A Tenant Cannot Claim Lease Renewal Without Fulfilling Obligations: Andhra Pradesh High Court Rejects BPCL’s 30-Year Extension Plea

"One Cannot Invoke Contractual Rights While Violating Fundamental Terms"  - Andhra Pradesh High Court has ruled that a tenant seeking an automatic lease renewal must comply with contractual obligations and cannot claim an extension while defaulting on rent payments for decades. Dismissing the second appeal filed by Bharat Petroleum Corporation Limited (BPCL), the Court upheld the decisions of the lower courts, which had denied BPCL’s plea for an additional 30-year lease on a 48,000 sq. ft. plot in Visakhapatnam.

Justice Venuthurumalli Gopala Krishna Rao, delivering the judgment in Bharat Petroleum Corporation Limited v. Vedula Eswarudu & Others, made a strong observation:

"The law does not permit a tenant to sit on the property for decades without paying rent and then claim renewal. Lease extensions are not a one-sided privilege; they require mutual consent and adherence to contractual terms."

By rejecting BPCL’s appeal, the Court reaffirmed that merely expressing a desire to renew a lease does not confer an automatic right unless all legal requirements are fulfilled.

A Lease Renewal Clause That Did Not Translate Into a Legal Right
BPCL’s claim was based on a 30-year lease agreement that commenced on April 1, 1964, and expired on March 31, 1994. The lease deed included a renewal clause, stating that if the lessee submitted a written request one month before expiration, the lease would be renewed for another 30 years on the same terms.

BPCL sent a renewal request in September 1993, before the lease’s expiry, but the landowners did not execute a fresh lease agreement. Instead of vacating or negotiating fresh terms, BPCL remained in possession of the property while failing to pay rent from April 1, 1994, onwards.

When the landowners refused to recognize BPCL’s occupancy rights, the corporation filed a suit in 1997, seeking specific performance of the renewal clause and an injunction against eviction. The trial court dismissed the suit, holding that BPCL could not claim renewal while having defaulted on rent for years. The first appellate court upheld this decision, prompting BPCL to file a second appeal before the High Court.

"Lease Renewal Is a Right That Must Be Exercised in Good Faith"
The High Court ruled that BPCL had no legal right to automatic renewal because it had failed to meet its primary contractual obligations—paying rent and obtaining the landowners’ agreement.

Justice Rao, analyzing the lease agreement and BPCL’s conduct, stated: "A renewal clause does not function in a vacuum. It is a contractual right that must be exercised in good faith, with compliance to legal and financial obligations. BPCL’s continued possession without paying rent is an act of breach, not a ground for renewal."

The Court rejected BPCL’s argument that its letter in 1993 constituted a valid renewal request under the lease deed, stating: "A renewal request must be followed by due diligence, payment of rent, and a formal lease execution. Mere correspondence cannot override the requirement of mutual consent."

The Court further observed that BPCL’s letter was not sent to all co-owners of the property, making its renewal request legally incomplete.

Statutory Protections Cannot Be Invoked to Override Contractual Obligations
BPCL invoked the Burmah Shell (Acquisition of Undertakings in India) Act, 1976, arguing that its leasehold rights had transferred to the Central Government and subsequently to BPCL, giving it a statutory option to renew.

The High Court rejected this claim, holding that the Act does not grant an unconditional right to renewal and that even a statutory tenant must act in fairness. Citing the Supreme Court’s ruling in Bharat Petroleum Corporation Limited v. Maddula Ratnavalli & Others (2007) 6 SCC 81, the Court ruled: "Statutory protections cannot be used as an indefinite shield to retain possession while disregarding basic contractual obligations. BPCL’s failure to pay rent for 20 years negates any equitable claim for renewal."

Dismissing BPCL’s appeal, the High Court ruled: "A party cannot selectively invoke contractual clauses that favor them while disregarding obligations imposed by the same contract. BPCL’s claim for renewal is legally untenable, and its continued occupation of the property is without lawful justification."

The Court upheld the lower courts' findings, reinforcing that renewal of a lease is a right that must be exercised with integrity, not an entitlement that can be demanded despite contractual breaches.

The Andhra Pradesh High Court’s judgment in Bharat Petroleum Corporation Limited v. Vedula Eswarudu & Others establishes that:

•    A lease renewal clause requires compliance with all contractual conditions, including rent payments.
•    Statutory protections cannot be used to indefinitely extend tenancy without fulfilling legal obligations.
•    Merely expressing a desire to renew a lease does not create an automatic right if mutual consent and financial responsibilities are not met.
Justice Rao, in his concluding remarks, emphasized: "No entity, private or public, can claim rights under a contract while simultaneously violating its fundamental terms. Lease renewals must be pursued with fairness, compliance, and good faith."

This ruling provides a strong legal precedent, ensuring that lease agreements are enforced not based on unilateral claims, but on mutual adherence to contractual responsibilities.
 

Date of Decision: 18 March 2025