In 1985, Food Corporation of India invited offers from land-owners for construction of plinth and other facilities for storage purposes and after construction, to lease to FCI on rent for three years. B submitted offer. After negotiation, offer of B at negotiated rate was accepted and agreement dated 12.06.1986 was entered into. FCI took possession on 24.01.87, but served notice of vacation on 26.09.1988. B filed suit for damages for breach of contract. Main defence of FCI is that in absence of registered lease deed the parties were not bound by the period of lease as the agreement was unenforceable. Question is whether or not agreement dated 12.06.1986 required compulsory registration under section 17 of the Registration Act and what is its effect? Decide giving reasons.

Characterising the Document — Agreement to Lease, Not a Lease

The starting point of the analysis is to determine what the document of 12.06.1986 actually was, since the label attached to a document is never conclusive; its substance must be examined. Section 17(1)(d) of the Registration Act makes compulsorily registrable "leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent." A lease, properly so called, is a document that itself operates as a present demise — it transfers an actual leasehold interest in specific, identified premises to the lessee from a fixed or ascertainable point of time.

The agreement in question, by contrast, was executed at a stage when no leasable premises existed at all. FCI had invited offers for construction of a plinth and storage facilities, to be built by the landowner, and only after such construction was to be completed would the constructed premises be taken on lease for three years. At the date of the agreement, therefore, there was no demise of any specific, completed structure — the subject matter of the eventual lease was itself contingent upon B first constructing the storage facility according to specifications. This is the hallmark of an agreement to lease, not a lease in praesenti: it created mutual obligations — on B to construct, and on FCI to take the completed structure on lease for three years upon its completion — but it did not, by itself, operate as an actual and complete transfer of a leasehold interest in existing premises.

Section 17(2)(v) — The Governing Exemption

This characterisation brings the agreement squarely within the exemption in Section 17(2)(v), which excludes from compulsory registration "any document not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest... but merely creating a right to obtain another document which will, when executed, create... any such right, title or interest." An agreement to lease functions in precisely this manner: it creates, at the stage of its execution, only a contractual right in FCI to have the completed structure demised to it once construction was finished, and a corresponding right in B to have the actual lease deed executed and rent commence upon completion — the actual lease deed (which alone would operate as the demise) being the "other document" contemplated by this clause. Since the agreement of 12.06.1986 did not itself purport to lease any identified, existing premises, but merely bound the parties to enter into that leasing relationship once B had performed his part by constructing the facility, it does not fall within Section 17(1)(d) at all.

Registration Not Attracted Merely Because Possession Was Taken

FCI's possession from 24.01.1987 does not alter this analysis. Possession was taken not under a completed lease deed, but under the agreement itself, as a step contemplated within the composite arrangement — the agreement having provided for construction, followed by taking of possession for storage purposes, followed by the running of rent for the agreed three-year period. The mere fact that possession passed pursuant to the agreement does not convert an executory agreement to lease into a completed lease requiring registration; possession delivered under such an arrangement is entirely consistent with — and indeed contemplated by — an agreement to lease that has not yet culminated in the execution of a formal registered lease deed.

Distinguishing K.B. Saha & Sons v. Development Consultant Ltd.

It is necessary to distinguish this situation from the different, though related, line of authority represented by K.B. Saha & Sons v. Development Consultant Ltd., where the Supreme Court held that an unregistered lease deed for a term exceeding one year cannot be looked at to establish the specific terms of the lease — such as the agreed duration or rent — because those are matters going to the substance of a completed lease requiring registration under Section 17(1)(d), and the terms of a lease are never treated as a mere "collateral purpose" admissible under the proviso to Section 49. That principle governs cases where the document in question is, in substance, a completed lease that has simply not been registered. It has no application here, because the document under consideration is not, on a proper characterisation, a lease at all, but an agreement to lease exempted from registration altogether by Section 17(2)(v) — the question of registration under Section 17(1)(d) simply never arises for such a document, and there is accordingly no bar under Section 49 to relying upon its terms, including the assured three-year duration.

Enforceability of the Agreement — Damages for Breach

Since the agreement did not require registration, it stands on the same footing as any valid, binding, and fully enforceable contract. FCI's obligation to keep the storage facility on lease for the agreed period of three years arose directly from the terms of this valid agreement; its notice of vacation on 26.09.1988 — well short of the three-year period running from the date possession was taken on 24.01.1987 — constitutes a breach of that contractual obligation. B is entitled to sue for and recover damages flowing from this premature termination, calculated with reference to the loss of rent, or other loss, that B has suffered on account of FCI vacating the premises before the expiry of the assured term. The suit for damages is not a suit to enforce the terms of a "lease" requiring registration, but a suit for breach of a valid, enforceable agreement — the remedy in damages being available for breach of contract irrespective of whether the transaction, had it matured into a completed leasehold interest, would separately have required registration.

Illustration

If a landowner agrees with a government corporation to construct a warehouse according to specifications, and thereafter to lease the completed warehouse to the corporation for three years, and the corporation takes possession upon completion but vacates after only twenty months without cause, the landowner may sue for damages for breach of the assured three-year term. The corporation cannot defend the suit merely by asserting that no registered lease deed was executed, because the governing document was an agreement to construct and lease — falling within the exemption of Section 17(2)(v) as one merely creating a right to obtain a future lease document — and not a lease itself requiring registration under Section 17(1)(d).

Comparative Summary