RFA 99/2025 Page 1 of 24

* IN THE HIGH COURT OF DELHI AT NEW DELHI

% Reserved on: 6

th

May, 2026

Pronounced on:

31

st

July, 2026

+ RFA 99/2025

SHRI SUNJAY AGGARWAL

S/o Shri R. K. Aggarwal,

R/o C-7, Suvidha Apartments,

Sector-13, Rohini,

Delhi- 110085 .....Appellant

Through: Mr. Shiv Charan Garg, Mr. Imran

Khan, Advocates.

versus

1.RAVI BHUSHAN HUF,

Through its Karta ,

Shri Ravi Bhushan,

S/o Shri Baldev Raj Dhingra,

R/o 63, Edward Line, GTB Nagar,

Kingsway Camp, Delhi-110009

2.Smt. Sapna,

W/o Shri Puneet Chanana,

D/o Shri Baldev Raj Dhingra,

R/o 2069, Outram Lines,

Kingsway Camp,

Delhi-110009 .....Respondents

Through: Mr.Naresh Gupta and Mr. Rachit

Gumber, Advocates.

CORAM:

HON'BLE MS. JUSTICE NEENA BANSAL KRISHNA

J U D G M E N T

NEENA BANSAL KRISHNA, J.

RFA 99/2025 Page 2 of 24

1. The present Regular First Appeal under Section 96 of the Code of

Civil Procedure, 1908 (hereinafter referred to as “CPC”) has been filed on

behalf of the Defendant/Appellant against the Judgment and Decree dated

05.11.2024, passed by the learned District Judge, Delhi, whereby the Suit of

the Plaintiffs/Respondents was partly decreed and the Defendant/Appellant

was directed to pay damages at the rate of Rs.52,200/- per month for the

period commencing from 02.08.2013 till 31.03.2015.

2. The Plaintiffs/Respondents had instituted the Civil Suit bearing CS DJ

No.75770/2016 for recovery of possession, mesne profits and Mandatory

Injunction in respect of the entire basement and ground floor of property

bearing No.2271, admeasuring 160 square yards, situated at Hudson Lines,

Kingsway Camp, Delhi-110009(hereinafter referred to as the “suit

property”).

3. The facts in brief, as stated in the Plaint, are that the Defendant had

taken the suit property on rent under a duly executed and registered Rent

Agreement dated 26.04.2010. The tenancy was created for a period of three

years commencing from 01.04.2010 and ending on 31.03.2013. The last-

paid rent in respect of the Suit Property was Rs.52,200/- per month.

4. The Plaintiffs asserted that the tenancy expired by efflux of time on

31.03.2013, and out of abundant precaution, they served a Legal Notice

dated 10.01.2013 upon the Defendant, calling upon him to vacate and hand

over the possession of the suit property on or before 31.03.2013.

5. In terms of the Rent Agreement dated 26.04.2010, the Defendant was

under an obligation to vacate the suit property and hand over its peaceful

possession to the Plaintiffs, upon expiry of the tenancy. However, despite

the expiry of the stipulated period and the request made by the Plaintiffs on

RFA 99/2025 Page 3 of 24

01.04.2013, the Defendant failed to vacate the suit property. The occupation

of the Defendant with effect from 01.04.2013 was, therefore, illegal and

unauthorised, and in the capacity of a trespasser.

6. Since the Defendant continued to remain in unauthorised use and

occupation of the suit property after 31.03.2013, he was liable to pay mesne

profits/use and occupation charges to the Plaintiffs. According to the

Plaintiffs, the suit property could have fetched a monthly rent of

approximately Rs.1,50,000/- if let out in the open market.

7. It was further averred that in terms of Clause 17 of the Rent

Agreement dated 26.04.2010, the Defendant was liable, in the event of his

failure to vacate the suit property upon expiry or earlier determination of the

tenancy, to pay twice the monthly rent till delivery of possession. On the

strength of the said Clause, the Plaintiffs claimed mesne profits at the rate of

Rs.1,04,400/- per month, describing the said amount as the pre-estimated

liquidated damages agreed between the parties.

8. It was also stated that under Clause 7 of the Rent Agreement dated

26.04.2010, the Defendant was liable to pay the conversion charges in

respect of the suit property to the MCD. The Defendant failed to pay the

conversion charges for the years 2011-2012 and 2012-2013, despite repeated

requests made by the Plaintiffs.

9. The Plaintiffs thus, instituted the Suit seeking recovery of possession

of the suit property, mesne profits/use and occupation charges with effect

from 01.04.2013 till handing over of its vacant possession, and a Decree of

Mandatory Injunction directing the Defendant to deposit the conversion

charges for the years 2011-2012 and 2012-2013, and thereafter, till vacation

of the suit property.

RFA 99/2025 Page 4 of 24

10. The Defendant, in his Written Statement, took the preliminary

objection that the Plaintiffs had suppressed material facts and had not

approached the Court with clean hands. It was asserted that at the inception

of the tenancy, the Defendant had informed the Plaintiffs that he required the

suit property for a minimum period of 15 years, for running an Institute

offering Diploma and Degree Courses in Fashion and Interior Design

Technology.

11. According to the Defendant, though the Plaintiffs expressed their

inability to execute a Lease Deed for 15 years, they represented that a Lease

Deed would initially be executed for a period of three years and would

thereafter be renewed successively, so as to permit the Defendant to remain

in the suit property for the entire period of 15 years. Relying upon the said

assurance, the Defendant agreed to take the suit property on rent. It was thus

asserted that an oral understanding had been arrived at between the parties,

that the tenancy would continue from the year 2001 till the year 2016.

12. Pursuant to the said understanding, successive Rent Agreements were

executed between the parties for the periods 2001 to 2004, 2004 to 2007,

2007 to 2010 and 2010 to 2013. The fifth Rent Agreement was to be

executed for the period 2013 to 2016; however, upon expiry of the Rent

Agreement dated 26.04.2010, the Plaintiffs declined to execute a fresh

Agreement, purportedly to avoid the tax liability arising therefrom, while

assuring the Defendant that he could continue to occupy the suit property till

the year 2016.

13. It was stated that the Defendant had been regularly paying rent and

had never committed any default during the subsistence of the tenancy; that

several students were pursuing ongoing courses at the Institute being run

RFA 99/2025 Page 5 of 24

from the suit property; and that discontinuation of the tenancy prior to the

year 2016, would adversely affect their studies.

14. It was further asserted that the Plaintiffs had continued to accept rent

even after 31.03.2013, and that the tenancy had therefore, not been

terminated by efflux of time. The receipt of the Legal Notice dated

10.01.2013 was denied, and it was asserted that no valid notice terminating

the tenancy had been served upon the Defendant.

15. On merits, the Defendant admitted that he had taken the entire

basement and ground floor of the suit property on rent and that the last-paid

rent was Rs.52,200/- per month. It was, however, denied that the tenancy

had expired on 31.03.2013, and it was asserted that he continued to be a

lawful tenant, pursuant to the oral understanding that the tenancy would

subsist for 15 years.

16. The Defendant denied that his possession of the suit property with

effect from 01.04.2013 was illegal or unauthorised, or that he was liable to

pay mesne profits at the rate of Rs.1,04,400/- per month, or that the Plaintiffs

were entitled to recover any amount over and above the agreed monthly rent,

which was being regularly paid and accepted.

17. The Defendant asserted that the conversion charges payable to the

MCD, had already been deposited by him from time to time. Accordingly,

the Defendant prayed for dismissal of the Suit.

18. The Plaintiffs filed their Replication, wherein they reiterated the

averments made in the Plaint and denied the assertions contained in the

Written Statement.

19. During the pendency of the Suit, the Plaintiffs filed an Application

under Order XII Rule 6 of the CPC, which was allowed vide Order dated

RFA 99/2025 Page 6 of 24

09.07.2014. The Defendant was directed to hand over the possession of the

suit property to the Plaintiffs, and to pay arrears of rent/occupation charges

at the rate of Rs.52,200/- per month with effect from 01.04.2013, and was

further directed to continue paying the said amount from month to month.

20. In compliance with the said Order, the Defendant handed over the

possession of the suit property to the Plaintiffs on 31.03.2015. The

rent/use and occupation charges at the rate of Rs.52,200/- per month till

31.03.2015 were also paid by the Defendant.

21. Consequently, the Suit survived only in respect of the claim for

mesne profits/damages and the relief of Mandatory Injunction pertaining

to the conversion charges.

22. The Issues were initially framed vide Order dated 13.12.2023, and

thereafter Issue No.1 was subsequently reframed vide Order dated

21.08.2024. For the sake of convenience, the Issues were renumbered by the

learned District Judge, as under:

"1. Whether the plaintiff is entitled to the decree of mesne

profits for the period 01.04.2013 till 31.03.2015? OPP

2. Whether the plaintiff is entitled to recovery of interest on

that amount? If so, at what rate? OPP

3. Whether the plaintiff is entitled to the relief of mandatory

injunction as prayed for? OPP

4. Whether the lease was orally extended for another three

years between the parties w.e.f. 01.04.2013 till 31.03.2015?

OPD

5. Relief."

23. In support of their case, the Plaintiffs examined PW-1Sh. Ravi

Bhushan,(Plaintiff No.1)who tendered his evidence by way of affidavit

RFA 99/2025 Page 7 of 24

Ex.PW1/A. He proved the original Rent Agreement dated 26.04.2010 as

Ex.PW1/1; Legal Notice dated 10.01.2013; postal receipts; certified copies

of Lease Deeds dated 23.10.2015, 29.01.2014 and 22.07.2011 as Ex.PW1/1

to PW1/7.

24. In defence, the Defendant examined himself as DW-1 and tendered

his evidence by way of affidavit Ex.DW1/A, on the lines of the case set up

in the Written Statement.DW-1 relied upon the Google Maps printouts

depicting the location of two plots, along with the supporting Affidavit

under Section 63 of the BSA, 2023, collectively exhibited as Ex.DW1/1.

25. The learned District Judge, upon considering the pleadings and

evidence led by the parties, held that the Defendant had failed to prove that

the tenancy had been orally extended till the year 2016. It was observed that

no evidence, except his own testimony, had been led in support of the

alleged oral arrangement and, even in his Affidavit Ex.DW1/A, no specific

plea of oral extension had been taken.

26. Though the Defendant had denied receipt of the Legal Notice dated

10.01.2013, the learned District Judge held that service of summons in the

Suit was sufficient notice for termination of the tenancy under Section 106

of the Transfer of Property Act, 1882. Since the summons had been served

on 18.07.2013, the tenancy was held to have stood terminated on

02.08.2013.

27. As regards the claim for mesne profits, the learned District Judge held

that Clause 17 of the registered Rent Agreement, provided for payment of

twice the monthly rent in the event of failure to vacate the suit property, was

enforceable under Section 74 of the Indian Contract Act, 1872.

RFA 99/2025 Page 8 of 24

28. Since the Defendant had already paid Rs.52,200/- per month till

handing over of possession on 31.03.2015, he was directed to pay an

additional sum of Rs.52,200/- per month as damages for the period from

02.08.2013 till 31.03.2015. The claim for interest on the said amount was,

however, declined.

29. The relief of Mandatory Injunction in respect of the conversion

charges was also declined, as PW-1 had not deposed in respect thereof in

his Affidavit Ex.PW1/A. The production of the receipts during the cross-

examination of DW-1, was held insufficient to prove the said claim.

30. Consequently, the Suit was partly decreed, and the Defendant was

directed to pay damages at the rate of Rs.52,200/- per month for the period

commencing from 02.08.2013 till 31.03.2015.

31. Aggrieved by the impugned Judgment and Decree dated 05.11.2024,

the Defendant/Appellant has preferred the present Regular First

Appeal,principally assailing the award of damages at the rate of

Rs.52,200/- per month for the period from 02.08.2013 till 31.03.2015.

32. The grounds of challenge are that the learned District Judge has

erroneously applied Section 74 of the Indian Contract Act, 1872, to hold that

the Plaintiffs were entitled to recover the amount stipulated under Clause 17

of the Rent Agreement, without proving the actual loss suffered by them or

the prevailing market rent of the suit property.

33. Section 74 of the Indian Contract Act does not entitle a party to

automatically recover the entire amount stipulated by way of penalty, but

only reasonable compensation not exceeding the amount so stipulated. The

Court was, therefore, required to determine reasonable compensation on the

basis of the pleadings and evidence led by the parties. Reliance has been

RFA 99/2025 Page 9 of 24

placed upon M.C. Aggarwal, HUF v. Sahara India, 2011 SCC OnLine Del

3715, to contend that compensation must be assessed having regard to the

circumstances existing on the date of the breach.

34. It is further contended that the learned District Judge failed to

consider the definition of “mesne profits” under Section 2(12) of the CPC,

which contemplates the profits actually received, or which might with

ordinary diligence have been received, by a person in wrongful possession.

According to the Appellant, the amount payable towards mesne profits could

not have been determined merely on the basis of the penal stipulation

contained in Clause 17 of the Rent Agreement.

35. It is asserted that a contractual stipulation providing for payment of

twice the agreed rent, could not have been enforced without examining

whether the stipulated amount constituted a genuine pre-estimate of the loss

likely to be suffered or was merely in the nature of a penalty. Reliance has

been placed upon Maya Devi v. Lalta Prasad, (2015) 5 SCC 588, to contend

that the party claiming liquidated damages was required to plead and prove

that the stipulated amount represented a fair and reasonable pre-estimate of

damages.

36. The Appellant further contends that the Plaintiffs had failed to prove

that the suit property could have fetched rent at the rate claimed by them.

The Lease Deeds Ex.PW1/4 to Ex.PW1/7, relied upon to establish the

prevailing rent of comparable properties, were neither proved through their

executants nor shown to relate to properties similarly situated and

comparable to the suit property.

37. It is also asserted that the suit property was an old and dilapidated

residential property, comprising, inter alia, of a basement. No independent

RFA 99/2025 Page 10 of 24

witness or other cogent evidence had been produced to establish that a

similarly situated property could command rent of Rs.1,04,400/- per month.

38. The Appellant thus, claims that the award of damages was based

solely upon Clause 17 of the Rent Agreement, without any determination of

reasonable compensation or prevailing market rent and was, therefore,

contrary to Section 74 of the Indian Contract Act, 1872 and Section 2(12) of

the CPC.

39. Accordingly the Appellant seeks setting aside of the impugned

Judgment and Decree dated 05.11.2024.

Submissions heard and record perused.

40. The Suit of the Plaintiffs/Respondents having been partly decreed and

possession having already been restored to them, during the pendency of the

Suit, the present Appeal is confined to a singular challenge,namely,

whether the learned District Judge was justified in awarding damages at the

rate of Rs.52,200/- per month for the period from 02.08.2013 till

31.03.2015, in addition to the sum of Rs.52,200/- per month already paid,

for the said period, solely on the strength of Clause 17 of the Rent

Agreement dated 26.04.2010, without independently assessing reasonable

compensation under Section 74 of the Indian Contract Act, 1872, or mesne

profits within the meaning of Section 2(12) of the CPC.

I.Whether Clause 17 was automatically enforceable under Section 74 of

the Indian Contract Act, 1872:

41. Section 74 of the Indian Contract Act, 1872 reads as under:

RFA 99/2025 Page 11 of 24

"74. Compensation for breach of contract where penalty

stipulated for.-When a contract has been broken, if a sum is

named in the contract as the amount to be paid in case of

such breach,or if the contract contains any other stipulation

by way of penalty, the party complaining of the breach is

entitled, whether or not actual damage or loss is proved to

have been caused thereby, to receive from the party who has

broken the contract reasonable compensation not exceeding

the amount so namedor, as the case may be, the penalty

stipulated for."

42. A plain reading of Section 74 makes it evident that the sum stipulated

in the contract does not become automatically recoverable merely upon

proof of breach. The aggrieved party is entitled only to “reasonable

compensation not exceeding” the sum named or the penalty stipulated. The

contractual amount, therefore, constitutes the outer limit of compensation,

while the determination of what would constitute reasonable compensation,

remains an exercise to be undertaken upon consideration of the facts and

material on record.

43. The learned District Judge has, however, treated Clause 17 of the

Rent Agreement as being automatically enforceable upon breach, "whether

or not actual damage or loss is proved", and has held that the Plaintiffs were

entitled to receive the amount stipulated therein, whether or not actual

damage or loss was proved.

44. Such a reading of Section 74 was negatived by the Constitution Bench

of the Supreme Court in Fateh Chand v. Balkishan Das, (1964) 1 SCR 515,

wherein it was held that these words merely dispense with proof of the

precise quantum of loss, and do not dispense with the existence of legal

RFA 99/2025 Page 12 of 24

injury. It was, in terms, observed that Section 74 "does not justify the award

of compensation when in consequence of the breach no legal injury at all

has resulted".

45. The Constitution Bench further held that although the Court's

jurisdiction to award compensation, is unqualified up to the stipulated

ceiling, "compensation has to be reasonable, and that imposes upon the

Court a duty to award compensation according to settled principles".The

Constitution Bench, in the facts before it, held that although a stipulation for

forfeiture of Rs. 25,000/- had been included in the Agreement, and although

the defendant had committed breach, the plaintiff was entitled only to forfeit

the earnest money of Rs.1,000/- as reasonable compensation, and could not

retain the balance sum, no evidence having been led of any loss or damage

to justify a larger figure.

46. In the case of Oil and Natural Gas Corporation Ltd. v. Saw Pipes

Ltd., (2003) 5 SCC 705, the Supreme Court recognised that where the loss

arising from breach is difficult or impossible to quantify and the amount

stipulated represents a genuine pre-estimate which is neither unreasonable

nor penal, the stipulated amount may be awarded ,without independent proof

of the precise quantum of loss. The principle, however, does not dispense

with proof where the loss is capable of being established by evidence.

47. The principles enunciated in Fateh Chand (supra) and Saw Pipes Ltd.

(supra) were thereafter comprehensively restated by the Supreme Court in

Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136.

48. Upon a review of the earlier authorities, the Supreme Court

summarised the law governing compensation under Section 74 in paragraph

43,as under:

RFA 99/2025 Page 13 of 24

"43.1. Where a sum is named in a contract as a liquidated amount

payable by way of damages, the party complaining of a breach can

receive as reasonable compensation such liquidated amount only if it

is a genuine pre-estimate of damages fixed by both parties and found

to be such by the court. In other cases, where a sum is named in a

contract as a liquidated amount payable by way of damages, only

reasonable compensation can be awarded not exceeding the amount

so stated. Similarly, in cases where the amount fixed is in the nature of

penalty, only reasonable compensation can be awarded not exceeding

the penalty so stated. In both cases, the liquidated amount or penalty

is the upper limit beyond which the Court cannot grant reasonable

compensation.

43.2. Reasonable compensation will be fixed on wellknown principles

that are applicable to the law of contract, which are to be found inter

alia in Section 73 of the Contract Act.

43.3. Since Section 74 awards reasonable compensation for damage

or loss caused by a breach of contract, damage or loss caused is a

sine qua non for the applicability of the Section.

…

43.6. The expression 'whether or not actual damage or loss is proved

to have been caused thereby' means that where it is possible to prove

actual damage or loss, such proof is not dispensed with. It is only in

cases where damage or loss is difficult or impossible to prove that

the liquidated amount named in the contract, if a genuine pre-

estimate of damage or loss, can be awarded."

49. It was thus, held that where a sum is named in a contract as liquidated

damages, the party complaining of breach, may receive the stipulated

amount as reasonable compensation only where it represents a genuine pre-

estimate of damages agreed between the parties and is found by the Court to

be such. In all other cases, whether the amount stipulated is described as

liquidated damages or is in the nature of a penalty, only reasonable

compensation may be awarded, not exceeding the amount so stipulated,

RFA 99/2025 Page 14 of 24

which constitutes the upper limit beyond which compensation cannot be

granted.

50. It was further held that damage or loss caused by the breach is a sine

qua non for the applicability of Section 74; and that where it is possible to

prove actual damage or loss, such proof is not dispensed with, and it is only

in cases where damage or loss is difficult or impossible to prove that the

liquidated amount, if a genuine pre-estimate, may be awarded.

51. Thus, two features of Section 74 have consistently been emphasised:

first, that the stipulated amount operates as the outer limit, not the automatic

measure, of compensation; and second, that the dispensation with proof of

"actual damage or loss" does not amount to a dispensation with the

requirement of legal injury.Even where proof of the precise quantum of loss

may be dispensed with because such loss is difficult or impossible to assess,

the Court is not relieved of its obligation to apply its mind to what would

constitute reasonable compensation, in the facts of the given case.

52. In the present case, Clause 17 of the Rent Agreement dated

26.04.2010, provided that in the event of continued occupation, the

Defendant "shall be liable to pay two times of the rent per month payable at

that time".

53. In terms of Section 74 read with the enunciation in Fateh Chand

(supra) and Kailash Nath Associates (supra),insofar as the claim of the

Plaintiffs was founded upon Clause 17, the amount stipulated therein could

operate only as the maximum contractual limit of compensation and not as

its automatic measure.

54. The learned District Judge was required to ascertain reasonable

compensation on the material placed on record, subject to the ceiling of

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Rs.1,04,400/- per month prescribed by Clause 17, and could not have

decreed the said figure mechanically.

II. The meaning and measure of mesne profits under Section 2(12) of the

CPC

55. Section 2(12) of the CPC defines "mesne profits" as under:

"'mesne profits' of property means those profits which the

person in wrongful possession of such property actually

received or might with ordinary diligence have received

therefrom, together with interest on such profits, but shall

not include profits due to improvements made by the person

in wrongful possession."

56. The very definition of mesne profits means the profits which the

person has derived from the wrongful possession of the property. It is,

therefore, evident that the calculation of mesne profits is not of the profits

which the Plaintiff may have derived from sale or otherwise of the property,

but is the wrongful benefit derived by the tenant, who has continued in

unlawful possession.

57. The Supreme Court in Atma Ram Properties (P) Ltd. v. Federal

Motors (P) Ltd., (2005) 1 SCC 705, held that once a tenancy governed by

the Transfer of Property Act, 1882 comes to an end, the erstwhile tenant

becomes liable, for the period during which he continues in occupation, “to

pay damages for use and occupation at the rate at which the landlord could

have let out the premises on being vacated by the tenant”. It was further

held that the landlord is not confined, for such period, to the contractual rate

of rent payable during the subsistence of the tenancy.

RFA 99/2025 Page 16 of 24

58. In Bureau of Indian Standards v. Goodwill Theatres Pvt. Ltd., 2018

(1) RCR (Civil) 400, while referring to the definition of mesne profits under

Section 2(12) of the CPC, mesne profits do not include profits due to

improvements made by the person in wrongful possession, and represent the

value of the usage of the land to the person in wrongful possession. The

reference point for the assessment is, therefore, the value which the person

in wrongful possession has enjoyed by continuing in occupation, which is

ordinarily measured by the rent at which similarly situated premises could

have been let out in the open market during the period of such occupation.

59. Applying the aforesaid principles, the measure of mesne profits in the

present case,was the rent which the suit property could reasonably have

commanded in the open market during the period from 02.08.2013 till

31.03.2015. The last-paid contractual rent of Rs.52,200/- per month and the

amount stipulated under Clause 17 could constitute relevant circumstances,

but neither could, by itself, conclusively determine the market letting value

of the suit property.

60. It is also pertinent to note that Rs.52,200/- per month was not a static

rent agreed between the parties, but represented the rent payable only during

the final year of the tenancy. Under the Rent Agreement dated 26.04.2010,

the monthly rent was fixed at Rs.47,000/- for the year 2010–2011,

Rs.49,600/- for the year 2011–2012 and Rs.52,200/- for the year 2012–2013.

The contractual arrangement itself, therefore, contemplated an annual

escalation of approximately 5% in the rent of the suit property, which

constitutes a relevant indicator while assessing its rental value for the

period immediately following the expiry of the tenancy.

RFA 99/2025 Page 17 of 24

61. The loss occasioned to a landlord on account of continued occupation

of tenanted premises by an erstwhile tenant, is not a loss incapable of

ascertainment; it is a loss which is ordinarily capable of being demonstrated

through evidence of prevailing rentals of comparable premises in the same

locality. The present case, therefore, does not fall within the class of cases

contemplated in Saw Pipes (supra), where the nature of the transaction

rendered the loss difficult or impossible to quantify. The Plaintiffs were,

therefore, required to establish the said loss on evidence, and could not have

anchored their claim upon Clause 17 alone.

62. The question whether a clause providing for payment of double the

contractual rent in the event of continued occupation post-termination, can

be enforced under Section 74 of the Indian Contract Act, 1872 without proof

of the loss actually suffered by the landlord, had come up for consideration

before this Court in M/s Sahara India v. M.C. Agrawal HUF, 2011 SCC

OnLine Del 3715, in the context of a lease of commercial premises which

contained a clause similar to Clause 17 of the present Rent Agreement.

63. It was held that such a clause providing for payment of double the

contractual rent during the period of unauthorised occupation, is ex faciein

the nature of a clause in terrorem and cannot be mechanically enforced

under Section 74 of the Indian Contract Act, 1872. It was further observed

that “what is the rent which the premises can fetch during the period of the

illegal occupation by the erstwhile tenant is a fact which can be easily

proved in a suit for possession and mesne profits against the tenants by

leading evidence with respect to rents of similar premises within the

locality”. The award of mesne profits at double the contractual rate was,

accordingly, set aside.

RFA 99/2025 Page 18 of 24

64. Since the landlord in that case, had not led any evidence regarding the

rent fetched by similar premises in the locality during the relevant period,

the Court took judicial notice of the escalation in rentals in urban Delhi and

assessed mesne profits by applying an annual compounded enhancement of

15% over the last contractual rent. The said method was thus, adopted as a

substitute in the absence of reliable evidence of the prevailing market rent,

and not as an inflexible rule applicable, irrespective of the evidence

available in a given case.

65. The question was again considered by this Court in State Bank of

India v. Dr. Meera Luthra & Ors., 2017 SCC OnLine Del 9513, wherein it

was held that the assessment of mesne profits is essentially a question of

fact, dependent upon either party proving the rate of rent for the relevant

period, and that Lease Deeds pertaining to years removed from the said

period, cannot be relied upon to establish the prevailing market rent.

66. A Division Bench of this Court, in M/s Mehra Jewel Palace Pvt. Ltd.

v. Miniso Lifestyle Pvt. Ltd. &Anr., 2025 DHC 8351-DB, decided on

22.09.2025, upon a consideration of Fateh Chand (supra) and Kailash Nath

Associates (supra), held that the stipulated sum in a clause providing for

double the rent in the event of continued occupation, could operate only as

the outer limit, and that damage or loss caused by the breach was the sine

qua non for the applicability of Section 74. It was further held that in the

absence of any pleading or proof by the lessor that the market rent had

increased, or that any loss had been suffered, no recovery over and above the

contractual rent could be granted.

RFA 99/2025 Page 19 of 24

III. Appreciation of the material placed on record by the Plaintiffs:

67. The measure of mesne profits being the rent which the suit property

could have commanded in the open market during the relevant period, it

becomes necessary to consider the material which the Plaintiffs placed on

record in that regard. The Plaintiffs, in paragraph 6 of the Plaint, had averred

that the suit property was capable of fetching approximately Rs.1,50,000/-

per month if let out in the open market, and, in support thereof, had

exhibited four Lease Deeds Ex.PW1/4 to Ex.PW1/7.

68. The learned District Judge, at paragraph 30 of the impugned

Judgment, has recorded that "the plaintiff proved on record certain rent

agreements Ex.PW1/4 to Ex.PW1/7 to prove on record the contemporary

rate of rent which could be fetched by similar properties", but has thereafter

declined to consider the same, on the twin grounds that these facts were not

pleaded in the Plaint, and that the Plaintiffs had already been awarded

penalty in view of Clause 17 of the Rent Agreement.

69. Neither of these grounds can be sustained. The averment as to the

prevailing market rent,was specifically contained in paragraph 6 of the

Plaint itself. As regards the second ground, Clause 17 could not, in view of

the discussion above, could have been mechanically enforced under Section

74, and the evidence regarding market rent could not, therefore, have been

rendered superfluous on that account.

70. The registered Lease Deed dated 23.10.2015Ex.PW1/4, commencing

from 01.11.2015, was executed by the Plaintiffs in respect of the Ground

Floor of the same property bearing No.2271, Hudson Lines, in favour of Sh.

Gopal Goel, at a monthly rent of Rs.75,000/- with an annual escalation of

5%. Though it relates only to the Ground Floor and not to the entire suit

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property comprising the basement and Ground Floor, it commenced within

seven months after possession was recovered from the Defendant. It is,

therefore, the most direct evidence on record of the subsequent renting value

of the Ground Floor of the suit property.

71. The registered Lease DeedsEx.PW1/5 and Ex.PW1/6are in respect of

the basement and Ground Floor, respectively, of the neighbouring property

bearing No.2510, Hudson Lines. Ex.PW1/6 was executed on 22.07.2011 for

a term of five years commencing from 01.08.2011, and Ex.PW1/5 was

executed on 29.01.2014 for a term of five years commencing from

10.02.2014, both with an annual escalation of 5%.

72. Under registered Lease Deed Ex.PW1/6, the rent for the Ground

Floor was Rs.1,10,250/- per month from 01.08.2013 till 31.07.2014 and

Rs.1,15,763/- per month from 01.08.2014 till 31.07.2015.As per registered

Lease Deed Ex.PW1/5, the rent for the basement was Rs.55,000/- per month

from 10.02.2014 and Rs.57,750/- per month from 10.02.2015.

73. Taken together, they demonstrate that during the overlapping period

from 02.08.2013 to 31.03.2015, the combined market rent for the basement

and Ground Floor of property No. 2510,ranged from approximately

Rs.1,65,250/- to Rs.1,73,513/- per month,which is materially higher than the

sum of Rs.1,04,400/- per month, stipulated by Clause 17.

74. The Appellant has, however, contended that property No. 2510 is not

comparable to the suit property, on account of differences in location and

characteristics.

75. PW-1, Ravi Bhushan, in his cross-examination dated 28.02.2024, has

admitted that DTC buses ply on the road on which property No. 2510 is

situated, and that the suit property is situated on a 30-feet-wide road with a

RFA 99/2025 Page 21 of 24

nala in front. PW-1 has, however, voluntarily stated that "the status of road

on which the property No. 2510 is situated is the same as of my property",

and has denied the suggestion that property No. 2510 cannot be compared

with the suit property for the purposes of damages and rent.

76. It is also pertinent to observe that DW-1, Sunjay Aggarwal, in his

cross-examination, has himself admitted that "the property no. 2510 and the

suit property i.e. 2271 fall in Hudson Line area", and that "the distance

between the aforesaid two properties is 200 meters". The comparability of

the two properties, so far as location and neighbourhood are concerned, is

therefore not open to dispute by the Appellant.

77. The rentals reflected in Ex.PW1/5 and Ex.PW1/6 are, therefore,

relevant indicators of the prevailing market rent in the locality, during the

period in question. Since the said Lease Deeds relate to the basement and

Ground Floor of a property situated in the same locality and approximately

200 metres from the suit property, they constitute substantial comparative

material for assessing the market rental value of the suit property.

78. Though the two properties are situated in the same locality at a

distance of 200 meters from each other, the differences concerning frontage,

accessibility and immediate surroundings do affect the weight to be assigned

to Ex.PW1/5 and Ex.PW1/6, and warrant a reasonable downward

adjustment while applying the rentals reflected therein to the suit property.

Even after such adjustment, the market rent for the basement and Ground

Floor of the suit property, taken together, during the period 02.08.2013 to

31.03.2015, would remain materially in excess of Rs.1,04,400/- per month.

79. DW-1, Sunjay Aggarwal in his cross-examination dated 21.08.2024,

has also admitted that "I had agreed to pay double of the rent amount as

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penalty charges in terms of Para 17 of Ex. PW1/1, if I do not vacate the

tenant premises despite determination and termination of my tenancy".

While the said admission does not render Clause 17 automatically

enforceable in view of the discussion above, it does establish that a doubling

of the rent as the anticipated consequence of continued occupation, was

consciously agreed to by the Defendant, and was within the contemplation

of both parties.

80. On a conspectus of the aforesaid material, the market rental value of

the suit property, comprising the basement and Ground Floor of property

No.2271, Hudson Lines, during the period from 02.08.2013 till 31.03.2015,

may reasonably be assessed at an amount exceeding Rs.1,04,400/- per

month.

81. Even after making an appropriate downward adjustment for the

differences between the suit property and property No.2510, the figure of

Rs.1,04,400/- per month represents a reasonable and conservative

assessment of its rental value.

IV. The effect of Section 74 of the Indian Contract Act, 1872 on the

compensation recoverable:

82. The evidence appreciated above, establishes that the market rent for

the basement and Ground Floor of the suit property, taken together, during

the period 02.08.2013 to 31.03.2015, was in excess of Rs.1,04,400/- per

month.However, in terms of Clause 17 of the Rent Agreement dated

26.04.2010, the parties themselves had fixed the sum payable in the event of

continued occupation at twice the monthly rent, that is, Rs.1,04,400/- per

month. As held in Fateh Chand (supra) and Kailash Nath Associates (supra),

RFA 99/2025 Page 23 of 24

the said sum operates as the outer limit of the compensation recoverable by

the Plaintiffs under Section 74 of the Indian Contract Act, 1872.

83. The reasonable compensation payable to the Plaintiffs for the

wrongful use and occupation of the suit property by the Defendant during

the said period is, accordingly, held at Rs.1,04,400/- per month, that being

the figure at which the market evidence on record stands checked by the

ceiling prescribed by Section 74. The said figure is arrived at not by

mechanical enforcement of Clause 17 of the Rent Agreement, but upon an

independent appreciation of the material on record, which discloses a market

rent in excess thereof, and by application of the statutory ceiling to the

compensation so assessed. The Defendant having already paid a sum of

Rs.52,200/- per month for the said period, the additional sum payable to the

Plaintiffs works out to Rs.52,200/- per month.

Conclusion

84. The learned District Judge, in the impugned Judgment, proceeded on

the reasoning that Clause 17 of the Rent Agreement was automatically

enforceable upon breach under Section 74 of the Indian Contract Act, 1872,

and on that footing, declined to appreciate the material placed on record by

the Plaintiffs, i.e. leases Deeds Ex.PW1/4 to Ex.PW1/7. For the reasons set

out above, the said reasoning is not sustainable in law.

85. However, on a proper appreciation of the material on record, the

additional sum of Rs.52,200/- per month awarded by the learned District

Judge for the period 02.08.2013 to 31.03.2015 is sustainable as mesne

profits under Section 2(12) of the CPC and reasonable compensation, being

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within the ceiling prescribed by Clause 17 of the Rent Agreement, in terms

of Section 74.

86. In the light of above reasoning, the impugned Judgment and the

Decree awarding the said amount is affirmed.

87. The Regular First Appeal is accordingly, dismissed.Pending

Application(s), if any, are disposed of, accordingly.

(NEENA BANSAL KRISHNA)

JUDGE

JULY 31, 2026

N