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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.