# CHHATU RAM HORIL RAM LTD v. STATE OF BIHAR AND ANR

- **Citation:** [1968] 2 S.C.R. 881
- **Court:** Supreme Court of India
- **Decided:** 1968-01-31
- **Case number:** Civil Appeal No. 47 of 1965
- **Bench:** J. C. Shah, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/chhatu-ram-horil-ram-ltd-v-state-of-bihar-and-anr-4255
- **Pages:** 6

## Headnote

Bihar Land Reforms Act (30 of 1950), ss. 3, 4 and 10-Lease of mica
bearing /ands-Covenant for renewc/ of /ease-Vesting of estate in State
Government under the Act-Whether lessee entitled to renewal.
The appellant-company obtained a lease of certain mica bearing land
from the owners for a period of fifteen years.
The lease deed provided
for a renewal of the lease on the expiry of the period at the option of the
lessee. The land .was within an estate and by virtue of a notification under
the Bihar Land Reforms Ac', 1950, the estate vested in the State Government under s. 4, free 1from all encumbrances and free from all rights of
the lessees. But the appellant continued in occupation for the remaining
period of the contractual lease, under a s'atutory lease deemed to have
been granted by the State under s. Hl of the Act.
On the question whether the &ppellant was entitled to specific performance of the covenant of renewal,
HELD : The agreement of renewal of the lease in future was
not
binding upon the State Government after the vesting of the estate.
(I) The original contractual lease came to an end by the operation
of s. 4 and under s. 10 a fresh statutory lease for the remainder of the
term of •hat lease, in favour of the lessee, came into being with terms and
conditions mutatis mutandis the same as the conditions of the original
leas·~. But the covenant granting an option of renewal of 1he lease on the
expiry of the period of the lease is merely a covenant running with the
land, and does not create any interest in land. It being in the nature of
an encumbrance and by virtue Of s. 4 it was extinguished and the land
vested in the State free from the obligation crea'ed by the renewal clause.
[885 C-E]
The St1:1te of Bihar v. Indian Copper Corporation Ltd. I.L.R .. 38 Pat.
1160, approved.
(2) Rule 40 of the Mineral Concession Rules, 1949, under which a
lessee of a mining lease is enti•led to at least one renewal for a period not
exceeding the duration of the original lease, applies to grants made by
Government and not to statutory leases. Therefore, the , rule has
no
applica'ion.
Even assuming the rule was applicable, the duration of the
original lease in the case of such a statutory lease must be deemed to be
no longer than the period between the date of vesting and the da'e of
expiry of the original lease and that period. for which renewal may have
been claimed, expired many years ago. [885 G; 886 A-Bl

## Text

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CHHATU RAM HORIL RAM LTD.
v.
STATE OF BIHAR AND ANR.
January 31, 1968
[J. C. SHAH AND V. RAMASWAMI, JJ.)
Bihar Land Reforms Act (30 of 1950), ss. 3, 4 and 10-Lease of mica
bearing /ands-Covenant for renewc/ of /ease-Vesting of estate in State
Government under the Act-Whether lessee entitled to renewal.
The appellant-company obtained a lease of certain mica bearing land
from the owners for a period of fifteen years.
The lease deed provided
for a renewal of the lease on the expiry of the period at the option of the
lessee. The land .was within an estate and by virtue of a notification under
the Bihar Land Reforms Ac', 1950, the estate vested in the State Government under s. 4, free 1from all encumbrances and free from all rights of
the lessees. But the appellant continued in occupation for the remaining
period of the contractual lease, under a s'atutory lease deemed to have
been granted by the State under s. Hl of the Act.
On the question whether the &ppellant was entitled to specific performance of the covenant of renewal,
HELD : The agreement of renewal of the lease in future was
not
binding upon the State Government after the vesting of the estate.
(I) The original contractual lease came to an end by the operation
of s. 4 and under s. 10 a fresh statutory lease for the remainder of the
term of •hat lease, in favour of the lessee, came into being with terms and
conditions mutatis mutandis the same as the conditions of the original
leas·~. But the covenant granting an option of renewal of 1he lease on the
expiry of the period of the lease is merely a covenant running with the
land, and does not create any interest in land. It being in the nature of
an encumbrance and by virtue Of s. 4 it was extinguished and the land
vested in the State free from the obligation crea'ed by the renewal clause.
[885 C-E]
The St1:1te of Bihar v. Indian Copper Corporation Ltd. I.L.R .. 38 Pat.
1160, approved.
(2) Rule 40 of the Mineral Concession Rules, 1949, under which a
lessee of a mining lease is enti•led to at least one renewal for a period not
exceeding the duration of the original lease, applies to grants made by
Government and not to statutory leases. Therefore, the , rule has
no
applica'ion.
Even assuming the rule was applicable, the duration of the
original lease in the case of such a statutory lease must be deemed to be
no longer than the period between the date of vesting and the da'e of
expiry of the original lease and that period. for which renewal may have
been claimed, expired many years ago. [885 G; 886 A-Bl
CIVIL APPELLATE JURISDICTION:
Civil Appeal No. 47 of
1965.
Appeal from the judgment and decree dated December 12,
1962 of the Patna High Court in· Appeal from Original Decree
No. 433 of 1959.
.
H. R. Gokhalt!, S. N. Prasad and iJ. P. Singh, for the appellant.
·
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882
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[1968] 2 S.C.R.
D. P. Singh, K. M. K. Nair and Shivapufan, for the respondent.
The Judgment of the Court was delivered by
Shah, J. On September 30, 1940 the appellant-a private
limited Company-obtained a lease froin the owners of 3,300
acres of mica bearing land in viIJage Sapi:hi in the District of
Gaya, for a period cf fifteen years. Clause 29 of the indenture
of lease read as folJows :-
··
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"If on the expiry of the term of the thika we executant Nos. 1 and 2, first party, the lessors, desire to let
out in thika the thika property or any portion thereof
and if any other person wants to take it in thika, then
in such circumstances it will be incumbent upon us,
executant Nos. I and 2 first party, the lessors. to inform
about it to executant No. 3, second party, the lessee,
first. If on the same terms and stipulations and ;ama
executant No. 3, second party, the lessee, wants to take
it in thika then in that case, we executant Nos. I and 2,
first party, the lessors, shall let it out in thika to him
( executant No. 3), and we shall execute a fresh thika
deed in respect thereof in favour of executant No. 3,
second party, the lessee. and executant No. 3, second
parfy. the lessee, shall be competent to get the deed
executed."
By virtue of a notification issued under s. 3 of the Bihar Land
Reforms Act, 1950, the right of •he owners in the lands. vested
on June 27, 1953 in the State of Bihar.
The appellant Company
remained thereafter in occupation under a statutory lease deemed
to be granted by the State for the remaining period of the contractual lease. On February 22, 1955, the Company served a notic~
upon the State exercisinit the option of renewal granted by cl. 29
of the indenture. On January 6, 1956, the State granted a lease
to the appellant of 410 acres out of the lands for 20 yeat\ and
the remaininit area was granted in lease to one Sant Saran Bhadani
a director of the appellant Company.
In a writ petition moved
by one Sudha Devi the lease granted to the appellant Comnany
and Rhadani were set aside by order dated July 5, 1956. of the
High Court of Patna. on the ground that in eranting fresh lea~es
to the appellant Company and Bhadani the State of Bihar had
violated rr. 67 and 68 of the Mineral Concession Rules, 1949.
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The appellant Com,,anv then instituted in the Court of the
Subordinate Judee. Second Grade. Gava. an action for !t>Ccific
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performance of the covenant of renewal in the indenture Of lease
•
dated September 30, 1940.
The Subordinate Ju_dJ?e dimiissed
the action holding that by the Stipulation in cl. 29 a right of pre-
"'
ClillATU RAM I.TD. V, BIHAR (Shah, J.)
883
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emption and not of renewal was granted to the appellant Company. The High Court of Patna confirmed the decree passed by
the Trial Court but on different grounds. .The High Court held
that the right granted by cl. 29 gave rise to an "encumbrance"
which was extinguished when the interest of the owners in the
land vested in the State.
With certificate granted by the High
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Court, this appeal has been preferred by !he Company.
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A notification under s. 3 ( 1) of the Bihar Land Reforms Act,
1950, on June 27, 1953 was issued in respect of the land of the
owners.
Section 4 of the Act prescribes the consequences of the
publication of the notification under s. 3 ( 1) : it provides, insofar
as it is reievant :
"Notwithstanding anything contained in any other
law for the time being in force or in . any contract, on
the publication of the notification under sub-section ( 1)
of section 3, or sub-section
(1) or (2) of section 3A
the following consequences shall ensue, namely :
(a) Such estate or tenure including the interests of
the proprietor or tenure-holder in any building
or part of a building comprised in such estat~
or tenure· and used primarily as office or cutch·
ery for the collection of rent of such estate or
tenure, and his interests in trees, forests, fisheries, ja/kars, hats, bazar, me/a and ferries and
all other sairati interests as also his interest in all
sub-soil including any rights in mines and minerals, whether discovered or undiscovered, or
whether being worked or not, inclusive of such
rights of a Jessee of mines and minerals comprised in such estate or tenure (other than the
iaterests of raiyats and under-raiyats) shaJI, with
effect from the date of vesting, vest ·absolutely
in the State free from all encumbrances and such
proprietor or tenure-holder shall cease to have
any interests in such estate or tenure, other than
the interests expressly saved b;y or under the provisions of this Act."
The opening words of this clause "Subject to the subsequent
provisions of this Chapter" were omitted by Bihar Act 16 of 1959,
but that omission has no practical significance in this case. Section 10 of the Act provides :
"( 1) Notwithstanding anything contained in this
Act, where immediately before the date of vesting of the
estate or tenure there is a subsisting lease of mines or
minerals comprised in the estate or tenure or :my part
thereof, the whole> or that part of the estate or tenure
884
SUPREME COURT ll!POllTS
[1968] 2 S.C.R.
comprised in such lease shall, with effect from the date
of vesting, be deemed to have been leased hy the State
Government to the holder of the said subsisting lease
for the remainder of the tem1 of that lease, and such
holder shall be entitled to retain possession of the leasehold property.
(2) The terms and conditions of the said lease by
the State Government shall mutatis mutandis be the
same as the terms and conditions of the subsisting lease
referred to in sub-section ( I ) , but with the additional
condition that, if in the opinion of the State Government the holder of the lease had not, before the date
of the commencement of this Act, done any prospecting
or developing work, the State Government shall be entitled at any time before the expiry of one year from the
said date to determine the lease by giving three month's
notice in writing :
Provided
(3)
..
Counsel for the appellant Company contended that
cl.
29
created an interest in the demised land in favour of the Company
and the State of Bihar as successor-in-title of the original owners
took the land subject to that interest.
In the altemativ~. counsel
contended, the Company acquired immediately on execution of
the indentures of lease an indefeasible right to obtain renewal and
that right was enforceable against the owners and th~ir ~uccessors
in-interest alike.
We are unable to agree with those contr.nti<'ns.
The covenant granting an option of renewal of the lease on the
expiry of the period of the lease outstanding is a covenant running
with the land : it creates no interest in land.
In The State of Rihar
v. Indian Copper Corporation Ltd.(') the High Court of Patna
held that a clause for renewal of a lease on the expiry of its period
has not the effect of a present demiSe nor does it opera'e to cre~te
an interest in land on the date on which the original lease was
executed : a covenant fpr renewal is not tantamount to an actual
demise and therefore "no leasehold interest is created for
the
renewed term when
the original lease is granted."
Under the
terms of the lease dated September 30, 1940, the appetlant Company became entitled to a lease for a period of fifteen years.
On
the expiry of that period the Company could have enforc~d their
right to get a renewal of the lease for a period of fifteen years
against the owners if their interest had not been extinguished. If
the owners declined to carry out their obligation, the Company
could sue for specific performance and claim a light to remain
(I) t.L.R. 38 Pat. 1!60,
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cHltATU RAM LTD. v. BilIAR (Shah, ].)
885
in possession for a period of fifteen years stipulated in cl. 29.
But the provisions of the Bihar Land Reforms Act intervened. By
rhe express terms of s. 4(a) of the Act all the interests of the
owners in all sub-soil including any rights in mines and minerals,
whether discovered or undiscovered, or whether being worktd or
not inclusive of such rights· of the lessee of mines and minerals ·
co~prised in such estate or tenure became vested in the State with
effect from the date of vesting absolutely and free from all encumbranches. Even the interest of the lessees of the mines and m;nera\s
comprised in the estate therefore ceased, and all encumbrances on
the interest of the owners' estate were extinguished and the State
took the estate free from all the rights of the lessees. The original
contractual lease came to an end by the operation C'f s. 4 (1 )(a)
of the Act, and a fresh statutory lease for the remainder of the
teem of that lease in favour of the lessee came into being under
s. 10(1) of the Act.
The appellant Company therefore acquired the rights of a
s:atutory lessee for the period between June 27, 1953 and September 30, 1955, with terms and conditions mutatis mutandis the same
as the conditions of the original lease granted by the owne,rs on
September 30, 1940. But by virtue of s. 4 that covenant by which
the owners had agreed to renew the lease at the option of the
lessee being merely of the nature of an e11crnnbrance and not an
interest in the land was extinguished, the land vested in the State
free from the obligation created by the renewal clause.
We agree with the High Court that "a clause for renewal of
the lease at a future date was a limitation imposed upon the lessor.
His freedom as an absolute owner was sought to be curtailed by
such agreement. It was thus
an encumbrance and all encumbrances were wiped out by section 4.
. .................. .
Taking all these ·provisions into consideration, an agreement for
renewal of a lease in future cannot be binding upon the State
Government after the vesting of the estate".
Counsel for the appellant relied upon r. 40 of the Mineral
Concession Rules, 1949, and contended that under 'the scheme of
the Rules a lessee of a mining lease is entitled to at least one
rrnewal.
Rule 40, insofar as it is material, provides :
" ( 1) The period for which a mining lease may be
granted shall be 30 years in the case of coal, iron-ore
and bauxite for manufacture of aluminium, and 20 years
in the case of any other minerals, unless the applicant
himself asks for a shorter period. The lease shall be
renewable at the option of the lessee, for one or two
periods, each not exceeding the duration of the original
lease, in the case of iron-ore and bauxite for manufacture of aluminium,
and one period not exceeding the
886
SUPREME COURT llEPORTS
[1968) 2 S.C.R.
duration of the original lease in the case of other
minerals."
But r: 40 has no application.
Manifestly, the rule applies to
grants made by the Government : it has no application to statuA
tory leases arising by virtue of s. I 0 of the Bihar Land Reforms
Act.
Even assuming that r. 40 applies to such a statutory lease, ,
the duration of the "original lease" may be deemed to be no longer
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than the period between the date of vesting and September 30,
1955. That period for which renewal may have been .claimed has
expired many years ago, and recognition of the rights of· the
appellant Company will be of no practical significance in
this
appeal.
The appeal fails and is dismissed with cdsts.
Appeal dismissed.