Karnataka High Court
Arun Balavant Chandagadkar vs Khutubuddin Shabhakhan Pathan And ... on 27 June, 2000
Equivalent citations: AIR2000KANT334, ILR2000KAR2646, 2000(5)KARLJ274, AIR 2000 KARNATAKA 334, (2000) ILR (KANT) 2646, (2000) 5 KANT LJ 274, (2001) 1 RENCJ 493
Author: S.R. Venkatesha Murthy
Bench: S.R. Venkatesha Murthy
ORDER
1. These two writ petitions filed challenging the constitutional validity of Section 14(6) and Section 14 of the Karnataka Rent Control Act, 1961 thereinafter called the 'Act'), are consolidated for the purpose of disposal by a common order.
2. In W.P. No. 9499 of 1988 the constitutional validity of Section 14(6) of the Act is challenged on the ground that the provision is arbitrary, and has, in any event, after a long lapse of time, become unrelated to the realities of life and cannot be sustained. In W.P. No. 22249 of 1990 the validity of Section 14 of the Act is challenged on the same ground that the determination of the fair rent in relation to a situation existing as on 1947, has by lapse of time, become arbitrary and is productive of negative income to the landlord.
3. Section 14 of the Act reads as follows:
"Section 14. Fixation of fair rent etc.-
(1) The landlord or tenant of any building, other than a building in respect of which the fair rent has been fixed either before or after the coming into operation of this Act, may make an application to the controller for fixing the fair rent of the building.
(2) On receipt of an application under sub-section (1), the Controller shall, after holding such inquiry as he thinks fit, fix the fair rent for such building. On fixing the fair rent for any building part of which has been lawfully sublet, the Controller may also fix the fair rent of the part sublet.
(3) In fixing the fair rent under this section the Controller shall hav due regard.-
(a) to the prevailing rates rent in the locality for the same or similar accommodation in similar circumstances during the twelve months prior to the first day of April, 1947;
(b) to the rental value as entered in the property tax assessment book of the local authority concerned relating to the period mentioned in clause (a);
(c) to the circumstances of the case, including any amount paid by the tenant by way of premium or any other like sum in addition to rent after the first day of April, 1947.
(4) In fixing the fair rent of a residential building the Controller may allow.-
(i) if the rate of rent or rental value referred to in sub-section (3) does not exceed fifty rupees per mensem, an increase not exceeding twenty-five per cent on such rate or rental value;
(ii) if the rate of rent or rental value exceeds fifty rupees per mensem, an increase not exceeding fifty per cent of such rate or rental value.
Explanation.--For purposes of this section 'residential building' includes building let out for the purpose of a public hospital, an educational institution, a public library, reading room or orphanage.
(5) In fixing the fair rent of a non-residential building, the Controller may allow.-
(i) if the rate of rent or rental value referred to in sub-section (3), does not exceed fifty rupees, an increase not exceeding fifty per cent of such rate or rental value;
(ii) if the rate of rent or rental value exceeds fifty rupees per mensem, an increase not exceeding one hundred per cent of such rate of rental value.
(6) In fixing the fair rent of a building which has been constructed after the first day of April, 1947, the Controller may take into consideration the rental value of the building as entered in the property tax assessment book of the local authority for the year in which the building was constructed:
Provided that where no such records are available, the Controller may fix the fair rent calculated on the basis of six per cent per annum of the aggregate amount of the reasonable cost of construction and the market price of the land comprised in the building on the date of the commencement of the construction.
(7) In fixing the fair rent of any building under this section, the Controller shall fix the fair rent thereof in an unfurnished state and may also determine an additional charge to be payable on account of any fittings or furniture supplied by the landlord.
(8) In fixing the fair rent of any building under this section, the Controller shall specify a date from which the fair rent so fixed shall be deemed to have effect:
Provided that in no case shall the date be earlier than the date of filing of the application for the fixation of the fair rent.
(9) No tenant shall, notwithstanding any agreement to the contrary, be liable to pay to his landlord for the occupation of any building any amount in excess of the fair rent of the building unless such amount is a lawful increase of the fair rent in accordance with the provisions of this Act.
(10) Subject to the provisions of sub-section (9), any agreement for the payment of rent in excess of the fair rent shall be null and void and shall be construed as if it were an agreement for the payment of the fair rent".
It is clear from the reading of the section that either landlord or a tenant of any building is enabled to, after coming into force of the Act, make an application for fixation of fair rent if no fair rent is already fixed. In fixing the fair rent, the Controller is guided by the prevailing rate of rent in the locality for the same or similar accommodation in similar circumstances during twelve months prior to the First day of April, 1947 and the rental value as entered in the property tax assessment book of the local authority concerned relating to twelve months prior to First day of April, 1947 and also to the circumstances of the case, including any amount paid by the tenant by way of premium or any other like sum in addition to rent after the First day of April, 1947. The power of the Controller to fix fair rent is further circumscribed to the extent of enhancing the rent by 25%, if such rent or rental value does not exceed fifty rupees per month and in case the rent or rental value exceeds fifty rupees per mensem, 50% of such rental value in case of residential house. In respect of non-residential premises also, the fair rent fixed by the Rent Controller could not exceed 50% if the rate of rent do not exceed Rs, 50/- per month and if the rate of rent or rental value exceeded Rs. 50/- per month it could not exceed 100%. In respect of buildings which are constructed after the First day of April, 1947, the Controller is empowered to take into consideration the rental value of a building as entered in the property tax assessment book of the local authority for the year in which the building was constructed and in the event of non-availability of such a record, on the basis of 6% p.a. of the aggregate amount of the reasonable cost of construction and the market price of the land comprising the building on the date of commencement of construction. When once fair rent is fixed under Section 14 of the Act, notwithstanding any agreement to the contrary, the tenant would be obliged to pay only the fair rent and such lawful increase of fair rent in accordance with the Act. According to sub-section (9) of Section 14 of the Act, any agreement for payment of rent in excess of the fair rent is treated as null and void and is construed as if it were an agreement to pay fair rent. The grievance of the petitioners is that fixation of the fair rent is not periodically reviewed and there is no way by which the petitioners could be compensated the high inflation rate and loss in real value of money. It is contended that the law, even if it were fair as on the day it was enacted, by sheer lapse of time, has become arbitrary and is liable to be struck down as unconstitutional.
4. On behalf of the petitioners, reliance was placed on the decision of the Supreme Court in the case of Malpe Vishwanath Acharya and Others v State of Maharashtra and Another, where provision relating to fixation of fair rent under the Bombay Rents, Hotel and Lodging House, Rates Control Act, 1947 was challenged on similar grounds. The Supreme Court after examining the various decisions on the point, held that a statute which, when enacted was justified, with the passage of time, could become arbitrary and unreasonable. The Supreme Court observed that a committee constituted by the State of Maharashtra in the year 1977 found that as a result of the Rent Control Act, the returns landlords got were inadequate even for subsistence, because of the steep increase in the cost of living and that there was a case for general increase in the rents as nearly 20 years had elapsed after the last increase was allowed. The Supreme Court also noticed that the 12th Report of the Maharashtra State Law Commission had found that 46% of the landlords belong to low income groups and 27% belong to middle income group and only 25% belonged to higher income group indicating thereby that 75% of the so-called landlords were really people who depended on the rent of the property for their livelihood and to designate them as landlords was undesirable; whereas the income of the tenants had gone up from 100 to 400 without their being a proportionate increase in the rents. The Supreme Court further noticed the recommendations of L.K. Jha Committee which inter alia recommended that the rents be reviewed to provide for adequate return on investment and profits for proper maintenance of buildings and neutralisation of effect of inflation and at the same time bring down the advantage a tenant now enjoys over a landlord. In paras 26 to 28 of the judgment in Malpe Vishwanath Acharya's case, supra, the Supreme Court made the following observations:
"Para 26: It is true that whenever a special provision, like the Rent Control Act, is made for a section of the society it may be at the cost of another section, but the making of such a provision or enactment may be necessary in the larger interest of the society as a whole but the benefit which is given initially if continued results in increasing injustice to one section of the society and an unwarranted largess or windfall to another, without appropriate corresponding relief, then the continuation of such a law which necessarily, or most likely, leads to increase in lawlessness and undermines the authority of the law can no longer be regarded as being reasonable. Its continuance becomes arbitrary.
27. The Legislature itself, as already noticed hereinabove, has taken notice of the fact that puggrie system has become prevalent in Mumbai because of the Rent Restriction Act. This Court was also asked to take judicial notice of the fact that in view of the unreasonably low rents which are being received by the landlords, recourse is being taken to other methods to seek redress. These methods which are adopted are outside the four corners of the law and are slowly giving rise to a state of lawlessness where, it is feared, the Courts may become irrelevant in deciding disputes between the landlords and tenants. This should be a cause of serious concern because if this extrajudicial backlash gathers momentum the main sufferers will be the tenants, for whose benefit the Rent Control Acts are framed.
28. Insofar as social legislation, like the Rent Control Act is concerned, the law must strike a balance between rival interests and it should try to be just to all. The law ought not to be unjust to one and give a disproportionate benefit or protection to another section of the society. When there is shortage of accommodation it is desirable, nay, necessary that some protection should be given to the tenants in order to ensure that they are not exploited. At the same time such a law has to be revised periodically so as to ensure that a disproportionately larger benefit than the one which was intended is not given to the tenants. It is not as if the Government does not take remedial measures to try and offset the effects of inflation. In order to provide fair wage to the salaried employees the Government provides for payment of dearness and other allowances from time to time. Surprisingly this principle is lost sight of while providing for increase in the standard rent the increases made even in 1987 are not adequate, fair or just and the provisions continue to be arbitrary in todays context".
In para 30 of the judgment, the Supreme Court has observed thus:
"Taking alt the facts and circumstances into consideration we have no doubt that the existing provisions of the Bombay Rent Act relating to the determination and fixation of the standard rent can no longer be considered to be reasonable".
It is clear from the above observations and a reading of the entire judgment that the provisions relating to fixation of fair rent is wholly arbitrary which confers on the tenants an undue advantage while denying to the landlord any benefit whatsoever.
5. The expression 'fair rent' is not defined under the Act. Section 14 of the Act formulates what according to law is fair rent. It is needless to say that the concept of fair rent as disclosed by the provision is a far cry from the commonly held notion that the rent is fair to both the landlord and the tenant. It needs hardly any mention that Section 14 of the Act is lopsidedly loaded against the landlord. No rational basis for the legislative formulation can be and is, decipherable from the provision. It appears to me that even at the inception the provision was arbitrary by seeking to freeze the rent at a period of 12 months prior to 1-4-1947, when the law was to come into force in 1961. The very fact that the life of the Act has been periodically extended show that apparently, the policy was intended to be reviewed on the basis of the circumstances available at the time of expiry of the period of the Act. That such a review has not taken place at all shows no thought was really given to altered situations compelling a review of the Act to provide a balance between the interest of the landlord and the tenant.
6. The relationship between landlord and tenant was governed by the provisions of the Transfer of Property Act and was based on contract between the parties both regarding rent and eviction from the premises. The concept of 'fair rent' was alien to the scheme of the Transfer of Property Act and thus held the balance evenly between the landlord and tenant. Likewise the landlord was entitled to seek possession of the premises in circumstances provided therein. The right to seek an agreed rent is regulated by Section 14 of the Act, and at the same time eviction is regulated by Section 21 of the Act. Thus the Act is loaded against a landlord. If the class of landlords constitute a large percentage of poor people living on rents of their properties, there could be no basis for denying to them a fair return from the only source of livelihood, while, at the same time, conferring on the tenants uncommensurate immunity from eviction. This situation is clearly unjustifiable on any rational basis. The only way by which the landlord can be compensated when eviction is regulated by law, is to provide for a fair rent which takes in its compass all the fluctuations in the economy which affect the real value of the rent. The expression 'fair rent' must be that rent which compensates adequately the loss in the value of money brought about any economic phenomena and at the same time fair to the landlord as well as the tenant. Otherwise, the expression 'fair rent' is meaningless. A comprehensive housing policy formulated and sincerely executed, is the ideal which should be aimed at, to enable opportunity for each person to possess a house, which is an absolute need. Otherwise, such provisions like Section 14 of the Act, besides the grounds stated in Malpe Vishwanath Acharya's case, supra, may be open to attack as affecting right to life under Article 21 of the Constitution. It is difficult to envisage a fair rent which is not equivalent to market rent. Any provision in the Act relating to determination of 'fair rent' which does not take into consideration compensatory factors necessary for a periodic revision of the rent payable to a landlord, apart from instances where the rent is to be increased by reason of the landlord providing to the tenant additional facilities, attracts the label of arbitrariness and consequently become liable to be struck down under Article 14 of the Constitution.
7. It has to be noticed that tenants, whatever be their occupation, compensate themselves by increasing the cost of their produce or services and insure themselves against loss in real value of their income by reason of inflation, cost of production, loss in the real value of money for whatever reason. So far as the landlord is concerned, Section 14 of the Act restricts fair rent to a situation twelve months prior to the First April, 1947 and does not permit any further increase in the fair rent except the permitted increases which are in their very nature, illusory and would not really benefit the landlord at all. As observed in the example given in Malpe Vishwanath Acharya's case, supra, the real value of the rent that is received by the landlord would keep on getting reduced to ridiculously low levels, while a tenant keeps on compensating himself the cost raise and does not suffer from any such restriction at all. Whether the tenant is a merchant or a manufacturer or a service provider, there is no restriction on the profit margin that he takes while the income of a landlord is pegged down to progressively declining amounts in terms of real value of the money and that is the reason why the Supreme Court has declared that the provision relating to fixation of fair rent though may be valid at the time it was enacted, becomes arbitrary by lapse of time with the tenant enjoying not only the security of tenure in the premises but also paying progressively reduced rents in terms of real value of the money.
If the value of products and services rendered by a tenant remained, or is kept, constant by any legally valid mechanism, there would be a case for keeping the fair rent frozen. When that is not the unassailable situation, as found in Maharashtra -- a truth universally applicable to the rest of India -- there is no way by which the class of landlords alone should be singled out for hostile discrimination, by being denied the compensatory increase similar to the benefit the tenant gets in whatever manner it is allowed. The right of the landlord to a fair return from the property, which in a majority of cases, would be defeated by fixing fair rent once and for all, with no opportunity for revision has to be held as arbitrary.
8. Though it is for the legislature to determine the policy regarding the rent that is payable for the premises, it cannot save the provision being struck down as violative of Article 14 of the Constitution of India, by ignoring the observations made in Malpe Vishwanath Acharya's case referred to above. Section 14 of the Act would have to be held to be arbitrary and is therefore, violative of Article 14 of the Constitution of India.
9. It was sought to be submitted for the State that the Act itself is being re-examined and therefore it is not necessary for the Court to strike down Section 14 of the Act as the State Government would be giving a fresh look into the matter. In the instant case, the proceedings initiated under the Act are also sought to be challenged on the ground of arbitrariness of the very provision. The petitioners would be directly affected by reason of refusal to strike down Section 14 of the Act as arbitrary. Even otherwise, when such a highly inequitable situation has been perpetuated for this length of time, by successive extensions being given to the Act, I am of the opinion that it is not a fit case where a mere declaration about the arbitrariness of the provision, with a hope that the future legislation would take care of the observations regarding invalidity of Section 14 of the Act, would do, and nothing short of a declaration that Section 14 of the Act as unconstitutional under Article 14 of the Constitution would do justice in these case. It is indeed more appropriate to strike down Section 14 of the Act so that the Legislature may have an opportunity of taking a fresh look into the question of the 'fair rent' and whether 'fair rent' cannot be otherwise than market rent itself and what is the mechanism that has to be created with a view to seeing that the situation noticed in Malpe Vishwanath Acharya's case, supra, does not recur. It is necessary for the Legislature to ensure that the 'fair rent' provisions have a in-built mechanism for periodical correction of the fair rent payable to the landlord to avoid recurrence of highly inequitable situation noticed in the case. In the circumstances, the writ petitions deserve to be allowed. Section 14 of the Karnataka Rent Control Act is declared to be unconstitutional and is struck down. Consequently, the proceedings in the respective petitions shall stand quashed.