Quality Cut Pieces And Etc. Etc. vs M. Laxmi And Co. on 26 April, 1984 – Case Summary

In the case of Quality Cut Pieces And Etc. Etc. vs M. Laxmi And Co. on 26 April, 1984, the Bombay High Court was tasked with examining a complex dispute that had its roots in the economic aftermath of World War II. The case was presided over by Justice V.V. Vaze.

Background and Facts

In the summer of 1942, a group of seven businessmen from various sectors, including pharmaceuticals, textiles, tea, banking, and insurance, came together to form a company named Departmental Service Stores Limited (DSS). Their vision was to create a large-scale departmental store in India, similar to the ones in western countries, to facilitate the free flow of goods and merchandise once the sea routes reopened post-war.

However, the company faced several hurdles, including restrictions on issuing shares under Rule 94A of the Defence of India Rules. After overcoming these challenges and raising capital, DSS acquired premises and started operations. The company made a modest profit in its first ten months of operation.

Issues and Court Observations

The case primarily revolved around the nature of the agreements between DSS and the merchants operating within its stores. The court had to determine whether these agreements constituted a lease or a license. This distinction was crucial as it would determine the rights and obligations of the parties involved, particularly in relation to the Rent Control Acts.

The court referred to the Supreme Court’s decision in Sohanlal Naraindas v. Laxmidas Raghunath, which outlined the tests to determine whether an agreement operates as a lease or a license. The court noted that the intention of the parties, as gathered from the terms of the agreement and the surrounding circumstances, is crucial in making this determination.

The court also examined whether the parties could “contract out” of the provisions of the regulatory legislation pertaining to urban tenancies. It referred to the UK case of Sheel-Mex and B.P. Ltd. v. Manchester Garages Ltd., where it was held that parties could agree either on a license or a tenancy, and if they agreed on a license, the licensee would not be protected under the Landlord and Tenant Act, 1954.

The court also addressed the argument that the agreements between DSS and the merchants were ‘sham and bogus’. It referred to the case of Somma v. Hazelhurst, where it was held that if parties genuinely intend to create a license and not a lease, their agreement should not be dismissed as a sham merely because the court disapproves of the bargain.

Conclusion

The court, after a detailed examination of the facts and circumstances, concluded that the agreements between DSS and the merchants did not create a lease but a license. The court noted that DSS maintained control over the premises, including the timings of the stores, the deployment of staff, and the advertisement and sales promotion. The court also noted that DSS had the final say in the matter of the stores’ timings and had complete control over the ingress and egress of the stores.

This case serves as a significant precedent in determining the nature of agreements in the context of departmental stores and the rights and obligations of the parties involved. It underscores the importance of the intention of the parties and the actual terms and conditions of the agreement in determining whether it constitutes a lease or a license.