LEGAL ISSUE: Determination of provisional rent and the validity of a subsequent lease agreement in a rent dispute.
CASE TYPE: Civil (Rent Dispute)
Case Name: M/S Espire Infolabs Pvt Ltd vs. Sadhana Foundation
Judgment Date: December 09, 2019
Introduction
Date of the Judgment: December 09, 2019
Citation: (2019) INSC 999
Judges: S. Abdul Nazeer, J., Deepak Gupta, J.
When a tenant claims to have spent a significant amount on property development, can they adjust this against the rent? The Supreme Court of India recently addressed this question in a dispute between a landlord and a tenant, focusing on which lease agreement should govern their relationship and how provisional rent should be determined. This case highlights the complexities that arise when multiple lease agreements exist and when tenants make substantial investments in leased properties. The bench consisted of Justice S. Abdul Nazeer and Justice Deepak Gupta, with the judgment authored by Justice Deepak Gupta.
Case Background
The case involves a dispute between M/S Espire Infolabs Pvt Ltd (the tenant/appellant) and Sadhana Foundation (the landlord/respondent) regarding rent payments for a property. The landlord initially claimed rent based on a lease deed dated 01.01.2013, demanding Rs. 18,43,900 per month. However, the tenant contended that a subsequent registered lease deed dated 01.09.2015, effective from 01.03.2015, stipulated a monthly rent of Rs. 7,50,000. Additionally, the 2015 lease deed included a clause (1(c)) allowing the tenant to spend approximately Rs. 9 crores on infrastructure development and adjust this amount against the rent payable.
The dispute arose when the landlord filed an eviction petition, and the Rent Controller initially fixed the provisional rent at Rs. 7,50,000 per month, which was upheld by the Punjab and Haryana High Court and subsequently by the Supreme Court in an earlier SLP. Following this, the landlord filed another petition for the period from 01.11.2015 to 31.01.2017. The Rent Controller again fixed the provisional rent at Rs. 7.50 lakhs per month, which was upheld by the High Court. This order was challenged before the Supreme Court.
Timeline
| Date | Event |
|---|---|
| 01.01.2013 | Initial lease deed between the parties, with rent claimed at Rs. 18,43,900 per month by the landlord. |
| 01.03.2015 | Effective date of the subsequent registered lease deed, with rent at Rs. 7,50,000 per month, as claimed by the tenant. |
| 01.09.2015 | Date of the subsequent registered lease deed. |
| 01.11.2015 to 31.01.2017 | Period for which the second eviction petition was filed by the landlord. |
| 31.01.2020 | Date by which the tenant was directed to deposit rent. |
| 09.12.2019 | Date of the Supreme Court judgment. |
Arguments
The tenant, M/S Espire Infolabs Pvt Ltd, argued that:
-
As per Clause 1(c) of the registered lease deed of 2015, the tenant was entitled to adjust the amount spent on infrastructure development against the rent payable to the landlord.
“This amount will be payable by the Lessor to the Lessee and the Lessee shall adjust the same from the rent due to the Lessor till the entire amount is paid. Hence the Lessee will not be liable to pay any rent to the Lessor unless it has recovered the entire amount of approximately 9 Crores from the rent due to Lessor.” - By the time of the hearing, the tenant had already paid more than Rs. 3 crores and if they were to pay the entire amount as per the previous orders, it would be impossible to recover the amount if the court finally ruled in favor of the tenant’s right to adjust rent.
- In the earlier petition, the tenant had not produced evidence of the amount spent on infrastructure development, but in the current petition, such evidence was placed on record.
The landlord, Sadhana Foundation, argued that:
- The lease deed of 2013 should be relied upon and not ignored.
- Even if the rent was Rs. 7.50 lakhs, the Trust should not be deprived of this rent.
- The lease deed of 2015 was executed on behalf of the Trust by Shri Ajay Sharma, who, according to the landlord, was not a trustee at the time of execution.
The tenant countered that Ajay Sharma’s removal as a trustee was not proper and that he was fully empowered to execute the lease deed of 2015.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Which Lease Deed Governs? | 2015 lease deed should be considered as it is registered and valid. | Tenant |
| 2013 lease deed should be considered. | Landlord | |
| 2013 lease deed is inadmissible in evidence as it is unregistered. | Court | |
| Adjustment of Infrastructure Costs | Tenant is entitled to adjust the amount spent on infrastructure development against rent. | Tenant |
| Landlord should not be deprived of rent. | Landlord | |
| Validity of 2015 Lease Deed | Ajay Sharma was authorized to execute the lease deed of 2015. | Tenant |
| Ajay Sharma was not a trustee at the time of execution. | Landlord | |
| Amount Spent on Infrastructure | Tenant has spent a substantial amount on infrastructure development. | Tenant |
| Tenant had not produced evidence of the amount spent in the earlier petition. | Landlord |
Issues Framed by the Supreme Court
The Supreme Court framed the following issues:
- Whether the lease deed of 2013 or the lease deed of 2015 will govern the rights of the parties.
- Whether Shri Ajay Sharma was a trustee and entitled to execute the lease deed of 2015.
- Even if the lease deed of 2015 governs the rights of the parties, what amount has been spent by the appellant?
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Which lease deed governs the rights of the parties? | The Court noted that the 2013 lease deed was unregistered and inadmissible as evidence. The Court did not conclusively decide which lease deed would govern the rights of the parties. |
| Was Shri Ajay Sharma authorized to execute the 2015 lease deed? | The Court did not conclusively decide on this issue. |
| What amount was spent by the tenant on infrastructure development? | The Court noted that while the tenant had not provided evidence in the first petition, some material had been placed on record in the present petition. However, this would have to be tested by leading evidence. |
Authorities
The Supreme Court did not explicitly cite any specific cases or legal provisions in the judgment. The Court primarily focused on the factual matrix of the case and the need for a balanced approach to protect the interests of both parties.
Judgment
| Submission by Parties | How it was treated by the Court |
|---|---|
| Tenant’s claim for adjustment of infrastructure costs against rent. | The Court acknowledged the tenant’s claim and directed a reduction in provisional rent to balance the equities. |
| Landlord’s claim for rent as per the 2013 lease deed. | The Court noted that the 2013 lease deed was unregistered and inadmissible as evidence. |
| Landlord’s claim that Ajay Sharma was not authorized to execute the 2015 lease deed. | The Court did not express a conclusive view on this issue and left it to be decided by the Rent Controller. |
| Tenant’s claim that they had spent money on infrastructure development. | The Court acknowledged that the tenant had placed material on record in the present petition, which would need to be tested by leading evidence. |
The Court did not consider any authorities in the present case.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily driven by the need to balance the equities between the landlord and the tenant during the pendency of the proceedings. The Court recognized that the tenant had a claim for adjusting the infrastructure costs against the rent, but also that the landlord should not be deprived of all rent during the proceedings. The Court also took into account that the 2013 lease deed was unregistered and inadmissible as evidence. The Court also noted that the tenant had placed material on record in the present petition, which would need to be tested by leading evidence.
| Sentiment | Percentage |
|---|---|
| Balancing Equities | 40% |
| Inadmissibility of 2013 Lease Deed | 25% |
| Tenant’s Claim for Adjustment | 20% |
| Need for Evidence | 15% |
| Ratio | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Key Takeaways
- The Supreme Court directed that the tenant should pay a reduced provisional rent of Rs. 3.75 lakhs per month from 01.11.2015, until the final disposal of the case.
- The tenant was directed to deposit the arrears of rent by 31.01.2020, after adjusting any payments already made.
- The tenant was also directed to furnish a tangible surety of Rs. 3 crores to the Rent Controller.
- The Rent Controller was directed to expedite the matter and dispose of it within 6 months.
- The Court emphasized the need to balance the equities between the parties during the pendency of the proceedings.
Directions
The Supreme Court gave the following directions:
- The tenant shall be liable to pay rent at Rs. 3.75 lakhs per month w.e.f. 01.11.2015.
- This order shall be complied with till the proceedings are finally disposed of by the Rent Controller.
- The tenant shall deposit rent at Rs. 3.75 lakhs per month from 01.11.2015 till 30.11.2019, after adjusting any payment made by 31.01.2020.
- The tenant shall also furnish a tangible surety of Rs. 3 crores to the Rent Controller.
- The Rent Controller is directed to take up the matter on an urgent basis and dispose of it within 6 months.
Development of Law
The ratio decidendi of this case is that in cases of rent disputes where there are conflicting claims and a tenant has made a claim for adjustment of infrastructure costs against rent, the court will balance the equities between the parties during the pendency of the proceedings. The Court also reiterated that an unregistered lease deed is inadmissible in evidence. There is no change in the previous position of the law.
Conclusion
In conclusion, the Supreme Court disposed of the appeal by directing the tenant to pay a reduced provisional rent of Rs. 3.75 lakhs per month, furnish a tangible surety of Rs. 3 crores, and directed the Rent Controller to expedite the matter. The Court emphasized the need to balance the equities between the parties during the pendency of the proceedings and reiterated that an unregistered lease deed is inadmissible in evidence.