Monday 21 September 2015

TRANSFER CLAUSE IN THE AGREEMENT MAY AMOUNT TO LEASE

1.        Note on the   judgment passed by Supreme Court of India in the matter of Associated Hotels Of India Ltd vs R. N. Kapoor on 19 May, 1959  Equivalent citations: 1959 AIR 1262, 1960 SCR (1) 368.( http://indiankanoon.org/doc/1719430/
2.       
In the above  case licensed agreement was only for one year with a clause to extend the agreement for a further period of one year at  the option of the Licensor. The agreement was considered to be a lease on the ground that it has a clause granting right to the licensee to transfer to any person with consent and approval of the licensor under some specific circumstances. The cause was as follows:

That in case the licensee for reasons beyond their control are forced to close their business in Delhi, the licensor agrees that during the remaining period the license shall be transferred to any person with the consent and approval of the licensor subject to charges so obtained not exceeding the monthly charge of Rs. 800.”
3.       Supreme Court held that the document was that of lease and not a license and made the following observations :
The right of the respondent to transfer his interest under the document, although with the consent of the appellants, is destructive of any theory of licence. The solitary circumstance that the rooms let out in the present case are situated in a building wherein a hotel is run cannot make any difference in the character of the holding. The intention of the parties is clearly manifest, and the clever phraseology used or the ingenuity of the document- writer hardly conceals the real intent. I, therefore, hold that under the document there was transfer of a right to enjoy the two rooms, and, therefore, it created a tenancy in favour of the respondent.
4.       In our license agreement, we are conceding to allow our licensee to sub-let the premises or part of the premises  to their subsidiary companies in certain circumstances. We should try to dilute this clause by deleting the word “sub-let” if any in the relevant  paragraph.  Draft paragraph is given below:


‘It is clarified and agreed that the licensee will have no right in any circumstances to sublet the premises or any portion thereof to any third party. However, the Licensor agrees  that in the event license due to any reason does not require the  premises or any part thereof  and request the licensor to permit any of its subsidiary company having paid up capital of one crore or more, then the Licensor will permit to the said subsidiary company on the same terms and conditions on execution of fresh License Agreement  with the said subsidiary company.

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