Whether Landlord has the right to seek fair rent during the contractual tenancy?

Supreme Court Clarifies Landlord’s Right to Seek Fair Rent During Contractual Tenancy

• Case Name: N. Motilal & Ors. vs. Faisal Bin Ali & Anr.
• Bench: Justice M.R. Shah, Justice Ashok Bhushan
• Author: Justice Ashok Bhushan
• Date of Judgment: January 30, 2020

Background of the Case

This appeal was filed by tenants challenging a judgment from the High Court for the State of Telangana at Hyderabad. The dispute originated concerning a shop in Hyderabad, which the appellants had leased through an agreement dated August 27, 1990, for a period of 20 years, expiring on July 31, 2010. The landlords, who purchased the property on March 28, 2008, filed an application on September 29, 2009, seeking an enhancement of rent. The tenants admitted a monthly rent of Rs. 1840/-, but the landlords claimed the market rent was Rs. 75/- per sq. ft., amounting to Rs. 29,250/- per month for the 390 sq. ft. shop.

The Rent Controller, Hyderabad, allowed the landlords’ application on November 4, 2013, fixing the fair rent at Rs. 60/- per sq. ft., totaling Rs. 23,400/- per month, with a 10% future enhancement every two years. This decision was upheld by the Chief Judge, City Small Causes Court, and subsequently by the High Court, leading the tenants to appeal to the Supreme Court.

The Core Legal Question

The moot question before the Supreme Court was: “whether during currency of contractual tenancy i.e. during the currency of agreed rent between the landlord and the tenant whether landlord is precluded from making an application for determination of fair rent?”

Arguments Presented

Appellants’ (Tenants’) Arguments:

• The contractual tenancy was valid until July 31, 2010, meaning the landlord had no authority to seek rent enhancement on September 29, 2009.
• Section 4 of the Telangana Building (Lease, Rent and Eviction) Control Rent, 1960, should not apply to contractual tenancies, as landlords should be bound by the agreed-upon rent.
• Permitting enhancement during a contractual tenancy would go against the spirit of Rent Control Legislation, which aims to protect tenants from exorbitant rent.
• Strong reliance was placed on the minority judgment by Bhagwati, J., in M/s. Raval and Co. vs. K.G. Ramachandran, 1974(1) SCC 424, which held that fair rent applications are only permissible after the contractual tenancy has lawfully ended.
• The appellants also noted that the landlords purchased the property for a “meagre amount” (Rs. 5,24,500/-) in 2008, which the enhanced rent would cover in just 20 months.
• They mentioned a Model Rent Control Legislation circulated by the Central Government, which, according to them, precludes landlords from seeking fair rent during a contractual tenancy.

Respondents’ (Landlords’) Arguments:

• The reliance on the minority judgment in M/s. Raval and Co. was misplaced.
• The majority judgment in M/s. Raval and Co., delivered by Alagiriswami, J., explicitly stated that Section 4 of the Tamil Nadu (Lease, Rent and Eviction) Control Act, 1960 (which is pari materia with Section 4 of the Telangana Act), allows landlords to file applications for fair rent even during a contractual tenancy.
• They emphasized that the majority judgment in M/s. Raval & Co. was further approved by a seven-Judge Bench in V. Dhanapal Chettiar vs. Yesodal Ammal, 1979(4) SCC 214.
• The issue of the property’s sale consideration was irrelevant.

The Court’s Reasoning and Decision

The Supreme Court carefully considered the arguments, focusing on the interpretation of Section 4(1) of the Telangana Act, 1960, which states: “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.”

The Court held that Section 4(1) gives both tenants and landlords the right to apply for fair rent fixation, and this provision cannot be read to exclude contractual tenancies. The Rent Control Legislations are designed to protect both parties. The Court reasoned that if a tenant, under urgent circumstances, is forced to agree to an unreasonably high rent, denying them the right to seek fair rent during the tenancy would operate harshly against them. Similarly, if market rates significantly increase, a landlord should not be barred from seeking fair rent. The concept of fair rent aims to ensure equity for both tenant and landlord.

The Court relied on its own precedents:

• It affirmed that it was bound by the majority opinion of the Constitution Bench in M/s. Raval & Co., which explicitly held that the provisions of the Act take effect “notwithstanding any contract even during the subsistence of the contract”. The M/s. Raval & Co. judgment clarified that fair rent is fixed “for the building,” acting “something like an incident of the tenure regarding the building,” applicable to both contractual and statutory tenants.
• The Court further noted that the seven-Judge Bench in V. Dhanapal Chettiar vs. Yesodal Ammal had quoted with approval the majority decision in M/s. Raval & Co.. The V. Dhanapal Chettiar judgment observed that while rent acts often protect tenants, they also envisage protection for landlords, citing examples like a widow or minor needing fair rent or a landlord in a distress situation letting premises below market rates.

Regarding the appellants’ other arguments:

• The sale price of the property was deemed irrelevant to the determination of fair rent, which must be made as per the 1960 Act.
• The Model Rent Control Legislation circulated by the Central Government was dismissed as mere guidelines that cannot override the statutory provisions of the 1960 Act.

Conclusion

The Supreme Court found no merit in the appeal. It categorically held that applications for the determination of fair rent can be made by both landlords and tenants, and crucially, this can be done even during the currency of a contractual tenancy. This judgment confirms the principle that Rent Control Legislations are intended to provide a balanced mechanism for fair rent determination, benefiting both parties, and overriding contractual terms where necessary to achieve this balance.