In W.P. NO. 994/2011-BOM HC- If clause in contract results in requiring either party to violate law while enforcing such contract, then Court can declare such clause to be void as being against public policy: Bombay HC Justices A.S. Chandurkar & Urmila Joshi-Phalke [05-08-2022]

Read Order: SMT. SHARAYU D/O ASHOK GOKHALE AND ORS V. THE NAGPUR MUNICIPAL CORPORATION AND ORS 

Mansimran Kaur

Chandigarh, August 6, 2022: The Bombay High Court has opined that even by agreement or consent resulting in an order passed by the Court, it would not be permissible to achieve a result which otherwise cannot be achieved without violating the relevant Statute. 

The Division Bench of Justice A.S. Chandurkar and Justice Joshi Phalke allowed the present writ petition filed under Article 226 of the Constitution of India assailing the insertion of the fresh terms and conditions by the Nagpur Municipal Corporation  while renewing  the lease of land in question in  a manner contrary to the law laid down by this Court. Further challenge was raised to the demand notice issued by the Estate Officer, Nagpur Municipal Corporation demanding transfer fees from the first ten petitioners in pursuance of the transfer of the leasehold land to the eleventh petitioner.

The bench was of the considered view that it was not permissible for the Nagpur Municipal Corporation to incorporate additional terms and conditions in the lease-deed while renewing it on April 2, 2009 since there was no stipulation in the original lease-deed dated July 10, 1935 permitting it to do so.

It was the case of the first ten petitioners that on July 10, 1935  a permanent lease of Plot was executed in their favour by the then Municipal Committee of Nagpur. The said lease was thereafter renewed in the year 1964 for a period of thirty years. Though, the said lease was liable to be renewed on April 1, 1994, however no steps in that regard were immediately taken by the Corporation. 

Ultimately, on April 2, 2009 the said lease was renewed for a period of thirty years while renewing that lease the lessor – Municipal Commissioner, City of Nagpur added certain terms and conditions that did not exist in the original lease-deed dated. Clause (i), (j) and (k) were the three of the clauses that were inserted while renewing the said lease .

Amid such a chain of events, on March 16, 2009 petitioners entered into a Memorandum of Understanding with the eleventh petitioner  seeking to transfer the leasehold rights in favour of the eleventh petitioner.  When the petitioners approached the Nagpur Municipal Corporation seeking mutation of the name of the eleventh petitioner, a demand of transfer fees of an amount of Rs.20,85,517/- was raised. This demand of transfer fees was based on Resolution no.336 dated November 25, 2008. 

Being aggrieved by the fact that transfer fees were being sought pursuant to insertion of fresh clauses while renewing the subsisting lease, the petitioners had challenged the same in this writ petition. 

The Court held that it was not permissible for the Nagpur Municipal Corporation to incorporate additional terms and conditions in the lease-deed while renewing it on April 2, 2009 since there was no stipulation in the original lease-deed dated July 10, 1935 permitting it to do so.

 With respect to the issue that can the  petitioners be estopped from challenging the inclusion of such additional terms and conditions in the renewed lease-deed since the petitioners had accepted the renewal of the said lease without any protest, in respect of the same the Court noted that  ordinarily, a party that does not object to the terms and conditions incorporated in an agreement/contract while signing the same would be precluded from raising a challenge subsequently since it would be so estopped on first principles from doing so.

 Having permitted such insertion without any protest and having accepted the same without any demur a party would hardly be in a position to question such addition or insertion subsequently, the Court further remarked. 

An agreement/contract between two private entities would stand on a different footing as against an agreement/contract between a private individual on one hand and the State/statutory entity on the other in the context of Article 12 of the Constitution of India.An exception in this regard was considered by the Supreme Court in Central Inland Water Transport Corporation Limited (supra), the Court noted. 

After referring to Article 14 of the Constitution of India the Hon’ble Supreme Court observed that the Courts could not enforce and would when called upon to do so, strike down an unfair and unreasonable contract or an unfair or unreasonable clause in a contract entered into between the parties who are not equal in bargaining power. 

It was further held that the said principle would also apply where a man has no choice or rather has no meaningful choice but to give his assent to a contract or to sign on a dotted line in a prescribed or standard form or to accept the rules as part of the contract. However where the bargaining power of the contracting parties is equal or almost equal or where both the parties are businessmen and the contract is a commercial transaction such principle would not apply.

In the case in hand, the agreement for renewal of the lease is between private parties and the Municipal Corporation which is a local authority within the territory of India for the purposes of Article 12 of the Constitution. According to the petitioners they expected renewal of the lease on the same terms and conditions that existed earlier. It was pleaded that they had no option but to sign on the dotted line, the Court noted. 

At this stage reliance was placed on the cases namely, Arce Polymers Private Limited Versus M/s.Alphine Pharmaceuticals Private Limited & Others, Union of India Versus Colonel L.S.N. Murthy & Another and  Union Carbide Corporation & Others Versus Union of India & Others.

 In the light of the aforesaid discussion it was clear that if a clause in the contract results in requiring either party to violate the law while abiding by or enforcing such agreement/contract, it would be permissible for the Court to declare such clause of the agreement/contract to be void as being against public policy. Permitting operation of such clauses in the agreement/contract would result in breach of the law and the same would be against public policy, the Court observed. 

Thus, the Court concluded by observing that the petitioners  would be entitled to seek renewal of the said lease-deed in accordance with the original lease-deed dated July 10, 1935.

Consequently, the demand of transfer fees was set aside as the Nagpur Municipal Corporation was not empowered to demand the same from the lessees in the absence of any such stipulation in the original lease-deed.