Supreme Court Upholds State’s Right to Resume Lease for Violations: State of Orissa vs. Santi Kumar Mitra (2024)

Introduction

Date of the Judgment: May 10, 2024

Citation: 2024 INSC 402

Judges: Pamidighantam Sri Narasimha, J., Aravind Kumar, J.

Can a state government unilaterally resume a lease when the lessee violates the terms of the agreement? The Supreme Court of India recently addressed this question in a case concerning a long-standing lease in Orissa. The court examined whether the state was justified in resuming a lease due to the lessee’s failure to maintain the property and pay dues, ultimately ruling in favor of the state. This judgment clarifies the state’s power to enforce lease conditions and resume possession when violations occur. The judgment was authored by Justice Aravind Kumar.

Case Background

The case revolves around a property in Balukhand, Puri, originally leased to Shailendra Nath Mitra in 1905 for 30 years. Upon the expiry of the lease in 1935, Shailendra Nath Mitra applied for a renewal. However, he passed away in 1941, leaving behind his legal heirs. In 1944, the lease was renewed in favor of his legal heirs for another 30 years, effective from 1935. This renewed lease expired in 1965. In 1972, one of the legal heirs, Nalininath Mitra, applied for another renewal. The Revenue Officer directed an inquiry, and the Tahsildar reported in 1975 that the property was dilapidated and occupied by outsiders. Based on this report, the Collector initiated resumption proceedings, citing violations of the lease agreement. The Collector ordered the lessees to surrender the land, and upon their failure to comply, the Tahsildar took physical possession of the property in 1976.

Timeline

Course of Proceedings

The legal heirs of Jatindranath Mitra (one of the sons of the original lessee) filed a suit in 1986, seeking a declaration that the Collector’s order of 1975 was illegal and requesting a renewal of the lease. The Trial Court dismissed the suit, stating that the plaintiffs had not applied for renewal within the stipulated time, had not maintained the building, and that not all lessees had applied for renewal. However, the First Appellate Court reversed this decision, holding that the Collector could not initiate resumption proceedings without referring the matter to a civil court, that the land could only be resumed for public purposes, and that the resumption case could not have been initiated without deciding on the renewal application. The High Court dismissed the State’s second appeal, stating that there was no evidence of violation of lease conditions and that the State had not shown a public purpose for the land.

Legal Framework

The judgment references several clauses from the lease agreement and the Bihar and Orissa Government Estates Manual, 1919. Key provisions include:

• Clause 15 of the lease agreement: This clause allows the Collector to declare the lease void if any terms or conditions are breached. It states, “That on breach or non -observance of any of aforesaid terms or conditions, the Collector may declare that the Lease has determined and become void…”.
• Clause 7 of the lease agreement: This clause mandates the lessee to maintain the building in good repair and prohibits structural alterations without the Collector’s consent. It states, “That the Lessees shall keep the building in Proper repair and shall not make any structural alterations…”
• Clause 12 of the lease agreement: This clause requires the lessee to pay rent on time, with a 10% annual interest on arrears. It states, “That, in the event of the Lessees’ not paying any instalment of the rent on or before the dates herein fixed for such payments, the Lessees shall, in addition to the arrears, pay interest at the rate of ten per cent per annum on such arrears.”
• Clause 13 of the lease agreement: This clause requires the lessee to pay all municipal and local taxes. It states, “That the Lessees shall pay all Municipal or other local rates and taxes imposed or assessed upon their holding under any law for the time being in force whether the same be payable by the landlord, tenant, owner or occupier in respect thereof.”
• Clause 14 of the lease agreement: This clause outlines the process for lease renewal, requiring notification three months before expiry, provided all conditions have been met. It states, “If three months prior to the expiration of the said term the lessee shall notify the Collector/Deputy Commissioner that he is desirous of taking a new lease of the said premises and shall have duly observed and performed all the terms and conditions afore said he shall be entitled to a new lease…”
• Clause 20 of the Bihar & Orissa Government Estates Manual, 1919: This clause specifies that upon expiry of the lease, a new lease can be granted if all conditions have been met, and if not, the Collector may take possession. It states, “That on the expiry of the terms of your lease, you shall, if you have duly observed and performed all the conditions of the lease, execute a new lease…”

Arguments

Arguments on behalf of the Appellant (State of Orissa):

• The lease expired in 1965, and no renewal application was filed until 1972 by only one of the lessees, Nalininath Mitra.
• The Tahsildar’s report of 1975 indicated that the structures were dilapidated and occupied by outsiders, violating Clauses 9, 19, and 20 of the Bihar & Orissa Government Estates Manual, 1919.
• Nalininath Mitra’s letter of 06/10/1975 admitted the dilapidated condition of the building and non-payment of rent and municipal taxes, violating Clauses 9, 15, and 16 of the Manual.
• The suit was barred by limitation as it was filed 10 years after the Collector took possession.
• The High Court erred in holding that Clauses 9 and 15 of the lease agreement were not violated.
• Resumption was due to the dilapidated condition of the building, not for public purpose, thus Rule 28 of the Manual did not apply.
• The lessee’s right under Clause 18 could only be considered if all lease conditions were met, which was not the case.
• The High Court did not consider the Collector’s notice of 28/08/1975 and the lessee’s reply of 06/10/1975.
• No evidence was presented to show that a receiver was appointed or had applied for lease renewal.

Arguments on behalf of the Respondents (Legal Heirs of the Lessee):

• The renewal application of 1972 was pending, and the resumption proceedings could not have been initiated without disposing of it.
• Clause 18 of the lease deed gives the option of renewal to the lessee, and it was exercised.
• The respondents did not violate any lease conditions.
• The Tahsildar’s report was one-sided, and no evidence was presented to prove the building’s dilapidated condition.
• Resumption of possession should have been done through a civil suit, not unilaterally.
• The land was not required for public purpose, and the lease could not be cancelled.
• The lease deed cannot be cancelled when the lease deed does not provide that upon expiry of the term, the lease shall stand determined.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the impugned order of the High Court requires to be affirmed or reversed?
2. What Order?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following legal provisions:

• Clause 7 of the lease agreement: Mandates the lessee to keep the building in proper repair.
• Clause 12 of the lease agreement: Mandates the lessee to pay rent on time.
• Clause 13 of the lease agreement: Mandates the lessee to pay all municipal taxes.
• Clause 14 of the lease agreement: Specifies the process for lease renewal.
• Clause 15 of the lease agreement: Empowers the Collector to declare the lease void for breach of conditions.
• Clause 20 of the Bihar & Orissa Government Estates Manual, 1919: Deals with renewal of lease and the Collector’s power to take possession.

The Supreme Court also considered the following case:

• Shankarlal Verma and Others v Smt. Uma Sahu and Others [1992 SCC Online Ori 239]: This case was cited by the respondents to argue that a lease deed could only be determined for public purpose or breach of conditions. However, the Supreme Court distinguished this case, stating that in the present case, the terms of the lease were breached.

Judgment

How each authority was viewed by the Court?

• Clause 7 of the lease agreement:* The Court found that this clause was violated as the building was not maintained in proper repair.
• Clause 12 of the lease agreement:* The Court found that this clause was violated as the rent was not paid on time.
• Clause 13 of the lease agreement:* The Court found that this clause was violated as the municipal taxes were not paid.
• Clause 14 of the lease agreement:* The Court found that this clause was violated as the lessee did not apply for renewal within the stipulated time.
• Clause 15 of the lease agreement:* The Court upheld the Collector’s action under this clause, stating that the lease was validly terminated due to violations.
• Clause 20 of the Bihar & Orissa Government Estates Manual, 1919:* The Court interpreted this clause to mean that the option of renewal is not unrestricted and can only be exercised after fulfilling all the conditions of the lease.
• Shankarlal Verma and Others v Smt. Uma Sahu and Others [1992 SCC Online Ori 239]:* The Court distinguished this case, stating that in the present case, the terms of the lease were breached.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the fact that the lessee had admitted to violating multiple terms of the lease agreement. The Court emphasized the lessee’s failure to maintain the property, pay rent, and pay municipal taxes, all of which were clear breaches of the lease conditions. The Court also noted that the lessee had not applied for renewal within the stipulated time. The Court was not swayed by the argument that a renewal application was pending, holding that the right to renewal was contingent on fulfilling the lease conditions. The Court also clarified that the resumption was not for public purpose but due to violations of the lease agreement.

The Court’s reasoning was based on a combination of factual findings and legal interpretation. The Court considered the factual aspects of the case, such as the dilapidated condition of the property, the non-payment of dues, and the lessee’s admission of violations. The Court also considered the legal aspects of the case, such as the terms of the lease agreement and the relevant legal provisions. The Court’s reasoning can be summarized as follows:

The Court considered the argument that the lease could only be determined for public purpose as provided in the case of Shankarlal Verma and Others v Smt. Uma Sahu and Others [1992 SCC Online Ori 239]. However, the Court rejected this argument and distinguished the case, stating that the lease was determined for breach of conditions. The Court emphasized that the lessee had admitted to the violations, making it clear that the State had the right to resume the lease.

The Court’s decision was based on the principle that the lessee must adhere to the terms of the lease agreement. The Court held that the lessee’s failure to maintain the property, pay rent, and pay municipal taxes were clear violations of the lease conditions, which justified the State’s action to resume the lease. The Court also emphasized that the option of renewal was not unrestricted and could only be exercised after fulfilling all the conditions of the lease.

The Court stated, “In the light of above admission, we are of the considered view that Clause 7, 12 and 13 of the lease agreement were blatantly violated and not adhered to by the lessee.”

The Court further stated, “A perusal of these two clauses would disclose that the said option of renewal is not unrestricted and can only be exercised by the lessee after having duly observed and performed all the conditions of the lease.”

The Court also stated, “It is pertinent to note that the resumption case was initiated due to breach of conditions of the Manual of 2019 and the condition of the lease agreement and not on the ground that the land was required for any public purpose as contemplated under Rule 28(5) of the Manual of 2019.”

Key Takeaways

• Lessees must strictly adhere to the terms and conditions of their lease agreements.
• Failure to maintain property, pay rent, or pay municipal taxes can lead to the termination of the lease.
• The option of lease renewal is not automatic and is contingent on fulfilling all lease conditions.
• State governments have the right to resume leases when lessees violate the terms of the agreement.
• Resumption of lease is not only for public purpose but also for breach of conditions of the lease.

Directions

The Supreme Court directed the appellant to consider the pending renewal application in Lease Renewal Case No.11/1992 within 6 months from the date of the order. The Court also stated that the respondents would be at liberty to challenge any adverse findings in the renewal case before the appropriate forum.

Specific Amendments Analysis

There was no discussion on any specific amendment in the judgment.

Development of Law

The ratio decidendi of this case is that a lessee must strictly adhere to the terms of the lease agreement, and failure to do so can result in the termination of the lease by the state. The judgment clarifies that the option of renewal is not automatic and is contingent on the lessee fulfilling all the conditions of the lease. The judgment also clarifies that the state can resume a lease for violation of the lease conditions and not only for public purpose. This ruling reinforces the state’s power to enforce lease conditions and ensures that lessees are held accountable for their obligations under the lease agreement. There is no change in the previous position of law, but rather a clarification of the existing legal principles.

Conclusion

The Supreme Court’s decision in State of Orissa vs. Santi Kumar Mitra & An Other upholds the state’s right to resume a lease when the lessee violates the terms of the lease agreement. The Court found that the lessee had breached multiple conditions of the lease, including failure to maintain the property, pay rent, and pay municipal taxes. The Court reversed the High Court’s decision and confirmed the Trial Court’s order. The Court also directed the state to consider the pending renewal application, providing a balanced approach to the case.