Can court determine lease deed dehors the unregistered document of lease?

Lease is one of the means of creating rights in an immoveable property and is governed by the Transfer of Property Act, 1882 [“the Act”]. Section 105 of the Act defines “Lease” as follows-

“105. Lease defined– A lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

Lessor, lessee, premium and rent defined. —The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.”

There are some circumstances in which the there is no written agreement of lease between the parties outlining the duration of lease, the rights, and liabilities of the parties. Section 106 of the Act caters to such lacuna in the following terms-

“106. Duration of certain leases in absence of written contract or local usage.—(1) In the absence of a contract or local law or usage to the contrary, a lease of immovable property for agricultural or manufacturing purposes shall be deemed to be a lease from year to year, terminable, on the part of either lessor or lessee, by six months’ notice; and 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 the Act ordains the method in which a lease has to be created in order for it be recognized in the eyes of law-

“107. Leases how made.—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.

 [All other leases of immoveable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession.]

[Where a lease of immoveable 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.]”

Analysis of Provisions

Section 105 of the Act defines lease as transfer of a right in an immoveable property to enjoy such property for a specified period of time and outlines the following essential elements of lease-

1. A lease is for a certain period of time.
2. It may be express or implied.
3. It is in exchange for a consideration of price which may be paid or promised to be paid in future.
4. “Price” could be money, share of crops, service or any other thing of value which has to be rendered periodically or on specified occasions to the transferor by the transferee.
5. A transferor is called lessor, the transferee as lessee, the price is called the premium and the money is referred to as the Rent.

Section 105 clarifies that a lease may be express or implied, meaning that rights in an immoveable property can also be transferred by implication and a written agreement is not necessary. The factum of lease can be derived from the conduct of the parties.

In absence of a written agreement of lease, Section 106 comes into play which provides the duration of lease and its termination thereof in the absence of a written contract as follows-

1. A lease of immoveable property for agriculture or manufacturing purposes shall be deemed to be a lease from year to year and terminable on the part of either party by issuing a six months’ notice.
2. A lease of immoveable property for any other purpose shall be deemed to be a lease from month to month and terminable on the part of either party by issuing a 15 days’ notice.

In order to seek the benefit of six months prior notice, before termination, it is imperative for the lessee to prove that the lease was for the purpose of agriculture or manufacturing and his failure to prove the same would result in the lease taking the character of the latter part of Section 106(1) i.e. a month to month lease in which only 15 days’ prior notice is required for termination of lease.

Section 107 of the Act stipulates the manner in which a lease is to be created and mandates that-

1. A lease of immoveable property exceeding one year can be made only by registered instrument.
2. All other leases of immoveable property may be made by a registered instrument or by oral agreement accompanied by delivery of possession.

Therefore, it is mandatory to get a lease deed registered if it is for a  period exceeding one year. However, all other leases of immoveable property of a duration of less than one year are not compulsorily required to be registered and the same can be legally made by an oral agreement accompanied with delivery of possession.

Effect of non-registration of Lease Deed

Section 17 of the Registration Act 1908 [“the Registration Act”] is an extension of Section 107 of the Transfer of Property Act, and mandates that a lease of an immoveable property for a term exceeding one year is compulsorily required to be registered-

“17. Documents of which registration is compulsory.—(1) The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No. XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely:—

….

(d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent;”

The consequence of non-registration of lease deed is provided under Seciton 49 of the Registration Act which inter alia stipulates that its non-registration would render the lease deed invalid and no transfer of rights in the immoveable property would be created nor such document would be received in evidence-

49.Effect of non-registration of documents required to be registered.—No document required by section 17 (1) [or by any provision of the Transfer of Property Act, 1882 (4 of 1882)], to be registered shall-

1.   affect any immovable property comprised therein, or
2.  confer any power to adopt, or
3.  be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered…”

Therefore, it is mandatory for a lease deed to be registered if it is for a period exceeding one year, in absence of which the lease deed would not be recognized in the eyes of law and no transfer of rights can take place in the immoveable property by way of an unregistered lease deed.  However, a lease deed for a period of less than one year is not compulsorily required to be registered which is also recognised by Section 18 of the Registration Act-

“18.Documents of which registration is optional.—Any of the following documents may be registered under this Act, namely:—

….

(c) leases of immovable property for any term not exceeding one year, and leases exempted under section 17;…”

The question, however, arises when in a fact situation, parties entered into a lease deed exceeding a term of one year without registering the lease deed. Can the court still recognize the character of lease notwithstanding the unregistered document of lease? This position of law was clarified by the Supreme Court in the following two cases –

1. Anthony vs K.C. Ittoop and Sons and Ors.¹AIR 2000 3523

The parties entered into a lease deed dated 04.01.1974 for a period of five years during which the tenant was to occupy the property for residential purposes and pay a monthly rent. However, the lease deed was not registered by the parties and the landlord of the property filed a suit for recovery of possession. The tenant put up a defense that the suit is not maintainable before civil court as he is protected under the provisions of the Rent Act and therefore, only Rent control court can adjudicate the rights and contentions of the parties. The Trial Court, however, decreed the suit and rejected the contentions of the tenant on the ground that since the lease deed was not registered, therefore, the lease was void and he cannot be considered as a tenant on the basis of a void lease deed so as to attract provisions of the Rent Act. In first Appeal, the District Court reversed the findings and held that despite non-registration of lease deed, the facts and circumstances of the case and evidence clearly disclose that parties intended to create a lease. However, in second appeal, the High Court reversed the finding of District Court and upheld the suit for recovery of possession filed by the landlord. Therefore, an appeal was filed before the Supreme Court which held as follows-

1. Supreme Court recognized the position of law that since the lease deed was for a period exceeding one year i.e. for a period of 5 years and it was unregistered, therefore, it is void and the Tenant/Appellant cannot be considered as a lessee/tenant under the void lease deed.
2. However, the Supreme Court referred to Section 105 and 107 of the Act and noted that a lease can be made expressly or by way of implication. If in the facts of the present case the lease deed is found to be void due to its non-registration, then the relationship between the parties shall take the character of second paragraph of Section 107 which elucidates that lease deed, for a period of less than one year, may be made by a registered instrument or by way of oral agreement accompanied with delivery of possession.
3. When lease is a transfer of a right to enjoy the property and such transfer can be made expressly or by implication, the mere fact that an unregistered instrument came into existence would not stand in the way of the court to determine whether there was in fact a lease otherwise than through such deed.
4. Court noted that it was an admitted position between the parties that the appellant/tenant was enjoying the possession of the property and paying a monthly rent for the same. Legal character of Appellant’s possession is attributed to a jural relationship between the parties and such jural relationship cannot be placed anything different from that of lessor and lessee falling within the purview of the second paragraph of Section 107 of the Act.
5. Non-registration of the document had caused only two consequences. One is that no lease exceeding one year was created. Second is that the instrument became useless so far as creation of the lease is concerned. Nonetheless the presumption that a lease not exceeding one year stood created by conduct of parties remains un-rebutted.
6. Tenant is defined in Section 2(6) of Rent Act as “any person by whom or on whose account rent is payable for a building…” Since the relationship of landlord and tenant is admitted and also evident from the facts of the case, therefore, the Appellant/tenant can only be removed from possession of the property by seeking recourse to the provisions of Rent Control Act by approaching Rent control court. Therefore, the Supreme Court dismissed the suit filed by the Respondent/Owner for recovery of possession before the Trial Court without prejudice to his rights to approach Rent control court.

2. Paul Rubber Industries Pvt. Ltd. vs Amit Chand Mitra and Ors.²AIR 2023 SC 4658

An unregistered Lease deed was executed between the parties for a period of five years. The tenant stopped paying the rent after some time, due to which the Landlady served a 15 days’ notice under Section 106 of the Act to the tenant to vacate the premises. When the tenant refused to vacate the property, the landlady filed a suit for recovery of possession of the property. Main argument before the Trial Court centered around the legality of the notice. The Defendant/tenant put up a case that the premises was let out for manufacturing purpose and in terms of Section 106 of the Act, a 6 months’ notice was required to be served upon the tenant instead of 15 days’ notice. The Trial Court gave a finding that the property was let out for purposes other than agriculture or manufacturing and such tenancy is deemed to be a lease from month to month and terminable by serving 15 days’ notice as per Section 106 of the Act. In Appeal, the High Court found no reason to interfere with the order of the Trial Court and held that the agreement being unregistered, the same cannot be looked into for determining the rights and liabilities of the parties and insofar the contention of the Tenant that lease was for manufacturing purposes, the onus to prove the same rested upon the Tenant who failed to discharge the onus. The Tenant filed an appeal before the Supreme Court which observed and held as follows-

1. Supreme Court relied upon the judgment of Anthony vs K.C. Ittoop & Ors. (supra) and upheld the position of law that a lease deed can be recognized dehors the unregistered agreement of lease.
2. Since the agreement is for a period of five years, therefore, it had to be compulsorily registered in the absence of which it cannot be admitted in evidence nor the same can be looked into to determine nature of lease i.e. whether it is for agriculture/manufacture or for any other purpose.
3. In our opinion, nature and character of possession contained in a flawed document (being unregistered) in terms Section 107 of the 1882 Act and Sections 17 and 49 of the Registration Act can form collateral purpose when the “nature and character of possession” is not the main term of the lease and does not constitute the main dispute for adjudication by the Court. In this case, the nature and character of possession constitutes the primary dispute and hence the Court is excluded by law from examining the unregistered deed for that purpose.
4. Absence of registered agreement cannot preclude the court from determining the factum of tenancy from other evidence on record. 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 has not been established by the tenant, therefore, the lease would take the character of latter part of Section 106 of the Act, i.e. lease of immoveable property for any other purpose which shall be deemed to be a lease from month to month and terminable by 15 days’ notice.
5. Therefore, the Supreme Court dismissed the appeal and upheld the notice of 15 days’ issued by the landlady to the Tenant under Section 106 of the Act for vacating the premises.

Conclusion

A lease deed which is for a period exceeding one year is compulsorily required to be registered in the absence of which the document is rendered otiose and no lease deed is recognized in the eyes of law. On the other hand a lease deed for a period of less than one year is not required to be registered and, in that case, an oral agreement accompanied with delivery of possession is sufficient. However, merely because a lease deed which is compulsorily required to be registered under Section 107 of the Act, is unregistered, that does not curtail the powers of court to determine the lease deed from other facts and circumstances of the case. As noted in the above two cases, mere defect of registration of lease deed would not render the character of lease created as nugatory. In the absence of lease deed or in the case of an unregistered lease deed, court can draw a presumption from the facts and circumstances of the case that a relationship of landlord and tenant existed between the parties. If the factum of that relationship is proved, then the lease would fall within the purview of second paragraph of Section 107 of the Act as observed by the Supreme Court in Anthony vs K.C. Ittoop (supra)