Date of the Judgment: January 30, 2020
Citation: (2020) INSC 75
Judges: Ashok Bhushan, J., M.R. Shah, J.
Can a landlord seek an increase in rent even when a lease agreement is still in effect? The Supreme Court of India recently addressed this important question in a case concerning a commercial property in Hyderabad. The court clarified that both landlords and tenants have the right to apply for a determination of fair rent, even during the term of a contractual tenancy. This decision reinforces the balance of rights under rent control laws. The judgment was delivered by a two-judge bench comprising Justice Ashok Bhushan and Justice M.R. Shah.
Case Background
The appellants were tenants of a commercial shop in Hyderabad, having entered into a 20-year lease agreement with the original landlord on August 27, 1990, which was to expire on July 31, 2010. The monthly rent was Rs. 1,840. The property was later sold to the respondents on March 28, 2008. On September 29, 2009, the new landlords filed an application for enhancement of rent, claiming the market rent was much higher. The tenants contested this, arguing that the contractual lease was still in effect, and the landlord could not seek an increase in rent during the lease period.
Timeline
| Date | Event |
|---|---|
| August 27, 1990 | Lease agreement between the original landlord and the tenants for 20 years. |
| March 28, 2008 | Property sold to the respondents. |
| September 29, 2009 | Landlords filed an application for enhancement of rent. |
| November 4, 2013 | Rent Controller fixed the fair rent at Rs. 23,400 per month. |
| June 5, 2017 | Appellate court dismissed the tenants’ appeal. |
| September 20, 2018 | High Court allowed the civil revision petition and remanded the matter back to Appellate Authority. |
| April 30, 2019 | Chief Judge, City Small Causes Court dismissed the R.A.No.5 of 2014. |
| August 30, 2019 | High Court dismissed the tenants’ revision petition. |
| January 30, 2020 | Supreme Court dismissed the tenants’ appeal. |
Course of Proceedings
The Rent Controller, Hyderabad, allowed the landlord’s application on November 4, 2013, fixing the fair rent at Rs. 23,400 per month. The tenants’ appeal against this order was dismissed by the Chief Judge, City Small Causes Court on June 5, 2017. A civil revision petition was initially allowed by the High Court on September 20, 2018, and the matter was remanded back to the Appellate Authority. After remand, the Chief Judge, City Small Causes Court again dismissed the appeal on April 30, 2019. The High Court dismissed the tenants’ revision petition on August 30, 2019, leading to the current appeal before the Supreme Court.
Legal Framework
The core legal provision at the heart of this case is Section 4(1) of the Telangana Buildings (Lease, Rent and Eviction) Control Act, 1960. This section states:
“Section 4(1) The Controller shall, on application by the tenant or landlord of a building fix the fair rent for such building after holding such inquiry as the Controller thinks fit.”
This provision allows both tenants and landlords to apply for the determination of fair rent for a building. The Supreme Court had to interpret whether this right was applicable even during the subsistence of a contractual tenancy.
Arguments
The appellants (tenants) argued that the lease agreement entered into on August 27, 1990, was to subsist until July 31, 2010. Therefore, the landlord had no right to file an application for enhancement of rent during this period. They contended that Section 4 of the Telangana Buildings (Lease, Rent and Eviction) Control Act, 1960, does not apply to contractual tenancies, and the landlord is bound by the agreed rent. They further argued that allowing the landlord to seek rent enhancement during the contractual tenancy would undermine the purpose of rent control legislation, which is to protect tenants from exorbitant rents. The tenants relied on the minority judgment in M/s. Raval and Co. vs. K.G. Ramachandran, 1974(1) SCC 424, which supported the view that a landlord can apply for fair rent determination only after the contractual tenancy has been lawfully terminated.
The respondents (landlords) countered that the majority judgment in M/s. Raval and Co. and the seven-judge bench decision in V. Dhanapal Chettiar vs. Yesodal Ammal, 1979(4) SCC 214, had clarified that Section 4 of the Tamil Nadu (Lease, Rent and Eviction) Control Act, 1960 (which is similar to Section 4 of the Telangana Act) allows landlords to seek fair rent determination even during a contractual tenancy. They argued that the rent control laws were designed to protect both tenants and landlords and that preventing a landlord from seeking fair rent during the contractual tenancy could be detrimental to the landlord’s interests. The landlords also dismissed the tenants’ argument regarding the sale consideration of the property.
| Tenants’ Submissions | Landlords’ Submissions |
|---|---|
| The contractual tenancy was to subsist till 31.07.2010, hence the landlord could not seek enhancement of rent before that. | Section 4 of the Telangana Buildings (Lease, Rent and Eviction) Control Act, 1960, permits filing of application for fixing of fair rent by the landlord during subsistence of contractual tenancy. |
| Section 4 of the Telangana Act does not apply to contractual tenancies. | The judgment of this Court in M/s. Raval & Co. has been further approved by seven-Judge judgment in V. Dhanapal Chettiar vs. Yesodal Ammal, 1979(4) SCC 214. |
| The landlord is bound by the contractual rent during the subsistence of the tenancy. | The appellants cannot be allowed to make submission in regard to sale consideration of the property. |
| Permitting the landlord to file application for enhancement of rent even though he is bound by a contract, will be permitting something which is against Rent Control Legislation. | |
| The Rent Control Legislations have to be interpreted in a manner so as to save tenant from exorbitant rent. | |
| Reliance on minority judgment of this Court delivered by Bhagwati, J. in M/s. Raval and Co. vs. K.G. Ramachandran, 1974(1) SCC 424. |
The innovativeness of the argument by the tenants was in relying on the minority judgment of M/s. Raval and Co. to argue that the landlord could not seek enhancement of rent during the contractual tenancy.
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
- Whether during the currency of a contractual tenancy, i.e., during the currency of an agreed rent between the landlord and the tenant, the landlord is precluded from making an application for determination of fair rent.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether a landlord can apply for fair rent determination during a contractual tenancy? | Yes, the landlord can apply for fair rent determination during a contractual tenancy. | Section 4(1) of the Telangana Buildings (Lease, Rent and Eviction) Control Act, 1960, allows both tenants and landlords to apply for fair rent determination. The purpose of rent control legislation is to protect both parties. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was Considered | Legal Point |
|---|---|---|---|
| M/s. Raval and Co. vs. K.G. Ramachandran, 1974(1) SCC 424 | Supreme Court of India | Majority opinion followed; minority opinion rejected. | Interpretation of Section 4 of the Tamil Nadu (Lease, Rent and Eviction) Control Act, 1960, which is similar to Section 4 of the Telangana Act. |
| V. Dhanapal Chettiar vs. Yesodal Ammal, 1979(4) SCC 214 | Supreme Court of India | Approved the majority view in M/s. Raval & Co. | Clarified that rent control laws protect both tenants and landlords. |
| Section 4(1) of the Telangana Buildings (Lease, Rent and Eviction) Control Act, 1960 | Telangana State Legislature | Interpreted to allow both tenants and landlords to apply for fair rent determination. | Determination of fair rent. |
Judgment
| Submission | Court’s Treatment |
|---|---|
| Tenants’ submission that the landlord cannot seek enhancement during the contractual tenancy. | Rejected. The Court held that Section 4(1) of the Telangana Act allows both landlords and tenants to apply for fair rent determination. |
| Tenants’ reliance on the minority judgment in M/s. Raval and Co. | Rejected. The Court followed the majority judgment in M/s. Raval & Co., which was later approved in V. Dhanapal Chettiar vs. Yesodal Ammal. |
| Tenants’ argument that the landlord is bound by the contractual rent. | Rejected. The Court held that the rent control laws allow for fair rent determination even during contractual tenancy. |
| Tenants’ submission that the sale consideration of the property is equivalent to 20 months’ rent. | Rejected. The Court stated that this has no bearing on the determination of fair rent. |
The Supreme Court’s view on the authorities:
✓ The majority judgment in M/s. Raval & Co. vs. K.G. Ramachandran, 1974(1) SCC 424* was followed, which held that Section 4 of the Tamil Nadu Act allows landlords to apply for fair rent determination during contractual tenancy.
✓ The seven-judge bench judgment in V. Dhanapal Chettiar vs. Yesodal Ammal, 1979(4) SCC 214* was relied upon, which approved the majority view in M/s. Raval & Co., clarifying that rent control laws protect both tenants and landlords.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the need to balance the rights of both landlords and tenants under rent control legislation. The Court emphasized that the purpose of rent control laws is to ensure that neither party is exploited. The Court reasoned that preventing a landlord from seeking fair rent during a contractual tenancy could be detrimental to their interests, especially in cases where the agreed rent is unreasonably low due to circumstances or market changes. The Court also highlighted that the concept of fair rent is to operate equally for both the tenant and the landlord.
| Sentiment | Percentage |
|---|---|
| Balance of Rights | 40% |
| Fair Rent Determination | 30% |
| Statutory Interpretation | 20% |
| Precedent | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The Court’s decision was heavily influenced by legal considerations (70%), with factual aspects of the case playing a smaller role (30%).
The Court rejected the argument that rent control legislation is only for the benefit of tenants, stating that the law is intended to protect both parties. The Court also noted that if tenants were allowed to enter into contracts with unreasonably low rents, they could exploit landlords. The Court emphasized that the statute gives the landlord protection and enables the Controller to intervene to fix a fair rent as against the term of contract between the parties.
The Court observed that the concept of determination of fair rent is to operate equally for the tenant as well as the landlord. The object of the Act is that neither the landlord should charge more than the fair rent of the premises nor tenant should be forced to pay higher rent than the fair rent.
The Supreme Court quoted from the seven-judge bench decision in V. Dhanapal Chettiar vs. Yesodal Ammal:
“The encroachment was not entirely and wholly one sided. Same encroachment was envisaged in the interest of the landlord also and equity and justice demanded a fair play on the part of the legislature not to completely ignore the helpless situation of many landlords who are also compared to some big tenants sometimes weaker Section of the society.”
The Court also noted that the statute gives the landlord protection and enables the Controller to intervene to fix a fair rent as against the term of contract between the parties.
The Court stated:
“The statutory scheme brought in the statute by way of Section 4 which is a beneficial both to the tenant as well as the landlord.”
The Court also stated:
“The concept of determination of fair rent is to operate equal for the tenant as well as the landlord. The object of the Act is that neither the landlord should charge more than the fair rent of the premises nor tenant should be forced to pay higher rent than the fair rent.”
The Court did not consider any alternative interpretations.
Key Takeaways
- ✓ Landlords can apply for fair rent determination even during the term of a contractual tenancy.
- ✓ Tenants also have the right to apply for fair rent determination during the term of a contractual tenancy.
- ✓ Rent control laws aim to protect both landlords and tenants from exploitation.
- ✓ The agreed rent in a lease agreement is not the final word; fair rent can be determined by the Controller.
Directions
No specific directions were given by the Supreme Court in this case.
Specific Amendments Analysis
There is no discussion about any specific amendments in this judgment.
Development of Law
The ratio decidendi of this case is that both landlords and tenants can apply for fair rent determination even during the currency of a contractual tenancy. This clarifies the position of law, affirming the majority view in M/s. Raval & Co. and V. Dhanapal Chettiar, and rejects the minority view that a landlord can only seek fair rent after the termination of the tenancy.
Conclusion
In conclusion, the Supreme Court dismissed the appeal, holding that a landlord is not precluded from applying for fair rent determination during the subsistence of a contractual tenancy. The Court clarified that the rent control laws are designed to protect both landlords and tenants, and the right to seek fair rent is available to both parties. This decision reinforces the balance of rights under rent control legislation and ensures that neither party is unfairly disadvantaged.