Registration of Agreement to Lease in India

Navigating the Registration Maze: An Analysis of 'Agreement to Lease' under Indian Law

Introduction

The legal framework governing leasehold rights in India is multifaceted, with the registration of lease agreements forming a cornerstone of property transactions. The Indian Registration Act, 1908 (hereinafter "IRA, 1908") and the Transfer of Property Act, 1882 (hereinafter "TPA, 1882") are the principal statutes dictating the requirements and implications of registering instruments related to immovable property. A particularly nuanced area within this framework concerns the "agreement to lease." The central question that has consistently engaged judicial scrutiny is determining when such an agreement transcends being a mere executory contract and assumes the character of a lease itself, thereby mandating registration. This article undertakes a comprehensive analysis of the legal principles governing the registration of an "agreement to lease" in India, drawing upon seminal case law and statutory provisions to elucidate the critical distinction between agreements that effectuate a "present demise" and those that are purely contractual undertakings for a future lease.

Defining "Agreement to Lease" for Registration Purposes

The term "agreement to lease" is not defined as a standalone concept that uniformly requires registration. Its registrability hinges on its substantive nature – whether it creates an immediate interest in the property or merely outlines an obligation to create such an interest in the future.

The Concept of "Present Demise"

The watershed moment in understanding the registrability of an "agreement to lease" came with the Privy Council's decision in Hemanta Kumari Debi v. Midnapur Zamindari Co.[20]. The Court held that an "agreement for a lease, which a lease is by the statute declared to include, must in their Lordships' opinion, be a document which effects an actual demise and operates as a lease." This principle signifies that if an agreement, though styled as an "agreement to lease," effectively transfers a present and immediate right to enjoy the property, it is, for the purposes of the IRA, 1908, a lease and requires registration if it meets the criteria set out in Section 17 of the Act.

The Supreme Court of India has consistently upheld this "present demise" test. In TIRUVENIBAI & ANOTHER v. SMT. LILABAI[1], the Court affirmed that an agreement to lease falling under Section 2(7) of the IRA, 1908, must effectuate an actual demise. The Court observed:

"In other words, an agreement between two parties which entitles one of them merely to claim the execution of a lease from the other without creating a present and immediate demise in his favour is not included under s. 2, sub-s. (7)."[11]

This interpretation was reiterated in State Of Maharashtra And Others v. Atur India Pvt. Ltd.[5], where the Court, referencing Tiruvenibai, emphasized that an agreement to lease must create an immediate and present demise to be considered a lease for stamp duty (and by extension, registration) purposes. Similarly, in U.P. Government v. Nanhoo Mal Gupta[9], the Allahabad High Court, citing Trivenibai, held that an agreement to lease is a document creating a present demise. The use of the word "acquired" in the document was considered indicative of an actual demise.[9] The Delhi High Court in Asea Brown Boveri Limited v. Chiranjiv Lal Sharma[17] also followed this line of reasoning, citing Tiruvenibai. The Bombay High Court in Secretary Of State v. Mahomed Yusuf Ismail And Others[22] had earlier noted that agreements to lease which are compulsorily registrable are those which import a present demise or the creation of an immediate interest.

Distinction from Executory Agreements

Conversely, an agreement that is purely executory in nature, i.e., one that only binds the parties to grant and accept a lease in the future without creating any immediate interest in the property, does not require registration as a "lease" or an "agreement to lease" under Section 17 read with Section 2(7) of the IRA, 1908. In TIRUVENIBAI & ANOTHER v. SMT. LILABAI[1], the document in question was held not to create a present demise as it was contingent upon the non-repayment of a debt by a specified date, thus not requiring registration. The Supreme Court in V.B Dharmyat (Deceased) Through Lrs. v. Shree Jagadguru Tontadrya And Others[19] held that an agreement stipulating that a lease would commence only after a municipality vacated the premises and a lease deed was executed and registered in the future did not result in a demise in praesenti. It was merely a promise to do something in the future and thus did not require registration. As Mulla's commentary on the Transfer of Property Act, cited in State Of Maharashtra And Others v. Atur India Pvt. Ltd.[10], clarifies, an agreement to lease may be a merely executory instrument, and such an agreement not creating a present demise does not require registration.

Statutory Framework for Registration

The primary statutes governing the registration of lease-related documents are the Indian Registration Act, 1908, and the Transfer of Property Act, 1882.

The Indian Registration Act, 1908

  • Section 2(7): This section provides an inclusive definition of "lease," stating that a "lease includes a counterpart, kabuliyat, an undertaking to cultivate or occupy, and an agreement to lease." However, as established by judicial precedent, the term "agreement to lease" within this definition is confined to agreements that effect a present demise.[1, 11]
  • Section 17(1)(d): This provision mandates the compulsory registration of "leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent." Consequently, an "agreement to lease" that creates a present demise and falls within these temporal or rental parameters must be registered.
  • Section 49: This section outlines the effects of non-registration of a compulsorily registrable document. It stipulates that no such document shall:
    1. affect any immovable property comprised therein, or
    2. confer any power to adopt, or
    3. be received as evidence of any transaction affecting such property or conferring such power.
    However, a proviso to Section 49 allows an unregistered document affecting immovable property, which is required by the IRA, 1908 or the TPA, 1882 to be registered, to be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (now Specific Relief Act, 1963), or as evidence of any collateral transaction not required to be effected by a registered instrument.

The Transfer of Property Act, 1882

  • Section 105: Defines a "lease" of immovable property as 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, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.
  • Section 107: Prescribes how leases are made. It states that a lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent, can be made only by a registered instrument. All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. Section 4 of the TPA, 1882, clarifies that Section 107 (among others) shall be read as supplemental to the IRA, 1908. The Supreme Court in TIRUVENIBAI & ANOTHER v. SMT. LILABAI[12] noted the relevance of Section 105 TPA in understanding "leases" under Section 17(1)(d) IRA, implying that leases involve a present transfer of rights.

Judicial Interpretation of Registration Requirements for Agreements to Lease

Landmark Pronouncements: The "Present Demise" Test Revisited

The judiciary has consistently applied the "present demise" test to determine the registrability of agreements to lease. In TIRUVENIBAI & ANOTHER v. SMT. LILABAI[1], the document stipulated that a lease would be executed if a debt was not repaid by a certain date. The Supreme Court held that this did not create an immediate demise and was merely an agreement contingent on a future event, thus not requiring registration under Section 2(7) of the IRA, 1908. State Of Maharashtra And Others v. Atur India Pvt. Ltd.[5] involved an arrangement where a company acted as a promoter for a cooperative housing society, with the intention to transfer leasehold rights to the society upon its formation. The Supreme Court found this to be an agreement to lease, not a present demise to the promoter company, and therefore not chargeable to stamp duty as a lease, nor requiring registration as such. In V.B Dharmyat (Deceased) Through Lrs. v. Shree Jagadguru Tontadrya And Others[19], an agreement to grant a lease for 99 years, contingent upon the existing occupant (municipality) vacating the premises, was held not to create a present demise. The Court characterized it as "nothing more than a promise to do something in future," thereby not requiring registration for the purpose of a suit for specific performance. Conversely, in U.P. Government v. Nanhoo Mal Gupta[9], documents headed as "lease" and stating that the plaintiff "acquired a plot of land" were deemed to effect an actual demise, making them registrable.

Consequences of Non-Registration

Failure to register a compulsorily registrable agreement to lease (i.e., one creating a present demise) has significant legal consequences under Section 49 of the IRA, 1908. In K.B Saha And Sons Private Limited v. Development Consultant Limited[3], the Supreme Court held that an unregistered lease agreement, where registration was compulsory, could not be used to enforce its specific terms, such as a clause restricting usage to a particular officer, as such terms were not collateral but integral to the tenancy. The Court in Anthony v. K.C Ittoop & Sons And Others[6] ruled that a lease for a period exceeding one year, if unregistered, is void. Consequently, the lessee cannot claim protections under Rent Control legislation based on such a void lease, even if a month-to-month tenancy might arise by operation of law due to possession and rent payment. The issue of an arbitration clause in an unregistered and unstamped lease deed was addressed in Sms Tea Estates Private Limited v. Chandmari Tea Company Private Limited[8]. The Supreme Court held that if a document is unstamped, Section 35 of the Stamp Act, 1899, bars its admission in evidence for any purpose, including for acting upon an arbitration clause. If it is unstamped but registered, or unstamped and unregistered, the court must impound it and ensure payment of duty and penalty. If the document is registered but unstamped, or unregistered but stamped, the arbitration clause (being a collateral term) could potentially be acted upon, subject to the overall validity of the document affecting property. However, if the document is compulsorily registrable and unregistered, while the arbitration agreement itself doesn't require registration, its severability is key. The Delhi High Court in Rita Khurana v. Kamla Devi[14], relying on Biswabani Pvt. Ltd. v. Santosh Kumar Dutta, affirmed that if a lease is void for want of registration, neither party can take advantage of its terms, except possibly for protecting possession under Section 53A of the TPA, 1882. Similarly, in Delhi Motor Company And Others v. U.A Basrurkar[16], unregistered documents purporting to create a sub-lease were held to be unenforceable.

Collateral Purposes Exception (Proviso to Section 49 IRA)

The proviso to Section 49 of the IRA, 1908, carves out an exception, permitting an unregistered compulsorily registrable document to be used as evidence of any collateral transaction not required to be effected by a registered instrument. The scope of "collateral purpose" has been a subject of judicial interpretation. In Satish Chand Makhan And Others v. Govardhan Das Byas And Others[2], an unregistered draft lease agreement for a nine-year renewal was held inadmissible to prove the term of the lease, as the term is not a collateral purpose. However, it could be looked into to determine the nature of possession (e.g., permissive). The Supreme Court in K.B Saha And Sons Private Limited v. Development Consultant Limited[3] elaborated that a collateral transaction must be independent of, or divisible from, the transaction to grant the lease, which requires registration. Terms such as the duration of the lease, the rent payable, or any specific usage clauses are not collateral purposes. This was echoed in Park Street Properties Private Limited v. Dipak Kumar Singh And Another[7], where the Court held that terms of an unregistered lease agreement, such as the period of tenancy or a specific termination mechanism, could not be relied upon to contract out of Section 106 of the TPA, 1882, as these are not collateral matters. The Delhi High Court in M/S. Kidarsons Industries Pvt. Ltd. v. Allahabad Bank[21] held that an option for renewal or further extension of the lease is one of the terms of the original lease agreement and not a collateral purpose.

Agreements Not Amounting to Present Demise

Agreements that do not create a present demise, but are merely executory contracts to grant a lease in the future, do not fall under the definition of "agreement to lease" for the purposes of Section 2(7) read with Section 17 of the IRA, 1908. Such agreements do not require registration. They can be oral or in writing. A suit for specific performance can be filed based on such an executory agreement, as seen in the facts leading to the dispute in Trivenibai v. Leelabai (MP High Court)[18] and upheld in principle for such agreements in V.B Dharmyat[19]. The proviso to Section 49 IRA also explicitly allows an unregistered document to be used as evidence of a contract in a suit for specific performance.

Specific Scenarios and Nuances

Agreements Contingent on Future Events

As established in cases like Hemanta Kumari Debi[20], TIRUVENIBAI & ANOTHER v. SMT. LILABAI[1], and V.B Dharmyat[19], if the creation of the leasehold interest is contingent upon the happening of a future uncertain event, the agreement generally does not create a present demise and thus does not require registration as a lease.

Unregistered Agreements and Tenancy Status

Where a compulsorily registrable lease (or an agreement to lease creating a present demise) is not registered, but the lessee enters into possession and pays rent which is accepted by the lessor, a tenancy from month to month under Section 106 of the TPA, 1882, is typically inferred by law. This was the situation in Satish Chand Makhan[2], where the defendants were deemed tenants holding over on a month-to-month basis. The Supreme Court in Park Street Properties[7] upheld the termination of such a monthly tenancy by a notice under Section 106 TPA, despite an unregistered agreement. The Delhi High Court in Bharat Bijlee Limited v. P.S Prasad & Family (Huf)[15] also affirmed that in the absence of a registered instrument for a lease exceeding one year, it must be deemed a monthly lease. However, as clarified in Anthony v. K.C Ittoop[6], such a statutorily implied tenancy does not validate the terms of the original unregistered void lease for purposes like claiming protection under specific rent control statutes.

The Doctrine of Part Performance (Section 53A, TPA, 1882) may offer limited protection to a transferee in possession under an unregistered but written contract, provided its conditions are met. This doctrine can be used as a shield to protect possession against the transferor, but it does not confer title or allow the transferee to enforce other terms of the unregistered agreement. This aspect was noted in Kumar Gokul Chandra Law v. Haji Mohammad Din[13], Rita Khurana[14], Delhi Motor Company[16], and M/S. Kidarsons Industries[21].

Stamp Duty Implications

The issue of stamp duty is intrinsically linked to registration and admissibility. An instrument not duly stamped is inadmissible in evidence for any purpose, as mandated by Section 35 of the Indian Stamp Act, 1899. The Supreme Court in Sms Tea Estates[8] emphasized that the court cannot act upon an unstamped instrument (including an arbitration clause therein) unless the requisite duty and penalty are paid. In State Of Maharashtra And Others v. Atur India Pvt. Ltd.[5], it was clarified that an agreement to lease that does not create a present demise is not chargeable to stamp duty *as a lease*, distinguishing it from instruments that do effect an immediate transfer of leasehold rights.

Conclusion

The registration of an "agreement to lease" under Indian law is a nuanced subject, pivotally dependent on whether the agreement effects a "present demise." The judiciary, through a consistent line of precedents originating from Hemanta Kumari Debi[20] and solidified by the Supreme Court in cases like TIRUVENIBAI[1], has established that only those agreements which operate as immediate leases fall within the ambit of compulsory registration under Section 17(1)(d) of the IRA, 1908, by virtue of the inclusive definition in Section 2(7).

Executory agreements, which merely create a right to obtain a lease in the future, do not require registration as leases. The consequences of non-registration of a compulsorily registrable document are severe, primarily rendering it inadmissible as evidence of the transaction affecting immovable property and incapable of affecting such property, subject to the limited exception for collateral purposes and suits for specific performance. Parties entering into lease transactions must exercise diligence in ensuring that their agreements are properly structured and, where necessary, duly stamped and registered to secure their rights and avoid future legal impediments. The legal framework, while complex, aims to provide certainty and transparency in property dealings, and adherence to these statutory mandates is paramount.

References

  1. TIRUVENIBAI & ANOTHER v. SMT. LILABAI (1959 INSC 7, Supreme Court Of India, 1959)
  2. Satish Chand Makhan And Others v. Govardhan Das Byas And Others (1984 SCC 1 369, Supreme Court Of India, 1983)
  3. K.B Saha And Sons Private Limited v. Development Consultant Limited (2008 SCC 8 564, Supreme Court Of India, 2008)
  4. Delhi Development Authority v. Durga Chand Kaushish (1973 SCC 2 825, Supreme Court Of India, 1973)
  5. State Of Maharashtra And Others v. Atur India Pvt. Ltd. (1994 SCC 2 497, Supreme Court Of India, 1994)
  6. Anthony v. K.C Ittoop & Sons And Others (2000 SCC 6 394, Supreme Court Of India, 2000)
  7. Park Street Properties Private Limited v. Dipak Kumar Singh And Another (2016 SCC ONLINE SC 875, Supreme Court Of India, 2016)
  8. Sms Tea Estates Private Limited v. Chandmari Tea Company Private Limited (2011 SCC 14 66, Supreme Court Of India, 2011)
  9. U.P. Government v. Nanhoo Mal Gupta (Allahabad High Court, 1959)
  10. State Of Maharashtra And Others v. Atur India Pvt. Ltd. (Supreme Court Of India, 1994) [Excerpt Material]
  11. TIRUVENIBAI & ANOTHER v. SMT. LILABAI (Supreme Court Of India, 1959) [Excerpt Material]
  12. Trivenibai And Another v. Smt Lilabai . (Supreme Court Of India, 1959) [Excerpt Material]
  13. Kumar Gokul Chandra Law v. Haji Mohammad Din (Calcutta High Court, 1937)
  14. Rita Khurana v. Kamla Devi. (Delhi High Court, 1997)
  15. Bharat Bijlee Limited v. P.S Prasad & Family (Huf) . (Delhi High Court, 2011)
  16. Delhi Motor Company And Others v. U.A Basrurkar (Dead) By His Legal Representative And Others (1968 AIR SC 794, Supreme Court Of India, 1968)
  17. Asea Brown Boveri Limited v. Chiranjiv Lal Sharma. (1998 SCC ONLINE DEL 564, Delhi High Court, 1998)
  18. Trivenibai v. Leelabai (1953 SCC ONLINE MP 50, Madhya Pradesh High Court, 1953)
  19. V.B Dharmyat (Deceased) Through Lrs. v. Shree Jagadguru Tontadrya And Others (1999 SCC 6 15, Supreme Court Of India, 1999)
  20. Hemanta Kumari Debi v. Midnapur Zamindari Co. (1919 AIR PC 79, Privy Council, 1919)
  21. M/S. Kidarsons Industries Pvt. Ltd.…Plaintiff v. Allahabad Bank…Defendant (Delhi High Court, 1999)
  22. Secretary Of State…Plaintiff; v. Mahomed Yusuf Ismail And Others…Defendants. (Bombay High Court, 1919)