On January 28, 2019, the Hon’ble Supreme Court of India passed a judgment in the matter of Dr. H.K. Sharma v. Shri Ram Lal (Civil Appeal Nos. 1237-1238 of 2019).

Issue

Does execution of an agreement for sale of tenanted premises between lessor and lessee ipso facto result in determination of the lease and sever the relationship of lessor and lessee in relation to such property?

Facts in brief

The respondent was the owner of a property in Dehradun, part of which (hereinafter, referred to as ‘suit premises’) he had let out to the appellant as per a tenancy agreement dated July 22, 1985. On April 28, 2008 the respondent filed an application under Section 21(1)(a) of the U.P. Urban Buildings (Regulation of Letting Rent and Eviction) Act, 1972 against the appellant before the Prescribed Authority (Civil Judge) Sr. Division. Dehradun, seeking his eviction from the suit premises. Such eviction was sought on the ground of respondent’s bona fide need of residence for himself and members of his family. The appellant contended that he had entered into an agreement on May 13, 1993 with the respondent for the purchase of the suit premises and pursuant thereto had also paid a huge amount to the respondent. It was contended that by virtue of execution of such agreement of sale of the suit premises, the relationship of landlord/tenant between the appellant and the respondent has ceased to exist and thus the respondent’s application is misconceived.

The Prescribed Authority by order dated November 3, 2010 dismissed the respondent’s application and held that by virtue of execution of the agreement dated May 13, 1993, the relationship of landlord and tenant had ceased to exist between the parties and appellant was not required to pay any rent to the respondent. On appeal, such order of the Prescribed Authority was upheld by the Appellate Authority.

Being aggrieved, the respondent filed a writ petition under Article 227 of the Constitution of India before the Hon’ble Uttarakhand High Court. Vide order dated July 17, 2017, the Hon’ble Uttarakhand High Court set aside the order of the Appellate Authority and Prescribed Authority and held that mere agreement to sell the suit premises would not result in termination of landlord-tenant relationship between the parties unless there is such a stipulation in the agreement itself to that effect. It was also held that the appellant was not entitled to raise the plea of part-performance based on Section 53 of the Transfer of Property Act, 1882 (‘TP Act’), as the agreement for sale was not a registered agreement.

Being aggrieved, the Appellant preferred the instant appeal before the Hon’ble Supreme Court of India.

Judgement

The Hon’ble Supreme Court observed that the issue in question has to be decided keeping in view the provisions of Section 111 of the TP Act and the intention of the parties to the lease- whether the parties intended to surrender the lease on execution of such agreement in relation to the tenanted premises or they intended to keep the lease subsisting notwithstanding the execution of such agreement. It was observed that Clause (e) of Section 111 of the TP Act provides that a lease can be determined by an express surrender when the lessee yields up his interest under the lease to the lessor by mutual agreement between them, whereas Clause (f) of Section 111 of the same Act provides that a lease can be determined by implied surrender. The Hon’ble Supreme Court relied on its previous decision in Shah Mathuradas Maganlal & Co. v. Nagappa Shakarappa Malage & Ors., (1976) 3 SCC 660, which considered the full scope of Clauses (e) and (f) of Section 111 of the TP Act and laid down that a surrender under the said provisions of the TP Act is an yielding up of the term of the lessee’s interest to him who has the immediate reversion or the lessor’s interest and the same only takes effect on the lessor’s acceptance of such act of the lessee. It was further held therein that relinquishment of possession operates as an implied surrender and there must be a taking of possession, even if the same is an act amounting to a virtual taking of possession and not an actual taking of possession.

Taking note of the said decision in Shah Mathuradas Maganlal (supra), the Hon’ble Supreme Court proceeded to peruse the terms of the agreement for sale of the suit premises in question and observed that none of the conditions therein specify what will be the fate of the tenancy upon execution of such agreement. The Hon’ble Supreme Court thus held that a fortiori, the parties did not intend to surrender the tenancy rights despite entering into an agreement of sale of the tenanted property and if they did really intend to surrender their tenancy rights as contemplated under Clauses (e) and (f) of Section 111 of the TP Act, they would have made necessary provisions to that effect by providing a specific clause in the agreement for sale. The Hon’ble Supreme Court thus went on to dismiss the appeal filed by the Appellant.