set out below:

“The licence hereby granted shall not  create any interest or title over the  property  in  favour  of  the  licensee  except for the beneficial enjoyment of  the  same  during  the  period  of  licence”.  

17. On a perusal of the provision of Section 215  

and the aforesaid conditions of licence the  

intention of the parties is clear.  It has  

always been held that in order to determine  

whether a document is a lease or licence what  

is  most  important  to  be  considered  is  the  12

intention of the parties.  Keeping in mind the  

aforesaid terms and conditions of licence, if  

we  try  to  ascertain  whether  the  agreement  

between  the  appellant-Association  and  the  

Corporation is a lease or licence within the  

meaning of lease as defined under Section 2(l)  

of the Kerala Stamp Act, we have to consider  

the definition of lease under Section 2(l).  

Section 2(l) of the Kerala Stamp Act is thus  

set out below:-  

“S.2  (1)  “lease”  means  a  lease  of  immovable property, and includes also- (i) Marayapattom; (ii) Kanapattom; (iii) an agreement or other undertaking  

in writing not being a counterpart  of a lease, to cultivate, occupy,  or  pay  or  deliver  rent  for  immovable property;

(iv) an agreement or other undertaking  in  writing,  executed  by  the  renters of abkari and opium farms.

(v) any instrument by which tolls of  any description are let;

(vi) any writing on an application for  a lease intended to signify that  the application is granted; and

(vii) a patta;  (Emphasis supplied)

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18. From the aforesaid definition of lease under  

the Kerala Stamp Act, one thing is clear that  

it  must  be  an  agreement  in  writing  to  

cultivate, occupy, or pay or deliver rent for  

immovable property.

19. In the instant case, the amount which the shop  

holders are paying has not been described as  

rent either in Section 215 of Kerala Municipal  

Act or in the conditions of licence. The said  

amount has been described as fees which is one  

of  the  vital  features  in  this  case  which  

persuade us to construe the agreement between  

the  parties  as  one  for  licence  and  not  of  

lease.

20. Reference in this connection may be made to  

the  decision  of  the  Court  of  Appeal  in  

Errington Vs.  Errington and     Woods   - reported  in 1952 1 KB 290. Lord Denning in deciding the  

issue  whether  an  agreement  is  a  lease  or  

licence  referred  to  the  decision  given  by  

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Chief  Justice  Vaughan  in  the  seventeenth  

century in Thomas Vs. Sorrell – (1673) Vaughan  351.  In  the  said  judgment,  Chief  Justice  

Vaughan  outlined  certain  features  of  lease  

which are as follows:

“A  dispensation  or  licence  properly  passeth  no  interest  nor  alters  or  transfers property in any thing, but  only  makes  an  action  lawful,  which  without it had been unlawful.”  The  difference  between  a  tenancy  and  a  licence  is,  therefore,  that,  in  a  tenancy,  an  interest  passes  in  the  land, whereas, in a licence, it does  not.  In distinguishing between them,  a  crucial  test  has  sometimes  been  supposed  to  be  whether  the  occupier  has exclusive possession or not.  If  he was let into exclusive possession,  he  was  said  to  be  a  tenant,  albeit  only  a  tenant  at  will  (see  Doe  v.  Chamberlaine  and  Lynes  v.  Snaith),  whereas  if  he  had  not  exclusive  possession he was only a licensee.”    [(Peakin v. Peakin) 1895 – 2 I.R. 359]

21. Relying on the said principle, Lord Denning  

explained  that  the  difference  between  a  

tenancy and a licence is that, in a tenancy,  

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an interest passes in the land, whereas, in a  

licence, it does not.

22. The position has been further elucidated by  

saying that it has to be ascertained whether  

the occupier has exclusive possession or not.  

The learned Judge also explained that the test  

of  exclusiveness  sometimes  gives  rise  to  

misgivings  and  that  the  test  of  exclusive  

possession is by no means decisive.

23. In the instant case we have found from the  

conditions  of  licence  that  exclusive  

possession is not given to the members of the  

appellant-Association and possession is always  

retained  with  the  Corporation.  Even  though,  

exclusive possession is not a decisive test  

but  the  absence  of  exclusive  possession  is  

certainly one of the indications to show that  

the agreement is one of the licence and not of  

lease.

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24. Relying  on  Errington (supra),  the  Court  of  Appeal again dealt with this question in Cobb  and Another Vs.  Lane – [1952] All E.R. 1199.  Here  also  Lord  Denning  held  that  the  

distinction  between  lease  and  licence  has  

become  very  important  as  several  Rent  

Restrictions  Acts  have  come  into  operation.  

The learned Judge held whether the agreement  

is a lease or a licence must depend on the  

intention of the parties. Therefore, in all  

such cases the following questions should be  

posed by the Court:

“...Did  the  circumstances  and  the  conduct of the parties show that all  that  was  intended  was  that  the  occupier  should  have  a  personal  privilege  with  no  interest  in  the  land?...”

(Page  1202  of  the  report)

25. If we follow the said principle in the instant  

case, we find that what was given to the shop  

holders was merely a licence and not a lease.

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26. Relying on those two decisions of the Court of  

Appeal,  this  Court  in  Associated  Hotels  of  India Ltd. Vs.  R.N. Kapoor – 1960 (1) S.C.R.  368, discussed this issue in very lucid terms.  

Justice  K.  Subba  Rao,  who  was  in  minority,  

discussed this question with a clarity which  

is  often  associated  with  His  Lordship’s  

opinion.   The  learned  Judge  referred  to  

Section 105 of the Transfer of Property Act  

and then compared it with Section 52 of the  

Indian  Easements  Act.   After  referring  to  

those two Sections and also after referring to  

the decision in Errington (supra)  the learned  Judge pointed out the distinction between the  

lease and the licence by expressly approving  

the tests laid down by Lord Denning and which  

may better be quoted:

“The  following  propositions  may,  therefore,  be  taken  as  well- established: (1) To ascertain whether  a document creates a licence or lease,  the substance of the document must be  preferred to the form; (2) the real  

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test is the intention of the parties –  whether  they  intended  to  create  a  lease  or  a  licence;  (3)  if  the  document  creates  an  interest  in  the  property, it is a lease; but, if it  only permits another to make use of  the  property,  of  which  the  legal  possession  continues  with  the  owner,  it is a licence; and (4) if under the  document  a  party  gets  exclusive  possession  of  the  property,  prima  facie,  he  is  considered  to  be  a  tenant;  but  circumstances  may  be  established  which  negative  the  intention to create a lease....“

(Page 384-385 of the report)

27. If we apply the aforesaid principles in the  

facts of case in hand, we are bound to hold  

that the agreement between the parties merely  

falls  under  the  category  of  licence  as  the  

licensee  is  never  given  the  exclusive  

possession.  The  Corporation  retained  the  

exclusive possession of the shops and this is  

clear  from  the  conditions  of  the  licence  

discussed above.

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28. Subsequently,  in  the  case  of  Mrs.  M.N.  Clubwala and Anr. Vs.  Fida Hussain Saheb and  Ors. – AIR 1965 SC 610, the same propositions  have been reiterated by Justice Mudholkar in  

para 12 of the report after relying on the  

decisions in  Errington (supra) and also  Cobb  (supra) and also the decision of this Court in  Associated Hotels of India Ltd. (supra). The  principle laid down by the learned Judge is as  

follows:

“……We  must,  therefore,  look  at  the  surrounding  circumstances.  One  of  those circumstances is whether actual  possession of the stalls can be said  to have continued with the landlords  or  whether  it  had  passed  on  to  the  stall-holders. Even if it had passed  to a person, his right to exclusive  possession  would  not  be  conclusive  evidence of the existence of a tenancy  though that would be a consideration  of first importance. That is what was  held in  Errington v.  Errington  and  Woods,  1952-1  K.B.  290 and  Cobb v.  Lane, 1952-1 All E.R. 1199”…….

(Page 614 of the report)

29. Also  a  three-Judge  Bench  of  this  Court  in  

Board  of  Revenue  etc.  etc.  Vs.  A.M.  Ansari  etc. -  AIR  1976  SC  1813,  relied  on  the  

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decision in Errington (supra) and Cobb (supra)  and expressively approved the opinion of Lord  

Denning in Cobb (supra) in paragraph 10.  The  same passage was approved by Justice Subba Rao  

(as  His  Lordship  then  was)  in  Associated  Hotels of India Ltd. (supra).  

30. Reference in this connection can be made also  

to a later judgment of the Court of Appeal in  

Marchant Vs. Charters – (1977) 3 All E.R. 918,  where  again  Lord  Denning  reiterated  these  

principles  in  a  slightly  different  form  by  

holding that the true test is the nature and  

quality  of  the  occupation  and  not  always  

whether the person has exclusive possession or  

not.  The true test in the language of the  

learned Judge is as follows:

“……It does not depend on whether he or  she has exclusive possession or not.  It does not depend on whether the room  is  furnished  or  not.   It  does  not  depend  on  whether  the  occupation  is  permanent or temporary.  It does not  

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depend on the label which the parties  put  on  it.   All  these  are  factors  which may influence the decision but  none of them is conclusive.  All the  circumstances have to be worked out.  Eventually the answer depends on the  nature and quality of the occupancy.  Was  it  intended  that  the  occupier  should have a stake in the room or did  he  have  only  permission  for  himself  personally to occupy the room, whether  under a contract or not, in which case  he is a licensee?”

31. If we apply these tests in the facts of this  

case,  it  will  be  clear  that  the  agreement  

between the parties is one for licence and not  

of a lease.

32. In a rather recent judgment of this Court in  

the case of  C.M. Beena and another Vs.  P.N.  Ramachandra  Rao –  2004  (3)  SCC  595,  the  learned  Judges  relied  on  the  ratio  in  

Associated  Hotels  of  India  Ltd. (supra)  in  deciding  the  difference  between   lease  and  

licence.  In paragraph 8 of the said judgment,  

learned  Judges  held  that  difference  between  

lease and the licence is to be determined by  22

finding the real intention of the parties from  

a  total  reading  of  the  document,  if  any,  

between the parties and also considering the  

surrounding circumstances. The learned Judges  

made it clear that use of terms “lease” or  

“licence”, “lessor” or “licencor”, “rent” or  

“licence fee” by themselves are not decisive.  

The  conduct  and  intention  of  the  parties  

before and after the creation of relationship  

is relevant to find out the intention.  The  

learned  Judges  quoted  from  the  treaties  of  

Evans and Smith on “The Laws of Landlord and  

Tenant”  and  of  Hill  &  Redman  on  “Law  of  

Landlord  and  Tenant”  in  support  of  their  

proposition.   

33. Following the aforesaid tests and in view of  

the discussions made hereinabove, it is clear  

that the intention of the parties in the case  

is to create a licence and not a lease and the  

right of exclusive possession was retained by  

the Corporation.  In that view of the matter,  

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relationship  which  is  created  between  the  

Corporation and the shop holders is that of a  

licensor and licensee and not that of a lessor  

or  a  lessee.   The  stamp  duty  on  licence  

agreement should be governed by Entry 5(c) of  

the  Kerala  Stamp  Act,  which  is  a  residuary  

Clause in the Schedule and not by Entry 33.

34. This appeal is, therefore, allowed. Both the  

judgments  of  the  High  Court,  of  the  Single  

Judge and of the Division Bench are quashed.  

There shall be no order as to costs.   

.......................J. (MARKANDEY KATJU)

.......................J. New Delhi (ASOK KUMAR GANGULY) September 18, 2009

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