M.M. Ismail, J.
1. The plaintiffs in O.S. No. 4120 of 1968 on the file of the City Civil Court, Madras, are the appellants herein. They are admittedly the owners of premises No. 38/3, Mount Road, Madras. The respondent herein took on lease the ground floor of the above premises on a rent of Rs. 4,000 per month. The lease was evidenced by a registered deed dated 22nd April, 1964, Exhibit A-1, in this case. On the same date, an agreement also was entered into between the parties. The lease was to commence from 1st January, 1964 and to be in force for a period of three years till 31st December, 1966. The lease deed contained a covenant for renewal at the option of the lessee for a further period of three years on the same conditions as contained in Exhibit A-1. It is the admitted case of the parties that before the expiry of the three years prescribed in Exhibit A-1, namely 31st December, 1966, the respondent herein exercised the option to renew the lease for a further period of three years and the appellant herein assented to the same. Later in 1967, it would appear that the Secretary of the respondent company had met the second appellant on several days and informed him that the respondent would like to vacate the portion which it was occupying in the appellant's premises since it had been feeling for some time that it needed more space to meet its increasing requirements. That fact is mentioned in Exhibit B-6 dated 8th December, 1967 addressed by the Administrative Officer of the respondent company to the appellants herein. In that letter, the said Officer, while informing the appellants that the respondent had been successful in locating a place to which it would like to shift by 31st January, 1968 at the latest, also stated that if, however, it would be more convenient from the appellants' point of view that the respondent should continue in the present premises for a little more time, it would not mind extending the date of shifting to the new premises to 15th February, 1968 or 29th February, 1968 and that the respondent would be glad to hear from the appellants in this regard as soon as possible. To the above letter, the appellants sent Exhibit B-7 dated 16th December, 1967 stating that by about the expiration of the term of lease, three years under the original agreement, in terms thereof, the respondent itself opted for a renewal for another three years and intimated them also, which was duly confirmed by them; that it was nearly a year since then, and that at that stage they were sorry that they were unable to do anything in the matter of the respondent's request through Exhibit B-6. On receipt of Exhibit. B-7, the Administrative Officer of the respondent company wrote Exhibit B-8 dated 28th December, 1967, stating that the respondent, no doubt, desired to continue in the appellants' premises beyond the period of the lease and the appellants were kind enough to agree to that; that the respondent would have been quite happy to continue in the present premises but for the reasons explained to the appellants in person by the respondent's Secretary and reiterated in its letter of even number dated 8th December, 1967; and that the appellants were also kind enough to appreciate the respondent's need for a change of premises at that stage. The letter proceeded to state that in view of what was stated earlier the respondent would find it necessary to shift from the present premises to a new building which it had been able to locate, sometime by the end of February, 1968, and that the respondent would be glad if the appellants would kindly arrange to take over the building from the Secretary of the respondent. The appellants wrote Exhibit A-3 dated 6th January, 1968 to the respondent stating; that they were unable to accede to the respondent's request for determining the arrangement midterm, since the respondent itself opted for a further period of three years from 1st January, 1967 and a year had elapsed in the renewed term also. In reply to Exhibit A-3, the Administrative Officer of the respondent company wrote Exhibit B-9 reply dated 14th March, 1968 stating that since the termination of the original lease, the respondent had been continuing to-occupy the premises on a month to month tenancy basis, and that on account of the respondent's need for greater space, parking facilities etc., it was obliged to vacate the premises. It was further stated therein that although the respondent was liable to give the appellants only 15-days notice, the respondent proposed giving them a longer notice and that it would be vacating the premises on 30th April, 1968. The Administrative Officer of the respondent-company requested the appellants to adjust the sum of Rs. 18,000 lying with them as three months' advance rent, against the rents for February, March and April, 1968. On receipt of Exhibit B-9, the appellants sent Exhibit B-10 dated 23rd March, 1968 stating that by letter dated 14th March, 1967 the respondent had bound itself to stay on in the property for a further period of three years, that having exercised its option under the lease deed dated 22nd April, 1964, Exhibit A-1, and obtained the corner t of the appellants for the extension of the lease period, the respondent was in law bound to pay rent and hire charges for the period ending 31st December, 1969, whether it used the property or not, and that the respondent's contention that after exercising the option clause, the lease had become a monthly tenancy cannot hold water and it was a clear and wanton breach of contract. On receipt of Exhibit B-10, the Administrative Officer of the respondent company wrote Exhibit B-11 dated 4th April, 1968 stating that the respondent could not agree with the appellants' view that the respondent was in law bound to continue as their tenant or to pay rent and furniture hire charges for the premises upto 31st December, 1969 and that if it had been the intention to do so, the respondent would have executed a lease agreement and got it registered under the Registration Act as was done previously. The Administrative Officer of the respondent company reiterated that the respondent would be vacating the premises on 30th April, 1968 and that since the respondent informed the appellants of its intention to vacate the premises as far back as October, 1967, there was absolutely no cause or justification for the appellants taking any action whatsoever as threatened in their letter Exhibit B-10. Ultimately the respondent vacated the premises on 30th April, 1968 and handed over possession of the premises to the appellants herein. Thereafter the appellants filed the present suit claiming damages for alleged breach of contract said to have been committed by the respondent herein. The amounts claimed in the suit consisted of a sum of Rs. 9,000 being the damages suffered by loss of rent for the months of May and June, 1968 and for 7 days in July, 1968' at Rs. 4,000 a month; a sum of Rs. 438.60 being the expenses incurred for publicity to mitigate damages by seeking a new tenant for the balance of the term of 18 months commencing from 1st July, 1958; and Rs. 3,600 being the loss in the rent for 18 months commencing from 1st July, 1968 at the rate c f Rs. 200 on the ground that the appellants could get a new tenant only as and from 8th July, 1968 at the rate of Rs. 3,800 per month for the ground floor. The complaint of the appellants in the plaint was that once the respondent exercised its option for renewal of the tenancy, it was bound to continue in possession of the property paying rent for a further period of three years ending with 31st December, 1969, and that inasmuch as the respondent vacated the premises before the expiry of the said period, the appellants were entitled to claim damages from the respondent herein on account of the loss suffered by them.
2. This case of the appellants was resisted by the respondent herein. The respondent contended that there was no lease for a further period of three years ending with 31st December, 1969. After 31st December, 1966, the respondent was in occupation of the property only as a tenant from month to month and the lease could be terminated by giving 15 days notice and the respondent had terminated the lease by giving a larger notice in this case and therefore it was not liable for any damages to the appellants. It also questioned the quantum of the damages claimed by the appellants as well as the interest on damages claimed by them.
3. On the basis of the above pleadings the following issues were framed for trial by the trial Court:
1. Whether plaintiff is entitled to rent for May and June, 1968 and 7 days in July, 1968 at Rs. 4,000 per month?.
2. Whether defendant was bound to enter into a lease for a further period of three years from 1st January, 1967? If so, whether there was a breach?
3. Whether plaintiff is entitled to damages at Rs. 200 per month for 18 months from 1st January, 1967?
4. Whether defendant is entitled to a credit of Rs. 200 per month being excess rent realised for the fourth floor of the premises?
5. Whether plaintiff is entitled to interest? If so, at what rate?
6. To what relief?
4. The learned 1st Assistant Judge, City Civil Court, Madras, by his judgment and decree dated 19th January, 1970 dismissed the suit instituted by the appellants herein. He took the view that the respondent was not justified in putting forward the contention that there should be a registered document to cover the renewed period, that a valid renewed lease came into existence, but the respondent had a right to terminate the tenancy by giving a reasonable notice, that such reasonable notice had been given in the present case and that therefore the appellants were not entitled to claim any damages from the respondent herein. It is against this judgment and decree that the present appeal has been filed by the plaintiffs in the suit. The following questions arise for determination in this case. The first question is whether the contention of the respondent that there should have been a lease under a registered document for the renewed period also and in the absence of such a registered document, there was no valid lease is correct or not. If this contention of the respondent is to prevail then no further question will arise in the present case, because admittedly the suit was instituted by the appellants herein on the basis that there was a valid lease for a particular period and by unilaterally vacating the premises before the expiry of the said period the respondent committed a breach of contract. If on the other hand, the answer to the first point is that there was no need for a registered document, the second question for consideration would be, whether the appellants were entitled to the damages claimed by them or they were not entitled to claim damages because the lease had been terminated by the respondent by giving a reasonable notice.
5. As far as the second point is concerned, it can be easily disposed of. In the present case, as I have pointed out already, there was Exhibit B-6 dated 8th December, 1967 under which the respondent intimated its intention to vacate the premises by 31st January, 1968 and also pointed out that the respondent would be willing to continue in occupation till 15th February, 1968 or 29th February, 1968. Subsequently, there was Exhibit B-9 dated 14th March, 1968 whereunder the respondent finally gave notice that it would be vacating the premises on 30th April, 1968. It is these notices that were taken to be reasonable notices for terminating the tenancy on the part of the respondent by the learned trial Judge and it is on that basis he held that there was valid termination by the respondent and that the appellants were not entitled to claim any damages or compensation. The question of valid termination will arise only on the basis of assumption of existence of a valid lease. If there had been a valid lease for a further period of three years, the learned Counsel for the respondent had to frankly concede that such a lease could not be unilaterally terminated by one of the parties before the expiry of the term for which the tenancy was created and consequently he could not support the conclusion of the learned trial Judge on this aspect of the matter.
6. It may also be noticed in this context that the learned trial Judge misconstrued the scope of Clause IV (c) of Exhibit A-1. Clause IV (c) of the lease deed Exhibit A-1 runs as follows:
The lessees have the option of renewing the lease for a further period of three years on the same terms and conditions as contained herein or terminating the lease by giving the lessors three months' notice in writing before the expiry of the period of lease, if necessary.
The second limb of this clause was taken to mean that the tenant, namely, the respondent had an option of terminating either the original lease or the renewed lease by giving three months' notice in writing. In my opinion, that construction is not sound. It should be noticed that the first limb of this clause does not refer to the respondent exercising its right to have the lease renewed by giving a notice of a particular period. Therefore, a combined reading of the first and second limbs of Clause IV (c) will lead to the conclusion that if the respondent did not want to exercise the option of having the lease renewed for a period of three years, it must give intimation of that fact three months before the expiry of the original period of three years and if no such notice was given, the respondent must be deemed to have exercised the option for having the lease renewed for a further period of three years. It is this idea which has been put in Clause IV (c) of Exhibit A-1, though in a defective and inartistic language. Having regard to the context the setting in which Clause IV (c) occurs in Exhibit A-1 learned Counsel on both sides ultimately agreed that that would be the proper construction of Clause IV (c) and that the second limb of Clause IV (c) did not deal with an independent situation of the tenant terminating either the original lease of three years or the renewed lease of three years by giving three months' notice.
7. In view of the above position, the only question that arises for determination is, whether a renewed lease can come into existence validly without there being a registered instrument. The contention of the respondent that there should be a registered document is based upon the language of Section 107 of the Transfer of Property Act. According to Section 107 of the Transfer of Property Act, a least; 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. There is no dispute in this case that the original lease was for a period of three years and the renewed lease contemplated by Exhibit A-1 was also for a period of three years and therefore would come directly within the scope of Section 107 of the Transfer of Property Act. The learned trial Judge has not considered the question, whether a registered document is necessary or not for bringing into existence renewed lease for a period of three years and all that he had stated in paragraph 12 of the judgment was that in Exhibit B-5 itself the Secretary of the respondent company had clearly and in unequivocal language stated that he was glad to note that the terms and conditions under which the appellants agreed to extend the lease for a further period of three years commencing from 1st January, 1967 would be the same as those which applied to Exhibit A-1 lease, that having thus made the appellants believe that no formal agreement of lease need be executed by the respondent in respect of the extension of the lease and that the extension of the lease would be governed by the terms and conditions contained in Exhibit A-1, it was indeed idle for the respondent to contend that such exercise of the option for renewal by the respondent would not in law create a renewal of lease between the parties and that the absence of a registered lease-deed for a further term of three years was fatal to the appellants' claim. It is rather difficult to understand what exactly the learned trial Judge meant to state by the above observations. Whether he was putting it on the basis of estoppel or not is not clear and if the law required that the lease deed should be in writing, how the question of estoppel can arise so as to be against the law itself passes one's comprehension. Under these circumstances, the question is completely open as to whether a registered document is necessary or not.
8. I gave more than one opportunity to the learned Counsel on both sides to produce any decision or any principle either for or against the contention that a registered document is necessary in respect of a renewed lease. The learned Counsel on both sides after taking time informed the Court that there has been no direct decision on this point either way, and a decision has to be arrived at only on the basis of certain general principles and some observations made by Courts in certain other judgments. Under these circumstances, I have necessarily to consider the question without the assistance of any decided cases, but on the basis of the general principles.
9. Before I deal with this question, I shall make a reference to one or two facts in this case. One is, some of the correspondence that passed between the parties referred to the fourth floor of the premises in question having been taken on lease subsequent to Exhibit A-1. But before me the entire argument proceeded on the basis that the property which was the subject matter of Exhibit A-1 lease was also the subject matter of renewal subsequently. Secondly, the correspondence, passed between the parties also used the expression, 'extension of lease'. But before me, the argument was advanced by both sides on the basis of renewal as contained in Clause IV (c) of Exhibit A-1. Therefore, I am dealing with the question only on the basis that there was exercise of option on the part of the respondent herein in terms of Clause IV (c) of Exhibit A-1 for the purpose of renewing the lease in respect of the identical property for a further period of three years.
10. Mr. K.N. Balasubramaniam, learned Counsel for the appellants, contended before me that a covenant for a renewal for a further term in a lease deed is more or less in the nature of a provision for extension of the period of lease and that consequently once the option conferred on the lessee or lessor for the renewal of the lease has been exercised all that happens is that for extension of the original period of lease no registered document is necessary. The learned Counsel also contended that a covenant for a renewal in a lease deed can be looked at from another point of view also. That is, the provisions in such a lease deed may be looked at, as the lease to commernce immediately for the first period of three years and a future lease to come into existence on the expiry of the term of the first lease, subject to the contingency of the lessee exercising his option, and so far as the present case is concerned, Exhibit A-1 contains both the leases, namely, the lease to commence immediately and the lease to commence in future on the expiration of the period of the first three years, if the lessee had exercised its option, and both the leases having been reduced to writing in the form of Exhibit A-1, a registered document, no further registered document was necessary. In support of these contentions, the learned Counsel himself was not able to produce any authority and he relied on only a few statements contained in two decisions to which I shall draw attention immediately.
11. The first decision relied on is Baker v. Merckel Anson (1960) 1 Q.B. 657 (Third Party). In that case, by a lease under seal dated 17th February, 1947, one Frederick Jonas Baker demised certain premises for a term of seven years from 1st November, 1946, at a yearly rent of 150, to Henry Merckel. In 1949 the landlord and the tenant came to an agreement which was embodied in a supplemental deed endorsed on the lease. The relevant portion of the same was:
If the tenant shall give notice in writing to the landlord before 1st November, 1952, of such his desire the within written lease shall thereupon be read, construed and take effect as though the term thereby granted was for a period of 11 years from 1st November, 1946, and that the tenant shall paint the external wood....
On 9th April, 1951, the lessee assigned the premises, with the benefit of the option, to a third party, namely, Mrs. Anson. On 18th October, 1951, Mrs. Anson by a similar document assigned the premises to the fourth party, namely, James Donald Whites. In 1952 the fourth party validly exercised the option. Later in 1952 the fourth party, in his turn, assigned to Mrs. Dorothy White. In September, 1957, the ultimate assignee Mrs. Dorothy White gave up possession, leaving rent unpaid and having committed breaches of the covenant to repair. The landlord obtained judgment against 'her for $818 8s. 11d. No recovery was made under that judgment and the landlord then instituted proceedings against the original tenant, Merckel, seeking to recover the same sum against him. The defence admitted the original lease and the supplemental deed but denied that the option was validly exercised. The defendant contended that his liability terminated at 1st November, 1953, the expiry date of the original lease. The Court of Appeal held that the original lessee remained liable by privity of contract, for the effect in law of the supplemental deed was to vary its date, namely, 23rd March, 1949, the seven year lease by building into it an option which, when exercised, would enlarge the term retrospectively to one of 11 years and that accordingly, the rule of law that an alteration in the term of an existing lease could operate only as a surrender of the old lease and a grant of a new one applied in March, 1949, and not when the option was exercised in 1952, for the exercise of the option was not a consensual matter but a unilateral act, consistent with the contract between the original parties, which by its own force enlarged the demise. Sellers, L.J., referred to the law laid down by Maugham J., In re, Savile Settled Estates (1931) 2 Ch. 210, to the effect:
An alteration of an existing lease so that it will operate for a term extending beyond the original term can operate, in law, only as a surrender of the old lease and a grant of a new one.
and proceeded to state:
The argument for the appellants was that the operation of the rule did not take place until the option was exercised in 1952 by the fourth party as assignee of the third party, who was an assignee of the defendant, the original lessee, and, therefore, the tenant was not bound to the landlord after the expiration of the seven years as he was not a party to the extended lease.
But what was done in 1949 was not a mere agreement for the future; it was the granting and obtaining by mutual agreement of a right which the tenant could at his option exercise, and which at once became an enforceable part of the contract. The agreement did not of itself enlarge the original term but it provided that it might be extended without any further consent of the lessor and was, therefore, a substantial alteration of a character to which the rule applies'.
According to the learned Lord Justice, what had happened was, the supplemental deed of March, 1949, had the effect in law of supplanting the original lease by a new one, the terms of which were derived from reading the two documents together and the effect was to include the option as if it had been in the original lease and there was, therefore, while the landlord and tenant were in direct contractual relationship, a contracted right by unilateral action of the tenant to enlarge the term from seven to eleven years, and to vary by the same action the provisions as to the painting of the outside of the premises. Consequently, the facts of the above case and the reasoning and the conclusion of the Court of Appeal thereon have no relevancy to the question under consideration, namely, whether, when the option for renewal contained in the original lease deed is exercised and a new lease comes into existence, the new lease deed, if it otherwise satisfies the requirements of Section 107 of the Transfer of Property, has to be registered or not.
12. The next decision relied on by Mr. K.N. Balasubramaniam is that of the Court of Appeal in Hand v. Hall (1877) L.R. EC318 . The facts of that case are peculiar. According to the law then in force, a lease for a period exceeding three years, if it was not under seal, was invalid. In that case, the relevant portion of the lease deed which was not under seal was as follows:
Hand agrees to let, and Hall agrees to take, the large room or the south end of...from the 14th February, next until the following Midsummer twelve months, and with right at end of that term for the tenant, by a month's previous notice, to remain on for three years and a half more.
The tenant did not take possession of the room at all and the rent for the first quarter fell due. The landlord instituted the suit for recovery of the said arrears of rent. Two defences were taken. One was that by the effect of the Statute of Frauds and the Statute 8 and 9 Vict. C. 106, Section 3, it was not a valid lease and the second was that the plaintiff, who was himself a lessee had no title to grant the lease intended, and that the defendant, before entry and before commencement of the intended term, avoided the lease on that ground. Cleasby, B., in Hand v. Hall (1877) L.R. E. C. D. 318, held that the lease in question was a lease exceeding three years. It was observed:
A lease not exceeding three years, in our opinion, must be a lease not giving a right (independent of the lessor) exceeding three years. We think a demise for three years, and for three years longer, at the option of the lessee, could not be said to be a lease not exceeding 3 years, and would not be valid if by parol only.
It is true that in the present case the lease is not in the above terms, but the tenant acquires under it a right at his own option by a month's notice to continue it on. If that is given the tenant still holds under the original demise there is no further act of the lessor.
13. When this was taken on appeal to the Court of Appeal, the decision of the trial Judge was reversed. Lord Cairns, in Hand v. Hall (1877) L.R. E. C. 318, after extracting the provisions in the lease already extracted by me above, preceded to state:
By this latter part of the agreement (namely), 'with right at the end of that term for the tenant, by a previous month's notice, to remain on for three years and a half more' an option is given to the defendant, and must be exercised by him before it can be said that any interest has passed to him. It is a stipulation that at his option, on a notice given to the plaintiff, he shall not be disturbed for three years and a half. Whereas there is not anything to be done by the tenant in the first part of the agreement to create a demise, in the second part something has to be done by him before that part takes effect, and until that is done it is impossible to tell whether a tenancy shall come into force or not. I think, therefore, that it is absolutely necessary to divide the contract into two parts. I think the agreement is an actual demise, with a stipulation superadded, that if at his option the tenant gives the landlord a notice of his intention to remain, he shall have, a renewal of his tenancy for three years and a half.
In my opinion, the above decision is not of any assistance to decide the controversy in this case. As I have pointed out already, the original term of the lease was only for 12 months and for that the document need not be under seal, but only if the period exceeded three years, it had to be under seal. In that ease, only the renewed period contemplated therein exceeded three years and in that context the question was, whether the original lease should be under seal, because the extension contemplated had exceeded three years. It is only in that context the question was decided in that case. The further question that arose was in relation to recovery of the rent for the first quarter itself, that is, within the first twelve months. Admittedly the lease for the first twelve months need not have been under seal. Therefore, that decision has no bearing on the point to be considered in the present case.
14. On the other hand, there arc certain observations made by some Courts in this country which have a bearing on this question. For the purpose of understanding this, it is necessary to refer to some more provisions of the Transfer of Property Act. Section 105 of the Transfer of Property Act defines 'lease' and also the terms, 'lessor', 'lessee', 'premium' and 'rent'. Section 106 deals with presumption regarding the duration of certain leases, in the absence of written contract or local usage. Section 107 which alone deals with, how lease should be made, runs as follows:
107. 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.
Where a lease of immovable property is made by a registered instrument, such instrument or, where there are more instruments than one, each such instrument shall be executed by both the lessor and the lessee:
Provided that the State Government may from time to time, by notification in the Official Gazette, direct that leases of immovable property, other than leases from year to year, or for any term exceeding one year, or reserving a yearly rent, or any class of such leases, may be made by unregistered instrument or by oral agreement without delivery of possession.
Section 108 deals with rights and liabilities of lessor and lessee, while Section 109 deals with the rights of lessor's transferee. Section 110 deals with exclusion of the day on which the term of lease commences. Section 111 deals with determination of lease. Sections 112, 113, 114 and 114-A deal with waiver of forfeiture, waiver of notice to quit, relief against forfeiture for non-payment of rent and relief against forfeiture in certain other cases respectively. Section 115 deals with the effect of surrender and forfeiture on under-leases. Section 116 deals with the effect of holding over and that section is as follows:
116. If a lessee or under-lessee of property remains in possession thereof after the determination of the lease granted to the lessee, and the lessor or his legal representative accepts rent from the lessee or under-lessee, or otherwise assents to his continuing in possession, the lease is, in the absence of an agreement to the contrary, renewed from year to year, or from month to month, according to the purpose for which the property is leased, as specified in Section 106.
The question has come up for consideration in the context of the language of Section 116.
15. In Zakoor Ahmad Abdul Sattar v. State of Uttar Pradesh and Anr. : AIR1965All326 a Bench of the Allahabad High Court had to consider the effect of 'holding over' by a tenant after the original period of lease was over. The appellant therein was granted a lease of land for industrial purposes from 1st March, 1947 by the Government for one year at an annual rent of Rs. 100. A document was executed and that was marked as Ex. 3. A subsequent lease for the same sum of Rs. 100 was executed on the 10th June, 1948 for one year beginning the 19th of March, 1948. That document was marked Exhibit 4. One question that came to be considered was about the effect of holding over as contemplated in Section 116 of the Transfer of Property Act. Having regard to the periods mentioned in Exhibits 3 and 4, the question of registration did not directly arise. However, the Court observed:
As to the renewal of the lease by holding over in the instant case also it was not necessary for it to be a registered instrument. No doubt, under Section 116 of the Transfer of Property Act by holding over, the defendant became a tenant from year to year but as the relationship of landlord and tenant between the plaintiff and the defendant was a result of operation of the law and not the result of an act of parties Section 107 would not apply. Section 107 applies to leases that are 'made' and not to leases that are created by law. As a result of the holding over there is a case of the renewal only by operation of law and not the making of the lease.
The learned Counsel for the respondent submitted that the above observations meant by implication, that if, after the expiration of the original period of lease, a lessee continues to remain in possession of the property on a subsequent lease, and that subsequent lease comes within the scope of Section 107, that lease can be brought about only by a registered instrument and that only because of Section 116, statutorily creating the subsequent lease, the provision regarding the requirement of a registered instrument did not arise in that case. It is rather doubtful whether the above observation can be said to represent correctly the legal position. Even Section 116 contemplates a subsequent lease by act of parties. The significant thing to be noticed with regard to Section 116 is, it actually uses the expression, 'lease is...renewed from year to year or from month to month'. In view of this, the Federal Court of India in Kai Khushroo Bezonjee Capadia v. Pai Jarbai Hirjibhoy Warden and Anr. proceeded on the basis that even in respect of holding over, a new lease comes into existence by the consensual act of parties, though there was a difference of opinion between the majority of Judges and Patanjali Sastri, J., as to whether such a new lease came into existence on the facts of the particular case or not, According to the majority, the tenancy which is created by the 'holding over' of a lessee or under-lessee is a new tenancy in law even though many of the terms of the old lease might foe continued in it, by implication; and it cannot be disputed that to bring a new tenancy into existence, there must be a bilateral act.
16. In Bengal National Bank Ltd. v. Janaki Nath Roy and Ors. : AIR1927Cal725 Rankin, G.J., on behalf of the Bench of the Calcutta High Court had to make some observations with regard to Section 116 itself. The learned Chief Justice stated:
Apart from specific performance of the covenant for renewal, what is the effect of the Transfer of Property Act when applied to the facts of the present case? The statute uses the word 'lease' not merely for interests which can only be created by registered instrument but for all interests of the character defined by Section 105. Section 106 speaks of a 'lease from month to month' and Section 116 which deals with the effect of holding over says that 'the lease is, in the absence of an agreement to the contrary, renewed from year to year, or from month to month, according to the purpose for which the property is leased, as specified in Section 106.
This provision must, I think, by regarded as supplemental to and in qualification of Clause (a) of Section 111 which states that a lease determines by efflux of the time limited thereby. But I do not think it can be read as meaning that if there is no agreement to the contrary the lease is renewed from month to month but that if there is an agreement for any other period then the lease is renewed for that period however long.
17. This would seriously trench upon the policy of Section 107. The intention of Section 116 is in my judgment that the lessee holding over with the landlord's mere consent has still a lease but only from month to month; he gets this but no greater interest and he does not even get this if there be an agreement with the landlord that he is to be a mere licensee, tenant-on-sufferance or tenant-at-will. The tenant continuing in occupation under a special agreement for a further lease is a different case from the tenant holding over merely by consent, but if for any reason his agreement has to be disregarded he can fall back upon the landlord's mere consent and claim his rights under Section 116. If the matter be regarded in the first instance as between lessor and lessee the position is that the latter is either : (i) by virtue of the doctrine of specific performance or otherwise clothed with the estate and right given by the special agreement or; (ii) the holder of a lease from month to month. It is doubtless true that if at the expiry of the original term the person who continues in occupation is not the lessee but his representatives or assigns there is nothing in Section 116 to enable the lessor by mere consent to convert such representative or assign into a monthly tenant. The obvious inference from the above observation of the learned Chief Justice is, under the cloak of 'an agreement to the contrary' contained in Section 116 of the Transfer of Property Act, there cannot be a lease coming within the scope of Section 107 of the Transfer of Property Act, without there being a registered instrument creating such a lease.
18. The next decision to which my attention was drawn by the learned Counsel for the respondent is that of a Full Bench of this Court on Reference under Stamp Act, Section 57 (1902) I.L.R. 25 Mad. 3. In that case, there was an instrument of lease for a term of three years on a monthly rent of Rs. 190 with a covenant on the part of the lessor to renew the lessee at the option of the lessee for a further term of one or two years from the expiration of the said term of three years. The question that came to be considered was, whether the document had to be stamped on the basis of there being two transactions, one, a lease for a period of three years, and another an agreement for granting a lease for a further period. This Court held that the document had to be stamped only as a lease. This Court pointed out:
The lessee agrees, among other things, to pay a monthly rent of Rs. 190 for the premises in question for a period of three years in consideration of the lessor demising the premises for a period of three years and also agreeing to renew the lease, at the option of the lessee, for a further term of one or two years. If the covenant to renew were disannexed from the lease, there would be no consideration for the covenant to renew. A covenant for renewal at the option of the lessee is an ordinary covenant in a great many leases and for at least two centuries, it has been held to be a covenant running with the land. A mere agreement to lease is not a covenant which will run with the land and will not bind a transferee for agreement. The transaction or matter to which the instrument in question relates is single and indivisible and cannot be treated as relating to two distinct matters within the meaning of Section 5 of the Stamp Act. The instrument contains only one contract, a demise; the option of renewal of the lease is ancillary to it and forms part of the consideration for entering into the lease.
In my opinion, this decision does not really throw any light on the question we arc-considering.
19. My attention was also drawn to the following passage occurring in Mayne and Macregor on Damages, Twelfth Edition, page 431:
Covenants to renew leases and options to purchase in leases are but agreements to lease and agreements to sell respectively super-imposed upon an existing lease between the same parties. A breach of such covenant or option is thus in effect a failure to complete a contract to lease or sell, and therefore the rule in Bain v. Fothergill (1974) L.R. 7 H.L. 158, imposing a restrictive measure of damages is in full operation should the failure be through a defect in title.
The argument based upon the above passage is that the covenant for renewal of a lease is merely an agreement to obtain a fresh lease and that that by itself does not create a lease. Therefore, if a fresh lease is to be brought into existence, it can be effected only by means of a registered instrument.
20. I am of the opinion that the matter can be considered from a different angle. I have already referred to the decision of the Federal Court of India in Kai Khushroo Bezonjee Capadia v. Bai Jerbai Hirjibhey Warden and Anr. , where the Federal Court was considering the scope of Section 116 of the Transfer of Property Act and having regard to the language used therein it came to the conclusion that a lease by holding over was merely a new lease brought into existence by the bilateral act of the lessor and lessee. Having regard to the use of the word, 'renewed' in Section 116 of the Transfer of Property Act and the construction put upon that section by the Federal Court, I am inclined to hold that even when there is an option for a renewal in a fresh lease and for a valid lease to come into existence, if such lease otherwise satisfies the requirements of Section 107. There must be a registered instrument.
The ordinary meaning' of the word, 'renew' is to bring again; to repeat to make again; to substitute new for. (Vide Chambers Twentieth Century Dictionary, New Edition, 1972)
According to Shorter Oxford English Dictionary, the meaning of the word, 'renew' is:
To restore, re-establish, set up again, being back into use or existence; To take up again or afresh, to begin again, recommence;
To replace by some new or fresh thing of the kind, to restore by means of substitution or a fresh supply;
To grant a new esp. to grant or give (a lease, bill, etc.) for a fresh period.
Thus, it will be seen that the Dictionary meaning of the word, 'renew' in relation to grant of lease, is to grant a new or to grant or give a lease for a fresh period. In Ballentine's Law Dictionary, Second Edition, the meaning of 'renewal of lease' is given as:
There is a distinction between a stipulation in a lease to renew for an additional term and one to extend it, in that a stipulation to renew requires the making of a new lease, while a stipulation to extend does not.
Section 2(1) of the English Landlord and Tenant (Rent Control) Act, 1949, 12 & 13 Geo. 6, Ch. 40 stated that, a person shall not, as a condition of the grant, renewal or continuance of a tenancy to which this section applies, require the payment of any premium in addition to the rent'. Thus, it will be seen that this section uses all the three expression, 'grant of a tenancy', 'renewal of a tenancy' and 'continuance of a tenancy'. The scope of these expressions contained in this section came to be considered by the Court of Appeal in England in Regor Estates Ltd. v. Wright (1951) 1 K.B. 689. Denning, L.J., with regard to these provisions stated:
Under the Act of 1949 a landlord must not require a payment of a premium on any of the following agreements if made since the Act : (1) on a 'grant of tenancy' (which means an agreement to grant an initial tenancy) (2) on a 'renewal of tenancy' (which means an agreement for a fresh tenancy following on the termination of the earlier one); and (3) on a 'continuance of a tenancy' which means, I think, an agreement to continue an existing tenancy, as, for instance, by agreeing not to give notice to determine or to re-enter under a provision in that behalf).
Thus, it will be seen that the expression, 'renewal of tenancy' has been understood as 'an agreement for a fresh tenancy following on the termination of the earlier tenancy' and this meaning of Denning L.J., is consistent with the meaning contained in Ballentine's Law Dictionary.
21. Thus, it will be clear that once a tenant or lessor exercises his option for renewal of an existing tenancy for a further period, what comes into existence is a fresh tenancy in replacement of the old tenancy, and such tenancy will have to satisfy the requirements of the law regarding the making of the tenancy. I have already extracted the provisions of Section 107 of the Transfer of Property Act. The provisions contained therein make it absolutely clear that it is the policy of the law 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 and not otherwise. The use of the expression only occurring in the first limb of Section 107 is significant. The proviso to the section enables the State Government from time to time by notification in the official gazette, for direct that leases of immovable property may be made by unregistered instrument or by oral agreement without delivery of possession. But the statute has taken care to see that even the State Government has no right by such notification to exclude the leases from year to year or for any term exceeding one year or reserving a yearly rent from the requirements of their being made or created only by registered instruments. Consequently, the policy of law is that a lease which satisfies the requirements mentioned in that section has to be only by a registered instrument and not otherwise. The significance of this can be appreciated only if we realise that there are provisions in the Registration Act as well as the Stamp Act dealing with leases. The Stamp Act deals with leases in the context of the stamp duty payable thereon and the duration of the lease is the criterion for determining the quantum of stamp duty. So also the Registration Act gives a wider definition to the term 'lease' and also requires the lease deed coming within the scope of the provisions contained therein to be registered. The object of the Stamp Act is to collect revenue and the object of the Registration Act is to give notice to other parties as well as to insist upon certain transactions being effected and proved by registered instruments only. On the other hand, The Transfer of Property Act dealing with the transfer of interests in immovable property expressly states that a lease deed of the kind mentioned in Section 107 can be brought into existence only by means of a registered instrument. If so, to come to a conclusion which will have the effect of avoiding the provisions contained therein will be opposed to the policy of law itself.
22. Let me take an illustration. Suppose a landlord and a tenant enter into a lease in respect of immovable property and fix the duration of the lease as six months. Such a lease is not required to be by a registered instrument under Section 107 of the Transfer of Property Act, in view of the duration mentioned above. Suppose that lease also contains a covenant for renewal either at the option of the lessee or at the option of the lessor, whereunder on the exercise of the option, the lease will stand renewed for a period of three years. If the argument of the learned Counsel for the appellants is to be accepted, the request will be that the original lease need not be under a registered document because it was not for a period exceeding one year and the renewed lease need not be by way of a registered instrument, though for a term exceeding one year, because the renewal will not constitute making of a new lease, but merely the continuance of the old lease. I am clearly of the opinion that such a construction will defeat the very object of Section 107 of the Transfer of Property Act and therefore cannot be countenanced by Courts. As a matter of fact, the entire section can be nullified and rendered nugatory by a landlord and tenant entering into a lease for a very short period which does not require registration, but providing for a renewal which will extend for more than one year, with a view to avoid the necessity of bringing into existence a registered document, even though their intention from the very beginning had been to make the lease for a period exceeding one year.
23. The result, is, once the option is exercised either by the lessor or by the lessee, a valid lease as such does not come into existence unless a registered document is executed, if the renewed lease in question satisfies the requirements of Section 107 of the Transfer of Property Act. After all, the option conferred either on the lesse or on the lessor is more or less in the nature of a pre-emption and neither the conferment of such option itself nor the exercise thereof automatically or of its own force brings into existence a new lease irrespective of other statutory provisions regarding the form, procedure or the modalities by which alone such a lease can be brought into existence. Therefore, looked at from, any point of view, 1 am of the opinion that once a renewed lease comes within the scope of Section 107 of the Transfer of Property Act, such a lease can be made only by a registered instrument. I am emphasising that notwithstanding the option conferred on the lessor or the lessee, in the light of the judgment of the Federal Court referred to above it is a new lease that comes into existence as a result of the exercise of the option for renewal and that too by the bilateral acts of the parties and consequently the new lease is made within the scope of the expression occurring in Section 107 of the Transfer of Property Act and therefore it has to be only by a registered instrument. In this case, admittedly the renewed lease was for a period of three years and if it has not been a renewed lease, the initial lease itself, there was no dispute that it required registration. Simply because it happened to be a renewed lease, it does not follow that no registered document was necessary to bring into existence such a lease. In this particular case, the appellants instituted the suit only on the basis of a valid renewed lease for a period of three years and the respondent herein having committed a breach of that contract by surrendering possession or terminating that lease prior to the expiration of the period prescribed thereunder. Once I hold that such a lease should have been made only by a registered instrument and there being no registered instrument, there was no valid lease for a period of three years, the appellants were not entitled to institute the suit for recovery of the amounts in question as damages for breach of the contract alleged to have been committed by the respondent herein.
24. The result is, the appeal fails and the dismissal of the suit by the trial Court is sustained, though for different reasons. Having regard to the nature of the controversy and there being no authority on the point in question, I consider that this is a proper case in which both parties should be directed to bear their costs.