(1) These second appeals raise a short but an important question as to whether a lease deed, which provides an increase of rent after a lapse of a particular period, is illegal and therefore cannot be enforced in a court of law.
(2) The main facts, which give rise to this question, briefly stated are follows: The plaintiff-respondent in S. A. 73 of 1960 filed a suit for a sum of Rs. 2,950/- on the basis of accounts. It was alleged inter alia in the plaint that the plaintiff was carrying on business under the name and style of 'Nallapula Sanjeeviah and Sons' at Hindupur. He took a house on rent from the defendant and executed Ex. B. 14, the Rent note dated 15-5-1946. According to the said Rent note the rent fixed was Rs. 300/- per year for three years. There was a further stipulation that in case the plaintiff continued to occupy the house after the lapse of three years, he would have to pay rent at the rate of Rs. 400/- per year. It was stated by the plaintiff that there were dealing with the defendant and at the instructions of the defendant a Khata was opened in the plaintiff's account books and whenever the plaintiff paid the rent it was entered in the account books. Apart from that, the plaintiff was supplying provisions to the defendant. He was making cash advances either to the defendant or at his instructions to third parties. As an outcome of these transactions from 23-9-1948 to 28-3-1953 and after deducting the rent at Rs. 300/- per year a sum of Rs. 2, 700/- was due from the defendant. The plaintiff claimed a sum of Rs. 250/- by way of interest and laid suit for a total sum of Rs. 2,950/-
(3) The defence raised was that whatever payment of rent was made by the plaintiff it was endorsed on the rent not itself. In regard to the other dealings adverted to by the plaintiff, the defendant denied any such dealings. He also denied the liability on the basis of khata. It was alleged by the defendant that the plaintiff had entered into a partnership with the defendant and when the defendant started asking for the account of the partnership concern, he instituted the suit falsely. The defendant denied taking of any provisions from the plaintiff or receiving of any amounts or the plaintiff's paying to third parties on his behalf at his instructions. The defendant further stated that he is entitled to receive the rent at the rate of Rs. 400/- after the lapse of three years which the plaintiff had not entered in is accounts.
(4) On these pleadings the trial court framed several issues and after recording the evidence of the parties decreed the plaintiff's suit to the extent of Rs. 1,207/- The trial court held that the plaintiff had to pay rent to the defendant at the rate of Rs. 400/- as agreed to in Ex. 14 after the lapse of 3 years. The trial court disallowed certain items alleged to have been paid to third parties at the instance of the defendant. Interest also was disallowed. The amounts paid towards the sales tax by the plaintiff on transactions with the defendant were allowed to the plaintiff.
(5) Dissatisfied with the said decree and judgment, the plaintiff went in appeal to the District Judge, Anantapur. The defendant also filed a memorandum of cross-objections in regard to the portion of his claim which was disallowed by the trial court. The appellate court allowed the appeal of the plaintiff partly and held that the defendant was not entitled to get rent at the rate of Rs. 400/- per month as it violates the provisions of the Madras Buildings (Lease and Rent Control) Act, 1949. In regard to other items the appellate court agreed with the conclusion of the trial court. Consequently the rest of the appeal of the plaintiff was disallowed, and the cross-objections of the defendant were dismissed. It is this view of the District Judge which in now challenging before me in S. A. No. 73 of 1960.
(6) The defendant in the meanwhile instituted a separate suit for rent in continuation of which S. A. No. 292 of 1960 is also before me. As the question involved in s. A. 292 of 1960 is covered in S. A. 73 of 1960, both the appeals are heard together and are now disposed of by one common judgment.
(7) It is contended by Mr. Bhujanga Rao, the learned Advocate for the defendant-appellant, that the learned District Judge has erred in holding that the agreed rent of Rs. 400/- per year after the lapse of 3 years is illegal. He draws my attention to Section 6 of the Madras Building (Lease and Rent Control) Act 1949, (Act XXV of 1949), hereinafter called the Act. According to Section 6 (1) of the Act, where the Controller has determined the fair rent of a building, the landlord is prohibited from claiming, receiving or stipulating for the payment of any premium or other like sum in addition to such fair rent or except as provided in section 5 or section 5-A, anything in excess of such fair rent. His contention is that as no fair rent is fixed in this particular case, there is no prohibition for taking an increased rent under the contract. In this connection he relied on Jamuna Bai v. Narayanamurthy : AIR1959AP108 . Srinivasachari J. who spoke for the Bench, after dealing with the facts of that case, distinguished three earlier decisions of the Madras High Court: Moses Pillai v. Govindan, AIR 1948 Mad 346; George Oakes Ltd. v. Chief Judge, Small Causes Court, Madras, : AIR1951Mad222 and Venkateswara Rao v. Mohd. Mohibulla : (1953)2MLJ669 . The facts of that case were: The original rent was Rs. 80/- per month. Subsequently there was an agreement to pay higher rent at the rate of Rs. 125/- Subsequently thereto was a further agreement to pay a higher rent at Rs. 175/-
The suit was filed for the arrears of rent on the basis of the increased rent. The defendants claimed that the higher rent was contrary to the provisions of the Act. It was held after comparing the corresponding provisions that there was a material difference between the relevant Provisions of the Madras Buildings (Lease and Rent Control) Act, 1946 (Act XV of 1946) and that of the Madras Buildings (Lease and Rent Control) Act, 1949 (Act XXV of 1949). Whereas under the old Act increase in rent was prohibited irrespective of the fact whether fair rent was fixed or not, the 1949 Act limits the prohibition of increase in the rent to cases where fair rent of a building has been fixed under the Act. It was found in that case that no application for the fixation of fair rent was made and no fair rent was fixed. It was accordingly held that the agreement entered into between the landlord and the tenant for the enhanced rent could not be declared null and void as being in contravention of the provisions of the 1949 Act. The terms of their contract therefore had to be observed by both the contracting parties.
(8) It is unnecessary to discuss the earlier cases of the Madras High Court as they had been fully considered and dealt with in the above said Bench case of this Court.
(9) It is, however, argued by Mr. Subrahmanyam that the Bench decision of this Court is not applicable to the facts of this case because it is not section 6 (I) which is applicable to this case but it is section 6 (2) that applies. It is no doubt true that the above said Bench decision of this court deals with the provisions of section 6 (I) of the Act. I am, however, unable to appreciate the contention of Mr. Subrahmanyam, the learned counsel for the respondent that section 6 (2) of the Act is applicable to the facts of this case. He attempted to draw a distinction between the facts of the Bench decision quoted above and the present case by pointing out that in this case there is only one agreement of rent in which two different rates of rent of course for different periods are mentioned. For the first three years rent at the rate of Rs. 300/- per year was agreed and after the lapse of three years, if the tenant chose to continue, he had to pay at the rate of Rs. 400/- per year, whereas there were two separate contracts in the Bench decision of this court mentioned above. I do not think that this distinction makes any difference as far as the application of section 6 (I) is concerned. In my judgment section 6 (2) cannot be made applicable to this case. According to section 6 (2) of the Act, where the fair rent of a building has not been determined, the landlord has been prohibited from claiming, receiving or stipulating for the payment of any premium or other like sum in addition to the agreed rent after the commencement of the Act.
Sub-section (2) of the section 6 clearly applies only to any premium or other like sum and not to the increase in the rent to which section 6 (I) is applicable. The words 'in addition to the agreed rent' occurring in sub-section (2) of section 6 clearly negatives the contention that that provision is applicable to a case where rent has been enhanced. The phrase 'agreed rent' used in sub-section (2) therefore would only mean the rent as agreed to by the parties. It is conceded by Mr. Subrahmanyam that the freedom of contract has not been completely taken away by section 6. What section 6 stipulates is that in case a fair rent is fixed, the landlord will not be permitted to charge increased rent except as provided in the Act, and in case the landlord enters into an agreement with the tenant to get an increased rent over and above the fixed rent, it follows that such a contract is not enforceable in law. But as long as the fair rent is not fixed, the parties are at liberty to enter into a contract. When it is contended that after the lapse of three years if the parties had entered into a new contract, the increase in rent would not violate in any manner the provisions of section 6, I fail to understand how a different consideration can apply to a case where originally the parties entered into a contract fixing Rs. 300/- as rent per year for the first three years and in case the tenant chose to continue, he would pay at the rate of Rs. 400/- per year. In either case, it is an agreed rent within the meaning of sub-section (2) of Section 6. What is contended by Mr. Subrahmanyam is that the agreed rent is Rs. 300/- and as it is increased after the lapse of three years by Rs. 100/-, it is hit by the provisions of sub-section (2) of section 6. I am unable to agree with this contention. Sub-section (2) is not applicable to a case of increase in rent under an agreement on two grounds : Firstly the phrase 'agreed rent' may mean the rent fixed by a single indivisible contract covering two different periods or by two independent contracts entered into one after the other after the original period of lease was over. Secondly, sub-section (20 relates only to the stipulation of a premium or other like sum and does not concern itself with the payment of an increased agreed rent. It would therefore be not correct to apply the provisions of sub-section (2) to the facts of this case. Sub-section (I) of section 6 is the true provision which is referred. In the view which I have taken, it follows that the Bench decision covers the present case also. The earlier decisions of the Madras High Court, having been distinguished, cannot be said to apply to the facts of the present case.
(10) As there is no prohibition for the increase of rent by a contract between the parties in cases where fair rent is not fixed, it cannot be said that the contract incorporated in Ex. B. 14 violates in any manner the provisions of section 6 (r). The contract therefore is not illegal and void. The trial court in my judgment was correct in allowing Rs. 400/- per year as rent due to the defendant . The learned District Judge has not properly appreciated the scope of the Bench decision of this court. I do not agree with the reasons on the basis of which he tried to distinguish the Bench decision . The defendant therefore is entitled to get at the rate of Rs. 400/- per year. In allowing the appeal partly the appellate court in my opinion, has gone wrong. The plaintiff therefore will not get a decree for Rs. 400/- which was given by the appellate court.
(11) The learned counsel for the respondent has also contended that the enhancement of rent in Ex. B. 14 is by way of penalty and the defendant therefore is not entitled to get the same. This argument has found favour with the appellate court.
(12) Section 74 of the Indian Contract Act no doubt deals with two types of damages which the parties to a contract may agree beforehand as payable in the event of breach. Such a sum may fall under one of the two heads mentioned in section 74. Firstly, it may be a genuine pre-estimate of the loss that will be caused to one party if the contract is broken by the other. Such a pre-estimated amount is called liquidated damages. Secondly it may be, in the nature of threat held over the other party in terrorem, a security to the promisees that the contract will be performed. A sum of this nature is called a penalty and it has always been subject to equitable considerations. The law of penalty can briefly be summarised as follows : If in making a provision for breach of contract, the promisee stipulates from the promisor on the breach only, for such compensation as the Court would deem reasonable in the circumstances of the case, then there is no penalty and the stipulation is not penal. But, if, on the other hand, the Court would, after a proper consideration of the facts of the case, come to the conclusion that the stipulation was put in not by way of a reasonable compensation to the promisee but in order that by reason of its burdensome or oppressive character it may operate in terrorem over the promisor so as to drive him to fulfil the contract, then such a stipulation is by way of penalty.
(13) In the present case, it cannot be said that the provision of the enhanced rent for the period after the lapse of three years is in terrorem to the promisor. What the promisor had agreed in this case is to pay rent at the rate of Rs. 300/- for three years. Then he had an option either to continue or to vacate the premises. In case he chose to continue, he agreed to pay rent for the subsequent period at the rate of Rs. 400/- per year. This stipulation in my judgment, cannot be called a penalty in view of the Law of Penalty as discussed above. I am supported in this conclusion of mine by the following two cases : In Kuman Das v. Radhika Singh AIR 1929 Pat 717 a Bench of the Patna High Court observed :
' .................................................. the clause for the payment of the enhanced rent is not penal between apparently it was not introduced into the lease to compel the performance of an act stipulated in the contract but was merely an option given to the lessee which he may accept or reject as he chooses, and as was pointed out by Jwala Prasad J. , a stipulation to pay a higher rent for what is in effect giving to the defendant the valuable right of occupancy in the land is neither penal nor an unreasonable one'.
To the same effect is Madan Mohan Garg v. Bohra Ram Lal, AIR 1934 All 115.
(14) In my opinion, therefore, the appellate Court was wrong in holding that the enhanced rent was penal. The provisions of section 74 of the Indian Contract Act, therefore, are inapplicable and the defendant is entitled to get rent at the rate of Rs. 400/- per year.
(15) It is secondly contended by Mr. Bhujanga Rao, the learned counsel for the appellant that the plaintiff has failed to prove all the entries of various transactions alleged to have been with the defendant . He invites my attention to section 34 of the Indian Evidence Act and submits that mere filing of the account books is not enough and that as the plaintiff has not proved every entry separately, he is not entitled to get a decree for the amount covering various transactions. I do not know how that argument can be effective. What section 34 of the Evidence Act lays down is that the plaintiff cannot obtain a decree by merely proving the existence of certain entries in his books of account even though those books are shown to be kept in the regular course of business . What has to be seen under section 34 of the Indian Evidence Act in each case is whether besides the entries in the account books there is any evidence to prove that the transaction referred to in the entries actually took place. In the case of transactions, which are numerous and which extend over some length of time, it is not reasonable to expect independent evidence to prove each particular transaction. In such cases, the genuineness of the account books, if they are kept in regular course of business, will be the determining factor. It must, however, be understood that mere proof of the correctness of the entries in the account books would not be enough. There must be some further evidence to corroborate the entries in the account books.
(16) In this case the plaintiff had come in the witness box. The testimony of the plaintiff, in my opinion, should be considered enough corroborative evidence of the entries made in his account books. It cannot therefore be argued that the lower courts have granted the plaintiff a decree in regard to the other items of transactions merely on the basis of the account books. There is enough corroborative evidence and both the courts below have dealt with it elaborately. Sitting as I am in second appeal, it will not be open to me to go into the question of facts. I do not therefore see any force in the argument that the lower court has erred in giving a decree merely on the basis of account books.
(17) It is next contended that the defendant has produced several sales-tax receipts amounting to Rs. 600/-, and the lower court has erred in granting a decree for the sum to the plaintiff in spite of the fact that it was the defendant who paid the sales-tax. I am not impressed by this argument. The defendant took a stand in the written statement that he never had any dealings with the plaintiff and when the transactions are proved, he cannot be permitted to turn round and say that of those transactions in regard to some it was he who paid the tax. Both the courts below in this respect held that the payment of sale-tax was made by the plaintiff , a fact which is corroborated by the entries in the account books. The plaintiff in support of the account books has stated in reference to these receipts now produced by the defendant as he wanted to prefer an appeal in regard to the sale-tax which was paid by the plaintiff . The defendant cannot therefore draw any benefit from the fact that the receipts were produced in the court from his custody. There is no evidence contrary to the statement given by the plaintiff . In view of his stand taken in the written statement and in view of clear evidence on the part of the plaintiff that the receipts were given to him for preferring an appeal, I do not think that the lower courts were wrong in coming to the conclusion that the defendant did not pay the sales-tax but it was the plaintiff who paid the sale-tax.
(18) Finally it was argued that the amount of Rs. 162/- should also have been rejected. This amount represents the payments made to third parties at the instance of the defendant. They are covered by Exs. A 11 A. 26, A. 93, A. 126, A. 107 and A. 191. While both the courts below had dealt with similar items and disallowed the claim of the plaintiff in that regard, the defendant did not choose to put these items also specifically in dispute before the courts below. I do not therefore have been any advantage of the opinion of the courts below on these disputed items. It may be that the defendant had raised objection in regard to these items in the grounds of appeal in the lower court ; but obviously it was not pressed at the time of the argument. As stated above, the defendant had generally denied the transactions with the plaintiff. If he wanted to pick up certain items, he ought to have pointed them specifically. In both the courts below he did so choose certain items but did not expressly dispute the correctness of the above said six items. I cannot, therefore, for the first time in second appeal without having any advantage of the opinion of the courts below enter into an enquiry in order to find out whether the plaintiff is entitled to get the above said amount or not. It would not be incorrect to say that the defendant did not choose to dispute those items before the lower courts. The lower courts were therefore justified in awarding the decree in plaintiff's favour for those items also.
(19) For all the reasons, which I have endeavoured to give, I would allow the defendant's appeal, i.e. , S. A. 73 of 1960, to the extent of Rs. 400/- and dismiss the rest of the appeal. The parties will get proportionate costs in S. A. 73 of 1960 ; consequently the decree of the trial court is affirmed.
(20) The memorandum of cross-objections filed by the plaintiff in S. A. 73 of 1960 is also dismissed, but there will be no order as to costs in the cross-objections.
(21) In view of my findings in S. A. 73 of 1960 on the question of rent, S. A. 292 of 1960 is allowed ; but there will be no order as to costs in this appeal.
(22) No leave.
HH/ CWM/ R. G. D.
(23) Appeals allowed.
(24) Cross-objections dismissed.