Delhi High Court
M/S. Sahara India & Ors. vs M/S. M.C. Agrawal Huf on 2 September, 2011
Author: Valmiki J. Mehta
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ RFA Nos. 458/2011 & 457/2011
% 2nd September, 2011
1. RFA No.458/2011
M/S. M.C. AGRAWAL HUF ......Appellant
Through: Mr. P.K. Aggarwal, Advocate
with Ms. Mercy Hussain,
Advocate.
VERSUS
M/S. SAHARA INDIA & ORS. ...... Respondents
Through: Mr. Vivek Kohli, Advocate with
Mr. Abhishek Swaroop,
Advocate.
2. RFA No.457/2011
M/S. SAHARA INDIA & ORS. ...... Appellants
Through: Mr. Vivek Kohli, Advocate with
Mr. Abhishek Swaroop,
Advocate.
VERSUS
M/S. M.C. AGRAWAL HUF ......Respondent
Through: Mr. P.K. Aggarwal, Advocate
with Ms. Mercy Hussain,
Advocate.
CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be
RFA No.458/2011 & 457/2011 Page 1 of 22
allowed to see the judgment?
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in the Digest? Yes
VALMIKI J. MEHTA, J (ORAL)
1. These are two cross appeals, one filed by the landlord (RFA
No.458/2011) and the other filed by tenants (RFA No.457/2011) against
the impugned judgment and decree of the trial Court dated 16.5.2011
whereby the suit of the landlord for possession and mesne profits with
respect to the premises being a flat bearing No.817A, 8th Floor,
Ambadeep Building No.24, Kasturba Gandhi Marg, New Delhi, was
decreed. The grievance of the landlord is with respect to denial of claim
by the trial Court with respect to executive class tickets in addition to the
mesne profits, whereas the grievance of the tenants is with respect to
awarding mesne profits at double the market rent without any evidence
being led by the landlord and which decree is argued to be violative of
Section 74 of the Contract Act, 1872. The tenants also question the grant
of the high rate of interest at 20%. A minor issue with regard to liability
towards the mesne profits is also raised that the same are payable only
till 31.12.2004 and not 3.4.2005 as granted by the trial Court. I may
finally add that the landlord has argued that the liability for mesne profits
RFA No.458/2011 & 457/2011 Page 2 of 22
continues till date because the entire possession of the tenanted
premises has not been given. The main argument as advanced by the
landlord, who appeared in person, and who was karta of the landlord HUF
however was that since as per the lease deed the tenants were in
addition to the payment of rent liable to give a certain number of
executive class air tickets, it was argued that the value of these air
tickets have to be included in the mesne profits to be awarded.
Assistance is sought in this behalf by the landlord of the order of the
Supreme Court dated 28.4.2008 and which is an order which had allowed
an amendment application filed by the landlord with respect to claim of
mesne profits to include the claim towards the executive class air tickets.
2. The fact that there is a relationship of landlord and tenant is
not disputed. It is also admitted that premises are outside the protection
of Delhi Rent Control Act, 1958 and the tenancy was terminated by a
legal notice. The tenants have also in the meanwhile delivered
possession of the suit premises by depositing the keys in the Court on
3.4.2005. The main issue which is therefore required to be adjudicated is
as to what should be rate of mesne profits which should be allowed to the
landlord till 3.4.2005 when the keys of the property were deposited in the
Court alongwith the issue as to whether the tenants continue to be liable
RFA No.458/2011 & 457/2011 Page 3 of 22
to pay the mesne profits as the landlord alleges that the complete
possession of the property has not yet been given.
3. On the aspect of the date till which mesne profits are
payable, there is no doubt that mesne profits will be payable till the keys
were deposited by the tenants in the Court on 3.4.2005 inasmuch as
there are admissions noted in the impugned judgment that the tenants
had removed the walls of the tenanted premises and the original position
of the tenanted premises was restored only on 31.12.2004 and
whereafter on 3.4.2005 the possession was handed over by depositing
the keys in the Court on 3.4.2005. Learned counsel for the tenants had
only weakly disputed the payment of mesne profits from 31.12.2004 till
3.4.2005 and has not disputed the liability to pay mesne profits till
31.12.2004. I therefore hold that mesne profits shall be payable till
3.4.2005.
4. The entitlement of a landlord to claim mesne profits from a
tenant who is in illegal possession of the premises after the tenancy is
terminated, is governed by Section 2 (12) of Code of Civil Procedure,
1908 (CPC) and which defies mesne profits as under:-
"Section 2(12) "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,
RFA No.458/2011 & 457/2011 Page 4 of 22
but shall not include profits due to improvements made by the
person in wrongful possession."
The above provision has been interpreted in various
judgments that ordinarily the mesne profits which a landlord is entitled
against a tenant who continues to stay in the tenanted premises after the
termination of the tenancy is the amount which the premises can fetch if
let out on rent during the period of its illegal occupation by the tenant.
5. A clause in a lease deed that if a tenant stays in the premises
after the expiry of the lease period or termination of the tenancy, then,
the penalty/damages at double the market rate are payable would be ex
facie violative of provision of Section 74 of the Contract Act, 1872 being a
clause interrorem. Right from the Constitution Bench decision of the
Supreme Court in the case of Fateh Chand vs. Balkishan Das AIR
1963 Supreme Court 1405 it has been held that where on account of
breach of contract damages can be proved, then, there cannot be any
validity of a clause which gives liquidated damages. 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 Court,
on considering such evidence, with respect to rent of similar premises
RFA No.458/2011 & 457/2011 Page 5 of 22
thereafter awards mesne profits to the landlord. It is only in cases where
the damages/mesne profits cannot be proved in a Court of law, and one
of which contract was the subject matter of the decision of the Supreme
Court in the case of O.N.G.C. Vs. Saw Pipes Ltd., 2003 (5) SCC 705,
then, in such cases liquidated damages as fixed by the contract would
become payable. The Supreme Court in the case of O.N.G.C. (supra)
has referred to a classic case of delays in construction of a road being
built and the consequent loss being caused on account of non collection
of toll. Since it is nearly impossible to calculate the loss on account of
breach of contract because the number of users of the road and hence
what would be the toll tax that could not have been collected cannot be
calculated consequently in such circumstances, the clause with respect
to liquidated damages becomes applicable and reasonable damages not
exceeding the figure of liquidated damages are awarded. However, in
cases where a landlord sues an erstwhile tenant for mesne profits this
would not be the position because mesne profits can surely be calculated
being the rent which will be payable with respect to the premises during
the period of illegal occupation by the erstwhile tenant and which is a
modality applicable by virtue of the language of Section 2(12) CPC. I
have had an occasion to recently consider this aspect of the ratio of the
decisions of the Supreme Court under Section 74 of the Contract Act in
RFA No.458/2011 & 457/2011 Page 6 of 22
the case of Dilip Kumar Bhargava Vs. Urmila Devi Sharma & Ors. in
RFA No.129/2011 decided on 31.3.2011 and paras 3 to 7 of this judgment
dealing with this issue read as under:-
"3. Learned counsel for the appellant relies upon the
Constitution Bench decision of the Supreme Court in the case of
Fateh Chand Vs Balkishan Dass, (1964) 1 SCR 515; AIR 1963
SC 1405 and more particularly its paras 8,10,15 and 16 which read
as under:-
8. The claim made by the plaintiff to forfeit the amount of Rs
24,000 may be adjusted in the light of Section 74 of the Indian
Contract Act, which in its material part provides:-
"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 named
or as the case may be, the penalty stipulated for."
The section is clearly an attempt to eliminate the sometime
elaborate refinements made under the English common law in
distinguishing between stipulations providing for payment of
liquidated damages and stipulations in the nature of penalty.
Under the common law a genuine pre-estimate of damages by
mutual agreement is regarded as a stipulation naming
liquidated damages and binding between the parties: a
stipulation in a contract in terrorem is a penalty and the Court
refuses to enforce it, awarding to the aggrieved party only
reasonable compensation. The Indian Legislature has sought to
cut across the web of rules and presumptions under the English
common law, by enacting a uniform principle applicable to all
stipulations naming amounts to be paid in case of breach, and
stipulations by way of penalty.
10. Section 74 of the Indian Contract Act deals with the
measure of damages in two classes of cases (i) where the
contract names a sum to be paid in case of breach and (ii)
where the contract contains any other stipulation by way of
penalty. We are in the present case not concerned to decide
RFA No.458/2011 & 457/2011 Page 7 of 22
whether a contract containing a covenant of forfeiture of
deposit for due performance of a contract falls within the first
class. The measure of damages in the case of breach of a
stipulation by way of penalty is by Section 74 reasonable
compensation not exceeding the penalty stipulated for. In
assessing damages the Court has, subject to the limit of the
penalty stipulated, jurisdiction to award such compensation as
it deems reasonable having regard to all the circumstances of
the case. Jurisdiction of the Court to award compensation in
case of breach of contract is unqualified except as to the
maximum stipulated; but compensation has to be reasonable,
and that imposes upon the Court duty to award compensation
according to settled principles. The section undoubtedly says
that the aggrieved party is entitled to receive compensation
from the party who has broken the contract, whether or not
actual damage or loss is proved to have been caused by the
breach. Thereby it merely dispenses with proof of "actual loss
or damage"; it does not justify the award of compensation
when in consequence of the breach no legal injury at all has
resulted, because compensation for breach of contract can be
awarded to make good loss or damage which naturally arose in
the usual course of things, or which the parties knew when they
made the contract, to be likely to result from the breach.
15. Section 74 declares the law as to liability upon breach of
contract where compensation is by agreement of the parties
pre-determined, or where there is a stipulation by way of
penalty. But the application of the enactment is not restricted
to cases where the aggrieved party claims relief as a plaintiff.
The section does not confer a special benefit upon any party; it
merely declares the law that notwithstanding any term in the
contract predetermining damages or providing for forfeiture of
any property by way of penalty, the court will award to the
party aggrieved only reasonable compensation not exceeding
the amount named or penalty stipulated. The jurisdiction of the
court is not determined by the accidental circumstance of the
party in default being a plaintiff or a defendant in a suit. Use of
the expression "to receive from the party who has broken the
contract" does not predicate that the jurisdiction of the court to
adjust amounts which have been paid by the party in default
cannot be exercised in dealing with the claim of the party
complaining of breach of contract. The court has to adjudge in
every case reasonable compensation to which the plaintiff is
entitled from the defendant on breach of the contract. Such
RFA No.458/2011 & 457/2011 Page 8 of 22
compensation has to be ascertained having regard to the
conditions existing on the date of the breach.
16. There is no evidence that any loss was suffered by the
plaintiff in consequence of the default by the defendant, save
as to the loss suffered by him by being kept out of possession
of the property. There is no evidence that the property had
depreciated in value since the date of the contract provided;
nor was there evidence that any other special damage had
resulted. The contact provided for forfeiture of Rs 25,000
consisting of Rs, 1039 paid as earnest money and Rs 24,000
paid as part of the purchase price. The defendant has conceded
that the plaintiff was entitled to forfeit the amount of Rs 1000
which was paid as earnest money. We cannot however agree
with the High Court that 13 percent of the price may be
regarded as reasonable compensation in relation to the value
of the contract as a whole, as that in our opinion is assessed on
an arbitrary assumption. The plaintiff failed to prove the loss
suffered by him in consequence of the breach of the contract
committed by the defendant and we are unable to find any
principle on which compensation equal to ten percent of the
agreed price could be awarded to the plaintiff. The plaintiff has
been allowed Rs 1000 which was the earnest money as part of
the damages. Besides he had use of the remaining sum of Rs
24,000, and we can rightly presume that he must have been
deriving advantage from that amount throughout this period. In
the absence therefore of any proof of damage arising from the
breach of the contract, we are of opinion that the amount of Rs
1000 (earnest money) which has been forfeited, and the
advantage that the plaintiff must have derived from the
possession of the remaining sum of Rs 24,000 during all this
period would be sufficient compensation to him. It may be
added that the plaintiff has separately claimed mesne profits
for being kept out possession for which he has got a decree and
therefore the fact that the plaintiff was out of possession
cannot be taken, into account in determining damages for this
purpose. The decree passed by the High Court awarding
Rs.11,250 as damages to the plaintiff must therefore be set
aside. (Underlining added)
4. To the same effect are the observations in Maula Bux Vs. UOI,
1969 (2) SCC 554, and para 4 of which reads as under:-
RFA No.458/2011 & 457/2011 Page 9 of 22
"4. Under the terms of the agreements the amounts deposited
by the plaintiff as security for due performance of the contracts
were to stand forfeited in case the plaintiff neglected to
perform his part of the contract. The High Court observed that
the deposits so made may be regarded as earnest money. But
that view cannot be accepted. According to Earl Jowitt in "The
Dictionary of English Law" at p. 689 : "Giving an earnest or
earnest-money is a mode of signifying assent to a contract of
sale or the like, by giving to the vendor a nominal sum (e.g. a
shilling) as a token that the parties are in earnest or have made
up their minds." As observed by the Judicial Committee in
Kunwar Chiranjit Singh v. Har Swarup A.I.R.1926 P.C.1
Earnest money is part of the purchase price when the
transaction goes forward : it is forfeited when the transaction
falls through, by reason of the fault or failure of the vendee.
In the present case the deposit was made not of a sum of
money by the purchaser to be applied towards part payment of
the price when the contract was completed and till then as
evidencing an intention on the part of the purchaser to buy
property or goods. Here the plaintiff had deposited the amounts
claimed as security for guaranteeing due performance of the
contracts. Such deposits cannot be regarded as earnest money.
5. Section 74 of the Contract Act provides :
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 named
or, as the case may be, the penalty stipulated for.
...
There is authority, no doubt coloured by the view which was
taken in English cases, that Section 74 of the Contract Act has
no application to cases of deposit for due performance of a
contract which is stipulated to be forfeited for breach : Natesa
Aiyar v. Appavu Padayachi I.L.R. [1913] Mad. 178 Singer
Manufacturing Company v. Raja Prosad I.L.R.[1909] Cal. 960
Manian Patter v. The Madras Railway Company I.L.R.[1906]
Mad.188 But this view is no longer good law in view of the
judgment of this Court in Fat eh Chand's case
MANU/SC/0258/1963 : [1964]1SCR515 : [1964]1SCR515 . This
Court observed at p. 526 :
"Section 74 of the Indian Contract Act deals with the measure
of damages in two classes of cases (i) where the contract
names a sum to be paid in case of breach, and (ii) where the
contract contains any other stipulation by way of penalty.... The
measure of damages in the case of breach of a stipulation by
way of penalty is by Section 74 reasonable compensation not
exceeding the penalty stipulated for."
The Court also observed :
"It was urged that the section deals in terms with the right to
receive from the party who has broken the contract reasonable
compensation and not the right to forfeit what has already
been received by the party aggrieved. There is however no
warrant for the assumption made by some of the High Courts in
India, that Section 74 applies only to cases where the
aggrieved party is seeking to receive some amount on breach
of contract and not to cases whereupon breach of contract an
amount received under the contract is sought to be forfeited. In
our judgment the expression "the contract contains any other
stipulation by way of penalty" comprehensively applies to every
covenant involving a penalty whether it is for payment on
breach of contract of money or delivery of property in future, or
for forfeiture of right to money or other property already
delivered. Duty not to enforce the penalty clause but only to
award reasonable compensation is statutorily imposed upon
courts by Section 74. In all cases, therefore, where there is a
stipulation in the nature of penalty for forfeiture of an amount
deposited pursuant to the terms of contract which expressly
provides for forfeiture, the court has jurisdiction to award such
sum only as it considers reasonable but not exceeding the
amount specified in the contract as liable to forfeiture.", and
that,
"There is no ground for holding that the expression "contract
contains any other stipulation by way of penalty" is limited to
cases of stipulation in the nature of an agreement to pay
money or deliver property on breach and does not comprehend
covenants under which amounts paid or property delivered
under the contract, which by the terms of the contract
expressly or by clear implication are liable to be forfeited."
5. In Union of India Vs. Raman Iron Foundry (1974) 2 SCC
231 there are similar conclusions. Para 11 of this judgment reads
as under:-
"11. Having discussed the proper interpretation of Clause 18, we
may now turn to consider what is the real nature of the claim
for recovery of which the appellant is seeking to appropriate
the sums due to the respondent under other contracts. The
claim is admittedly one for damages for breach of the contract
between the parties. Now, it is true that the damages which are
claimed are liquidated damages under Clause 14, but so far as
the law in India is concerned, there is no qualitative difference
in the nature of the claim whether it be for liquidated damages
or for unliquidated damages. Section 74 of the Indian Contract
Act eliminates the somewhat elaborate refinements made
under the English common law in distinguishing between
stipulations providing for payment of liquidated damages and
stipulations in the nature of penalty. Under the common law a
genuine pre-estimate of damages by mutual agreement is
regarded as a stipulation naming liquidated damages and
binding between the parties : a stipulation in a contract in
terrorem is a penalty and the Court refuses to enforce it,
awarding to aggrieved party only reasonable compensation.
The Indian Legislature has sought to cut across the web of rules
and presumptions under the English common law, by enacting
a uniform principle applicable to all stipulations naming
amounts to be paid in case of breach, and stipulations by way
of penalty, and according to this principle, even if there is a
stipulation by way of liquidated damages, a party complaining
of breach of contract can recover only reasonable
compensation for the injury sustained by him, the stipulated
amount being merely the outside limit. It, therefore makes no
difference in the present case that the claim of the appellant is
for liquidated damages. It stands on the same footing as a
claim for unliquidated damages. Now the law is well settled
that a claim for unliquidated damages does not give rise to a
debt until the liability is adjudicated and damages assessed by
a decree or order of a Court or other adjudicatory authority.
When there is a breach of contract, the party who commits the
breach does not eo instanti incur any pecuniary obligation, nor
does the party complaining of the breach becomes entitled to a
debt due From the other party. The only right which the party
aggrieved by the breach of the contract has is the right to sue
for damages.................The Court in the first place must decide
that the defendant is liable and then it proceeds to assess what
that liability is. But till that determination there is no liability at
all upon the defendant." (Underlining added)
6. A contract pertaining to breach of an Agreement to Sell is a
contract where loss can be calculated, the loss ordinarily being the
lesser value of the immovable property on the date of the contract.
Such contracts of Agreements to Sell, being contracts where
damages can be calculated, even if, there is a provision of
forfeiture of a huge amount of Rs.5 lacs, the same would be a
Clause in terrorem. The Clause being in the nature of a penalty or
in terrorem, such forfeiture of a huge amount cannot be allowed
unless damages are actually proved, the law being that Section 74
only provides the outer limit of damages which can be awarded.
The court always awards reasonable compensation depending upon
the outer limit of compensation/damages which are prescribed
under the contract, and which are in the nature of liquidated
damages under Section 74 of the Contract Act. The present case,
and other similar cases of breaches of Agreements to Sell, must be
distinguished from those class of cases where loss cannot be
proved and which contracts were the subject matter before the
Supreme Court in the cases reported as O.N.G.C. Vs. Saw Pipes
Ltd., 2003 (5) SCC 705 and Sir Chunilal V. Mehta & Sons Ltd.
Vs. Century Spinning and Manufacturing Co. Ltd. AIR 1962
SC 1314 (1).
7. On reading of the aforesaid decisions of the Supreme Court it
becomes clear that there cannot be forfeiture of an amount which
is paid by a buyer under an Agreement to Sell to the respondents,
even if, the buyer is guilty of breach of contract because the seller
who has received monies, cannot forfeit the monies unless he has
suffered loss in the bargain. A seller ordinarily suffers loss under an
Agreement to Sell only if value of the property decreases as per the
breach committed by the buyer/plaintiff/appellant and in the
present case no loss has been pleaded or proved by the
respondents. Even assuming therefore that the appellant/plaintiff
is guilty of breach of contract, the respondent no.1, at best, can
forfeit only a reasonable amount and not an amount of Rs.10 lacs
out of the total sale consideration of Rs.55 lacs. It could not be
argued with any conviction by the learned counsel for the
respondent no.1/defendant no.1 that there are any pleadings in the
trial court that the respondent no.1/defendant no.1 has been
caused loss in any manner including by the value of the property
having gone down. It is because of lack of any pleadings in this
behalf that the respondent no.1/defendant no.1 led no evidence as
to any fall in the value of the property by a specific amount of Rs.10
lacs so as to entitle him to forfeit the amount of Rs.10 lacs received
as advance price."
6. I therefore hold that the trial Court erred in awarding mesne
profits at double the admitted rate of rent and set aside the impugned
judgment to the extent that it directs that the landlord will be entitled to
double the contractual rate of rent as mesne profits inasmuch as the
landlord could well have but has not led any evidence with respect to
rent of similar premises in the locality during the relevant period or any
other evidence to show that what would be the rent which would be
payable for the subject premises every month during the period of illegal
occupation by the tenant.
7. Now to the argument on behalf of the landlord that the
mesne profits must also include the charges of the executive class air
tickets and which should be an amount which should be factored in to
calculate the mesne profits which should be payable for the subject
premises. What is argued that in addition to the market rent which would
be payable for the premises as mesne profits, in addition thereto, the
value of the air tickets which was a contractual liability will have to be
added.
I am completely unable to accede to the argument as raised
on behalf of the landlord because this argument flies in the face of
Section 2(12) CPC. If the argument as advanced by the landlord is
accepted, then the same would mean that in addition to the market rent
of premises the tenant in addition will also be contractually liable to pay
cost of executive class air tickets. This is not the intendment of the
Legislature while enacting Section 2(12) CPC. The observations of the
Supreme Court made in its order dated 28.4.2008 should be seen in the
context where the application of the landlord for amendment of the plaint
was rejected by the High Court and by which amendment the landlord
had prayed for entitlement of mesne profits to include the claim of
executive air tickets, and which application for amendment was allowed
by the Supreme Court vide its order dated 28.4.2008. It is trite that while
disposing of an amendment application, the Court does not decide the
merits of the matter. Allowing of an amendment to include a claim for
mesne profits to include the claim of executive class air tickets would not
mean that by mere allowing of the amendment the Supreme Court had
held that such claim also has to be decreed. This can very well be
understood from the example that if the actual market rate of rent of the
premises falls down considerably during the illegal occupation of the
premises by the erstwhile tenant, then, the landlord is not entitled to the
contractual rate of rent which may be a higher rate of rent but landlord
would only be entitled to a lower rate of rent during the period of illegal
occupation of the tenanted premises by the tenant. I therefore reject the
argument as raised on behalf of the landlord that the tenants in addition
to payment of normal mesne profits i.e. ordinary rent which would be
obtained from the suit premises during the illegal period of stay is also
liable to pay cost of executive class air tickets. I may note, in this regard,
that the trial Court has rightly observed that the benefit of this
contractual clause of the claim of executive class air tickets will naturally
have expired with the expiry of the period of the lease and which is a
valid rationale. In the present case, we are concerned with mesne
profits/damages not during the period of lease but post the expiry of the
lease.
8. What is now therefore to be determined is that what should
be the mesne profits which should be awarded to the landlord in the
absence of any evidence having been led by the landlord with respect to
the rents prevalent in the area. Though it has not been argued on behalf
of the landlord, I would like to give benefit to landlord of various
precedents of this Court and the Supreme Court which take judicial notice
of increase of rent in the urban areas by applying the provisions of
Sections 114 and 57 of the Evidence Act, 1872. In my opinion,
considering that the premises are situated in one of the most centrally
located commercial localities of Delhi, situated in Connaught Place, an
increase of 15% every year should be awarded (and nothing has
otherwise been shown to me for the increase to be lesser) during the
period for which the tenants have over stayed in the tenanted premises.
Putting it differently, for the first year of illegal occupation, the tenant will
pay 15% increased rent over the contractual rent. For the second year of
illegal occupation, 15% increase will be over the original contractual rent
plus the additional 15%. It will be accordingly for all subsequent years of
the illegal occupation till the premises were vacated on 3.4.2005. I rely
upon and refer to a Division Bench judgment of this Court in the case of
S. Kumar Vs. G.R. Kathpalia 1999 RLR 114, and in which case the
Division Bench has given benefit to the landlord and has taken judicial
notice of increase in rent, and has accordingly allowed mesne profits at a
rate higher than the contractual rate of rent.
9. On the issue with respect to whether the landlord is entitled
to mesne profits till date because as per the landlord the entire premises
have not yet been given back to the landlord, I note that the argument of
the landlord is that about only 60% of the tenanted premises have been
delivered back but 40% has not been delivered back and which aspect
has been however very vehemently disputed by the counsel for the
tenants. I hold that this is an issue with respect to execution of a decree
i.e. whether the possession of the complete premises has been delivered
to the landlord or not and if it is found in execution that what was
delivered to the landlord on 3.4.2005 was not the complete premises,
then, if such a finding is arrived at by the Executing Court the landlord at
that stage will be entitled to his remedies. So far as present case is
concerned, the issue is only with regard to validity of the decree for
possession and I am confirming the decree for possession with respect to
the entire suit premises/tenanted premises.
10. The penultimate issue remaining is with respect to the
argument of the counsel for the tenants that an exorbitant rate of
interest of 20% per annum has been granted by the impugned judgment
on the arrears of mesne profits and which thus be set aside. The
impugned judgment is not very clear as to for what period and from when
this interest of 20% per annum simple is payable, though there are
observations that the same would be payable for the period during which
landlord was deprived of the possession of the tenanted premises. The
judgment is not clear whether the interest will be payable on the
accumulated amount due on the date of the suit or at the end of each
year of illegal occupation or at the end of expiry of tenancy month of
illegal occupation.
In my opinion, the interest granted at the rate of 20% per
month besides being wholly vague is clearly exorbitant in the present
economic scenario where the rates of interest on fixed deposit vary
between 6% to 10% per annum. The Supreme Court also in its recent
chain of judgments reported as Rajendra Construction Co. v.
Maharashtra Housing & Area Development Authority and others,
2005 (6) SCC 678, McDermott International Inc. v. Burn Standard
Co. Ltd. and others, 2006 (11) SCC 181, Rajasthan State Road
Transport Corporation v. Indag Rubber Ltd., (2006) 7 SCC 700,
Krishna Bhagya Jala Nigam Ltd. v. G.Harischandra, 2007 (2) SCC
720 & State of Rajasthan Vs. Ferro Concrete Construction Pvt.
Ltd (2009) 3 Arb. LR 140 (SC) has held that Courts are mandated to
reduce high rates of interest which are granted. Accordingly, in the facts
and circumstances of this case, I reduce the interest granted by the trial
Court from 20% to 12% per simple. The interest liability will come into
existence at the end of each month of illegal occupation of the tenants on
the amount due at the end of the month and till payment thereof. To
clarify further, so far as the month of January, 2005 is concerned, interest
will be payable for the said month from 1.2.2005. For the month of
February, 2005 interest will be payable from 1.3.2005 and similarly with
respect to earlier months, the interest will be payable at the end of the
month of illegal occupation by the tenants. I may note that the Supreme
Court has also awarded interest on arrears of mesne profits and one such
judgment of the Supreme Court is the case of Indian Oil Corporation
Vs. Saroj Baweja 2005 (12) SCC 298.
11. Finally, the learned counsel for the tenants very vehemently
sought to argue that the mesne profits would only be payable from
1.12.2003 and not from 1.12.2000 when the tenancy expired by efflux of
time. This argument is raised on the ground that the tenant had a right
to seek a further extension of tenancy and it had duly informed the
landlord and exercised this option. It is argued that negotiations were
going on for grant of a fresh tenancy, however, no registered lease deed
could be executed. Learned counsel for the tenants also relies upon the
findings in his favour given by the trial Court which holds that in fact a
notice was given in time for extension of three years and also that
negotiations were in fact going on for grant of a lease of three years.
In my opinion, there cannot be any estoppel against the
statute. A lease can be created for a period of three years, on the right
having been exercised for an option of extension of a lease for three
years only if there is executed and registered an instrument as the same
is legally necessary by virtue of Section 107 of Transfer of Property Act,
1882 read with Section 17(1)(b) and (d) of the Registration Act, 1908. If
there is no registered lease deed for a fixed period of three years, then,
the tenant continues to stay in the premises, not because of any
relationship of landlord and tenant pursuant to a lease of three years but
only as an unauthorized occupant after the expiry of lease period by
efflux of time. I therefore do not agree with the argument of the learned
counsel for the tenants and I hold that since in this case tenancy expired
by efflux of time on 30.11.2000 and the suit was filed on 3.4.2001,
clearly, the tenant would become liable to pay mesne profits from
1.12.2000.
12. In view of the above, both the appeals are partially allowed
by granting the following reliefs to the respective parties:-
(i) The impugned judgment granting mesne profits at double the
market rent is set aside and the landlord is granted mesne profits @ 15%
compounded increase every year from the contractual rate of rent which
was due and payable on 1.11.2000 as elaborated above in the judgment
(ii) In addition to mesne profits with annual increase of 15% per
annum compounded, the landlord is also entitled to interest on arrears of
mesne profits @ 12% per annum simple from the end of each illegal
month of occupation and till payment of the arrears alongwith interest to
the landlord.
(iii) The mesne profits will become payable from 1.12.2000 till
3.4.2005 by virtue of the fact of the tenant continuing in illegal
possession of the suit premises although the lease had expired by efflux
of time.
(iv) The impugned judgment is sustained and the argument of
landlord is rejected on the aspect that in addition to the mesne profits as
granted above the landlord is entitled to the executive class air tickets
for the period of illegal occupation of the tenants.
13. Both the appeals are disposed of with the aforesaid
observations. In case, any amount has already been paid for the
aforesaid period by the tenants to the landlord, the tenants will be
entitled on proof thereof to adjustment qua the money decree passed.
Decree sheet be prepared. Trial Court record be sent back.
SEPTEMBER 02, 2011 VALMIKI J. MEHTA, J.
Ne
