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This article is written by Puneet Chhabra, here he discusses the perpetual contract. 

Introduction

The contract entered by the parties, always has some binding conditions which determines its enforceability i.e. rights and duties of parties, how compensation is awarded to the party in case of default by one of the parties, time and date of the contract, place where the contract needed to take place, place where the compensation can be claimed, arbitration clause and where the contract comes to an end etc.

But perpetuity contracts includes no specified time period and does not outline as to when this contract should be terminated.

When does perpetuity gets terminated?

Whether a contract is perpetual or not totally depends upon the conditions contained in the contract. If the conditions so mentioned, specifies any kind of mode terminating the contract then the contract is not considered to be perpetuity contract. In case of a dispute, courts view are needed to be taken into consideration relying on various laws and terms of the contract entered between the parties.

Enforceability

According to Section 14(1) (d) of Specific Relief Act 1963, a contract which is capable of being brought to an end under given conditions cannot be specifically enforced. Further, section 41 (e) of the act specifies that temporary restrained on a contract cannot be granted on the contract which is not specifically enforced.

  • In Indian Oil Corporation Ltd v. Amritsar Gas Service and Ors. the Supreme Court has widened the term “determinable”. The Supreme Court, in this case, held that terms of the contract are such which is determinable, therefore the party cannot claim specific relief.
  • In another case, Rajasthan Breweries v. Stroh Breweries (2000), the Delhi High Court states that the contract can be terminated if there is any clause mentioned, specifying the termination and also the contract can be terminated by given notice. If the contract is contrary to the law then the only way left to the party affected is to get compensation.
  • In the case of Turnaround Logistics (Pvt.) Ltd v. Jet Airways (2006) the Delhi Court held that the term “determinable” also means that the contract can be terminated.

Lease: Whether a perpetual contract or not?

A perpetual lease is an agreement where the land is allotted to a person over state land in accordance with the provision laid down under the Urban Land Ceiling & Regulation Act,1976. A person who is holding the property is responsible for the terms and conditions laid down under the deed,  failing which amounts its termination from the land.

Perpetual leases are always issued for some defining purpose laid down under the Urban Land (Ceiling & Regulation ) Act 1976. It is basically issued for the agricultural or commercial purpose. The perpetual lease can also be issued for some other purposes required the sign of other authorities and also the person taking perpetual lease disclosed the purpose he wants to issue for.

The form also includes the following details

  • Land area, details of the area required for the Lease
  • Commencement of the work .i.e date on which the land shall be taken
  • Payment details
  • Covenants
  • Termination of Lease
  • Rights of both the parties

Case Laws

State of U.P. & Ors Vs. Lalji Tandon [20 03] Insc 548 (3 November 2003).  In this case, the land which is in question in the suit was given on 50 years lease. The terms of the lease are such contains the clause for renewal of the lease for another 50 years with the same conditions and terms. The High Court in instant took a reference of Purushottam Das Tandon & Ors.AIR 1987 Allahabad HC, in which Purushottam Das was holding the Lease on the same terms and conditions as held by Respondent. The High Court, in that case, held that State Government of UP was bound to renew the leasehold Purushottam Das in accordance with the Covenant for renewal. The Division Bench also laid down following proposition –   

  • In India, there is no law which prohibits a perpetual lease, the language of the terms plays an important part on this point. 
  • to find an answer to the question whether a covenant for renewal contained in the lease deed construed properly and in its real context, entitles the tenant to continue as long as he chooses by exercising the option of  renewal at the end of each successive period of 5 years subject to the same terms and conditions depends on the deed of lease being read as a whole and an effort made to ascertain the intention of the parties while entering into the contract. No single clause or term should be read in isolation so as to defeat other clauses. The interpretation must be reasonable, harmonious and be deduced from the language of the document.
  • If there is a clause specified for the renewal of the lease then the lease will get renewed, but it cannot be renewed for the second or the third time.
  • Sh. Mohinder Pal Singh Khurana & … vs M/S. Modi Alkalies & Chemicals … on 30 July 2010  In this case, Observing that absence of a specified period  of time in the lease deed cannot be termed as ‘perpetual’ (permanent) tenancy, Justice Manmohan Singh said that even if no right  is mentioned in a deed for terminating the deed, such a right has existed in the hands of landlord. This does not the lease is a perpetual in nature it can be terminated. Referring  the provisions given in Transfer of Property Act, the court said: “Unless there is a contract to the which specifically mentioned that the Lessor (owner) has no right to terminate the tenancy, the Lessor has a right to terminate any tenancy and such a right is given by the Law”

Perpetual Lease Of A Land

THIS CONTRACT OF LEASE entered into on the…………..day of…………….between X son of……….r/o………..(hereinafter called ‘the first party) and Y s/o………….r/o………………………(hereinafter called the ‘second party’) witnesses as follows:-

  1. The first party hereby agrees to lease out the plot of land number …………. situated in ………..in the District …………..of…………………….., move precisely described in the schedule annexed herewith , to the second party from the date of this lease in perpetuity on payment of yearly rent of Rs……………………….payable in four quarterly installments of Rs……………………first instalment failing due on……..day of…………month, second instalment failing due on……..day of…………month, third instalment failing due on……..day of…………month each year.
  2. The second party hereby agrees:-

(i) to pay the rent hereby reserved in the manner hereinbefore stated.

(ii) To pay all rates, taxes and charges which are payable or may so become at a future date in respect of the said plot of land.

  1. Default in payment in two consecutive installments of rent shall entitle the first party to enter upon the said land and determine the lease.

IN WITNESS WHEREOF the first and second party have signed this contract on this day and year first above mentioned.

Signed by Signed by

…………… ……………

1st party 2nd party

Conclusion

From the above article, it can be concluded that the perpetuity does not find its place in its literal meaning. A person can enter into a perpetuity contract, not for his course of life only for, some specified and reasonable time period. All Contracts entered by the parties i.e. Commercial contract, Rent agreement, lease agreement etc. However, Muslim marriage being a contract entered by the both parties is a perpetual contract subject to certain conditions like In Shia law,If a man marries a woman  undergoing iddat, the marriage would be void according to the provisions but at the same instance if sexual intercourse has taken place, there would be perpetual prohibition between the parties (Taneja Bibi V. Barjul Sheikh).

Therefore, it is clear from the above case laws and provisions that the contract entered between the parties has an expiry time limit, it cannot be for a longer duration.

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