Hongkong And Shanghai Banking Corporation Ltd. v. Diamant Borat India Private Ltd.

1. Suit No. 3854 was instituted by the Hongkong and Shanghai Banking Corporation Limited for recovery of an amount of Rs. 1,18,20,822/- under the Over Draft Facility as also for recovery of an amount of Rs. 1,43,56,262/- under Short Term Loan Facility together with interest as mentioned in prayer clause (a) of the Plaint. The suit was to recover the amount advanced by the Plaintiffs to the 1st Defendant and to enforce the securities in that respect. The suit was also to enforce the guarantee of defendant No. 2 in favour of the Bank. Defendant No. 2 is the Director of Defendant No. 1-Company. Defendant No. 2 was sued in his personal and individual capacity as the guarantor of the dues of Defendant No. 1.

2. The above suit came to be decreed vide Consent Decree dated November 1, 1993.

3. Thereafter, the Bank moved by way of Execution Proceedings and Warrant of Attachment came to be issued on November 30, 1996 for recovery of the decretal amount.

4. In the said Execution Proceedings, the Bank attached Flat No. 193 on the 19th Floor in NCPA Complex, Dorabji Tata Road, Nariman Point, Mumbai-400021. This was under the Warrant of Attachment dated November 30, 1996.

5. By the present Chamber Summons moved by the Applicants, execution of Warrant of Attachment dated November 30, 1996 is sought to be made subject to the rights of the Applicants under Leave and Licence Agreement dated August 24, 1995 being Exhibit-4 to the Affidavit in support of the Chamber Summons dated 9th December, 1996 and also subject to the Security Deposit Agreement dated 24th August, 1995 (Exhibit-1 to the Affidavit in support of the Chamber Summons dated 18th December, 1996). On 12th December, 1997, the matter came for final hearing before me. On that date the learned counsel moved an Amendment Application by which name of the original Applicants-DSP Financial Consultants is sought to be substituted by the following, namely “DSP Merrill Lynch Limited”. Since the amendment was formal amendment, by consent amendment has been granted and liberty has been given to the Applicants to carry out the amendment within two weeks from 12-12-1997 (See separate Order passed on 12-12-1997).

6. It is the case of the Applicants that prior to the issuance of the Warrant of Attachment on November 30, 1996. Defendant No. 2-Deepak Doongursee had entered into Leave and Licence Agreement on 24-8-1995 in favour of the Applicants. The said Agreement was between Defendant No. 2 and his wife on the one hand as Licensors and the Applicants on the other hand as Licensees. Under clause 1 of the Leave and Licence Agreement, the use of the licenced premises was permitted by the Applicants on and from 28th August, 1995 for 24 months with an option to renew the same for further period of 12 months on the same terms and conditions and which option was to be exercised at the sole instance of Defendant No. 2 and his wife as Licensors. Under clause 3 of the Leave and Licence Agreement, it was agreed that the Licensees/Applicants shall pay to the licensors licence fee at the rate of Rs. 50,000/- per month. Under clause 11 of the Leave and Licence Agreement it was inter alia provided that on the expiry or earlier determination of the licence the licensees shall within 30 days remove themselves from the Flat with all their belongings and they shall vacate and hand over the licenced premises to the licensors and on such termination the Licensees shall be the trespassers and on failing to leave the premises, Licensors shall be entitled to remove them. Under clause 15 of the Leave and licence Agreement, it was expressly agreed that Leave and Licence Agreement will not create any right, interest, easement, tenancy or subtenancy in favour of the licensees in or over or upon the licenced premises and that the Licensees will only have permissive right of use. Under clause 15 it was expressly agreed that the Agreement shall be only a licence and that there was no intention to create tenancy of the licenced premises in favour of the licensees. It was also agreed that the Licensees will not at any time claim tenancy rights in respect of the licenced premises. On the same day, the Security Deposit Agreement was also executed between the same parties. Under the said Security Deposit Agreement, it was agreed that the licensees shall pay to the Licensors Rs. 2,50,00,000/- by way of Security Deposit, which amount shall remain with the Licensors and shall be refunded to the Licensees as provided in clause 3. Under clause 3 of the Security Deposit Agreement, it was further agreed that in case the Licensors do not refund the amount of Security Deposit to the licensees as aforesaid the Licensees shall not be bound to vacate and give charge of the licenced premises to the Licensors and the Licensees shall be entitled to permit any Senior Executive of the Licensees to use the licenced premises without Licensees being liable to pay any licence fee/compensation or damages to the Licensors until the sum of Rs. 2,50,00,000/- is refunded by the Licensors to the Licensees with interest calculated at the rate of 15% per annum from the date on which the licensees were willing to vacate and to give charge of the licensed premises to the Licensors until payment.

7. Mr. Setalwad the learned counsel appearing on behalf of the Applicants contended that the Attaching Creditor steps into the shoes of a Judgment Debtor. He contended that this is the basic test which is required to be applied in the present case. He contended that, in the present case, prior to the Warrant of Attachment dated November 30, 1996 contractual obligation was created in favour of the Applicants. He contended that such a contractual obligation would prevail over the attachment. He contended that the Applicants had a contractual right under the Security Deposit Agreement which was executed by the Judgment Debtor before attachment on November 30, 1996. He contended on facts that under the Security Deposit Agreement, licence period has expired but the Applicants were entitled to retain possession under the contractual lien particularly in view of clause 3 of the Security Deposit Agreement which permitted the Applicants to retain possession till Judgment Debtor refunded to the Applicants Rs. 2,50,00,000/- and since the said amount has not been refunded the Applicants were entitled to retain the possession. Mr. Setalwad contended that, in the present case, we are concerned with the right, title and interest of the Judgment Debtor in the property as on the date of the attachment i.e November 30, 1996 and as on that date an important right has been created in favour of the Applicants by way of a lien, the Attaching Creditor cannot claim rights higher than that of the Judgment Debtor. He claims that Applicants have a lien on the property till Rs. 2,50,00,000/- stood refunded and accordingly the Applicants were entitled to retain possession till such refund is effected. Mr. Setalwad heavily relied upon the Judgment of the Supreme Court in the case of Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan reported in (1990) 3 SCC 291. In that case facts were as follows. A contract of sale was entered into before attachment under Order XXXVIII, Rule 10. The contract was dated 9th October, 1978. Under the said contract the Respondents agreed to sell 80 cents of land to the Appellant but before the Sale Deed could be executed a third party in execution of a decree got the property attached on November 16, 1978. However, conveyance was executed by the parties on 23rd November, 1978. The question which arose for determination before the Supreme Court was whether the sale prevailed over the attachment? The Supreme Court answered the question in the affirmative. The Supreme Court observed that under section 4 of the Transfer of Property Act, a Purchaser under the contract of sale of land was entitled to the benefit of an obligation arising out of that contract and such an obligation was enforceable against a transferee with notice. The Supreme Court further observed that the above principle was applicable also to cases falling under section 91 of the Trusts Act. The Supreme Court further observed that these are equitable rights though not amounting to interest in the immovable property as defined under section 54 of the Transfer of Property Act. Section 54 of the Transfer of Property Act specifically declares that the contract of sale does not create any interest in the property. Therefore, the Supreme Court came to the conclusion that the rights of the Attaching Creditor shall not be allowed to override the contractual obligation arising from antecedent agreement for sale of the attached property. The Supreme Court has further laid down that the Attaching Creditor cannot ignore the obligation incurred by the Judgment Debtor prior to the attachment and the Attaching Creditor cannot proceed to bring the property to sell as if it was an absolute property of the Judgment Debtor. Relying on the above Judgment, Mr. Setalwad contended that the above Security Deposit Agreement was entered into prior to the date of attachment and in the circumstances it was an Antecedent Agreement and since the Judgment Debtor had incurred the contractual obligation prior to the attachment, the Attaching Creditor was not entitled to override such a contractual obligation arising from the Security Deposit Agreement. He further contended that on the expiry of the period of two years, the Judgment Debtor was bound to refund the amount of Rs. 2,50,00,000/- and that the contingency arose only after the attachment. Mr. Setalwad contended that in the above circumstances, in view of the Judgment of the Supreme Court the Chamber Summons ought to be made absolute in terms of prayer clause (a)(ii). In other words, Mr. Setalwad submitted that the Warrant of Attachment in question be made subject to the rights of the Applicants under the Leave and Licence Agreement dated 24th August, 1995 read with the Security Deposit Agreement dated 24th August, 1995. Mr. Setalwad contended that the Applicants had a right to retain possession. Mr. Setalwad contended that the Security Deposit Agreement created a contractual lien in favour of the Applicants and, therefore, the Applicants were entitled to retain the possession till refund of Rs. 2,50,00,000/-. Mr. Setalwad also cited the Judgment in the case of George Barkar (Transport) Ltd. v. Eynon, (Court of Appeal), reported in the Weekly Law Reports, 1974, Page 462. That was a case where the Plaintiffs were the Transport Contractors. They did regular business with Meat Importing Company whose indebtedness to a Bank was secured by a mortgage. Plaintiffs accepted the Transport Orders given by the Company subject to Conditions of Carriage which provided that the carrier shall have the general lien against the owner of any goods for moneys due from such owner to the carrier. The practice was for the Company to pay the Plaintiffs' charges within 6 weeks after delivery. On 23rd August, 1971, the Defendant was appointed Receiver of the Company pursuant to the mortgage. The Plaintiffs were informed of the appointment on 2nd September, 1971 when they were collecting the second order. It was orally agreed with the Defendant that the Plaintiffs would deliver second order without prejudice to any general lien which they might have on the goods and that the Defendant would pay 58 Pounds for that delivery and they would also pay total amount owed by the Company if the Plaintiffs could establish that they were entitled to refuse to deliver the second order. The Plaintiffs made the delivery and claimed approximately 3000 Pounds, which the Defendants refused to pay. Defendant agreed to pay only 58 Pounds. The Trial Judge dismissed the Plaintiffs' claim for declaration that the lien was enforceable on the ground that they were not in possession of the goods on the day when the Defendant was appointed Receiver. In the circumstances, the Trial Judge held that the Plaintiffs had no lien on the goods as the goods were not in possession of the Plaintiffs. However, the Appeal Court reversed the Judgment of the trial Court and came to the conclusion that the Contract dated 23rd August, 1971 conferred on the Plaintiffs a contractual right to exercise the general lien on the happening of certain events i.e carrying of the goods and the Plaintiffs became, thereafter entitled to exercise that contractual right despite the appointment of Receiver. The Appeal Court further observed that the mortgage debenture holder's rights which arose when the floating charge crystallised consequent upon the Receiver's appointment which took effect subject to the antecedent contractual rights in favour of the Plaintiffs and, therefore, the Plaintiffs were entitled to the declaration sought. Relying upon these Judgments, Mr. Setalwad contended that, in the present case also the Applicants were claiming contractual right to exercise the lien which was created in their favour under the Security Deposit Agreement which Agreement was prior to the Order of Attachment.

8. In reply to the above contention Mr. Tulzapurkar appearing for the Bank contented that, in the present case the right claimed by the Applicants under the Leave and Licence Agreement read with the Security Deposit Agreement was in the nature of personal privilege and it cannot be compared to a contractual obligation in favour of the purchaser of immovable property under the contract of sale in respect of the immovable property. He contended that the moment the right of licensors comes to an end by virtue of sale of the property pursuant to the Consent Decree, right of the Applicants also comes to an end because the Applicants only have a personal privilege. He contended that the Applicants can sue the Judgment Debtor in this case for damages but the Applicants cannot claim retention of the possession of the immovable property on the ground that Rs. 2,50,00,000/- are not refunded. Mr. Tulzapurkar contended that if the argument advanced on behalf of the Applicants is accepted it would mean that the Agreement of Leave and Licence stood extended till the Judgment Debtor refunded the Security Deposit Amount and it would mean continuation of the personal privilege. He contended that, in the present matter, bare licence was created in favour of the Applicants. He contended that such a case cannot be compared to a contractual obligation in favour of the purchaser under a contract of sale in respect of the immovable property. In the alternative he contended that even if this Court is inclined to accept the contention of the Applicants that they are entitled to retain the possession under the Security Deposit Agreement still a right in the property is not created in favour of the Applicants because the said Security Deposit Agreement has not been registered under section 17 of the Registration Act. Mr. Tulzapurkar contended further that the effect of the Security Deposit Agreement as interpreted by the Applicants would mean limiting the rights of the Licensors to take back the possession. It would also limit the right of the Licensors to be in possession which right is an incident of ownership and if this right is restricted or limited by the Security Deposit Agreement then section 17 of the Registration Act would apply. He referred to section 17(1)(b) of the Registration Act. In the circumstances, he contended that the Security Deposit Agreement warranted the registration. In this connection, he referred to the Judgment in the case of Ganesh Singh v. Sitla Bakhsh Singh reported in AIR 1931 Oudh 110 in which it has been held that a right to hold a market on a particular day in the village is an incident of ownership of the land and if this right exceeds in value Rs. 100/- then it constitutes restrictions on the general right possessed by the owner of the land to hold the market on his land whenever he wishes to do so then such an Agreement warrants registration under section 17(b) of the Registration Act. Mr. Tulzapurkar also relied upon the fact that, in the present matter, the Leave and Licence Agreement is independent from the Security Deposit Agreement. He contends that if the Applicants seek enforcement of clause 3 of the Security Deposit Agreement, namely, to retain possession till refund then such an Agreement requires registration under section 17(b) because it limits the right of the owner to possession. Mr. Tulzapurkar points out that the Judgment of the Supreme Court reported in (1990) 3 SCC 291 and the English Judgment cited by Mr. Setalwad have no application to the facts of the present case. He contends that in the case of an agreement for sale the contractual obligation is attached to the ownership whereas it is not so in the case of a contractual obligation being created under the Leave and Licence Agreement because the Leave and Licence Agreement only confers privilege on the Applicants and also because that privilege comes to an end when the property is sold and when the ownership rights of the Judgment Debtor stand extinguished by sale of the property on execution of the Decree whereas in the case of obligation being annexed to the ownership of the immovable property, the obligation is enforceable against the transferee for value with notice. Mr. Tulzapurkar also pointed out that the Judgment referred to and cited by Mr. Setalwad have no application to the facts of the present case because those Judgments deal with moveables and they deal with cases where a specific charge is validly created in favour of the party. Mr. Tulzapurkar further contends that the licence does not run with the land. He further contends that in case of an agreement for sale the rights of owner in the property are not extinguished whereas in the case of Leave and Licence Agreement interest of Licensor terminates on the sale of the property pursuant to the decree. He further contends that if the Applicants claim a lien on the property under the Security Deposit Agreement then the same requires registration under section 17(b) of the Registration Act.

9. In the present matter, I am inclined to accept the contentions advanced by Mr. Tulzapurkar. Firstly, in the present case, Leave and Licence Agreement clearly indicates that there is no right or interest in the property which is created and transferred in favour of the Applicants. The Applicants are merely given permission to occupy the property as Licensees under the Leave and Licence Agreement. The Applicants do not claim any statutory protection. The Applicants have only personal privilege which comes to an end when the right, title and interest of the Judgment Debtor stand extinguished which is not the case when the contractual obligation/right is created under the agreement for sale of land in favour of the purchaser. If a purchaser institutes a suit for specific performance a decree can be passed against the Vendor notwithstanding the Vendor selling the property to a third party for value with notice. The reason being that the obligation is annexed to the ownership which is not the case under the Leave and Licence Agreement. In case of Leave and Licence Agreement, only privilege is conferred upon the Applicants and when the ownership of the Licensors comes to an end the privilege under the Leave and Licence Agreement would also terminate. I also find merit in the contention of Mr. Tulzapurkar that under the Leave and Licence Agreement the Licensors were entitled to take back the possession on expiry of the Leave and Licence Agreement from the Applicants. Admittedly, the period has ended. The Licensees claim that they are entitled to retain the possession without payment of compensation only on the ground that the Licensors have failed to refund Rs. 2,50,00,000/- which was deposited as and by way of Security Deposit. The Applicants, therefore, are claiming a lien under the Security Deposit Agreement. It is not a Statutory lien. It is at the highest a contractual lien. Now if the Licensees are allowed to retain the possession it would not only mean extension of the Leave and Licence Agreement till refund but it would also mean that the right of the owners/Licensors to remove the Applicants and to take back the possession is restricted and if that be the case then section 17(1)(b) of the Registration Act is attracted and since the Security Deposit Agreement is not registered, it is not open to the Applicants to claim a lien under such agreement. In case of Kashiprasad Beharilal Shukla v. State of Madhya Pradesh reported in 1961 MPLJ 627 : AIR 1961 MP 364, it has been held by the Madhya Pradesh High Court that the Leave and Licence Agreement comes to an end on the ceasing of the interest of the Licensor in the property particularly if the agreement merely creates bare licence. In the present case, the Leave and Licence Agreement created only a bare licence. Therefore, as and when rights of the Licensor comes to an end he ceases to be the owner when the property is put to sale pursuant to the above decree then, in that event, the Licensee cannot claim to retain possession under the Leave and Licence Agreement or under the Security Deposit Agreement. In any event, if the Applicants were claiming a lien under the Security Deposit Agreement then, as stated hereinabove, the registration under section 17(1)(b) of the Registration Act was required and in the absence of such a document being registered, the Applicants were not entitled to claim a right to retain the possession under the alleged lien.

10. Before concluding, I may point out that the Judgments cited by the learned counsel for the Applicants with regard to moveable properties stand on a different footing and the said judgments do not apply to the facts of the case in hand.

11. The reasoning given by this Court earlier hereinabove is also supported by the provisions of section 52 read with section 59 of the Indian Easement Act, 1882. Under section 52 of the Indian Easement Act, it is provided that where one person grants to another right to do or continue to do in or upon the immovable property of the grantor something which would, in the absence of such right, be unlawful, and such right does not amount an easement or interest in the property then the right is called a license. In this case if one goes through the Leave and Licence Agreement, it is clear that the Applicants have intended that the Agreement will be construed only as a licence and that the said Agreement will not constitute tenancy, subtenancy, easement or any right, title or interest in the property. Under section 59 of the Indian Easement Act, it is further provided that when the grantor of the license transfers property, the transferee shall not be bound by the licence. This is because when the Licensor conveys away the property affected by a mere license, he ceases to be bound by the license and the assignment operates as an implied revocation of the licence (Sec AIR 1931 Mad 216).

12. In the circumstances, Chamber Summons stands dismissed with no order as to costs.

13. C.C expedited.

14. Mr. Shah learned Advocate applies for stay of the order for eight weeks.

15. Mr. Tulzapurkar Advocate states that his client will not act upto 12-1-1998.

16. Hence I accept the statement of learned Advocate for the Bank. Order hereinabove stayed upto 21-1-1998. (inclusive)

Chamber summons dismissed.