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PETITIONER:

MALPE VISHWANATH ACHARYA & ORS.

Vs.

RESPONDENT:

STATE OF MAHARASHTRA & ANR.

DATE OF JUDGMENT: 19/12/1997

BENCH:

B.N. KIRPAL, M. SRINAVASAN

ACT:

HEADNOTE:

JUDGMENT:

WITH

(WRIT PETITION (C) NOS. 17 AND 824 OF 1996)

THE 19TH DAY OF DECEMBER, 1997

Present:

Hon'ble the Chief Justice

Hon'ble Mr. Justice B.N. Kirpal

Hon'ble Mr. Justice M. Srinivasan

F.S. Nariman, Sr. Adv., Mulraj Shah, P.H. Parekh,

Jagdish Karia, Subhash Sharma, Ms. Dhun Chapgar, Ms. Sunita

Sharma, Nikhil Sakhardande, Sameer Parekh, Advs. with him

for the appellants.

M.S. Nargolkar, Sr. Adv., D.M. Nargolkar, S.M. Jadhav, Advs.

with him for the Respondents.

M.N. Shroff, Adv. for K.V. Sreekumar, Adv. for Intervenor.

J U D G M E N T

The following Judgment of the Court was delivered:

With

WRIT Petition @ Nos. 17 and 824 of 1996

Kirpal, J.

Lex injusta non est lex', unjust laws are not laws, is

what is being contended by the landlords in their challenge

in these appeals, and the connected writ petitions, to the

validity of the relevant provisions of the Bombay Rents,

Hotel and Lodging House Rates Control Act, 1947 (hereinafter

referred to as 'the Bombay Rent Act') in so far as it

provides that landlords cannot charge rent in excess of the

standard rent.

The appellants are landlords or their representatives

of different premises in Bombay which have been given on

rent to various tenants. They had filed in the High Court of

Bombay writ petitions challenging the constitutional

validity of Section 5(10) (B), Section 11 (1) and Section

12(3) of the Bombay Rent Act, inter alia, on the ground that

the said provisions pertaining to standard rent were ultra

vires Articles 14, 19 and 21 of the Constitution anc

consequently void. The main challenge to the said provisions

was on the ground that the restriction on the right of the

Landlords to increase rents, which ha been frozen as on 1st

September, 1940 or at the time of the first letting, was no

long a reasonable restriction and the said provisions had,

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with the passage of time, become arbitrary, discriminatory,

unreasonable and consequently ultra vires Article 14 of the

Constitution. By the impugned judgment the High Court

dismissed the writ petitions, inter alia, holding that the

object of the Bombay Rent Act was not to provide to the

landlord an adequate return on its investment and it was not

open to him to claim an increase in the rent by taking into

account the increase in the land privies etc. The Court also

observed that the writ petitions lacked particulars in order

to satisfy the Court that the relevant provisions of the

Bombay Rent Act were unreasonable or arbitrary.

The Bombay Rent Act came into force on 13th February,

1938 This Act was meant to be a temporary measure. The

original act was enacted only for two years, with a power to

the Government to extend the same by notification in this

behalf. this Act has been extended from time to time a least

on twenty occasions and the present extension remains in

force upto 31st March, 1998. Sections 5(10), 7, 9(b) and

11(1)(a) which are being impugned in the present cases read

as follows:

"5(10) "Standard rent" in relation

to any premises means-

(a) Where the standard rent is

fixed by the Court and the

Controller respectively under the

Bombay Rent Restriction Act, 1939,

or the Bombay Rents, Hotel Rates

and Lodging House Rates (control)

Act, 1944, such standard rent; or

(b) when the standard rent is not

so fixed,-

subject to the provisions of

section 11,-

(i) the rent at which the premises

were let on the first day of

September 1940,

(ii) where they were not let on the

first day of September 1940, the

rent at which they were last let

before that day, or

(iii) where they were first let

after the first day of September

1940, the rent at which they were

first let or

(iii-a) notwithstanding anything

contained in paragraph (iii), the

rent of the premises referred to in

sub-section (1A) of section 4

shall, on expiry of the period of

five years mentioned in that sub-

section, not exceed the amount

equivalent to the amount of net

return of fifteen per cent, on the

investment in the land and building

and all the outgoing in respect of

such premises: or]

(iv) on any of the cases specified

in section 11, the rent fixed by

the Court;

7. [(1)] Except where the rent is

liable to periodical increment by

virtue of an agreement entered into

before the first day of September

1940, it shall not be lawful to

claim or receive on account of rent

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for any premises any increase above

the Standard rent, unless the

landlord was, before the coming

Standard rent, unless the landlord

was, before the coming into

operation of this Act, entitled to

recover such increase under the

provisions of the Bombay Rent

Restriction Act, 1939, or the

Bombay Rents, Hotel Rates and

Lodging House Rates (Control) Act,

1944 or is entitled to recover such

increase under the provisions of

this Act [either before or after

the commencement of the Bombay

Rents, Hotel and Lodging House

Rates Control (Amendment) Act,

1986].

(2) (a) No person shall claim or

receive on account of any license

fee or charge for any premises or

any part thereof, anything in

excess of the standard rent and

permitted increase(or, as the case

may be, a proportionate part

thereto), for such premises if they

had been let, and such additional

sum as is reasonable consideration

for any amenities or other services

supplied with the premises.

(b) All the provisions of this Act

in respect of the Standard rent and

permitted increases in relation to

any premises let, or if let, to a

tenant, shall mutatis mutandis

apply in respect of any license fee

or charge and permitted increases

and the additional sum mentioned

above ].

9.(b) Before making any increase

under clause (a), the landlord

shall obtain a certificate from the

local authority that he was

required by it to make or to

provide such additions, he was

required by it to make or to

provide such additions,

alterations, improvements or

amenities and has completed them in

conformity with its requirements.

11.(1) [ Subject to the provisions

of section 11A in any of the

following cases the Court may, upon

an application made to it for that

purpose, or in any suit or

proceedings, fix the standard rent

at such amount as, having regard to

the provisions of this Act and

circumstances of the case, the

Court deems just-

Where any premises are first let

after the first day of September

1940 and the rent at which they are

so let is in the opinion of the

Court excessive; or

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Where the Court is satisfied that

there is no sufficient evidence to

ascertain the rent at which the

premises were let in any one of the

cases mentioned in [paragraphs (1)

to (iii) of sub-clause (10) of

Section 5; or

Where by reason of the premises

having been ; let at one item as a

whole or imparts and at another

time in parts or as a whole, or for

any other reason, any difficulty

arises in giving effect to this

Part; or

Where any premises have been or are

let rent-free or at a nominal rent

or for some consideration in

addition to rent; or

Without prejudice to the provisions

of sub-section (1A) of section 4

and paragraph (iii-a) of sub-clause

(b) of clause (10) of Section 5,

where the Court is satisfied that

the rent in respect of the premises

referred to therein exceeds the

limit of standard rent laid down in

the said paragraph (iii-a); or

Where there I any dispute between

the landlord and the tenant

regarding the amount of standard

rent,

Section 10 provides for an increase in rent where after

the commencement of the Bombay Rents, Hotel and Lodging

House Rates Control (Amendment) Act, 1986 a landlord is

required to pay any fresh rate, cases, charges, tax land

assessment, ground rent of land or any other levy on lands

and buildings. Section 10 A enables the landlord to make an

increase in the rent of the premises by a percentage

specified therein in respect of those premises which were

let on or before the first day of September 1940. Section

12, inter alia, provides that ordinarily there shall be no

ejectment of a tenant if he is ready to pay or is willing to

pay the standard rent with permitted increase in the manner

provided therein.

From the aforesaid provisions it is clear that in so

far as the question of fixation of standard rent is

concerned when the Act was enacted the premises fell into

two categories; (a) those let on 1st September, 1940 and;

(b) those let for the first time after 1st September, 1940.

According to Mr. Nariman these provisions provide as under:

A. Premises let out before 1st

September, 1940.

In respect of (a) i.e. premises let

out on or before 1.9.1940. rent

paid on that date is the standard

rent.

i) and thus the ret is pegged at

the rent paid as on 1.9.1940,

subject to the increases mentioned

below.

ii) Those increases are of three

types:

a) those permitted U/s 10A

In respect of premised let on or

before 1.9.1940; increases are

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permitted to the extent of 5% to

7.5% over the standard rent for

residential premises:

And 7.5% - 12.5% in respect of non-

residential premises-

This is a one time permitted

increase.

b) Increase on account of heavy

repairs, additional amenities and

repairs required to be carried out

under requisition from local

authorities; increase in monthly

rent is permitted to the extend of

15% per year on the actual cost

incurred without interest (Section

9)

c) Increase in ground rent, in

respect of leasehold premises paid

to the government, local authority

and statutory authority is allowed

to be passed on to the tenant by a

proportionate increase in monthly

rent (Section 10)

d) increase in amount of property

taxes after 13.2.1948 is allowed

to be passed on to the tenant by a

proportionate increase in monthly

rent (Section 10)

The cost which have to be absorbed

and borne by the landlord (without

entitlement to pass on to tenants)

therefore:

Entire cost of "tenantable" repairs

U/s 23, which if the landlord does

not carry out, and the tenant

carries out the same, the tenant is

permitted to deduct and recover the

same from the landlord from year to

year to the extent of 3 months rent

in a year together with interest at

the rate of 15% p.a.; under Section

23 as amended in 1987 by

Maharashtra Act No. 18 of 1987.

Landlord has had to bear the repair

cases from 1.1.1970: first levied

under the Bombay Building Repair

and Reconstruction Board Act, 1969

replaced by Maharashtra Housing and

Area Development Act, 1976 ( MHADA)

- to the extent of 10% of the

"ratable" value ( 8.5% of actual

rent in a year), which in effect

works out to one month's rent in a

year.

50% of the total tax levied in lieu

of the abolition of the Inami

tenures ( w.e.f. 1.4.1971) under

Bombay city (Inami & Special

tenures) Abolition and Maharashtra

Land Revenue Code (Amendment ) Act,

1969; Sections 7,8,10.

In case of leasehold land, the

increase in ground rent paid by the

landlord to private parties, i.e.

parties other then Government,

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total authority, statutory

authority, etc. the entire increase

is to Be borne by the landlord and

no part of it can be passed on to

tenant. ( This is the effect of

Section 10 as amended by

Maharashtra Act No. 18 of 1987.)

B. Premises let out for the first

time after 1.9.1940-such premises

fall into 2 categories;

a) Where the landlord is himself

the owner of the building in which

flats are let to different tenants

mostly from 1940-1950.

b) Where the landlord is himself a

member of a co-operative housing

society and holds the flat as owner

member; but has let out the flat to

a tenant - the rent will stand

frozen at the amount paid on the

date of the first letting; by

reason of the definition of

"standard rent" under Section 5

(10) (b)(iii) of the Act ("where

they were first let after the first

day of September, 1940 the rent at

which they were first let"). These

are "ownership flats" in

"cooperative society buildings"

constructed in the post -1950

period. Almost all constructions

after 1950 are on this pattern.

c) In the decades of the fifties,

sixties and seventies, the landlord

member is invariably out of pocket

as the ever increasing amounts of

the outgoing and maintenance paid

to the Society are invariably more

than the actual amount of rent

received ( which had been frozen at

first letting)/

In the decade of the eighties and

the nineties however, the amount of

the first letting being

considerably higher, this incidence

does not occur. Since increase in

maintenance charges is absorbed in

the amount of rent fixed.

In both classes of cases i.e. the

premises let on or before 1st

September, 1940 and premises let on

or after 1.9.1940, there are no

statutory provisions which entitle

the landlord to move the Count for

an increase in standard rent. The

Scheme of the Act negatives any

such right (see Section 5 (10) read

with Sec. 11(1)(a)).

Mr. F.S. Nariman, learned senior counsel on behalf of

the appellants submitted that a legislation which, when

enacted, was justified on considerations of necessity and

expediency may, with the passage of time, become arbitrary

and unreasonable in changing circumstances. In view of the

constant escalation in privies due to inflation and

corresponding fall in the value of the rupee, ceiling on

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rentals, such as the one imposed by Section 5 (10)(a) and

(b) read with Section 7 and 11 of the Bombay RENT Act, is

totally arbitrary and unrealistic and , therefore,

unreasonable.

In reply it was submitted by Mr. N.S. Nargolkar,

learned senior counsel for the respondents that the writ

petitions which were filed by the appellants did not give

sufficient details as regards the rents which they were

receiving from the tenanted premises. It was, therefore,

contended that the claims made were hypothetical as there

was no sufficient material to decide the truth of the

assertions made by the appellants as regards negative

returns from their rented properties. It was further

submitted by the learned counsel that the respondent - State

has become aware of the rising prices at least since 1986

and this had resulted in Maharashtra Act 18 of 1987 being

passed whereby the Bombay Rent Act was amended. It was

contended that an important concession which was made by the

Amending Act was the introduction of Section 4 (1) A, which

provided that the provisions relating to standard rent and

permitted increases was not to apply for a period of five

years to any premises the construction or reconstruction of

which was completed on or after the appointed date, namely,

1.10.1987. This Amending Act also introduced Section 9

which; allowed to landlord to increase the rent for an

improvement or structural alteration of the premises,

excepting repairs under, Section 23 of the Bombay Rent Act.

Furthermore, it was submitted that the amended Section 6

also entitled to landlord to increase the rent by addition

of an amount not exceeding 15 per cent of the expenses

incurred on account of special addition or special

alterations or additional amenities, improvements or

structural alterations. The landlord was further entitled to

temporarily increase the rent at a rate not exceeding 18 per

cent of the standard rent for special or heavy repairs.

Reference was also made to Section 10 and 10A introduced by

the Amending Act of 1986 whereby landlord could increase the

rent in case he was required to pay fresh rates, charges

etc. to the Government or if he was required to cover the

increase in water and electricity charges. The learned

counsel reiterated that the State was aware and conscious

about the problem of the landlords and was proceeding in the

right direction to obviate their difficulties. In this

connection the attention of the Court was invited to the

constitution of a committee headed by Mr. V.K. Tembe in 1979

for the purpose of preparing a Unified Rent Control Act for

the entire State. The State Law Commission had examined the

recommendations of the Tembe Committee and submitted its

report. The Cabinet Sub- Committee had considered this

report as well as the Model Rent Control Bill, forwarded to

it by the Central Government, and this had resulted in a new

Rent Control Bill being introduced in the upper house of the

State Legislature in July, 1993. This bill has been referred

to the Select Committee and it was accepted that the reading

of the bill clause will be commenced in the State

Legislature.

There is considerable judicial authority in support of

the submission of learned counsel for the appellants that

with the passage of time a legislation which was justified

when enacted may become arbitrary and unreasonable with the

change in circumstances in the State of Madhya Pradesh Vs.

Bhopal Sugar Industries [ (1964) 6 S.C.R. 846 ] dealing with

a question whether geographical classification due to

historical reasons would be valid this Court at page 853

observed as follows:

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"Differential treatment arising out

of the application of the laws so

continued in different regions of

the same reorganised State, did not

therefore immediately attract the

clause of the Constitution

prohibiting discrimination. But by

the passage of time, considerations

of necessity and expediency would

be obliterated, and the grounds

which justified classification of

geographical regions for historical

reason may cease to be valid. A

purely temporary provision which

because of compelling forces

justified differential treatment

when the Reorganisation Act was

enacted cannot obviously be

permitted to assume permanency, so

as to perpetuate that treatment

without a rational basis to support

is after the initial expediency and

necessity have disappeared."

In Narottam Kishore Dev Varma and Ors. Vs. Union of

India and Anr. [(1964) 7 S.C.R. 55] the challenge was to the

validity of Section 87 B of the Code of Civil Procedure

which granted exemption to the rulers of former India State

from being sued except with the consent of the Central.

Government, Dealing with this question it was observed at

page 60 as follows:

" If under the Constitution all

citizens are equal, it maybe

desirable to confine the operation

of s.87B to past transactions and

not to perpetuate the anomaly of

the distinction between the rest of

the citizens and Rulers of former

Indian States. With the passage of

time, the validity of historical

considerations on which s. 87B is

founded will wear Civil Procedure

may later be open to serious

challenge."

In H.H. Shri Swamiji of Shri Admar Mutt etc. Vs. The

Commissioner, Hindu Religious & Charitable Endowments

Department and Ors. [ (1980) 1 S.C.R. 368] this Court was

called upon to consider the validity of the continued

application of the provisions of the Madras Hindu Religious

Endowment Act, 1951 in the area which had formerly been part

of State of Madras and which had latter become part of the

new State Of Mysore ( now Karnataka ) as a result of the

State Re- Organisation Act, 1956. In this connection at page

387-388 it was observed by this Court as follows:

An indefinite extension and

application of unequal laws for all

time to come will militate against

their true character as temporary

measures taken in order to serve a

temporary purpose. Thereby, the

very foundation of their

constitutionality shall have been

destroyed the foundation being that

section 119 of the State

Reorganisation Act serves the

significant Purpose of giving

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reasonable time to the new units to

consider the special circumstances

obtaining in respect of diverse

units. The decision to withdraw the

application of unequal laws to

equals cannot be delayed

unreasonably because of the

relevance of historical reasons

which justify the application of

unequal laws is bound to wear out

with the passage of time. In

Broom's Legal; Maxim ( 1939

Edition, page 97) can be found a

useful principle "Cessante Ratione

legis Cessat Ipsa Lex", that is to

say, "Reason is the sour of the

law, and when the reason of any

particular law ceases, so does the

law itself".

This Court in Motor General Traders and Anr. Etc. etc.

Vs. State of Andhra Pradesh and Ors. Etc. etc. ()1984) 1

S.C.R. 594] had to consider the validity of Section 32B of

the Andhra Pradesh Building (Lease, Rent and Eviction)

Control Act, 1960. This section provided that the Act would

not apply to buildings constructed after 26th August, 1957.

This exemption had continued for nearly a quarter of a

century and it was argued that because of shortage of

housing accommodation since the section had been valid from

the commencement of the Act, therefore, it could not be

struck down at any time after it came into force. While

referring to earlier decisions in Bhaiyalal Shukla Vs. State

of Madhya Pradesh [(1962) Suppl. 2 S.C.R. 257] and Bhopal

Sugar Industries Ltd. (supra) it was observed at page 606 as

follows "what may be unobjectionable as a transitional or

temporary measure at an initial stage can still become

discriminatory and hence violative of Article 14 of the

Constitution of it is persisted in over a long period

without any justification." Dealing with the contention that

the impugned provisions had been in existence for over 23

years and had once been held to be valid by the High Court

and therefore this Court should not pronounce upon its

validity at this late stage, it was observed at page 614

that "what was justifiable during a short period has turned

out to be a case of hostile discrimination by lapse of

nearly a quarter of century... We are constrained to

pronounce upon the validity of the impugned provision at

this late stage because of grab of constitutionality which

it may have possessed earlier has become worn out and its

unconstitutionality is now brought to a successful

challenge".

In Rattan Arya and Ors. Vs. State of Tamil Nadu and

Anr. [(1986) 3 SCC 385 ] this Court had to consider the

validity of Section 30 (ii) of the Tamil Nadu Buildings

(Lease and Rent ) Control Act, 1960 which provided that

tenants of residential building being monthly rent exceeding

Rs. 400 were exempted from the protection of the Act whereas

no such restriction was imposed in respect of tenants of

non- residential buildings under the said Act. Holding that

the tenants of the residential buildings required greater

protection and that there was no justification in picking

out the class of tenants of residential buildings paying a

rent of more than Rs. 400/- per month and to deny them the

right conferred generally on all tenants of buildings,

residential or non-residential, and for this reason holding

Section 30 (ii) of the Said Act as being violative of

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Article 14 at page 389 and 390 it was observed as follows:

"It certainly cannot be pretended the provision is

intended to benefit the weaker sections of the people only.

We must also observe here that whatever justification there

may have been in 1973 when Section 30 (ii) was amended by

imposing a ceiling of Rs. 400 on rent payable by tenants of

residential buildings to entitle them to seek the protection

of the Act, the passage of time has made the ceiling

utterly unreal. We are entitled to take judicial notice of

the enormous multifold increase of rents throughout the

country. Particularly in urban areas. it is common knowledge

today that the accommodation which one could have possible

got for Rs. 400 per month in 1973 will today cost at least

five times more. In these days of universal, day to day

escalation of rentals any ceiling such as that imposed by

Section 30 (ii) in 1973 can only be considered to be

totally artificial and irrelevant today. As held by this

court in Motor General Traders v. State of A.P. a provision

which was perfectly valid at the commencement of the Act

could be challenged later on the ground of

unconstitutionality and struck down on that basis. What was

once a perfectly valid legislation, may in course of time, i

become discriminatory and liable to challenge on the ground

of its being violative of Article 14".

Lastly reference need be made to be made to Synthetics

and Chemicals Ltd. and Ors. Vs. State Of U.P. and Ors.

[(1990) 1 SCC 109] where at pages 156-157 it was observed

that "restriction valid under one circumstance may become

invalid in changed circumstances". Reliance in support of

this view was not only placed on some American decisions but

also on the decision of this Court in Motor General Traders

case (supra).

Mr. Nargolkar referred to the decision of this Court in

Sant Lal Bharti Vs. State of Punjab [(1988) 2 S.C.R. 107]

and contended that the ratio of the said decision is clearly

applicable to the present case. In Sant Lal's case a two

Judge Bench of this Court was called upon to consider the

validity of Section 4 of the East Punjab Urban Rent

Restriction Act, 1949, which inter alia, provided that in

determining the fair rent the rent controller shall fix the

basic rent by taking into consideration the prevailing rates

of rent in the locality for the same or similar

accommodation in similar circumstances during a twelve

months prior to 1st January, 1939. It was held in that case

that the act in question had been passed in 1949 and it

pegged the rent prevalent for similar houses in 1938 and as

such it was not unreasonable per se. Even though there was

an increase in the rents after the second world war and the

partition of the country, it was held that fixing of the

rents at the 1938 level could not be regarded as

unreasonable when one of the objects of the act was to

restrict the increase by providing for certain provisions as

to fixation of a fair rent. In that case the main emphasis

of the appellants was to assail Section 4 by comparing the

said law with the legislation of different states. There was

no argument raised or considered, as is being done in the

present case, while relying on the decision of a Three Judge

Bench in the cases of Rattan Arya, Motor General Traders and

Synthetics and Chemicals (supra) that with the passage of

time and with the consequent change of circumstances the

continued operation of an act which was valid when enacted

may become arbitrary and unreasonable.

The aforesaid decisions clearly recognise and establish

that a statute which when enacted was justified may, with

the passage of time, become arbitrary and unreasonable. It

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is, therefore, to be seen whether the aforesaid principle is

applicable in the instant case. Can it be said that even

though the provisions relating to the fixation of standard

rent were valid when the Bombay Rent Act was passed in 1947

the said provision, as amended, can still be regarded as

valid now?

Reports of different committees and resolutions of the

minsters have been placed on record in an effort to show

that these official agencies have, since over the last two

decades, themselves felt that increase in rents was called

for. The correctness or the authenticity of this material

has not, in any way been doubted an therefore we see no

reason as to why this cannot be taken into consideration in

order to determine whether the submission of Mr. Nariman

merits acceptance. Reference may now be made to some of this

material:-

1. A rent act inquiry committee of 1977 commonly known as

Tembe Committee, was constituted by the Government of

Maharashtra which in its report submitted in the same

year recognised that the pegging down of the rents to a

date nearly thirty years back (at that time) had

deprived the property owners of a reasonable return on

their properties commensurate with the increase in the

cost of living and the cost of building materials. It

recognised that there were several small property

owners all over the State who had invested the life

time savings in building houses partly for the

residence and partly for being let out in order to

assure a steady income in old age. As a result of rent

control act, the return they got is inadequate even for

subsistence because of the step increase in the cost of

living. In para 6 (10) it observed that " having regard

to the general increase in the cost of living, the

Committee is of the view that there is a case for some

general increase although not to the extent claimed by

the property owners as the period of twenty years has

elapsed since the last increase was allowed.

2. The Maharashtra State Law Commission which submitted

its report in the year 1977 recommended the increase in

the rents in the following terms "the commission, feels

that there is immediate need for reasonable increase in

standard rent."

3. In the 12th report of Maharashtra State Law Commission

1979 on the rent control legislation para 91 dealing

with this aspect reads as follows:

" The Commission does not want the

rents to be static for long. The

inflationary trend reflected by the

rising consumer price index numbers

at all centers in the State makes

it imperative to make an objective

assessment of the situation at

regular intervals so that the

remedial action may be possible by

periodical variation in rents

according as the situation

demanded. Suggestions for such

periodical survey was also made to

the Commission by various

representatives in evidence. The

Commission by various

representatives in evidence. The

Commission feels that such a

periodical survey would be much

helpful in maintaining the balance

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between the landlord and the

tenant. The possibility of the

inflationary the landlord and the

tenant. The possibility of the

inflationary trend receding in

future - though such possibility is

not easy to entertain - cannot be

totally ruled out, in which case

the rents could be brought down to

as reasonable level. if on the

other hand, the inflationary trend

continues unabated, then a

reasonable rent increase may have

to be resorted to . it is true that

the Govt. can always take stock of

the situation and come up with an

appropriate measure to meet the

situation at any given time. But

the Commission does not want to

leave the matter to an action being

thought of by the Government. The

Commission thinks that it would be

proper to make a specific provision

in the unified Act which would cast

an obligation on the Government to

hold periodical reviews and to take

effective actions for rent

variations according as the

circumstances may warrant."

The Commission further stated:

" In big cities like Bombay, a

large number of slums have come

into existence. if the rigorous of

the Rent Act had not been there,

new houses would have been

constructed. At present 30 lakhs of

people in the city of Bombay stay

in slums and 11/2 lakh on pavement.

If new buildings had been

constructed, people who stay in

slums today might have been in a

position to get some decent

accommodation.

It was further stated

"The increase in the standard rent

must be considered from the point

of view of the Consumer Price

Index.

" It was pointed out to the

Commission that 46 percent of the

lands belong to low income group,

27 percent belong to middle income

group, and only 25 per cent belong

to the higher income group. These

figures will indicate that 75 per

cent of the so-called landlords are

really people who depend upon the

rent of the property for their

livelihood. To designate them as

'landlords' itself is undesirable.

When one considers the financial

position of the tenants, compared

to the positions in 1940s, one

clearly sees that the monthly

income of these tenants has gone up

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from 100 to 400 at least. However,

there has not been a proportionate

increase in the rents."

4. A Report of Economic Administrative Reforms Commission

on Rent Control (commonly known as L.K. Jha Committee) was

presented to the Government of India in September 1982. In

paragraph 51 of the said report, it stated as follows:

" We now turn to the problem of

existing tenancies. Many of these

are very old and the rents were

fixed a few decades ago. These old

an frozen rents bear little

relation to the present day

maintenance costs, or to the

current returns from alternative

investments, or to the prevailing

market rents in respect of new

accommodation. In the case of new

construction we have suggested that

the periodical revision of rents

should be based on a partial

neutralisation of the effects of

inflation. Applying the same

principle to existing tenancies

where rents have remained frozen

for at least 5 years, what needs to

be done is to update those rents by

neutralising 50 per cent of the

inflation which has taken place

from the time of initial

determination of those rent upto

the present time."

The report further reads as under:

"Similarly in the case of existing

tenancies, all that needs to be

done is to provide a formula for

updating the old frozen rents, and

thereafter periodically revising

them."

5. On 21/22.5.1987 a conference of the Housing Ministers

of all the States was held to discuss various problems.

Decisions taken at that Conference were recorded in the form

of resolutions. With regard to Rent Control the unanimous

resolution at the conference of Housing Ministers reads as

under:

"RESOLUTION NO. IV RENT CONTROL

4.1. Realising the existing Rent

Control Laws, have resulted in:

(i) disincentive to further

investment in construction of

houses for rental purposes;

(ii) neglect of timely repairs and

maintenance of existing rental

housing stock; and

(iii) debilitating the resources of

municipal bodies by virtually

freezing their income from property

taxes which are based on rateable

values.

4.2 This conference urges upon the

Government of India to formulate

and communicate to the State

Governments for necessary action

suitable guidelines as soon as

possible during the current year

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for their consideration so as to

provide for the expeditious

amendment of Rent control Laws wit

a view to providing for:

(a) a reasonable return on

investment in housing which will be

comparable to, if no more

favourable then, the return from

and other avenues of investment,

(b) periodical upward revision of

rents to neutralise the crosion in

the real value of rents

(c) enabling expeditious

resumptions of possession of a

dwelling units for self occupation

by a landlord who is the owner of

only one such dwelling unit;

(d) delinking of municipal property

taxation from reteable values to

the extent they are regulated by

the Rent Control Laws,

(e) Leave and licence system,

(f) period tenancy,

(g) protection to tenants from

arbitrary eviction,

(h) exemption from the provisions

of the Act of new construction less

than 5 years,

(i) obviating delays in ligation by

laying down suitable expeditious

procedures, only one appeal to a

higher authority instead of multi-

level appeals constitution of

tribunals to deal with disputes

arising under the Act and barring

the jurisdiction of Civil Court

Act. "

6. In the Letter dated 24.7.1987 from the Ministry of Home

Affairs Government of India while communicating President's

assent to 1987 amendment to the Bombay Rent Act it was

stated as follows:

"It is suggested that the State

Government may make subsequent

amendments to the principal Act

preferably within next 6 months by

incorporating the following

recommendation of the above

conference ( Housing Ministers

conference).

(a) Periodical upward revision of

rents to neutralise the erosion in

the real value of rents."

7. A conference of Chief Ministers of all states was held

at New Delhi in 1992. One of the topics discussed pertained

to static rents and the problems arising therefrom. A

unanimous recommendation of this conference made on 9.3.1992

in this regard was as under:

" 4.3 The frozen rents have led to

emergence of practices like key

money. this apart from creating a

block market in rental housing, the

Act has reduced the accessibility

of low income groups to rental

housing, as they cannot afford to

pay large deposits for rented

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premises."

4.4 The widening divergence between

the interests of landlords and

tenants has not only led to

increased litigation under Rent

Control Acts ( the rent control

cases make for a majority of the

cases in courts) but also to

increased crimes.

A large number of criminal cases

have their origin in disputes over

rented properties."

The recommendation further reads:

" The important principle is that while the tenant will

enjoy security of tenure is controlled premises, he should

agree to pay a rent that provides adequate return on

investment and provides for proper maintenance and taxes, so

that he does not enjoy an unfair advantage over the

landlord."

A perusal of the aforesaid extracts of reports and

resolutions clearly demonstrates that since the last two

decades the authorities themselves seem to be convinced that

the pegging down of the rents to the pre war stage and even

thereafter, is no longer reasonable. Unfortunately apart

from lip service little of note has been done. Even the Rent

control Bill introduced in 1993 has not yet become law.

It was submitted by Mr. Nariman that even after the

promulgation of the Rent Control act 1948 during the 1950s

and 1960s there was not much escalation in the market rents.

The rents which were determined during this period has

become the standard rent by virtue of the definition in

Section 5 (10) of the Bombay Rent Act. In the last few

years, due to rapid inflation there has been step escalation

of the expenses which the landlords have to incur without

there being any corresponding increase in the rents. This

has resulted, it was submitted, in the buildings not being

repaired as the expenses involved made it uneconomical for

the landlords to undertake this task.

As already noticed it had been contended by MR.

Nargolkar that realising the need being there for providing

some relief to the landlords amendments amendments were made

in the Bombay Rent Act in 1987. it was submitted that as a

result of these amendments the landlords will be able to

charge more rents and it cannot now be said that the Rent

Control Act is not valid.

It is true that some amendments were made in 1987 which

clearly indicate that the State Legislature was conscious of

the fact that there was a need to increase the standard

rent. The question, however, is whether the exercise which

was undertaken was merely cosmetic or did it bring about any

tangible increase in the standard rent. section 4 (10)A was

incorporated which provides that the provisions relating to

standard rent would be inapplicable for a period of five

years in respect of premises constructed or reconstructed

after the appointed date, namely,. 1.10.1987. Once this

'holiday' comes to an end the tenant would be entitled to

get the standard rent fixed. The amendment of 1987 does not

do away with the principle of pegging down of the rent at a

rate when the premises are first let out. Increase in the

cost of maintenance or fall in the value of money or the

rise in the cost of index does not entitle a landlord to any

increase. There has been no other material change in the act

in this behalf. What the Amending Act of 1987 has done is

merely to consolidate and rearrange the sections of the

earlier act. Provisions contained in the present Sections 9,

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10 and 10A were found earlier, prior to the amendment in

1987, in Sections 10, 10A, 10AA, 10AAA, 10C, 10D, 10E, and

10G. The only change introduced in these sections was that

the rate of return on the expenses incurred for additional

amenities for heavy repairs has been increased. The

following tabulated comparative statement of the relevant

provisions before and after 1.10.1987 will bring out the

effect of the alteration, if any.

Tabulated Cooperative Statement

------------------------------------------------------------

After Amending Before Amending

Act 1987 Act of 1987

------------------------------------------------------------

S.9 (1) increase in rent on Identical provision in

S.9

account of structural which is there in the

original

alterations or improvement Act since 1948.

made with Tenants' written

consent.

S.9 (2) increase on account of Similar provision in S.

10D(1)

special additions or additional which was introduced in

1953.

amenities.

S.9(3) increase on account of Similar provision in S.

10D(4)

additions, improvements or which was introduced in

1953.

additional amenities.

f

S.9 (3)(a)- Temporary increase Similar provision in S.

10E

is rent in account of special introduced in 1964.

or heavy repairs.

S.10- Increase in or fresh Similar provision in S.10

rate, cess, charge or tax (since inception of Act)

S.10A

paid to local authority. ( introduced in 1949),

S.10AA

( introduced in 1953)

S.10AAA

(introduced in 1962).

S.10 increase in rent on S. 10G introduced in 1973

account of increase in ground permitted recovery of one

rent paid to Govt. local third of increase.

authority or statutory

authority.

During the course of his arguments Mr. Mr. Nariman filed a

statement indicating the financial impact of the rent

restriction provisions on the assumption that the monthly

rent on 1.9.1940 was Rs. 100. This statement takes into

account the permitted increases incorporated in the Act

including that of 1987 from time to time. The submission was

as follows:

Assumption: that monthly rent on

1.9.1940 was Rs. 100 (exclusive of

Municipal taxes) This is an

accurate approximate average of

rents paid in September 1940 in

respect of flats of large areas

situated in good localities.

1(a) From September 1940 till

13.21948, when the Rent Act came

into force, the landlord continued

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to retain Rs. 100/- since the

burden of tenantable repairs was on

the tenant under Section 108 (m) of

the T.P. Act.

(b) After 13.2.1948 this burden has

been transferred to the landlord

(section 23): From 1.10.1987 upto

date, the tenant is permitted to

carry out " tenantable repairs" and

recover the entire cost with

interest at 15% per annum by

deducting an amount equivalent to 3

months rent in a year.

(c) Hence invariably the landlord

gets 25 per cent less than Rs.

100/- (Rs. 1200/- per year reduced

to Rs. 900/- per year) as

"tenantable repairs" are

necessarily recurring in old

buildings, and the cost of

tenantable repairs keeps rising.

2. From 1.1.1970 onward the

landlord has had to bear

continuously ten per cent of

"rateable value" (equivalent to

8.5% of the yearly rent) as "repair

cess" i.e. one month's rent in a

year.

3. Thus in case of all buildings

constructed prior to 1.1.1970-(date of levy of compulsory repair

cess - they constitute majority of

buildings in all urban areas the

landlord retains only 8 months rent

in hand every year as against 12

months rent he was getting in

September 1940:-

(a)) this is without taking into

consideration further inroads as a

result of ground rent paid in

respect of private leasehold lands

where increase in ground rent is

not permitted to be passed on

effect of Section 10)

(b) this is also without taking

into 'account ever increasing

outgoings and maintenance charges

paid to co-operative Housing

Societies by landlord members: not

permitted to be passed on to

tenants.

4. Meanwhile all this is further

accentuated by the fall in the

value of the rupee and rise in the

wholesale price index which has

totally eroded the amount

receivable as rent in the hands of

the landlord.

(A) taking base in 1940 at Rs.

100/- the value of the rupee in

1996 was only Rs. 1.5 in 1996

(B) in 1940 the wholesale price

index was 13.2. This has risen to

876 by 1996 66 time

(C) Value of one rupee silver coin

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of 1940, as on the 5th Dec. 1992

was Rs. 44/-

(D) Price of silver on 30.12.1939

was Rs. 52 per kg. It rose to Rs.

6945 per kg. On 31.12.1996, that

is, by 130 times.

5. Thus if in 1940 the landlord was

getting Rs. 1200/- per year as rent

(exclusive of Municipal taxes in

1996 or 1997 he is getting Rs. 800

per year and in terms of value of

rupee in 1940, this amount of Rs.

800 works out to only Rs. 12.12

(800/66)- against Rs. 1200 he was

getting in 1940."

To put simply in a tabulated from the following is the

comparative position of rent between 1940 and 1997 and the

amount retained by the landlord

Per Month

------------------------------------------------------------

1940 1997

------------------------------------------------------------

1) Rent per month inclusive of

Municipal Taxes (Rs.) 100 170.09

2) Amount of Municipal Taxes

to be paid by Owner (Rs.) 21.54 103.47

3) Amount of repair cess to be

paid by Owner (Rs.)

@ 10% of rateable value Nil 7.62

4) Amount retained by owner after

payment of Municipal taxes &

repair cess (Rs.) 78.46 64.00

N.B. No correction has been made for:-

1) The inflation/fall in purchasing value of the rupee

which was about 66 times between 1940 & 1996 and the

value of Rs. 100 in 1940 has come down to Rs. 1.5 in

1996.

2) Further in 1940 the tenants could not deduct any amount

towards repairs but under Section 23 of the Rent Act in

1997 they can deduct 3 months Rent per year.

The aforesaid illustration, which has not been

seriously disputed, clearly brings out the arbitrariness of

the standard rent provisions contained in the Bombay Rent

Act. It is true that the aforesaid illustration has

references to the monthly rent of Rs. 100 as on 1.9.1940

and does not relate to the premises which are let out after

the Act had come in force. As far as Section 5 (10) is

concerned the standard rent of the premises let out after

1.9.1940 is that rent at which the premises were fist let.

Even so with the rapid increase in the expenses for repair

and other outgoings and the decreasing net amount of rent

which remains with the landlord, clearly shows that the non

provision in the Act for reasonable increase in the rent,

with the passage of time, is leading to arbitrary results.

This is also demonstrated from the facts in the case of

petitioner no.3 who owns Unit No. A-18 on the first floor

admeasuring 808 sq. ft. in the property known as Shri Ram

Industrial Estate situated at 13 J.D. Ambedkar Road, Mumbai.

The said building belongs to a cooperative society and unit

no.A-18 was given on lease and license basis b an agreement

dated 23rd August, 1964 by the appellant to Lokmitra

Sahakari Printing and Publishing Society ltd. on a monthly

compensation of Rs. 686.80 per month. Liabilities of repairs

is on the appellant and according to it this amount received

in respect of the said unit by the appellant is Rs. 563 . 65

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per month inclusive of all taxes. Out of this sum the

appellant no. 3 has to pay Rs. 216.33 as municipal taxes

leaving a balance of Rs. 320.22. From this amount the

society outgoings is Rs. 250 per month, leaving a balance of

only Rs. 70.20 per month with the said appellant. Another

instance which has been given is that of appellant no.4 who

owns a property known as Ram Mahal situated at 8, Dinshaw

Vachha Road, Mumbai. The said building has 20 residential

flats and the building was purchased by appellant no. 4 in

the year 1955, although it had been constructed prior to

1940, Flat no. 15 on the 5th floor of the said building had

been let out by the previous owners to M/s Bennet Coleman &

Co. Ltd., who were the sitting tenants at the time when the

property was purchased. The flat measures 1710 sq. ft. and

monthly rent for the same is Rs. 460 per month inclusive of

permitted increase and repairs. According to the appellant

the income by way of rent has remained constant while the

expenditure has been increased and the total gross rent of

the building which he receives is Rs. 1,72,032 per annum

while it incurs an annual expenses of Rs. 1,93,245

consisting of BMC taxes, repairs, ground rent, maintenance

charges inclusive of small electricity bill and the

insurance premium. He is, therefore, suffering a loss of Rs.

21,213 every year. It is not necessary to examine the

correctness of these details except to note that what was

reasonable on 1st September, 1940 or in 1950s or in 1960s

can no longer be regarded as reasonable at this point of

time.

That the tenants are, by and large, now getting an

unwarranted benefit or windfall can also be illustrated by

taking an example of hypothetical tenant, i.e., an Assistant

in the Government of India posted at Bombay in the year

1948. At that time the pay scale of the Assistant was Rs.

160-10-300-15-450+20% H.R.A. + Rs. 15.50 C.C.A. On the basis

that he was drawing the maximum of scale, his total monthly

emoluments would be Rs. 485.50 and if he had in 1948 taken

premises on rent at Rs. 100/- per month, he would be paying

approximately 20% of his total emoluments by way of rent,

without taking into consideration any deduction for repairs.

That Assistant in 1997, after the report of 5th pay

Commission, would get a maximum basic salary of Rs. 9000+

30% H.R.A.+ Rs. 200 P.M. as CCA making the total emoluments

of Rs. 11900/- P.M. After taking into consideration the 1987

increase in rent, he would be paying about Rs. 170 p.m. in

respect of the same premises instead of Rs. 100/- which he

was paying in 1948. This enhanced rent, would, however,

represent only 0.9% of his salary. With the passage of time,

the percentage of rent which would be paid by that

hypothetical tenant would have gone down from 20% of his

total salary to only 0.9% and this wold be the case of most

of the tenants as we can take judicial notice of the fact

that from 1948 till now, incomes have increased

considerably, whereas the rent has increased only from Rs.

100/- p.m. to Rs. 170/- p.m.

On the other hand, in the aforesaid example, the

hardship to the landlord is that it was only in 1940 that he

had agreed to accept rent of Rs. 100 p.m. That was the real

income from rent which he had agreed to receive. Now with

the increase in taxes etc., he gots only Rs. 54 p.m. whereas

n 1940, he got Rs. 100 minus Rs. 21.54 (municipal tax ) i.e.

Rs. 78.46. So not only is he getting lesser amount in hand

but in terms of real value, after taking inflation into

account, he is getting only a pittance. For Rs. 100 p.m. of

gross rent which he was getting in 1940, he now in 1997 gets

a gross rent of about Rs. 170 which in real money terms,

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after taking the inflation into account, will be only about

Rs. 2/- P.M. of the 1940 value. Had the Rent Control Act not

been in force the landlord today may have been able to get

todays equivalent of Rs. 100 of 1940 as rent i.e. about Rs.

6650 p.m.

It is true that one of the reasons for enacting the

rent control legislation is to prevent exploitation of the

tenants by the landlords. One of the protections which has

been provided to the tenants in the rent legislation

throughout the country is the concept of standard rent. Each

State has definite laws with regard thereto. In some case,

like in Delhi, the rent control act is not applicable if the

rent is Rs. 3500/- or more while in the other states rent

control act is not applicable to certain categories of

persons. In the Bombay Rent Act, with which we are

concerned, the standard rent as on 1st September, 190 or the

first rent of the premises which was let out thereafter is

the standard rent. The paging down of rent, coupled with the

inability of the landlord to evict the tenants, has given

rise to unlawful tendencies. In the statement of objects and

reasons annexed to the L.A. Bill No. 79 of 1986 introduced

in the Maharashtra Legislature providing for amendment to

the Bombay Rent Control Act with regard to clause 3 it was,

inter alia, stated as follows:

" The freezing of standard rent

prevailing on the 1st September,

1940 has deprived the landlords of

getting reasonable and adequate

return to undertake maintenance and

repairs to the old buildings.

Despite the penal provisions in the

Act for charging any premium from a

tenant, such freezing of rent

results in charging 'pugree" or

deposit or similar illicit payment

which are widely prevalent. The

con-structio of new tenements on

rental basis has considerably

caused with the result that low and

middle income groups are not

getting premises on

rent............... "

(emphasis added)

Notwithstanding the fact that the State Legislature was

conscious of the illegal payments which are made because of

the rent restriction law no effective steps have been taken

so far to strike a balance between the interests of the

landlords and the tenants.

It is true that whenever a special provision, like the

rent control act, is made for a section of the Society it

may be at the cost of another section, but the making of

such a provision or enactment may be necessary in the larger

interest of the society as a whole but the benefit which is

given initially if continued results in increasing injustice

to one section of the society and an unwarranted largess or

windfall to another, without appropriate corresponding

relief, then the continuation of such a law which

necessarily, or most likely, leads to increase in

lawlessness and undermines the authority of the law can no

longer be regarded as being reasonable. Its continuance

becomes arbitrary.

The Legislature itself, as already noticed hereinabove,

has taken notice of the fact that puggrie system has become

prevalent in Mumbai because of the rent restriction act.

This Court was also asked to take judicial notice of the

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fact that in view of the unreasonably low rents which are

being received by the landlords, recourse is being taken to

other methods to seek redress. These methods, which are

adopted are outside the fore corners of the Law and are

slowly giving rise to a state of lawlessness where, it is

feared, the courts may become irrelevant in deciding

disputes between the landlords and tenants. This should be a

cause of serious concern because if this extn judicial back-

lash gathers momentum the main sufferers will be the

tenants, for whose benefit the Rent Control Acts are framed.

In so far as social legislation, like the rent control

act is concerned, the law must strike a balance between

rival interests and it should try to be just to all. The law

ought not to be unjust to one and give a disproportionate

benefit or protection to another section of the society.

When there is shortage of accommodation it is desirable,

nay, necessary that some protection should be given to the

tenants in order to ensure that they are no exploited. At

the same item such a law has to be revised periodically so

as to ensure that a disproportionately larger benefit them

the one which was intended is not given to the tenants. It

is not as if the government does not take remedial measures

to try and offset the effects of inflation. In order to

provide fair wage to the salaried employees the government

provides for payment of dearness and other allowances from

time to time. Surprisingly this principle is lost sight of

while providing for increase in the standard rent-the

increase made even in 1987 are not adequate, fair or just

and the provisions continue to be arbitrary in todays

context.

When enacting socially progressive legislation the need

is greater to approach the problem from a holistic

perspective and not to have a narrow or short sighted

parochial approach. Giving a grater than due emphasis to a

vocal section society results not marly in the miscarriage

of justice but in the abdication of responsibility of the

legislative authority. Social Legislation is treated with

deference by the Courts not merely because the Legislature

represents the people but also because in representing them

the entire spectrum of views is expected to be taken into

account. The legislature is not shackled by the same

constraints as the courts of law. But it's power is coupled

with a responsibility. It is also the responsibility of the

Courts to look at legislation from the alter of Article 14

of the Constitution. This article is intended, as is obvious

from its words, to check this tendency; giving under

performance some over others.

Taking all the facts and circumstances into

consideration we have no doubt that the existing provisions

of the Bombay Rent Act relating to the determination and

fixation of the standard rent can no longer be considered to

be reasonable. The said provisions would have been struck

down as having now become unreasonable and arbitrary but we

think it is not necessary to strike down the same in view of

the fact that the present extended period of the Bombay Rent

Act comes to an end on 31st march, 1998. The government's

thinking reflected in various documents itself shows that

the existing provisions have now become unreasonable and,

therefore, require reconsideration. The new bill is under

consideration and we leave it to the legislature to frame a

just and fair law keeping in view the interests of all

concerned and in particular the resolution of the State

Ministers for Housing of 1992 and the National Model law

which has been circulated by the Central Government in 1992.

We are not expressing any opinion on the provisions of the

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said Model law but as the same has been drafted and

circulated amongst all the States after due deliberation and

thought, there will, perhaps, have to be very good end

compelling reasons in departing from the said Model Law. Mr.

Nargolkar assured us that this Model law will be taken into

consideration in the framing of the proposed new Rent

Control Act.

We, accordingly, dispose of these appeals without

granting any immediate relief but we hold that the decision

of the High Court upholding validity of the impugned

provisions relating to standard rent was not correct. We

however refrain from striking down the said provision as the

existing Act elapses on 31.31998 and we hope that new Rent

Control Act will be enacted with effect from 1st April, 1998

keeping in view the observations made in this judgment in so

far as fixation of standard rent is concerned. It is,

however, made clear that any further extension of the

existing provisions without bringing them in line with the

views expressed in this judgment, would be invalid as being

arbitrary and violative of Article 14 of the Constitution

and therefore of no consequence. The respondents will pay

the Costs.

In view of the aforesaid the writ petitions are

disposed of