Contractual irrevocability of licence and no security interest in flat upheld under leave and licence arrangement.
A licence may be made irrevocable by contract, and a transferee of the property takes subject to that contractual restraint; the transferee cannot revoke the licence merely by reason of transfer. Clause 28 was construed to include both the security deposit and the contractual interest accruing on it, because the agreement required the deposit to bear and carry interest after default. The leave and licence document did not create a mortgage, charge or lien over the flat, as there was no express or implied intention to make the property security for repayment and the agreement consistently disclaimed any interest in the property.
Issues: (i) Whether parties may by agreement make a licence irrevocable or irrevocable only until specified conditions occur, and whether a transferee of the property is bound by such an arrangement; (ii) whether the expression "security deposit" in Clause 28 includes interest on the deposit; (iii) whether the leave and licence agreement created a mortgage, charge or lien over the flat.
Issue (i): Whether parties may by agreement make a licence irrevocable or irrevocable only until specified conditions occur, and whether a transferee of the property is bound by such an arrangement.
Analysis: The statutory scheme of the Easements Act recognises revocability of a licence in the stated contingencies, but the Court held that nothing in the Act excludes a contractual stipulation making a licence irrevocable or limiting revocation to specified circumstances. The Court relied on binding precedent to hold that such contractual terms are enforceable between the parties. On transfer of the property, the transferee does not acquire a better right than the transferor and is not entitled to revoke a licence which, by contract, remains irrevocable.
Conclusion: Yes. The licence could be made irrevocable by contract, and the transferee was bound by that contractual arrangement.
Issue (ii): Whether the expression "security deposit" in Clause 28 includes interest on the deposit.
Analysis: Clause 28 had to be read with the clauses dealing with the deposit and post-expiry consequences. The Court held that the expression "the entire security deposit" was not confined to the principal alone, because the same clause provided that after default the deposit would "bear and carry" interest until repayment. The contractual language showed that the post-default amount was intended to comprise both the principal and the accruing interest.
Conclusion: Yes. The security deposit included the contractual interest payable on it.
Issue (iii): Whether the leave and licence agreement created a mortgage, charge or lien over the flat.
Analysis: The Court found no intention, express or implied, to make the flat security for repayment of the deposit. The document was consistently framed as a leave and licence agreement, repeatedly denied creation of any interest in the property, and was executed and registered as such under the Maharashtra Rent Control Act. The surrounding circumstances and the pleadings also showed that the claim of mortgage, charge or lien was an afterthought. Since intention to create security is essential for a mortgage or charge, and a mere right to remain in possession does not itself create such security, the agreement could not be treated as an anomalous mortgage, charge or lien.
Conclusion: No. The agreement did not create a mortgage, charge or lien over the flat.
Final Conclusion: The licensee's contractual right to continue in occupation until refund of the deposit and interest was upheld, but the agreement was held to be only a leave and licence arrangement and not a security interest in the property.
Ratio Decidendi: A licence may be made irrevocable by contract, and a transferee takes the property subject to such contractual rights, but a mortgage or charge cannot be inferred unless the parties intended the property to stand as security for repayment of the debt.
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