S.106 Transfer Of Property Act | Onus On Tenant To Prove That Premises Was Leased For Manufacturing Purpose: Supreme Court

The Supreme Court Bench comprising Justice Aniruddha Bose and Justice Vikram Nath, has held that in order to attract the application of Section 106 of the Transfer of Property Act, 1882, which requires 6 months’ notice for termination of lease, the burden is on the Tenant to prove that manufacturing activity was being carried on in the leased Premises. A mere statement that manufacturing activity was being done would not suffice, the Tenant must explain the nature of work being done in factory shed.

BACKGROUND FACTS

In 2003, a Landlady and Tenant entered into an unregistered Tenancy Agreement in respect of a property (“Premises”) for a period of 5 years. The Tenancy Agreement was not renewed after 5 years but Tenant continued in possession without payment of rent. In 2008, the Landlady sent a notice to the Tenant (addressing him as monthly tenant) directing him to vacate the Premises within 15 days, which the latter didn’t comply with.

Section 106 of Transfer of Property Act, 1882 (“TP Act”) stipulates that in absence of a contract, the lease of immovable property for agricultural or manufacturing purposes shall be from year to year, terminable, on the part of either lessor or lessee, by six months’ notice. It further states that a lease of immovable property for any other purpose shall be deemed to be a lease from month to month, terminable, on the part of either lessor or lessee, by fifteen days’ notice.

Section 107 of TP Act states that a lease of immoveable 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.

Section 17 of the Registration Act, 1908 provides a list of documents which are to be compulsorily registered and it includes a document whereby an immovable property has been given on lease for a term exceeding one year. Section 49 of Registration Act states that an unregistered document, which otherwise requires compulsory registration, cannot be admitted as evidence in court.

When the Premises was not vacated, the Landlady filed a civil suit seeking recovery of possession and decree for mesne profits. In cross-examination, the Defence Witness DW-1 had stated that he was doing business of rubber.

The Tenant contended that the Premises was let out for manufacturing purpose and hence as per Section 106 of TP Act it could only be terminated by giving a 6 months’ notice. Further, it was a lease agreement for a period exceeding one year under which he was inducted as a Tenant, which requires compulsory registration. The same being unregistered, was not admissible as evidence in court and the suit was accordingly not maintainable.

The Trial Court held that the lease was from month to month being governed by TP Act and was not for any manufacturing purpose. Thus, a notice of 15 days’ was valid and suit was maintainable. The suit was decided in favour of Landlady.

In appeal, the Division Bench of High Court upheld the Trial Court judgment. The Tenant filed an appeal before the Supreme Court against the High Court’s decision.

SUPREME COURT VERDICT

The Bench observed that the Tenancy Agreement in question is a compulsorily registrable document under Section 17 of Registration Act, since the Agreement itself provides a term of five-years.

The prime issue was pertaining to the ‘nature and character of possession’. Whether the Premises was let out for manufacturing purpose or not, in order to attract Section 106 of TP Act which requires 6 months’ notice for vacation of property.

In Allenbury Engineers Pvt. Ltd. v Ramkrishna Dalmia and Ors, (1973) 1 SCC 7, the expression ‘manufacturing purpose’ was interpreted to mean, “purposes for making or fabricating articles or materials by physical labour, or skill, or by mechanical power, vendible and useful as such. Such making or fabricating does not mean merely a change in an already existing article or material, but transforming it into a different article or material having a distinctive name, character or use or fabricating a previously known article by a noval process.”

The Bench noted that the Premises was leased to Tenant “for the purpose of his business and/or factory.” The Premises contained a factory with shed/godown space. However, such description would not be sufficient to establish that the lease was for manufacturing purpose.

Reliance was placed on the decision in Park Street Properties Private Limited v Dipak Kumar Singh and Anr., (2016) 9 SCC 268, wherein it was observed that in the absence of a registered instrument, the courts are not precluded from determining the factum of tenancy from other evidence on record as well as the purpose of tenancy.

The Bench opined that the creation of tenancy was established but the purpose of tenancy, to attract the six months’ notice period under Section 106 of the TP Act, cannot be established by such evidence, the registration of which would have been mandatory.

“In this case, factum of creation of tenancy has been established. But the purpose of tenancy, so as to attract the six months’ notice period under Section 106 of the 1882 Act cannot be established by such evidence as in such a situation, registration of the deed would have been mandatory.”

Further, the burden is on the defendant to prove that manufacturing activity was being carried on in the Premises by explaining the nature of work being done in factory shed. A mere statement that manufacturing activity was being done would not suffice.

“The onus would be on the defendant to establish the fact that manufacturing activity was being carried on from the demised premises. A mere statement by the DW-1 to which we have referred earlier or the purpose of lease as specified in the lease agreement would not be sufficient to demonstrate the purpose of lease to be for manufacturing. This could be proved by explaining what kind of work was being carried on in the factory shed. In such a situation also, the registration of the deed would have been necessary. In absence of such registration, tenancy would have been of “month to month” character. For these reasons, we do not think the High Court erred in law in dismissing the defendant’s appeal.”

It was held that the Tenant failed to prove that the Premises was let out for manufacturing purpose. Hence, 15 days’ notice given by the Landlady was valid. Accordingly, the Bench upheld the High Court’s verdict and dismissed the appeal.

Also from the judgment-  When Can An Unregistered Lease Deed, Which Is Compulsorily Registrable, Be Admitted To Show Nature & Character Of Possession? Supreme Court Explains

Case Title: M/S Paul Rubber Industries Private Limited v Amit Chand Mitra & Anr.

Citation: 2023 LiveLaw (SC) 827

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