Leasehold Rights Expire with Lease Period: J&K High Court in Case Against J&K State Financial Corporation

High  Court orders removal of machinery and return of property, affirming leasehold rights’ termination post-lease. The High Court of Jammu and Kashmir and Ladakh at Jammu, in a pivotal judgment on May 17, 2024, ruled that the J&K State Financial Corporation’s possession of property post-lease expiry is invalid. The court, led by Justice Rajnesh Oswal, stressed that the Corporation’s mortgage rights expired with the lease, directing it to return the property to the petitioners within 90 days.

The case stems from a dispute over property initially leased by the petitioners, Kulbhushan Khullar and others, to M/s Kushal Confectionary and Pharma Ltd. In 1983 for 25 years. The lease included a clause permitting the lessee to mortgage the leasehold rights to the J&K State Financial Corporation. Despite the lease’s expiration in 2008, the Corporation took possession in 2013 to recover an outstanding loan. The petitioners challenged this action, asserting their ownership rights post-lease expiry.

Leasehold Rights and Expiry: The court scrutinized the lease agreement and subsequent mortgage deed. Justice Oswal remarked, “The limited interest of the respondent-corporation in the mortgaged property ceased to exist after the expiry of the lease.” The court declared the Corporation’s possession post-lease as illegal.

Rights of Lessee: Under Section 108(h) of the Transfer of Property Act, lessees can remove structures they built during the lease period but lose further rights post-lease. The court referenced the Supreme Court ruling in K.A. Dhairyawan v. J.R. Thakur, noting, “The lessee can remove all structures and buildings erected by them on the demised land before the expiry of the lease.”

Justice Oswal highlighted the legal boundaries of the lease agreement and mortgage deed. He stated, “The respondent-corporation was aware of the lease’s expiry and still took possession six years post-expiry, which is impermissible under the law.”

“The respondent No. 1 cannot claim the possession of the demised premises leased out by the petitioners to respondent No. 4 for a period of 25 years after the expiry of the lease period,” Justice Oswal emphasized, underlining the illegality of the Corporation’s actions post-lease.

The High Court’s decision not only corrects the wrongful possession by the J&K State Financial Corporation but also sets a precedent reinforcing the termination of leasehold rights post-lease. This judgment is expected to influence future cases involving lease agreements and mortgage rights, emphasizing strict adherence to lease terms and proper property rights transfer.

Date of Decision: May 17, 2024