Supreme Court Rejects Amendment in Property Dispute: Licensees Cannot Challenge Mortgages

The case of Asian Hotels (North) Ltd. vs. Alok Kumar Lodha & Ors. revolves around a long-standing property dispute in which shop licensees sought to challenge mortgages created by the hotel property owner. The Supreme Court ruled that the license holders had no legal right to challenge the mortgages and overturned the Delhi High Court’s decision allowing amendments in the plaint. This judgment provides crucial clarity on property rights, mortgage challenges, and contractual obligations between landlords and license holders.

Background of the Case

The appellant, Asian Hotels (North) Ltd., granted licenses for individual shops in its premises from 1983 onward to various shopkeepers, including the respondent, Alok Kumar Lodha. The dispute began when, on May 29, 2020, the hotel served a revocation notice to terminate the licenses. Similar notices were issued to other shop licensees, leading to multiple legal suits before the Delhi High Court.

The shopkeepers (licensees) filed commercial suits seeking:

A declaration that their licenses were irrevocable and perpetual.
That the revocation notices were illegal and void.
A declaration that the licensees had the right to occupy the premises until formal transfer documents were executed.

During the litigation, the shop licensees filed applications under Order 6 Rule 17 and Order 1 Rule 10 of the Code of Civil Procedure (CPC) to:

Amend the plaint to challenge the mortgages created by Asian Hotels in favor of banks.
Implead financial institutions and banks as defendants in the suits.

The High Court allowed these applications, leading the hotel to file an appeal before the Supreme Court.

Key Legal Issues

Can shop licensees challenge the mortgages created by the property owner?
Were the amendments sought by the plaintiffs valid in law?
Did the Delhi High Court err in allowing amendments that changed the nature of the suits?
Should mortgagee banks be impleaded as defendants in the case?

Arguments Presented

Petitioner’s (Asian Hotels) Arguments:

The mortgages were created as early as 1982, long before the license agreements were executed.
The license agreements explicitly allowed the property owner to create and continue mortgages.
The shopkeepers had no privity of contract with the banks and, therefore, could not challenge the mortgages.
The amendments fundamentally altered the nature of the suit, making it a mortgage dispute rather than a license revocation matter.

Respondent’s (Shop Licensees) Arguments:

The mortgages were illegally created and affected their rights as perpetual licensees.
The mortgage transactions should have considered the rights of the shop licensees.
Since the shopkeepers were asserting ownership rights, it was necessary to implead the banks in the proceedings.
The amendments were essential to fully adjudicate their claims over the property.

Supreme Court’s Observations and Ruling

The Supreme Court ruled in favor of Asian Hotels and struck down the amendments allowed by the High Court. Key observations include:

The shop licensees were aware of the mortgages when they signed the agreements.
The license agreements explicitly preserved the right of the property owner to create and continue mortgages.
The amendments sought by the licensees would completely change the nature of the suit from a license dispute to a mortgage dispute.
The banks and financial institutions had no contractual obligations to the license holders and should not have been impleaded as defendants.

The Court stated:

“The plaintiffs are not at all concerned with the mortgages created by the appellant, which is required for the continuous development of the hotel.”

It further held:

“The amendments fundamentally alter the cause of action and introduce a new dimension to the suit, which is impermissible in law.”

The Supreme Court quashed the High Court’s order and dismissed the shopkeepers’ applications for amendment.

Key Takeaways from the Judgment

License holders cannot challenge mortgages created by property owners unless they have a direct legal interest.
Courts must be cautious in allowing amendments that change the fundamental nature of a suit.
Privity of contract is a crucial legal principle in property and mortgage disputes.
Mortgagee banks cannot be dragged into unrelated property disputes between landlords and tenants/license holders.

Impact of the Judgment

The ruling provides clarity on the rights of license holders versus property owners.
It reinforces the sanctity of mortgage agreements and financial institutions’ rights.
The judgment will guide future cases where shopkeepers or tenants attempt to challenge property transactions.
Property owners can now rely on this ruling to prevent unauthorized legal challenges to their financial arrangements.

Conclusion

The Supreme Court’s verdict in this case reinforces the distinction between license holders and property owners, ensuring that mortgage agreements remain legally protected. By rejecting the amendments, the Court upheld the principle that changes in pleadings must not fundamentally alter the nature of a suit. This ruling will serve as a significant precedent in future property disputes, particularly those involving mortgages and third-party claims.

Petitioner Name: Asian Hotels (North) Ltd..
Respondent Name: Alok Kumar Lodha & Ors..
Judgment By: Justice M.R. Shah, Justice B.V. Nagarathna.
Place Of Incident: Delhi.
Judgment Date: 12-07-2022.

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