Supreme Court Revisits Compensation for Stay of Eviction Decree: Sumer Corporation vs. Vijay Anant Gangan (2022)

Date of the Judgment: November 9, 2022
Citation: Sumer Corporation v. Vijay Anant Gangan & Ors., Civil Appeal No. 7774 of 2022 (@ SLP (C) No. 16019 of 2020), 2022 INSC 568
Judges: M.R. Shah, J. and M.M. Sundresh, J.

When a tenant appeals an eviction order, what is the correct method for calculating the compensation they must pay to stay in the property? The Supreme Court of India recently addressed this issue, clarifying that compensation should reflect the potential market rent, not the landlord’s purchase price of the property. This case, Sumer Corporation vs. Vijay Anant Gangan, delves into the appropriate principles for determining interim compensation during the pendency of appeals against eviction decrees. The judgment was delivered by a two-judge bench comprising Justice M.R. Shah and Justice M.M. Sundresh, with Justice M.R. Shah authoring the opinion.

Case Background

The case revolves around a property in Worli, Mumbai, initially leased in 1949 for 30 years. The original lessee constructed a building called “Garment House” and some chawl-like structures. In 1968, a supplementary lease was executed for 98 years, allowing the lessee to demolish old structures and build new ones. The original lessee passed away in 1987, leaving behind a will that created a charitable trust and appointed executors. Eviction proceedings were initiated in 1988. The Trial Court dismissed the suit in 2004, but the Appellate Bench of the Court of Small Causes reversed this decision in 2017, ordering the eviction of the defendants. Sumer Corporation, claiming to have purchased the property in 2008, joined the appeal. The High Court admitted a revision application against the eviction decree and ordered the original revisionist to deposit Rs. 2,50,000/- per month as compensation while staying the eviction decree.

Timeline

Course of Proceedings

The Trial Court initially dismissed the eviction suit on 25.06.2004. The original plaintiffs appealed to the Appellate Bench of the Court of Small Causes, which reversed the Trial Court’s decision on 04.05.2017 and ordered the eviction of the defendants. The contesting respondents then filed a revision application before the High Court. During the pendency of the revision application, Sumer Corporation was added as a respondent. The High Court admitted the revision application, stayed the eviction decree, and ordered the original revisionist to deposit Rs. 2,50,000/- per month as compensation. The High Court also directed the original revisionist to furnish security for the arrears of compensation and a sum of Rs. 77,55,000/-. Sumer Corporation, aggrieved by the amount of compensation, filed an appeal before the Supreme Court.

Legal Framework

The Supreme Court referred to the principles established in previous cases regarding the determination of compensation during a stay of eviction orders. The Court emphasized that the compensation should reflect the market rent the landlord could have earned if the tenant had vacated the premises. The Court reiterated that the landlord is not bound by the contractual rate of rent effective for the period preceding the date of the decree. The Court also noted that the compensation should be reasonable and not excessive or punitive.

Arguments

Appellant’s Arguments (Sumer Corporation):

• The High Court erred in determining the monthly compensation by considering the purchase price of the property (Rs. 5.50 crores) and a 6.5% return.
• The market value of the property when the lessor or subsequent purchaser acquired it is not a valid basis for fixing monthly compensation.
• The valuation of the property on the date of the decree should be the relevant consideration for determining monthly compensation.
• Relying on Atma Ram Properties (P) Ltd. Vs. Federal Motors (P) Ltd., (2005) 1 SCC 705, the appellant argued that the tenant should pay mesne profits/compensation at the rate the landlord would have earned if the tenant had vacated the premises.
• The appellant submitted a valuation report by Mr. Maniyar, estimating monthly compensation at Rs. 67,76,038/-, which was ignored by the High Court.
• The decision in Atma Ram Properties (P) Ltd. (supra) was followed in State of Maharashtra and Anr. Vs. Super Max International Private Limited and Ors., (2009) 9 SCC 772, which reiterated that compensation should reflect market rent.

Respondent’s Arguments (Vijay Anant Gangan):

• The power of the Appellate Court to award compensation while staying an eviction decree is not disputed, but such compensation should be reasonable and not excessive.
• The superstructure was constructed by the lessee, and the decree pertains to the land only. This should be considered while fixing compensation.
• The High Court rightly discarded the valuation report of Mr. Maniyar, which relied on the Ready Reckoner rate of land with applicable FSI.
• The High Court correctly determined the monthly compensation at Rs. 2,50,000/-, considering a fair rate of return of 6.5% on the appellant’s investment.

Proforma Respondent’s Arguments:

• Supported the appellant’s arguments.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in a separate section, but the core issue was:

• What is the correct method for determining the compensation payable by a tenant when an eviction decree is stayed during the pendency of an appeal?

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

Judgment

How each authority was viewed by the Court?

• Atma Ram Properties (P) Ltd. Vs. Federal Motors (P) Ltd., (2005) 1 SCC 705: The Supreme Court followed this case and reiterated that the tenant is liable to pay mesne profits or compensation for use and occupation of the premises at the same rate at which the landlord would have been able to let out the premises and earn rent if the tenant would have vacated the premises.
• State of Maharashtra and Anr. Vs. Super Max International Private Limited and Ors., (2009) 9 SCC 772: The Supreme Court followed this case and reiterated the law laid down in Atma Ram Properties (P) Ltd. (supra). It was further observed and held that in fixing the amount subject to payment of which the execution of the order/decree is stayed, the Court would exercise restraint and would not fix any excessive, fanciful or punitive amount.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to ensure that the compensation awarded during a stay of eviction decree is fair and reflects the actual loss suffered by the landlord. The Court emphasized that the compensation should be based on the market rent that the landlord could have earned had the tenant vacated the premises, rather than the landlord’s purchase price or a fixed rate of return on investment. The Court also noted that the compensation should be reasonable, not excessive or punitive. This approach ensures that the landlord is not unduly prejudiced by the stay of eviction, while also ensuring that the tenant is not burdened with an unreasonable financial obligation.

The Court’s decision was heavily influenced by legal considerations, with a significant emphasis on adhering to established precedents and principles of law. The consideration of the factual aspects of the case was comparatively less, primarily focusing on the specific circumstances of the case to apply the legal principles.

Logical Reasoning

The Supreme Court disagreed with the High Court’s method of calculating compensation, stating, “The aforesaid could not have been the basis while determining the monthly compensation.” The Court further explained, “From the date of the decree of eviction, the tenant is liable to pay mesne profits or compensation for use and occupation of the premises at the same rate at which the landlord would have been able to let out the premises and earn rent if the tenant would have vacated the premises.” The Court also noted, “The High Court was required to undertake exercise and to determine the compensation at the same rate at which the landlord would have been able to let out the premises and earn rent if the tenant would have vacated the premises.”

The Court did not accept the High Court’s approach of using the purchase price of the property and a 6.5% return to determine compensation. The Court emphasized that the compensation should reflect the market rent that the landlord could have earned if the tenant had vacated the premises. The Court also reiterated that the landlord is not bound by the contractual rate of rent effective for the period preceding the date of the decree.

The Court remanded the matter back to the High Court for fresh determination of compensation. The Court directed that the parties be permitted to lead evidence on the rate of rent that would have been earned by the landlord if the tenant had vacated the premises. The Court also directed that this exercise be completed within six months from the date of the receipt of the order. As an interim measure, the Court directed the respondent to deposit at least Rs. 2,50,000/- per month from the date of passing of the eviction decree, subject to the final determination of compensation on remand.

There were no dissenting opinions in this case.

Key Takeaways

• When a tenant appeals an eviction order and is granted a stay, the compensation they must pay should be based on the market rent the landlord could have earned, not the landlord’s purchase price of the property.
• The contractual rate of rent preceding the eviction decree is not binding for determining compensation during the stay period.
• Courts must ensure that compensation is reasonable and not excessive or punitive.
• The High Court must determine the rate of rent that would have been earned by the landlord if the tenant would have vacated the premises.

Directions

The Supreme Court directed the following:

• The High Court’s order determining compensation at Rs. 2,50,000/- per month was quashed and set aside.
• The matter was remitted back to the High Court for fresh determination of compensation.
• Parties are permitted to lead evidence on the rate of rent that would have been earned by the landlord if the tenant had vacated the premises.
• The High Court must complete the exercise within six months.
• The respondent No. 1 was directed to deposit at least Rs. 2,50,000/- per month from the date of passing of the eviction decree, subject to the final decision of the High Court on remand.

Development of Law

The ratio decidendi of this case is that the compensation payable by a tenant during a stay of an eviction decree must be based on the market rent the landlord could have earned if the premises were vacant, and not on the purchase price of the property or a fixed rate of return. This judgment reinforces the principles established in Atma Ram Properties (P) Ltd. (supra) and Super Max International Private Limited and Ors., (supra), clarifying the correct approach for determining compensation in such cases and does not change the previous position of law.

Conclusion

The Supreme Court’s decision in Sumer Corporation vs. Vijay Anant Gangan clarifies the method for determining compensation when an eviction decree is stayed. The Court held that compensation should be based on the potential market rent, not the landlord’s purchase price of the property. The matter was remanded to the High Court for fresh determination of compensation based on this principle. This judgment ensures a fair and reasonable approach to determining compensation during the pendency of appeals against eviction decrees.