Tenant’s Right to Purchase Leasehold Land: Key Ruling in Bharat Petroleum Case

The case of Bharat Petroleum Corporation Limited vs. R. Chandramouleeswaran and Others revolves around a critical question of tenancy rights in leasehold properties under the Madras City Tenants’ Protection Act, 1921. This case primarily deals with the rights of tenants to seek ownership of leased land and whether oil companies leasing land for petrol stations qualify for such protection.

The appeals, filed by Bharat Petroleum Corporation Limited, Indian Oil Corporation Limited, and Hindustan Petroleum Corporation Limited, were against landlords who sought eviction of these companies after the expiry of lease agreements. The core issue was whether these tenants (oil companies) had the statutory right to compel landlords to sell the leased land to them under Section 9 of the Act.

Background of the Case

The oil companies had entered into long-term lease agreements with private landlords, upon which they constructed petrol stations. Some of these leases were renewed after the nationalization of these oil companies under the Burmah Shell Acquisition Act, 1976, Caltex Acquisition Act, 1977, and Esso Acquisition Act, 1974. However, all leases had eventually expired, prompting landlords to file eviction suits.

To counter eviction, the oil companies invoked Section 9 of the Madras City Tenants’ Protection Act, seeking to buy the leased land at a court-determined price, arguing that they had built permanent structures on the land.

Legal Issues Considered

• Whether oil companies qualify as ‘tenants’ under the Act.
• Whether long-term commercial tenants constructing petrol pumps can claim statutory protection under Section 9.
• Whether tenants seeking land ownership must be in ‘actual physical possession’ of the premises.
• Whether the retrospective amendments to the Act applied to the oil companies.

Arguments by the Petitioner (Oil Companies)

• The oil companies argued that they had constructed permanent structures on the leased land and should be entitled to purchase the land under Section 9.
• They contended that they qualified as tenants as per the broad definition under Section 2(4) of the Act.
• They relied on amendments to the Act, which extended its benefits to tenants in municipal towns and townships, including commercial properties.

Arguments by the Respondents (Landlords)

• The landlords argued that the oil companies were not in ‘actual physical possession’ of the premises, as the petrol stations were operated by dealers.
• They contended that the Act was intended to protect residential tenants, not large corporations engaged in commercial activities.
• They further pointed out that under the original terms of the lease agreements, the oil companies had agreed to vacate upon expiry.

Supreme Court’s Observations

• The Court emphasized that the Act was originally enacted to protect residential tenants who had constructed homes on leased land, not large commercial enterprises.
• It held that under Section 2(4)(ii)(b), only tenants who continued in ‘actual physical possession’ of the property could seek protection under the Act.
• The Court noted: ‘The words “actual physical possession” are strong and emphatic. The legal position must be determined by factual occupation, not theoretical ownership.’
• Since the petrol stations were being operated by third-party dealers under dealership agreements, the oil companies were deemed not to be in ‘actual physical possession.’

Final Judgment

The Supreme Court dismissed the appeals, ruling that the oil companies were not entitled to purchase the leased land under the Act. It upheld the landlords’ right to evict them, stating:

‘The appellant-tenants would not be entitled to the benefit and rights under the Act unless they are in actual physical possession of the buildings constructed by them.’

This judgment sets a crucial precedent, clarifying that large commercial tenants, especially those subletting to third parties, cannot invoke tenancy protection laws intended for individual tenants. The ruling protects landlords from forced sales of their property under outdated tenancy laws.

Petitioner Name: Bharat Petroleum Corporation Limited.
Respondent Name: R. Chandramouleeswaran and Others.
Judgment By: Justice N.V. Ramana, Justice Sanjiv Khanna, Justice Krishna Murari.
Place Of Incident: Madras (Chennai), Tamil Nadu.
Judgment Date: 28-01-2020.

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