Holding

The Court held that the agreement, though not a registered lease deed, created a binding promise to lease the plinths for three years, invoking promissory estoppel, and thus the corporation was liable for damages for breach of that promise.

Summary

The Food Corporation of India (FCI) invited tenders to hire plinths for grain storage and awarded the contract to Mis. Babulal Agrawal, who constructed the plinths and handed them over on 24‑Jan‑1987. The agreement provided that FCI would lease the plinths for three years (extendable by one year) and that a formal lease deed would later be executed. FCI gave 15‑day notice on 26‑Sep‑1988 and vacated the premises on 10‑Oct‑1988, breaching the three‑year promise. Agrawal sued for damages; the trial court awarded full damages, the High Court reduced them by 6 %, and FCI appealed. The Supreme Court held that the absence of a registered lease deed did not defeat the existence of a binding promise to lease for three years; promissory estoppel made FCI liable for damages equal to the agreed rent. The Court also rejected the limitation defence, finding the suit filed within three years of breach, and set aside the High Court’s reduction of damages. Civil Appeal No. 3484 (FCI) was dismissed, while Civil Appeal No. 3485 (Agrawal) was allowed, restoring the trial court decree.

Issues considered

Whether, in the absence of a registered lease deed for a three‑year term, the tenancy is merely a month‑to‑month tenancy that can be terminated by notice
Whether the defendant is bound to pay rent for the full three‑year period on the principle of promissory estoppel

Legislation cited

Indian Contract Act, 1872
Limitation Act, 1963s. Article 55
Registration Act, 1908s. Section 17(1)(d), s. Section 17(2)(v)
Transfer of Property Act, 1882s. Section 106, s. Section 107

Subjects

leasepromissory estoppelregistrationexecutory agreementdamageslimitationcontract breachmonthly tenancyconstruction of plinths

Judgment

j
FOOD CORPORATION OF INDIA AND ORS. A
v.
MIS. BABULAL AGRAWAL

JANUARY 5, 2004

[BRIJESH KUMAR AND ARUN KUMAR, JJ.] B

Indian Contract Act, 18721/ndian Registration Act; Section 17/Transfer
of Property Act; Sections 106 & 107:

Agreement between Food Corporation and a firm for construction of C
plinths and handing over to Corporation on monthly rent as per terms of the
agreement-Corporation gave notice and vacating plinths before expiry of the
period agreed for-Suit for damage/or breach of terms-Trial Court awarded
damages and dec;reed the suit In favour of the firm-High Court modified
decree by reducing damages-On appeal, Held: Corporation could not bock D
out from the promise held out and thus cannot escape from liability.for breach
c!f the terms of the contract-Agreement deed is not a lease deed in itself-On
execution it creates a right/another document in respect of immovable
property-Hence an executory agreement-Thus, agreement/lease deed not
compulsorily require registration-It could appropriately be classified as
monthly lease deed-However, appellant could not make it a ground to escape E
fiw11 its liability for breach of terms of agreement-One who holds 0111 a
promise, if backs out, he would have to compensate the other party who acted
bonajidely on the ba~·is ofpromise made-Hence, Food Corporation liable to
pay compensation.

limitation Ac1, Article 55: F
Plea of limitation-Raising of--Held: it must he raised at least al the
appellate stage if not raised earlier-Since suit was filed within three years
of vacating the premises, not barred by time.

Appellant-Corporation invited tenders for hiring plinths for storing G
foodgrains. Tender or Respondent-firm was accepted. Consequently,
appellant-Corporation and the respondent-firm entered into an agreement.
As per terms or the agreement, the firm had to construct plinths which
would be hired by the appellant-Corporation initially for a period of three

129 H
130 SUPREME COURT REPORTS (2004) I S.C.R.

A years extendable to another year on payment of monthly rent.
Accordingly, the firm had performed its part of the agreement and handed
over the plinths to Corporation. Later, the Corporation after serving notice
to the firm vacated the plinths. The firm filed a suit for damages. Trial
Court decreed the suit awarding damages with interest thereon. On appeal,
B High Court modified the decree by reducing amount towards damages.
Hence the present appeal and the cross appeal.

It was contended for the appellant-Corporation that since no (1
registered lease deed was executed for a period of three years, tenancy
was created on a month to month basis and it could ''alidly be terminated
c by giving notice; that in the facts and circumstances of the case, the
Corporation was not liable for damages; that the agreement deed being
an unregistered document would not be admissible in evidence; and that
the suit for damages was time barred.

On behalf of the respondent-firm, it was submitted that since the
D Corporation rncated the plinths before the expiry of period of three yr:ars
in breach of the terms of the agreement, it was liable for damages at the
rate equh·alent to rent for the plinths.
4.._
Dismissing the appeal and allowing the cross appeals, the Court

E HELD: I. l. The Trial Court and the High Court have rightly held
that in the absence of any lease deed or a registered lease deed, the nature
of the lease would only be that of a monthly lease. But it does not mean
that it would deprive the firm of damages for breach of terms of an
agreement in accordance with which the firm had performed its part of
the obligation by creating a liability against it by taking loan from bank.
F The plinths were constructed in accordance with the design and
specification given by the Corporation. It may be of no use to any other
person and for any other purpose. In this background as what was held ..
out by the Corporation, assumes importance and in case one who holds
out a promise, backs out, will have to compensate the party who acted
G bonaftdely on the basis of the promise made. 1138-B-DI

1.2. Respondent-firm filed a suit for damages for the breach of
contract. It was not a suit for specific performance of the contract. A
promise was definitely held out by the Corporation to the firm, for
'It,.
occupying the premises for a period of three years at a given rate of rent.
H The premises were in fact constructed in accordance with the instructions
F.C.J. v. BABULAL AGRAWAL 131
and specifications of the Corporation. For raising the construction the firm A
had raised loans from the bank. Everything happened in accordance with
the terms of the contract except that the period of tenancy was interdicted
before three years or taking over of the possession by the Corporation;
that even a monthly lease may last for more than a year and for any longer
period. Everything was acted upon according to the agreement except the B
execution of lease deed, hence there was termination of tenancy on IS days'
notice. The firm was not insisting that the Corporation must retain
possession for the remaining period or that the tenancy was not terminable
but termination of the tenancy would not necessarily mean that they would
also not be liable for compensating for the breach of promise held out in
terms of the agreement which lead the firm to undertake the construction C
and invest money by raising loan. Therefore, it would not be of much
consequence as to whether a lease deed for a lease of three years was
executed and registered or not. The firm did not pray for relief of specific
performance. Hence, the defence put up by the Corporation is not legally
tenable. [137-G-H; 138-A-B; E-H)
D
Union of India and Ors. v. Mis. Anglo--Afghan Agencies etc., AIR
(1968) SC 718; Mis. Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P.
1) and Ors., AIR (1979) SC 621 and Delhi Cloth and General Mills v. Union
of India, AIR (1987) SC 2414, relied on.

Anlhony v. K.C. //loop & Sons and Ors., [2000[ 6 sec 394, E
distinguished.

1.3. The Board of Directors of the Corporation had considered the
question of premature termination of the lease and realized that though,
may be legal, it would be unjust and unfair. Hence, they issued a Circular F
stating that wherever guarantee period of three years has not expired the
hiring of plinths may be continued upto the date of expiry of three years
by reducing its liability at least to the extent of 5% in the amount of rent,
through negotiations with the owners of the plinths. They themselves were
well aware of promise of three years "guarantee period"; therefore, only
wanted reduction in rent. [139-G-H[ G
1.4. The agreement would squarely be covered by clause (v) of sub-
'" section (2) of Sect.ion 17 of the Registration Act, J 905. Since it merely
creates a right to obtain another document which, when executed, would
create such a right. Clause 8 of the agreement only talks of execution of a
lease deed between the parties in a prescribed proforma under which the H
132 SUPREME COURT REPORTS [2004] I S.C.R.

A Corporation would be entitled to get possession of the premises on
completion. The necessary stamp duty was to be borne by the firm. It is
thus clear that the agreement itself is not a lease deed requiring .
registration. It only creates a right of getting another document executed
creating rights and liabilities in respect of immovable property. (141-A-C(

B Trivenibai and Anr. v. Smt. li/abai, AIR (1959) SC 620, relied on.

1.5. Clause 8 of the agreement did not create any right in praesenti
,,,1
nor there was any immediate demise of the property. It was only an
executory agreement. It is evident that no possession, right or title had
passed on in praesenti at the time of execution of the agreement, and there
c were many prior conditions attached thereto. Such an agreement has been
rightly held to be only an executory agreement and not an agreement
creating rights in the immovable property, hence not compulsorily
required to be registered. It was a mere agreement between the parties
which was not registered but was admissible in evidence. (142-B-EI
D
1.6. No issue. was framed on the question of limitation. That point
was not raised even before the High Court nor in this Court too. It is only
in the list of dates/synopsis it is vaguely stated that the suit was time
barred. It is true that the Court may have to check at the threshold as to
whether the suit is within limitation or not. There is always an office report
• '

E on the limitation at the time of filing of the suit. But in case the Court
does not prima facie find it to be beyond time at that stage, it would not
be necessary to record any such finding on the point much less a detailed
one. In such a situation at least at the appellate stage, if not earlier, it would
be desired of the Corporation to raise such a plea regarding limitation.
In the present case except for making a passing reference in the list of
F
dates/synopsis no such ground or question has been raised or framed on
the point of limitation. It is quite often that question of limitation involves
~
,
question of facts as well which are supposed to be raised and indicated by
the Corporation. The objecting party is not supposed to conveniently keep
quiet till the matter reaches the Apex Court and wake up in a non-serious
G manner to argue that the Court failed in its duty in not dismissing the
suit as barred by time. The defendant vacated the premises on 10.10.1988.
This is the date when the contract was broken and cause of action also
accrued. The suit had been filed on 4.10.1991 i.e. within three years of
... ,.,,
vacating the premises. Hence, there is no merit in the argument that the
suit of the firm was barred by time. ( 142-G-H; 143-B-DI
H
F.C.I. v. BABULAL AGRAWAL [BRIJESH KUMAR, J.] 133
D ~ //lavira Mathai v. Varkey" Varkey & Anr., (1994( I SCR 495, relied on. A
1.7. Once the measure of damages has been accepted as the amount

- of monthly rent of the plinths, unless there was some logical and cogent
reason to reduce the same, it could not be done. The order of modification
of the decree passed by the Trial Court was not called in question.
However, the decree has been modified without assigning any cogent
reason for the same. Hence, the judgment passed by the High Court to
B

. ' that extent is set aside and the decree passed by the Trial Court is restored .
')
(144-E-GI
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3484 of 1997.
c
From the Judgment and Order dated 18.9.1996 of the Madhya Pradesh
High Court at Jabalpur in F.A. No. 6 of 1995.

WITH

C.A. No. 3485 of 1997. D

-• M.R. Rajendran Nair and Shakil Ahmad Syed for the Appellant.

G.K. Banerji, S. Bhatnagar, Saurabh Agarwal fqr Ms. Ruby Singh Ahuja
for the Respondent.
E
The Judgment of the Court was delivered by

BRIJESH KUMAR, J. Civil Appeal No.3484 of 1997 has been
preferred by the Food Corporation of India and others against the judgment
and decree passed by the Madhya Pradesh High Court only partly allowing
their appeal and modifying the decree of the Trial Court to a limited extent F
to the effect that the respondent would be entitled to damages to be calculated
,f'
after deducting 6% of the amount payable. The rest of the judgment and
\.
decree as passed by the Trial Court has been upheld.

Whereas Civil Appeal No.3485 of 1997 has been preferred by Mis.
Babula! Agarwal (the plaintiff), against the same judgment and order passed G
by the Madhya Pradesh High Court, partly modifying the decree of the Trial

.'j Court permitting deduction of 6% from the amount of damages as decreed by
the Trial Court. For the sake of convenience, the parties shall be referred as
plaintiff and defendant as in the original suit filed by Mis.Babula! Agrawal.

The Food Corporation of India (for short 'FCI') invited tenders for H
134 SUPREME COURT REPORTS [2004) I S.C.R.
y
A hiring plinths for storing foodgrains. The plaintiff submitted his tender which
was ultimately accepted vide letter dated 11.6.1985. The rent was to be @40
paisa per sq.ft. The acceptance of tender and the conditions of contract had
again been confirmed by the letter dated 19.8.1985 written by the Regional
Manager. An agreement dated 12.2.1986 was entered into between the parties.
The case of the plaintiff is that the defendant had given out to hire the plinths
·-
B for a period of three years with an option to the defendant to extend by
another year. The construction of plinth etc. could not be constructed within
the time as agreed. However, ultimately it is undisputed that the same were {1
completed and handed over to the defendant on 24.1.1987. No formal lease
deed was ex1:cuted. The defendant on 26.9.1988 gave 15 days' notice for
c vacating the plinths and vacated the same on 10.10.1988. The rent upto the
said period was paid. According to the plaintiff it amounted to breach of the
terms of the co.itract by the defendant, hence filed a suit for damages for an
amount of Rs. J7 lacs and odd. The Trial Court decreed the suit for a total
sum of Rs. 17,32, 709 with an order for refund of the security and interest
thereon. The plaintiff was also allowed interest on the decreetal amount@6%
D p.a. from the date of suit namely, 4.10.1991 till the date of payment.
c
Before entering into the points raised before us by the parties, it will
be worthwhile to peruse the relevant conditions of the contract dated 12.2.1986.
The plinths were to be constructed by the plaintiff over the land owned by
him. The relevant conditions of the agreement are as under :-
E
"1. The opposite party no.1 would be solely responsible for obtaining
necessary pennission from the land ceiling authority and sanction
for the plan of plinths and other facilities to be constructed from
the local bodies like municipal authorities or any other competent
authority before proceeding with the constructions.
F
2. The size and height of the plinths and other facilities will be as ...
per specifications laid down in Appendix 'A'. ..
3. The party no. I shall be responsible for providing services like
el1:ctricity, water supply, inner and approach road, fencing at the
G site as per instructions of the party no.2 to be given from time
to time and no extra charges would be claimed for the provision
thereof. However, the charges for consumption of electricity
would be met by the corporation (party no.2) during the period ,.,4
plinths alongwith other facilities remain on lease with the party
no. 2. The maintenance of the electric motor utilized for the
H
'

F.C.I. v. BABULAL AGRA WAL [BR!JESH KUMAR. J.] 135

supply of water will be the liability of the party no.1 on failure A
of water facility through well or tube well the alternative
arrangement for supply of portable water shall be made by the
party no. I at his court.
4. xxxx xxxx xxxx
5. The layout plan indicating the plinths proposed to be constructed, B
roads, office block etc. should be got approved by party no.2
\ before commencement of the work.
6. The opposite party no.2 will have full right to inspection the
construction undertaken by the party no. I through his agents/
servants/contractors etc. The party no. I shall extend full facilities C
to the pai1Y no.2 and its officer to inspect the work while in
progress to check the specification.
7. xxxx xxxx xxxx
8. Upon completion of the construction of plinths and other facilities D
referred to above in all respects and after obtaining a completion
certificate from the party no.2 or any of its officer nominated by
party rfo.2 is this behalf, party no.1, would hand over the plinths
and other facilities to the party no.2 under lease agreement to be
executed between the parties in the prescribed proforma prescribed
by the party no.2. The necessary stamp duty as per requirement E
for execution of lease deed shall be borne by the party no. I .
9. It is understood that the time is evince of this agreement. In the
event of any delay the completion of the plinth and other facilities
or if there is a faulty workmenship or the structure is found to
be defective, the party no.2 would not be bound to take the F
plinths on lease and the earnest money deposited by the party
no. I shall be forfeited. The decision of the opposite party no.2
would be final in this regard and shall not be questioned by the
party no. I. The earnest money shall also be forfeited in case the
party no. I alters, modifies the terms of the agreement, withdraws G
the offer, charges, etc.
The construction of the ownership and/or fails to complete the
construction of plinth and other facilities within the time stipulated
for constructions.
10. to 11 xxx xxx xxx H
136 SUPREME COURT REPORTS [2004) I S.C.R.

A 12. The period of lease will be three years from the date of taking
possession of the lease property. The party no.2 will be entitled
to extend it by a further period up to one year on the same ra1es,
tenns and conditions applicable to the lease."

The case of the plaintiff was that the claim of the plaintiff for damages
B is based on breach of conditions of the agreemenl dated 12.2.1986 since the
defendant instead of occupying the plinth/platform for a period of three years,
vacated the same on JO. I 0.1988 after having taken the possession only on
24.1.1987. Therefore, the defendant was liable to damages at the same rate
a.; the rent for the plinth. The case of the defendant has been that no registered
C lease deed, as envisaged in the agreement, was executed for a period of three
years, hence it was only a tenancy for month to month and under the provisions
of Section 106 of the Transfer of Property Act it was legally open for the
defendant to terminate the tenancy on fifteen days' notice and vacate the
premises. On the pleadings of the parties the court framed issues. We are
concerned with only issue nos. 3 and 4 in respect of which arguments have
D been advanced before us, which are reproduced below:-"
"3. Whether in the absence of the registra:ion of the alleged lease for
three years the tenancy between the parties was monthly and it was f.
liable to tennination by notice?

E 4. Whether the defendants were bound to pay rent for three years on
the principle of 'Promissory Estoppel'?"

On both issues noted above the Trial Court has recorded findings in affirmative
but in respect of issue no.3 it has been further held that there was a breach
of contract on the part of the defendant. The Trial Court has made a detailed
F discussion while recording the findings as indicated above and came to a
conclusion that once the plaintiff had performed his part of the contract and
1
altered his position, namely, having constructed the plinth according to
specification of defendant, on a condition given out by the defendant that on
completion of the construction they would hire the premises for a period of
three years, the defendant could not later on back out ·from such a promise.
G It has been noted, and rightly so, that in the tender notice as well as in the
correspondence it had been clearly given out time and again that the defendant
would utilize the plinths constructed by the plaintiff for a period of three
years. As a matter of fact, on completion of the construction the defendant
did occupy the plinth and had been paying rent as agreed but terminated the
H tenancy by serving a notice of 15 days' as per the provisions of Section I 06
'

F.C.I. v. BABU LAL AGRA WAL [BRIJESH KUMAR. J.] 137
of the Transfer of Property Act and vacated the premises on l 0.10.1988. In A
connection with this point it may be worthwhile to notice that the defendant
itself had admittedly written a letter dated 16.10. I 986 to the United
Commercial Bank mentioning therein that the lease was a period of three
years and the rent payable to the plaintiff would be directly remitted to the
bank as against the loan advanced to the plaintiff.
B
Learned counsel for the respondent has also taken us through the
correspondence showing that there was an arrangement for deposit of the
amount of rent by the defendant in the bank to adjust the loan taken by the
plaintiff from the bank for construction of the plinths. The construction was
also made in accordance with the design and specifications as provided and C
prescribed by the FCI. Considering all such facts as were clearly indicated
and given out by the defendant for occupying the premises initially for a
period of three years ar.d the plaintiff having arranged for the money
accordingly by taking loan from the bank, the Trial Court, in our view, has
riglitly held, referring to the earlier decisions of this Court that the defendant
could not back out from the promise held out and cannot escape when the D
liability for damages for breach of the terms of the contract.

We may, however, point out that the learned counsel for the defendant-
appellant has laid much emphasis mainly on three points. The first point is
that there being no registered lease deed it was a monthly tenancy and could
validly be terminated by giving 15 days' notice and since the tenancy was E
tem1inated accordingly, there was no occasion to saddle the defendant appellant
with liability of damages. In absence of a registered lease deed, it is contended
that it cou Id not be held that the property leased out to the defendant appellant
was for a period of three years. The other objection which has been raised
is that the agreement dated 12.2.1986 required registration under the provisions F
of the Indian Registration Act. The unregistered agreement would not be
admissible in evidence, hence it could not be acted upon. Yet another objection
'\Vhich has been raised is that the suit was filed beyond the period of limitation.
In support of the first contention a reference has been made to Section 107
of the Transfer of Property Act, according to which the parties had to execute
a registered lease deed but the same was never done. We find that the High G
Court has rightly dealt with the question while holding that the plaintiff had
not filed the suit for enforcement of agreement of lease. It was a suit filed
for damages for the breach of contract. It was not a suit for specific
performance of the contract. A promise was definitely held out by the
defendant to the appellant, for occupying the premises for a period of three H
138 SUPREME COURT REPORTS [2004] I S.C.R.

A years at a given raie of rent. The premises were in fact constructed in
accordance with the instructions and specifications of the defendant. For
raising the construction the plaintiff had raised loans from the bank. Everything
happened in accordance with the terms of the contract except that the period
of tenancy was interdicted before three years of taking over of the possession
B by the defendant. It may be observed that even a monthly lease may last for
more than a year and for any longer period. In our view, the Trial Court and
the High Court have rightly held that in absence of any lease deed or a
registered lease deed the nature of the lease would only be that of a monthly
lease. But it does not mean that it would deprive the plaintiff of damages for
breach of terms of an agreement in accordance of which he had performed
C his part of the obligation by creating a liability against himself by taking loan
from bank later only to be told that it all will be of no consequence as agreed
in the agreement since no lease was executed and registered. The plinths
were constructed in accordance with the design and specification given by
the defendant. It may be of no use to any other person and for any other
purpose. In this background as what was held out by the defendant, assumes
D importance and in case one who holds out a promise, backs out, will have to
compensate the party who acted bonafidely on the basis of the promise made.
As indicated earlier, even the tender notice, besides other correspondence, all
gave out that the defendant would occupy the premises for a period of three
years. Everything was acted upon according to the agreement except the
E execution of lease deed, hence there was termination of tenancy on 15 days'
notice. The plaintiff is not insisting that the defendant must retain possession
for the remaining period or that the tenancy was not terminable but tennination
of the tenancy would not necessarily mean that the defendant would also not
be liable for compensating for the breach of promise held out in the terms of
the agreement which lead the plaintiff to undertake the construction and
F invest money by raising loan. Therefore, in our view, it would not be of
much consequence as to whether a lease deed for a lease of three years was
executed and registered or not. The execution of the agreement and its
existence and its terms and conditions are not disputed. Nor it has been
disputed that it was held out by the defendant that it would occupy the
G premises for a period of three years extendable by one year at its option on
the rate of rent as agreed between the parties. In the case in hand, the plaintiff
is not praying for relief of specific performance. In this view of the matter,
we find that the defence put up by the defendant appellant is not legally .,., .
tenable. The Trial Court and the High Court have rightly relied upon the
decisions of this Court reported in AIR (1968) SC page 718 in the case of
H Union of India and Ors. v. Mis.Anglo-Afghan Agencies etc., where it was
F.C.I. v. BABULAL AGRAWAL [BRIJESH KUMAR, J.) 139
held that non-execution of the contract ·in terms of Article 299 of the A
·Constitution of India does not militate against the applicability of the doctrine
of promissory estoppel against the government. We also find that a reference
to some other decisions of this Court namely, AIR (1979) SC p.621, Mis.
Motilal Padampat Sugar Mills Co. ltd. v. State of U.P. and Ors. and AIR
(1987) SC p. 2414, Delhi Cloth and General Mills v. Union of India, has
been rightly made for the proposition of liability of a party on backing out B
of a promise held out, after making the other party to alter his position.

On behalf of the appellant, a reference has also been made to a decision
of this Court reported in (2000) 6 SCC 394, Anthony v. K.C. lttoop & Sons
and Ors. An unregistered lease deed intended to be operative for a period of C
5 years, it was held that being an unregistered deed, hence it could not create
lease right in view of provisions as contained in Section I07 of the Transfer
of Property Act and Sections 17( 1) and 49 of the Registration Act, 1908. This
decision, therefore, would not help the appellant in the instant case since it
is nobody's case that right of tenancy was created by virtue of agreement
dated 12.2.1986. The said agreement only provided for execution by a D
,. registered sale deed. The agreement has never been treated as a lease deed
by any Court or the respondents. What has been found material in this case
is that right from the beginning with the publication of the tender notice till
the end, it was given out, including in the agreement, that the appellant shall
hire the premises for a period of three years. This period of three years has E
been described as guarantee period by the appellant itself during which lease
was to continue. We have already held earlier that agreement dated 12.2.1986
itself not being a lease deed was not registerable. The case basically hinges
on the undisputed fact that a promise was held out by the appellant to the
respondent to hire the premises for three years in response whereof the
respondent had parted his possessioi1, as held earlier. F
It may also be wo11hwhile to point out that the Board of Directors of
FCI considered the question of pre1nature termination of the lease and in its
meeting it realized that though, may be legal, it would be unjust and unfair,
hence, issued a circular dated 4.5.1989 saying that the matter was considered
in its 194th meeting and it was decided that wherever guarantee period of G
three years has not expired the hiring of plinths may be continued upto the
date of expiry of three years by reducing its liability at least to the extent of
5% in the amount of rent, through negotiations with the owners of the plinths.
The ·defendant itself was well aware of promise of three years "guarantee
period", therefore, only wanted reduction in rent. H
140 SUPREME COURT REPORTS [2004] I S.C.R.

A The next submission made on behalf of the respondent is that the
agreement dated 12.2. I 986 which provided for execution and registration of
lease for a period of three years, was itself required to be registered according
to Section 2(7) of the Registration Act, 1908. Sub-section (7) of Section 2 is
quoted below :

B "2. Detinitions:_.ln this Act, unless there is anything repugnant in
the subject or context,-

xxx xxx xxx

(7) "lease" includes a counterpart, kabuliyat, an undertaking to cultivate
C or occupy, and an agreement to lease;"

It is submitted that since there was an agreement for lease it was therefore,
liable to be registered. In this connection two other provisions, Section 17(1)(d)
and Section I 7(2)(v), which may be relevant for the purposes of dealing with
this point may also be perused. Section 17(J)(d) reads as under:
D
'Tl. Documents of which registration is compulsory.( I) The following
documents shall be registered, if the prope11y to which they relate is
situate in a district in which, and if they have been executed on or
afkr the date on which, Act No.XVI of 1864, or the Indian Registration
Act, I 866, or the Indian Registration Act, 1871, or the Indian
E Registration Act, 1877, or this Act came or comes into force, namely,

xxx xxx xxx

(d) lease of immovable property from year to year, or for any term
exceeding one year, or reserving a yearly rent;"
F The other relevant provision is clause (v) of sub-section (2) of Section 17,
which reads as under :

"17(2) Nothing in clause (b) and (c) of sub-section (I) applies to -

XXX xxx xxx
G
(v) ··any document other than the documents specified in sub-section
(IA)" not itself creating, declaring, assigning, limiting or extinguishing
any right, title or interest of the value of one hundred rupees and
upwards to or in immovable property, but merely creating a right to
obtain another document which will, when executed, create, declare,
H
F.C.I. v. BABULAL AGRAWAL [BRUESH KUMAR, J.] 141

assign, limit or extinguish any such right, title or interest; or...." A
The agreement dated 12.2.1986 would squarely be covered by clause (v) of
Sub-section (2) of Section 17 quoted above. Since it merely creates a right
to obtain another document which will when executed would create such a
right. It would be necessary to refer to the conditions of the agreement at this
juncture. Clause 8 of the agreement quoted earlier is clear, in providing that B
upon completion of the plinths etc. the premises would be handed over to the
defendant under a lease agreement to be executed between the parties in the
prescribed proforma. Thus clause 8 only talks of execution of a lease deed
between the parties in a prescribed proforma under which the defendant
would be .entitled to get possession of the premises on completion. The C
necessary stamp duty was to be borne by the plaintiff. It is thus clear that
agreement dated 12.2.1986 itself is not a lease deed requiring registration. It
.only creates a right of getting another document executed creating rights and
liabilities in respect of immovable property. The Trial Court as well as the
High Court, has, in this connection placed reliance upon a decision reported
, in AIR (1959) SC p.620, Trivenibai and Anr. v. Smt. Lilabai. Paragraph 15 D
of the judgment reads as under :

"15. In construing this document it is necessary to remember that it
has been executed by laymen without legal assistance, and so it must
be liberally construed without recourse to technical considerations.
The heading of the document, though relevant, would not determine E
its character. It is true that an agreement would operate as a present
demise although its terms may commence at a future date. Similarly
it may amount to a present demise even though parties may
contemplate to execute a more formal document in future. In
considering the effect of the document we must enquire whether it p
contains unqualified and unconditional words of present demise and
includes the essential terms of a lease. Generally if rent is made
payable under an agreement from the date of its execution or .other
specified date, it may be said to create a present demise. Another
relevant test is the intention to deliver possession. If possession is
given under an agreement and other terms of tenancy have been set G
out, then the agreement can be taken to be an agreement to lease. As
in the construction of other documents, so in the construction of an
agreement to lease, regard must be had to all the relevant and material
terms; and an attempt must be made to reconcile the relevant terms
if possible and not to treat any of them as idle surplusage." H
142 SUPREME COURT REPORTS (2004] I S.C.R.
1
A It is thus clear that if the agreement is such which may amount to a present
demise even though the document may be contemplated to be executed later
on it may be a document or agreement creating the rights. There must be
demise of the property in praesenti. But an agreement for securing another
agreement or deed in future would not be such an agreement or document
which may require registration. Clause 8 of the agreement did not create any
B right in praesenti nor there was any immediate demise of the property. It was
only an executory agreement. The construction of the plinth it seems had yet
to start with other facilities and amenities. On completion, such a certificate
was to be obtained from the defendant. It was thereafter that the possession
was to be handed over under the lease agreement which was to be executed
C between the parties. The construction was to be strictly in accordance with
the directions and specifications of the defendant. Condition no.9 also
contemplated that if the structure was found defective or workmenship was
faulty the defendant could refuse to take possession of the premises and the
earnest money was liable to be forfeited. Hence it is evident that no possession,
right or title had passed on in praesenti at the time of execution of the
D agreement, and there were many prior conditions attached thereto. Such an
agreement, in our view, has been rightly held to be only an executory
agreement and not an agreement creating rights in the immovable property,
hence not compulsorily required to be registered. It was a mere agreement
between the parties which was not registered but was admissible in evidence.
E
The next contention has been raised that the suit filed by the plaintiff
was barred by time. The tender was accepted by the appellant on 11.6.1985.
The premises were handed over to the defendant on 24.1.1987. The defendant
gave 15 days' notice to vacate the premises on 10.10.1988 on which date
they vacated the premises paying the rent up to 10.10.1988. The suit was
F filed on 4.10.1991.

In connection with this objection regarding limitation, le~rned counsel
for the plaintiff has submitted that no such plea was ever raised by the
defendant nor any facts or reasons were indicated as to in what manner the
suit was barred by limitation. No issue was framed on the question of limitation.
G That point was not raised even in the High Court nor in this Court too. It is
only in the list of dates/synopsis it is vaguely stated that the suit was time
barred. Learned counsel for the defendant appellant, however, relying upon
Section 3 of the Limitation Act submits that it was the duty of the Court to
see as to whether the suit was within limitation or not. A suit filed beyond
H limitation is liable to be dismissed even though limitation may not .be set up
F.C.l. v. BABULAL AGRAWAL [BRIJESH KUMAR, J.j 143
as a defence. The above position as provided under the law cannot be disputed A
nor it has been disputed before us. But in all fairness it is always desirable
that if the defendant would like to raise such an issue, he would better raise
it in the pleadings so that the other party may also note the basis and the facts
by reason of which suit is sought to be dismissed as barred by time. It is true
that the Court may have to check at the threshold as to whether the suit is
within limitation or not. There is always an office report on the limitation at B
,,
' the time of filing of the suit. But in case the Court does not prima facie find
it to be beyond time at that stage, it would not be necessary to record any
such finding on the point much less a detailed one. In such a situation at least
at the appellate stage, if not earlier, it would be desired of the defendant to
raise such a plea regarding limitation. In the present case except for making C
a passing reference in the list of dates/synopsis no such ground or question
has been raised or framed on the point of limitation. It is quite often that
question of limitation involves question of facts as well which are supposed
to be raised and indicated by the defendant. The objecting party is not supposed
to conveniently keep quiet till the matter reaches the Apex Court and wake
up in a non-serious manner to argue that the Court failed in its duty in not D
dismissing the suit as barred by time. The Trial Court may not find the suit
11' to be barred by time and proceed with the case but in that event the Court
would not be required to record any such finding unless any plea is raised by
the defendant. In this connection, learned counsel for the respondent has
placed reliance upon a decision reported in (1964) I SCR p.495 at page 506, E
lttavira Mathai v. Varkey Varkey and Anr., wherein it has been held that if
it is a mixed question of fact and law, a party would not be allowed to raise
it later on, in case such an objection was not raised at the earliest. We,
however, find that the period of limitation would be three years as the matter
would be covered by Article 55 of the Limitation Act as pointed out by the
learned counsel for the respondent. Article 55 reads as under : F

Description of suit Period of Time from which
Limitation period begins to run

55. For compensation for the When the contract is G
breach of any contract, express broken or (where
or implied not herein three years there are successive
specially provided for breaches) when the
breach in respect of
which the suit is
instituted occurs or H
144 SUPREME COURT REPORTS [2004) I S.C.R.

A (where the breach is ·
continuing) when it
"
ceases."

In the case in hand, as indicated above, the notice terminating the
contract is dated 26.9.1988 saying that "we are going to vacate your above
B plinths by October I0, 1988". The plaintiff replied to the notice saying that
the defendant could not vacate the premises before 23.1.1990. However, the
defendant vacated the premises on I0.10.1988. This is the date when the ,..\
contract was broken and cause of action also accrued. The suit had been filed
on 4.10.1991 i.e. within three years of vacating the premises. In view of the
c position indicated above, we do not find any merit in the argument raised on
behalf of the appellant that the suit of the plaintiff was barred by time. In the.
result, we find no substance in the appeal preferred by the Food Corporation
of India.

We also find no good reason to reduce the amount of damages to the
D extent of 6% merely because the Board of Directors had decided that the
premises hired (or three years may be continued for the same period but
negotiations may be held for reducing the liability which may be not less
....,
than 5%. The plaintiff appellant Mis.Babula) had never agreed to any such
suggestion. Once the measure of damages has been accepted as the amount
of monthly rent of the plinths, unless there was some logical and cogent
E reason to reduce the same, it could not be done. The order of modification
of the decree passed by the Trial Court was not called in question. In our
view, the decree has been modified without assigning any cogent reason for
the same. Hence, that part of the judgment passed by the High Court is liable
to be set aside.
-
F
In the result, Civil Appeal No.3484 of 1997 titled Food Corporation
of India and Ors. v. Mis. Babula{ Agrawal is dismissed and Civil Appeal •
No.3485 of 1997 titled Mis. Babula/ Agrawal v. Food Corporation of India
and Ors. is allowed and the decree passed by the Trial Court is restored.
Parties to bear their own costs.
G
S.K.S. C.A. No. 3484/97 dismissed.
C.A. No. 3485/97 allowed.
y!