The Kerala High Court has affirmed that physical possession of commercial premises, even in the absence of a registered lease deed, creates a legal obligation to pay damages for use and occupation. This ruling clarifies the boundary between contractual obligations and equitable liability in landlord-tenant disputes where formal documentation is incomplete.
Background & Facts
The Dispute
The plaintiff, B.M. Hamsa and Bansheera Hamsa, are owners of a commercial property located in Edappally, Ernakulam. The property was previously leased to M/s. Mahindra First Choice Service Ltd., which operated an automobile service centre. The lease was terminated by a Deed of Surrender dated 09.05.2016 (Ext.A2). The defendant, T.V. Sundaran Iyengar and Sons Pvt. Ltd., a vehicle sales and service company, expressed interest in taking over the premises for similar use. The defendant entered into an agreement with M/s. Mahindra First Choice to purchase all machinery and equipment located on the premises, which were subsequently retained in the building.
Key Facts
- The plaintiff and defendant agreed that the lease would commence on 01.06.2016 at a monthly rent of Rs. 2,50,000/-
- A draft lease agreement (Ext.A3) was prepared but never signed or registered
- The defendant took physical possession of the premises from 01.06.2016
- The defendant installed a security personnel at the premises from 01.06.2016
- The defendant paid electricity bills for the premises from 01.06.2016 onwards
- The defendant paid Rs. 15,00,000/- to the plaintiff on 30.11.2016, claiming it was an advance for renovation
- No renovation work was undertaken or completed
- The defendant vacated the premises on 04.04.2018 under the supervision of the Advocate Commissioner
- The building has a valid building permit and occupancy certificate (Exts.A4, A5) designating it as commercial
- The Health Inspector of the Municipality (DW4) confirmed multiple service centres operate in the area
Procedural History
- 09.05.2016: Lease with M/s. Mahindra First Choice terminated via Ext.A2 Deed of Surrender
- 01.06.2016: Defendant assumed physical possession of premises
- 30.11.2016: Defendant paid Rs. 15,00,000/- to plaintiff
- 27.01.2020: Trial Court (II Additional Sub Court, Ernakulam) decreed suit for recovery of licence fee/damages from 01.12.2016 to 04.04.2018
- 22.02.2021: Defendant filed Regular First Appeal (RFA No. 109 of 2021) before Kerala High Court
- 03.06.2026: Judgment delivered by Division Bench
Relief Sought
The plaintiff sought recovery of arrears of licence fee/damages for use and occupation at Rs. 2,50,000/- per month from 01.12.2016 to 04.04.2018, with interest at 6% per annum. The defendant sought return of Rs. 15,00,000/- and compensation for loss of profit and electrical installation costs, which were dismissed by the trial court.
The Legal Issue
The central question was whether physical possession of commercial premises, coupled with conduct indicating intent to lease, creates a liability for damages for use and occupation in the absence of a registered lease deed, and whether misrepresentation regarding statutory permissions negates such liability.
Arguments Presented
For the Appellant/Petitioner
The appellant argued that: (1) Ext.A3, the draft lease, was unregistered and inadmissible under Section 49 of the Indian Registration Act, rendering any terms unenforceable; (2) the plaintiff misrepresented that M/s. Mahindra First Choice held valid licences, which were in fact non-existent; (3) the property is in a residential zone, making it impossible to obtain statutory clearances for an automobile service centre; (4) possession was never lawfully transferred, and the Rs. 15,00,000/- was an advance for renovation, not rent; and (5) the plaintiff’s failure to ensure zoning compliance rendered the arrangement void ab initio.
For the Respondent/State
The respondents contended that: (1) possession was established through security personnel, payment of electricity, and retention of machinery; (2) the agreed rent of Rs. 2,50,000/- was admitted by the defendant’s own witness (DW1); (3) the building has a commercial occupancy certificate (Ext.A5), contradicting the claim of residential zoning; (4) the defendant never applied for any statutory licence, making the claim of impossibility speculative; (5) the Rs. 15,00,000/- was paid as arrears of licence fee, not renovation advance; and (6) the landlord cannot be held liable for the tenant’s failure to conduct due diligence.
The Court's Analysis
The Court conducted a detailed review of factual evidence to determine whether possession had been established. It noted that the defendant’s own witness, DW1, admitted that the plaintiff never represented that M/s. Mahindra First Choice held valid licences. The Health Inspector’s testimony confirmed that service centres operate legally in the area, undermining the claim of zoning prohibition. The Court emphasized that the burden to verify statutory compliance rests with the tenant, not the landlord.
"The landlord cannot be found fault for tenant's folly."
The Court rejected the argument that Section 49 of the Registration Act barred reliance on Ext.A3, noting that the document was unsigned and not even a proposed agreement. The terms of the arrangement were established through conduct: payment of electricity, deployment of security, retention of machinery, and the defendant’s own admission regarding the monthly rent.
The Court held that possession, even without a formal lease, creates a quasi-contractual obligation to pay for use and occupation. The Rs. 15,00,000/- paid by the defendant was properly appropriated as arrears for the period 01.06.2016 to 30.11.2016 (6 months × Rs. 2,50,000/-). The trial court’s calculation of liability from 01.12.2016 to 04.04.2018 (16 months 4 days) was correct, amounting to Rs. 41,66,667/-. The interest rate of 6% per annum was deemed reasonable.
The Court further observed that the defendant’s failure to apply for statutory permissions rendered its defence legally untenable. The occupancy certificate and municipal testimony confirmed the property’s commercial character.
The Verdict
The appeal was dismissed. The Court upheld the trial court’s decree, directing the defendant to pay damages for use and occupation at Rs. 2,50,000/- per month for the period 01.12.2016 to 04.04.2018, totaling Rs. 41,66,667/-, less the Rs. 15,00,000/- already paid, resulting in a net liability of Rs. 26,66,667/-. Interest at 6% per annum was affirmed from the date of each monthly accrual until realization. Costs of Rs. 25,000/- were awarded to the respondents.
What This Means For Similar Cases
Possession Creates Liability Even Without Lease
- Practitioners must advise clients that physical possession of commercial premises, even without a signed lease, triggers liability for use and occupation
- Evidence of security, utility payments, and retention of assets are sufficient to establish possession
- Oral agreements or draft documents, even if unregistered, may be used to corroborate terms if supported by conduct
Due Diligence Is Tenant’s Responsibility
- Tenants cannot avoid liability by claiming inability to obtain statutory permissions if they never applied
- Landlords are not obligated to guarantee zoning compliance or licensing feasibility
- Commercial tenants must conduct independent verification of property suitability before taking possession
Misrepresentation Claims Require Concrete Evidence
- Vague allegations of misrepresentation without documentary or witness support will be dismissed
- Courts will not entertain speculative defences based on unverified claims about third-party conduct
- The burden of proving misrepresentation lies squarely on the defendant
