P L D 1968 Karachi 635 (PLP)

4. The second question has to be considered from two aspects, that is:‑

(i) Whether a tenant, on entering into partnership with others for carrying on business in the demised premises, brings these premises as part of the partnership property; and (ii) whether a tenant who, being a partner in a firm, permits the firm to use the demised premises for its business, transfers his rights under the lease, or sublets the premises, to the firm against the prohibition contained in section 13 (2) (ii) (a) of the West Pakistan Urban Rent Restriction Ordinance, 1959.

5. Taking up the first question, a lease of premises would become, if used for the business of the firm, property of the firm if the premises are brought into the firm in such a way as to make the firm either assignee of the lease or sub‑lessee of the premises, I should refer to section 14 of the Partnership Act, 1932, which provides that subject to contract between the partners, the property of the firm includes all property, rights and interests in property originally brought into the stock of the firm or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm". It does not follow from this section thata property is partnership property if it is owned jointly by partners and is used for the purposes of the business. Nor does it follow that property belonging to a partner is partnership property if it is used by all the partners for partnership purposes. Lindley (Law of Partnership, 12th Edn., p. 365) says: "It by no means follows that property used by all the partners for partnership purposes is partnership property. For example, the house and land in and upon which the partnership business is carried on often belongs to one of the partners only, either subject to a lease to the firm, or without any lease at all. So it sometimes happens, though less frequently, that office furniture and even utensils in trade are the separate property of one of the partners, subject to the right of the others to use them as long as the partnership continues. If, however, a partner brings such property into the common stock as part of his capital it becomes partnership property, and any increase in its value will belong to the firm the only true method of determination as between the partners themselves what belongs to the firm, and what not, is to ascertain what agreement has been come to upon the subject." In this connection I would refer to two English decisions Miles v. Clarke ((1953) 1 A E L R 779) decided by Harman, J., sitting in Chancery Division and Gian Singh & Co. v. Devraj Nahar and others ((1965) 1 A E L R 768) decided by the Privy Council. In both these cases the question of the relationship between the firm and the premises held on lease by one of the partners only but used for partnership business, was directly at issue. In Miles v. Clarke, the partnership was between two photographers, one of whom held lease of some premises and invited the other to join him as a partner in the business carried on in the said premises. The only agreement between the parties was with regard to the sharing of profits and that one of them should draw 125‑0 per month on account of his share. The Court held that as there had been no agreement except as to the division of profits, no further agreement should be implied than was necessary to give business efficacy to the relationship between the partners and that, in the circumstances, the consumable stock used in the business should be treated as partnership asset, but all other assets, including the lease of the premises, should be treated as being the property of the partner who brought them in. In Gian Singh & Co. v. Devraj Nahar and others which was a case from Malaysia, the tenant admitted two partners into his business under an agreement which provided that the partners were to be entitled to the capital and property for the time being of the partnership and to the goodwill of the business in equal shares, and that the business would be carried on at the premises held by the tenant under a sub‑lease, or at such place or places as the partners might from time to time agree on. No specific reference was made to the tenancy in the deed of partnership. The landlords, that is, the main lessees, claimed possession of the promises on the ground that, by assignments to the partnership, the tenant had broken his covenant not to assign or sublet the premises without obtaining permission of the landlords. Their Lordships of the Judicial Committee held that the fact that the premises were an asset to the business did not bear on the question whether they were an asset that was transferred to the partnership, for the use of the premises by the business might have been dealt with in other ways and that assignment must rest on the partnership deed itself which, however, could not be construed as constituting an assignment of the premises by the tenant, and therefore there was no breach of the covenant against assignment.

6. It is to be ascertained in the present case, whether the premises in question were brought by the respondent No. 1 into the partnership, so as to make the lease held by this respon dent as partnership property. As held by the Judicial Committee in Gian Singh v. Devraj Nahar and others the intention of the partners with regard to such question has to be gathered from the partnership deed itself which, in the present case, is Exh. 55, and which was executed with stamps of Rs. 40 on 12th April 1963. Clause 1 of this deed provides that the partnership business shall be carried on under the name and style of "Abdul Aziz Bros." in Shop No. D/1562, that is, the shop in dispute before me. Clause 5 provides that the tenancy in the said shop shall continue to vest in the respondent No. 1 only, and on dissolution of the partnership, the respondents Nos. 4 and 5 shall vacate the premises without making any claim thereto. Under clause 7, the shares in the profits of the partnership are fixed at 25 per cent. for respondent No. 1, and 75 per cent. for respondents Nos. 4 and

5. The terms of this deed bear a little similarity with the partnership deed in the Glan Singh & Co. In both the cases, it was provided that the business of the partnership will be carried on at the premises held on lease by one of the partners. This provision, according to the view taken by the Judicial Committee, made the premises an asset to the firm, but not property of the firm. In the Privy Council case, there was no further reference to the premises in dispute. But in the' case before me, the partnership deed expressly stipulates that the respondent No. 1 will remain the tenant of the premises, and an dissolution of the firm, the respondents Nos. 4 and 5 will vacate the premises. As observed by Lindley, the only effective way of determining as to what property is of the firm and what not, is to see what the partnership deed has to say upon the subject. The partner ship deed before me makes a categorical provision that the shop in dispute will continue to remain in the tenancy of the respondent No. 1 only. It, therefore, follows that the shop was not brought into the firm at all as part of the partnership property, and accordingly the lease hold by the respondent No. 1 is not the property of the firm.

7. This brings me to the second aspect of the question under discussion, which involves the determination as to whether the use of the shop for the partnership business, makes the firm transferee of the lease or sub‑lease of the shop within the meaning of section 13 (2) (ii) (a) of the West Pakistan Urban Rent Restriction Ordinance, 1959, of is this use only by way of licence. The concepts "Transfer of the right in the lease", or "sub‑lease of the demised premises", are used in this provision in the sense in which these concepts are used in section 108 (j) of the Transfer of Property Act, 1882. But let us look at the meaning of 'lease' itself. "Lease" is sometimes defined as the grant of a right to the exclusive possession of land for a determinate term less than that which the grantor has himself in the land. This expression has been defined in section 105 of the Transfer of Property Act to mean "transfer of a right to enjoy immovable property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised or of money, a share of crops, service or any other thing of value, to be rendered, periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms". Their Lordships of the Supreme Court have stated in Abdullah Bhai and others v. Ahmad Din (P L D 1964 S C 106) that lease is a transfer of interest in an immovable property, giving to the transferee the right of enjoyment of the property during the tertm of the lease. On the other hand, a licence, as defined In section 52 of the Easements Act, 1882, is the right to do or continue: to do, in or upon the immovable property of the grantor something which would in the absence of such right be un‑lawful, and such right does not amount to an casement or an interest in the property. In the words of Kaikaus, J., in the Supreme Court decision just referred to, a licence is merely a competence to do something in or upon the property and the distinction between a "lease", and a "licence" is whether any right in immovable property itself, a right do rem, has passed to the grantee. Transfer of a lease, as well is sub‑lease, would therefore mean transfer of the right and interest of the lessee in immovable property, the difference between the two being that in the case of transfer of a lease, the whole interest of the tenant in the demised premises passes to the transferee, so as to create a privity of estate between the landlord and the transferee by making the latter liable to the landlord to pay rent, whereas a sub‑lessee is only a transferee of a term less than the term held by the main lessee, said accordingly there is no privity of estate between the landlord and the sub‑lessee.

8. The actual determination of the question whether an arrangement is a licence, or lease, or transfer of lease, or sub lease, often presents difficulties. The Courts have therefore evolved various tests to distinguish one arrangement from the other or others. It will therefore be useful to review the cases in which this question has come up for discussion. The fret case inn point is the decision of Romer, J., in Peebles v Crosthwaite ((1896‑97) 13 T L R 37). In this case, one of the covenants entered into by the lessee was that he would not assign or part with the possession of the demised premises without the previous licences of the lessor. On the lessee's death, his executors sold the premises, with the business carried on therein, to a Limited Company, called A. M. Peebles' Son (Limited). The stock was delivered to the company, which also put its name up on the demised premises, which were shown also as the‑ registered office of the company in which, the executors themselves held a large shareholding and in which two of them were directors. There was no assignment, however, of the lease of the premises in the company's favour. It was held that the use of the demised premises by the company did not operate as an assignment of the lease in the company's favour, as the premises had remained in the possession of the executors, even though they had allowed the company to use the premises for its business. The case went to the Court of Appeal, whose decision is reported in the same volume of Times Law Reports at page

198. Lindley, L. J., held that even though the executors let the company into possession of the premises, they did not part with possession themselves and accordingly there was no breach of any covenant. In Jackson v. Simons ((1923) 1 Ch. D 373) the defendant, lessee of a ground‑floor shop, allowed the proprietor of a night club to use the front part of the shop between certain hours for the sale of tickets of admission to the Club. This part was partitioned off from the rest of the shop by a movable screen. Following Peebles v. Crosthwaite, it was held that the arrangement was a mere privilege or a licence, under which the defendant retained the legal possession of the whole shop, and therefore there was no breach of covenant against assignment, under‑letting or parting with the demised premises. In Chaplin v. Smith ((1926) 1 K B 198) the lessee assigned his business to a company of which he himself was the Managing Director and in which he held a controlling interest. He carried on the business of the company on the demised premises. The company appeared in the valuation list of the Parish as the occupier of the premises for the purpose of the poor rate. Subsequently, a second company was formed, of which also the lessee was the Managing Director, and which took over the business, assets and liabilities of the first company, with the stipulation that the lessee should remain in possession of the demised premises as the actual tenant. It was hold that the successive companies were let into possession of the premises on the basis that the lessee would remain in possession himself, and only allow the companies' business to be conducted on the, premises while he retained possession as actual tenant, and that the arrangement was therefore in the nature of a licence. Warrington, L. J., observed that a man may abstain from parting with possession of the premises although he allows another to use them, and that then he does not commit a breach of the covenant against parting with possession. Scrutton, L. J., treated the successive companies, occupation of the demised premises as that of a licensees, and noted with approval the following observation of Foa on Landlord and Tenant (6th Edition, 1924, page 323): "The mere act of letting other persons into possession by the tenant, and permitting them to use the premises for their own purposes, is not, so long as he retains the legal possession himself, a breach of the covenant." Reference may again be made to the Privy Council decision in Gian Singh & Co. v. Devraj Nahar and others, where letting the firm, in which the lessee was a partner, into possession of the demised premises, was hold not to be breach of the covenant against assignment, or under‑letting the premises without the landlords' written consent, even though the premises were held to be an asset to the firm.

9. The question whether an arrangement is a lease or its assignment, or a sub‑lease, as distinguished from licence, has frequently come up for discussion in cases relating to contracts for use of theatre refreshment rooms: Reference in this con nection may be made to Bird v. Great Eastern By. Co. ((1865) 19 C B (N S) 268), Dally v. Edwardes ((1900) 83 L 548 (C A)), Edwards v. Barrington ((1901) 85 L T R 650 (H L)), Frank Warrand Co. Ltd. v. London County Council ((1904) 1 K B 713 (C A)) and Clore v. Theatrical Properties Ltd. v. Westby & Co. Ltd. ((1936) 3 A B L R 483). The contracts in these cases granted to the contractors free and exclusive licence and right to the use of refreshment rooms, bars and smoking rooms, wine sellers and offices in the theatres, and in some of the cases the documents resembled lease of land and the grantors were termed "landlords" and the grantees "tenants", and some of the contracts even contained a covenant for quiet enjoy ment. But in each case the Court held that there was no demise of interest in land, but only a licence. Then there is the decision of this Court in Sajid Ali Khan and others v. Muhammad Farooq (P L D 1959 Kar. 124), which was a case relating to the grant by the Assistant Collector of Customs of a catering contract under which the contractor was allowed the use of 3 rooms and a kitchen in the Customs House. Notwithstanding the use of the word `rent' in the contract, the transaction was held to be in the nature of a licence only.

10. But sometimes, even the test of exclusive possession has failed in determining whether the arrangement is a lease or a licence, particularly in the case of premises which are subjected to control under the Rent Restriction Laws. This is what happened in Errington v. Errington ((1952) I A E L R 149), Cobb v. Lane ((1952) 1 A E L R 1199), Marcroft Wagons Ltd. v. Smith ((1951) 2 A E L ‑R 271) and lssac v. Hotel De Paris Ltd. ((1960) 1 A E L R 348). In Errdngton v. Errington, decided by the Court of Appeal, a father bought a house for his son and daughter‑in -law, paying E220 in cash and borrowing 500 from a building society on the security of the house, the loan being repayable by instalments The house remained in the father's name, but the son and the daughter‑in‑law took up residence therein. In 1945 the father died and by his will left the house to his widow. Shortly afterwards the son left his wife. In an action by the widow against the daughter‑in‑law for possession, it was held that the latter and her husband were licencees, having a permissive occupation short of a tenancy. Denning, L. J. observed that: "although a person who is let into exclusive possession, is, prima jade. to be considered to be a tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy. Words alone may not suffice. Parties cannot turn a tenancy into a licence merely by calling it one. But if the circumstances and the conduct of the parties show that all that was intended was that the occupier should be granted a personal privilege with no interest in the land, he will be held only to be a licensee:' In Cobb v. Lane, which is also a decision of the Court of Appeal, the testatrix bought a house for her brother's daughter, the possession of the house being given to the brother, who never paid anything for its use and occupation. On the death of the testatrix, her executor sued the brother for possession of the house, whose contention that he was in occupation as a tenant at will was, negatived by the Court. Denning, L. J., observed in this case also that the question is one of intention, that is: "Did the circumstances and the conduct of the parties show that all that was intended was that the occupiers should have a. personal privilege with no interest in the land." Issav v. Hotel De Paris Ltd., is the case of the premises which were not subject to Rent Restriction Laws. The case came to the judicial Committee of the Privy Council on appeal from a decision of the Federal Supreme Court of the West Indies. In this case, the respondent let the appellant into occupation of the first floor of the respondent's hotel, where the appellant established and managed a night bar, for which he obtained in his own name, and at his own expense put in stock of liquor. Subsequently, to resolve the disputes between the parties, draft of an agreement was prepared which, however, was, not completed into a contract. But the appellant remained in occupation of the first floor and ran the night bar; paid all expenses, took all the profits and paid 25A a month as rent to the respondent. It was contended that the arrangement had all the indicia of a monthly tenancy in that there was not only exclusive possession but also the payment of expenses and of rent by the appellant. Lord Denning, M. R., giving the opinion of the Judicial Committee, rejected this contention and stated that there were many cases where exclusive possession had been given, yet the Courts had held against the existence of a tenancy. The learned Master of the Rolls in this connection relied on the decisions in Errington v. Errington and Woods and Cable v. Lane and observed further that even payment and acceptance of rent, though of great weight, is not decisive of tenancy if it can be otherwise explained.

11. The test whether a particular relationship is that of landlord and tenant, or licensor and licensee, is best stated in the following words of Lord Greene, M. R., in the decision of the Court of Appeal in Booker v. Palmer (P L D 1964 S C 106): "Whether or .not parties intend to create as between them selves the relationship of landlord and tenant, under which an estate is created in the tenant and certain mutual obligations arise by implication of law, must in the last resort be a question of intention . . . . There is one golden rule which is of very general application, namely; that the law does not impute intention to enter into legal relationships where the circumstances and the conduct of the parties negative any intention of the Kind." In the Supreme Court decision in Abdullah Bhai v. Ahmed Din ((1942) 2 A E L R 674) their Lordships succinctly stated the distinction between a lease and licence in this way‑"A criterion for distinction between a lease and licence is . . . whether any right in immovable property itself, a right in rein, has passed to the person concerned." It should be noted that in this case the respondent had exclusive pos session of the shop for a definite period under a written agreement, but he, was held to be a licensee, as no interest in immovable property had been found to have passed to him. The review of all these cases brings out one rule to test whether an arrange ment is a license, or a lease or its assignment, or a sub‑lease. This rule is‑whether it is the intention of the parties that an estate or a right in immovable property should pass to the person concerned, and whether such interest or estate has in fact passed to such person. The determination of the question would depend on the facts, circumstances and conduct of the parties in each case.

12. In cases where a lessee enters into a partnership with others and lets the firm into possession of the premises held on lease by the lessee, the question would be what was the intention of the parties with regard to the demised premises when they entered into the legal relationship of partnership and, further, whether the lessee had parted with, or divested him self of, the legal possession of the demised premises in favour of the firm. This parting with legal possession should be such as to create' an interest in immovable property, a right in re In all the partners, so as to create in them unity of title, unity of interest, unity of possession as well as every part as of the whole demised premises, so that all the partners become co lessees. Further, parting with possession and letting the firm into use as tenant of the demised premises, or creation of interest in immovable property by way of lease, should not be readily construed, particularly in cases of premises subject to Rent Restriction Laws, if the facts can be held to be consistent with some other relationship or arrangement. On these tests, it cannot be held in the instant case that the respondent No. 1, by entering into partnership, passed any interest in land to the respondents Nos. 4 and 5 so as to make them co‑lessees of the shop with the respondent No. 1, nor can it be inferred from the partnership deed that the respondent No. 1 parted with the legal possession of the shop. The term of the deed, particularly clause 5, are very clear on this point, and are expressly indicative of the condition that the firm was not let into the shop as transferee of the lease or as sub‑lessee, but only as licensee. Under clause 5, the tenancy of the shop is saved in the respondent No. 1's favour and on dissolution of the partnership, the respondents Nos. 4 and 5 are required to vacate the shop without making arty claim thereto. The arrangement contained in the partnership deed can reasonably be held to be consistent with the grant of a licence only to the, firm to use the shop for its business.

13. In view of the above discussion, the questions which :I formulated above, have to' be answered in favour of the res pondent No. 1, and this leads to the conclusion that the respondent No. 1, has neither transferred his rights under the lease, nor sublet the shop, to the firm in which he is a partner with the respondents Nos. 4 and

5. In the result, the appellant has failed to establish that the respondent No. I is liable to be evicted from the said shop under section 13 (2) (ii) (a) of the West Pakistan Urban Rent Restriction Ordinance, 1959, The appeal therefore, fails and is dismissed with costs in favour of the respondents Nos. 1, 4 and

5. No order as to costs is made in favour of respondents Nos. 2 and 3 as they have remained absent from these proceedings. S.A. H. Appeal dismissed.