License or lease – Determination – Distinction : Transfer of Properly Act Sec. 105

In accordance with the terms of the license, the petitioner was granted permission to carry on the business. Condition No. 5 thereof required the licensee to pay the license fee by the 5th of every succeeding month and non-payment of the license fee entailed cancellation of the license apart from the levy of penalty of 24% p.a. on the arrears of the license fee till the date of payment in full. Condition No. 10 thereof set out that the licensee shall not act to the detriment of the interests of the Devasthanams in any manner. Condition No. 13 reserved the right of access and entry into the licensed premises and to carry out inspection by the Officers and Staff of the T.T.D. Condition No. 15 set out that the license was liable to be cancelled for violation of any of these terms and conditions of the license. The writ petitioner quietly entered upon the demised premises on 04-08-2008 and he was entitled to remain in possession thereof for a period of three years, which was to expire on 03-08-2011, subject of course to his payment of the monthly license fee of Rs. 4,535/-.

The Court observed that section 52 of the Indian Easements Act, defined “license” as, where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property. It is manifestly clear that every license originates in a grant made by one person in favour of another or a definite number of other persons. By implication a license cannot be granted to a fluctuating body of persons who will not be answering the expression of definite number of other persons. Most importantly, what has been granted was only to do something which would in the absence of such grant be unlawful to be done by the other persons. Equally important to notice is the fact that the person to whom the grant is made, does not acquire any right whatsoever, including easementary right or any interest in the property. It can, therefore, be deduced that a grant, which is called license merely authorised the person or persons to whom the grant is made, a right of possession for enjoyment and hence such a right is not juridical possession but amounts to mere occupation.

Possession being a legal concept, one of the most essential ingredients of it is the specification of the actual period of time granted for such occupation. Therefore, a bare license, without anything more is always revocable at the will of the licensor, since the grant itself is limited by a period of time, and the payment of license fee does not by itself create an interest in the licensed property. Consequently, mere acceptance of the license fee even for the periods subsequent to the revocation of the license would not amount to acquisance of the possession of the licensee. It merely amounts to fictional or unreal extension of the period of license without in any manner affecting the rights of the owner from securing eviction of the person or persons to whom the grant is initially made. In law, grantor or the licensor is always liable to be treated to be in possession of the land in question all through the subsistence of the license and even beyond. Hence, it would be open to the licensor to re-enter the premises and reinstate himself once the period of license granted by him expires. This power to re-enter or to reinstate himself is conditioned by not using more force than is actually necessary. As per Section 54 of the Easements Act, the grant of a license may be express or implied from the conduct of the grantor, and Section 60 of the said Act sets out the circumstances when a license can be revoked and Section 61 sets out that such a revocation can be express or even implied. Section 62 listed out nine circumstances when a license is deemed to be revoked.

Of them, Clause (c) clearly discloses that a license is deemed to be revoked when it has been granted for a limited period and the said period expired. Thus, it becomes evident that a license granted for a limited period is deemed to have been revoked upon expiry of the period of grant. Section 63 recognised that, where a license is revoked, the licensee is entitled to a reasonable time to leave the property affected thereby and to remove any goods which he has been allowed to place on such property. What would be the reasonable time required for achieving these objectives is therefore dependent upon the facts and circumstances prevailing in each case. No hard and fast rule can be prescribed in this regard. Section 64 recognised the right of the licensee, when he was evicted without any fault of his by the grantor before he has fully enjoyed, under the license, the right which he was granted, to recover compensation from the grantor, for the breach of the grant.

The term ‘Lease’ has been defined in Section 105 of the Transfer of Property Act, 1882. The expression ‘lease’ normally connotes the preservation of the demised estate put in occupation and enjoyment thereof for a specified period or in perpetuity for consideration; the corpus user thereof does not disappear and at the expiry of the term or on successful termination the same is handed over to the lessor subject to the terms of the contract, either express or implied (see State of Karnataka and others vs. Subhash Rukmayya Guttedar and others (1993) Supp 3 SCC 290).

In juxtaposition, a license confers a right to do or continue to do something in or upon immovable property of grantor which but for the grant of the right, may be unavailable. It creates no estate or interest in the immovable property of the grantor. Thus, the distinction between the ‘lease’ and license’ lies in the interest created in the property demised. It is therefore essential to gather the intention of the parties to an instrument from the terms contained therein and also by scrutinising the same in the light of the surrounding circumstances. The description ascribed by the parties to the terms may, evidence the intention but may not be very decisive. The crucial test, therefore, is whether the instrument is intended to create or not to create an interest in the property which is the subject matter of agreement between the parties. If it is in fact intended to create an interest in the property, it becomes a lease and if it does not, it is a mere license. In determining whether the agreement creates a lease or a license, the test of exclusive possession, though not decisive, is of great significance. Thus, there is no readily available litmus test to distinguish a ‘lease’ as defined in Section 105 of the Transfer of Property Act, from a ‘license’ as defined in Section 52 of the Easements Act, 1882, but the nature and character of the transaction, the terms settled by the parties and the intent of the parties hold the key. Therefore, if an interest in the immovable property entitling the transferee to enjoyment is created it becomes a lease, and if mere permission to use without right to exclusive possession is alone granted, it becomes a license.

The conditions of the grant leave no doubt that the parties have only intended the transaction to be a mere license but not a lease. Particularly, condition No. 13, which reserved the right of entry into the licensed premises and to carry out inspection by the officers and staff of the T.T.D any time during the subsistence of the license makes the position clear that the possession of the licensed premises remained with the second respondent – Devasthanam, all through, and the writ petitioner has only been granted a license to use the premises. Further, the monthly fee, which formed the consideration for the grant, was called as license fee. Right to recall the grant for violation of the terms and conditions, prematurely, is another pointer.

In view of the above it was held that Suit premises was not leased out but granted on license only.