Supreme Court Clarifies Effect of Agreement to Sell on Tenancy: Dr. H.K. Sharma vs. Shri Ram Lal (2019)

Date of the Judgment: January 28, 2019

Citation: 2019 INSC 78

Judges: Abhay Manohar Sapre, J. and Dinesh Maheshwari, J.

Can a simple agreement to sell a property between a landlord and a tenant automatically end their existing landlord-tenant relationship? The Supreme Court of India recently addressed this crucial question in a case involving a landlord seeking eviction of his tenant. The core issue was whether the execution of an agreement to sell the tenanted property during the subsistence of a lease severs the landlord-tenant relationship. The judgment was delivered by a two-judge bench comprising Justice Abhay Manohar Sapre and Justice Dinesh Maheshwari, with Justice Sapre authoring the opinion.

Case Background

The respondent, Shri Ram Lal, owned a house in Dehradun, part of which was rented to the appellant, Dr. H.K. Sharma, in 1985. The monthly rent was ₹750. On April 28, 2008, the respondent filed an application seeking the appellant’s eviction under Section 21(1)(a) of the U.P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972 (hereinafter referred to as “the UP Act”). The respondent claimed he needed the house for his own residence and that of his family, as he had retired and had no other suitable place to live.

The appellant contested the eviction, arguing that a 1993 agreement to sell the property to him meant the landlord-tenant relationship had ceased and he was now in possession as a prospective buyer. The appellant claimed to have paid a significant amount towards the sale price. The Prescribed Authority and the Appellate Court dismissed the respondent’s eviction application, agreeing that the agreement to sell terminated the tenancy. However, the High Court of Uttarakhand reversed these decisions, leading to the appeal before the Supreme Court.

Timeline

Course of Proceedings

The Prescribed Authority initially dismissed the landlord’s (respondent’s) eviction application, holding that the agreement to sell the property terminated the landlord-tenant relationship. The Appellate Court upheld this decision. However, the High Court of Uttarakhand reversed these orders, stating that a mere agreement to sell does not terminate a tenancy unless explicitly stated in the agreement. The High Court also held that since the agreement was not registered, the tenant could not claim part performance under Section 53A of the Transfer of Property Act, 1882. The High Court further held that the landlord had a bona fide need for the property.

Legal Framework

The Supreme Court examined the provisions of the Transfer of Property Act, 1882, specifically Section 111, which deals with the determination of leases. The relevant clauses are:

• Section 111(e) of the Transfer of Property Act, 1882: “by express surrender; that is to say, in case the lessee yields up his interest under the lease to the lessor, by mutual agreement between them.” This clause deals with express surrender of a lease, where the lessee gives up their rights to the lessor through a mutual agreement.
• Section 111(f) of the Transfer of Property Act, 1882: “by implied surrender.” This clause deals with implied surrender, which occurs when the actions of the parties indicate an intention to end the lease, such as by creating a new relationship or relinquishing possession.

The Court also considered the U.P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972, under which the eviction application was filed.

Arguments

Appellant’s (Tenant’s) Arguments:

• The appellant argued that the agreement to sell the property, dated 13.05.1993, terminated the landlord-tenant relationship.
• Relying on the case of R. Kanthimathi & Anr. vs. Beatrice Xavier (Mrs.) [(2000) 9 SCC 339], the appellant contended that once a landlord and tenant enter into an agreement for the sale of the tenanted property, and the tenant pays part of the consideration, the landlord-tenant relationship ceases to exist.
• The appellant submitted that the relationship transformed into a buyer-seller relationship, making the eviction application under the UP Act not maintainable.

Respondent’s (Landlord’s) Arguments:

• The respondent supported the High Court’s order, arguing that a mere agreement to sell does not terminate the tenancy unless the agreement explicitly states so.
• The respondent contended that the agreement to sell did not contain any clause indicating the surrender of tenancy rights.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the jural relationship of lessor and lessee comes to an end when they enter into an agreement for sale/purchase of the tenanted premises.
2. Whether the execution of an agreement to sell the tenanted property during the subsistence of the lease ipso facto results in the determination of the lease.

Treatment of the Issue by the Court

Authorities

The following authorities were considered by the Court:

Judgment

The Supreme Court held that the mere execution of an agreement to sell a tenanted property does not automatically terminate the landlord-tenant relationship. The Court emphasized that for a lease to be terminated, there must be either an express surrender under Section 111(e) or an implied surrender under Section 111(f) of the Transfer of Property Act, 1882.

How each authority was viewed by the Court?

• The Court explained the principle laid down in Shah Mathuradas Maganlal & Co. vs. Nagappa Shankarappa Malage & Ors., (1976) 3 SCC 660* regarding express and implied surrender of lease.
• The Court distinguished the case of R. Kanthimathi & Anr. vs. Beatrice Xavier (Mrs.) [(2000) 9 SCC 339]*, stating that the agreement in that case had specific words indicating surrender of tenancy, which was not present in the current case.
• The Court analysed Section 111 of the Transfer of Property Act, 1882, particularly clauses (e) and (f), regarding the determination of leases.

What weighed in the mind of the Court?

The Court’s decision was primarily influenced by the absence of any clause in the agreement to sell that indicated an intention to surrender the tenancy rights. The Court emphasized that the intention of the parties is paramount in determining whether a lease has been surrendered. The Court also noted that the agreement did not create any new relationship between the parties that would imply a surrender of the lease. The Court also considered the fact that the landlord required the premises for his own use.

Logical Reasoning:

The Court considered the argument that the agreement to sell terminated the tenancy but rejected it because the agreement did not contain any clause that would show that the parties intended to surrender the tenancy rights. The Court also considered the fact that the landlord required the property for his own use and that the High Court had already decided this issue.

The Supreme Court stated, “Perusal of Agreement to Sell dated 13.05.1993 (Annexure P-1) shows that though the agreement contains 9 conditions but none of the conditions provides much less in specific terms as to what will be the fate of the tenancy.” The Court further observed, “In other words, none of the conditions set out in the agreement 13.05.1993 can be construed for holding that the parties intended to surrender the tenancy rights.” The Court also noted, “Indeed, it will be clear from mere perusal of para 4 of the said decision quoted hereinbelow.”

The Court rejected the argument that the landlord-tenant relationship was terminated by the agreement to sell and held that the landlord was entitled to seek eviction of the tenant. The Court also held that the High Court’s finding on the landlord’s bona fide need for the property was correct.

Key Takeaways

• An agreement to sell a tenanted property does not automatically terminate the tenancy.
• For a lease to be terminated, there must be an express or implied surrender as per Section 111 of the Transfer of Property Act, 1882.
• The intention of the parties, as reflected in the agreement, is crucial in determining whether a lease has been surrendered.
• Landlords can still seek eviction of tenants even if there is an agreement to sell, provided the tenancy has not been legally terminated.

Directions

The Supreme Court granted the appellant three months to vacate the suit house, subject to the appellant furnishing an undertaking in the Court within two weeks and paying all arrears of rent, including three months’ rent in advance.

Development of Law

The ratio decidendi of this case is that a mere agreement to sell a tenanted property does not automatically terminate the tenancy. The Court clarified that the tenancy would continue unless there is an express or implied surrender of tenancy rights as per Section 111 of the Transfer of Property Act, 1882. This judgment clarifies the position of law and distinguishes it from the earlier judgment of R. Kanthimathi & Anr. vs. Beatrice Xavier (Mrs.) [(2000) 9 SCC 339].

Conclusion

The Supreme Court dismissed the appeals, upholding the High Court’s decision. The Court clarified that an agreement to sell between a landlord and tenant does not automatically terminate the tenancy. The tenancy continues unless there is an explicit or implied surrender of the tenancy rights. This judgment provides clarity on the legal position regarding the effect of an agreement to sell on existing tenancies.