Business Conducting Agreement Or Deemed Tenancy ?

The Supreme Court of India entertained a civil appeal against the order of the High Court of Bombay confirming the appellate bench's reversal of the order of the trial court. The original suit was filed by the plaintiff for a declaration of deemed tenancy or status of a protected licensee under the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947. The plaintiff claimed that an agreement dated 16.08.1967, styled as an ‘agreement of conducting’ a hotel business owned by the first defendant, actually created a leave and license arrangement, thus entitling them to protection as a deemed tenant after the enforcement of Section 15A of the Act.

The trial court has held in favor of the plaintiff and held that the plaintiff's occupation was indicative of a license and not just carrying on the first defendant's business. But this was overturned by the appellate court and later by the High Court, as on the plain reading of the agreement the words used ("owner" and "conductor") and the for the payment the term "royalty" was also used.

The Supreme Court, while highlighting the importance of conciseness in pleadings and judgments, concentrated on interpreting the agreement dated 16.08.1967. The Court noted that the name of a deed is not conclusive of the relationship between parties; instead, the wording and tenor of all the clauses control the relationship. Invoking settled principles of contractual interpretation, the Apex Court ruled that where the words of a contract are clear, they are to be read in their ordinary and plain meaning.

Supreme Court examined several other clauses of the agreement and observed that the parties were repeatedly addressed as "owner" and "conductor" and that the agreement specifically mentioned that the owner was handing over the business on a "conducting basis.". The consideration was termed "royalty," and the plaintiff was obligated to conduct the owner’s hotel business only. The Court also highlighted that the agreement did not deal with the possession of the property in favor of the plaintiff as a leave and license agreement would.

The Supreme Court further affirmed the applicability of Sections 91 and 92 of the Evidence Act, 1872, which preclude the admission of oral evidence to contradict or vary the terms of a written agreement unless specific exceptions apply. The Court also found that none of the exceptions were attracted in this case, and therefore, the oral and documentary evidence adduced by the plaintiff to claim deemed tenancy could not override the clear terms of the written agreement. The Court concluded that the agreement was indeed for conducting the business of the first defendant and not a leave and license of the premises.

Consequently, in finding Business Conducting Agreement vs Deemed Tenancy, the Supreme Court upheld the decisions of the first appellate court and the High Court and held in favour of Business Conduing Agreement, and the civil appeal was dismissed with costs of Rs.1,00,000/-.

CORAM: Justice Pankaj Mithal and Justice S.V.N. Bhat
DATE OF JUDGMENT: 08-04-2025