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Rajnikant Jeshingbhai Shath and ors. Vs. Rameshchandra Kantilal Bhatt and ors. - Court Judgment

LegalCrystal Citation
SubjectTenancy
CourtGujarat High Court
Decided On
Case NumberCivil Revn. Appln. Nos. 786 and 787 of 1979
Judge
Reported inAIR1982Guj85; (1982)1GLR71
ActsBombay Rents, Hotel and Lodging House Rates Control Act, 1947 - Sections 11 and 11(1); Code of Civil Procedure (CPC), 1908 - Sections 115(1)
AppellantRajnikant Jeshingbhai Shath and ors.
RespondentRameshchandra Kantilal Bhatt and ors.
Appellant Advocate M.D. Pandya and; V.C. Desai, Advs.
Respondent Advocate S.M. Shah, Adv.
Cases ReferredBalakrishna Udayar v. Vasudeva Ayyar
Excerpt:
tenancy - standard rent - section 11 of bombay rents, hotel and lodging house rates control act, 1947 and section 115 of code of civil procedure, 1908 - land value spread over all floors if all floors of building constructed at one time - increase in land value should be proportionately spread over floor wise where floors built at intervals - vertical development of property from time to time will not enhance standard rent of existing structure - benefit of rise in value of land available to newly constructed floors not available to existing structure even though rise allocated proportionately between all doors including existing floor - proper to allocate rise floor wise rather than allow entire rise to fall on newly added floor or floors and thereby hike up standard rent. - - the.....order1. these two landlords' revision applications under s. 115 of the code of civil procedure raise important questions concerning the court's perimeter under s. 11 of the bombay rents, hotel and lodging house rates control act 1947, (hereinafter called 'the act'). amongst others, the principal question which falls for determination is: where different floors of the same building have been constructed at intervals of a few years and have been let out at such intervals whether the market-value of the land at each letting can be taken into consideration in fixing the standard rent in respect of the concerned premises, and if yes, on what principle should the market-value be determined? the brief facts which are relevant for deciding the aforesaid question of general importance may be.....
Judgment:
ORDER

1. These two landlords' Revision Applications under S. 115 of the Code of Civil Procedure raise important questions concerning the Court's perimeter under S. 11 of the Bombay Rents, Hotel and Lodging House Rates Control Act 1947, (hereinafter called 'the Act'). Amongst others, the principal question which falls for determination is: Where different floors of the same building have been constructed at intervals of a few years and have been let out at such intervals whether the market-value of the land at each letting can be taken into consideration in fixing the standard rent in respect of the concerned premises, and if yes, on what principle should the market-value be determined? The brief facts which are relevant for deciding the aforesaid question of general importance may be stated as under:

2. The petitioners are the owners of a parcel of land admeasuring about 1990 square yards bearing Sub-plot No. I/A/I of Final Plot No. 79 of Town Planning Scheme No. 3 (Dariapur-Kazipur) situate in a fully developed and busy locality outside Shahpur Gate, behind Harivansh Society, Ahmedabad. In the year 1964-65, they constructed a building consisting of a cellar, a ground floor and a mezzanine floor on a part of the said land admeasuring about 321.30 sq. yards. Half of the ground-floor consisting of six rooms and mezzanine floor an measuring about 1081sq. feet came to be let in 1965 to Safal English School started by the present opponent No. 2 at Rs. 425/- per month plus taxes. The said school occupied the said premises up to 31st March 1968. This Safal English School sold its tenancy rights along with goodwill to Slir Akhandanand Kelavani Uttejak Uandal, a registered public trust, which started a school in the said premises from 1st April 1968. The said trust initially paid Rs. 425/- per month plug taxes by way of rent to the petitioners but it is an admitted fact that the rent was increased to Rs. 501/- per month plus t3xes with effect from lot June, 1969. In course of time the school progressed and more and more students joined the school. For want of accommodation the school had to be run in two shifts. The opponents, therefore, approached the petitioners with a request to construct a first floor so that they may be able to accommodate their students in the additional space. Accordingly in 1969 the petitioners constructed a first floor consisting of six rooms admeasuring about 1980 sq. feet and let it out to the opponents on rent of Rs. 1051/- per month Plus taxes. Subsequently. on lst June, 1970 the cellar portion admeasuring about 475 sq. feet was also let to the opponents at Rs. 211/- per month plus taxes. However, the Pressure for additional space in view of the increase in the total number of students led the opponents to once again request the petitioners to construct a second floor on the said building. The petitioners acceded to this request and constructed a second floor and let it out to the opponents with effect from 1st August. 1971 at a rent of Rs. 1051/- per month plus taxes. Thus the total rent recovered by the petitioners from the opponents came to Rs. 2,8141- per month plus taxes. Hardly six months had passed after the letting out of the second floor when the opponents filed an Application No. 754 of 1972 for fixation of standard rent in respect of the demised premises. The opponents contended in the said application that the rent recovered by the petitioners was excessive and that it could not exceed Rs. 800/- per month inclusive of taxes. The learned trial Judge after considering the oral as well as the documentary evidence on record came to the conclusion that the fair return which the petitioners could be allowed on their investment cannot exceed Rs. 1,667/- per month plus taxes and accordingly fixed the said amount as standard rent in respect of the entire building. Both the petitioners as well as the opponents were aggrieved by this decision of the learned Judge in the Court of Small Causes at Ahmedai bad and, therefore, they preferred Revision Applications Nos. 23 and 24 of 1977 respectively assailing the said order. The Appellate Bench of the Court of Small Causes, Ahmedabad, dismissed the landlords' Revision Application No. 23 of 1977 with costs. The Revision Application filed by the opponents was partly allowed and the order of the trial Court fixing the. standard rent of the premises at Rs., 1.667/- per month plus taxes was set aside and instead the standard rent was fixed at Rs. 1,317/- per month plus taxes. The petitioners feeling aggrieved by this order of the Appellate Bench Of the Court of Small Causes in the two Revision Applications have preferred the present two Revision Applications. As both these Revision Applications arise out of the same judgment, they are disposed of by this common judgment.

3. Before proceeding to deal with the submissions made at the Bar, a brief survey of the relevant provisions of the Act may be undertaken. S. 5(8) defines ,.premises' as any land not being used for agricultural purposes, or any building or part of a building let separately (other than a farm building) including the garden, ground, garages and. out-houses, if any, appurtenant to such building or part of a building, any furniture supplied by the landlord for use in such building or part of a building or any fittings affixed to such building or part of a building for the more beneficial enjoyment thereof, but shall not include a room or other accommodation in a hotel or lodging house. Sub-section (10) of S. 5 defines 'standard rent' in relation to any premises to mean-

(a) where the standard rent is fixed by the Court and the Controller respectively under the Bombay Rent Restriction Act, 1939, or the Bombay Rents, Hotei and Lodging House Rates (Control) Act 1944, such standard rent; or

(b) where the standard rent is not so fixed-

subject to the provisions of S. 11,

(i) the rent at which the premises were let on the first day of September 1940, or

(ii) where they were not let on the first day of September, 1940, the rent at which they were last let before that day. Or

(iii) where they were first let after the first day of Sept., 1940, the rent at which they were first let, or

(iv) in any of the cases specified in S. 11, the rent fixed by the Court;' Sections 9to 10-E deal with the increasein rent in certain circumstances with which we are not concerned. We next come to S. 11 which provides that in any of the cases hereinafter mentioned, the Rent Court may fix the standard rent. At such amount as, having, regard to the provisions, of the Act and the circumstances of the case. the Court deems just

(a) where any -premises are first let after the specified date and the rent at which they are so let is in the opinion of the court excessive; or

(b) where the Court is satisfied that there is no sufficient evidence to ascertain the rent at which the premises were let in any one of the cases mentioned in sub Clauses (i) to (iii) of Clause (b) of sub-section (10) of S. 5; or

(c) where by reason of the premises having been let at one time as a whole or in parts and at another time in parts or as a whole, or for any other reasons, any difficulty arises in giving effect to this part; or

(d) where any premises have been or are let rent-free or at a nominal rent, or for some consideration in addition to rent; or

(e) where there is any dispute between the landlord and the tenant regarding the amount of standard rent.

Clauses (a), (c) and (e) of sub-section (1) of S. 11 are relevant for our purpose. Clause (i) confers jurisdiction on the Rent Court to fix the standard rent at such amount as, having regard to the provisions of the Act and the circumstances of the case, the Court deems just where the premises are first let after the specified date, meaning thereby, the first day of Sept., 1940, and the rent, at which they are so let is in the opinion of the Court excessive. Similarly, the Rent Court is empowered to determine the standard rent where by reason 'of the premises having been let at one time as a whole or in parts and at another time in parts or as a whole, for any other reasons, any difficulty arises in giving effect to Part II; or where there is any dispute between the landlord and the tenant regarding the amount of standard rent. Sub-section (2) of S. 11 also empowers the Court to determine the permitted increases, if there is any dispute in that behalf between the landlord and the tenant.

4. Sub-section (1) of S. 12 lays down that a landlord shall not be entitled to the recovery of possession of any premises so long as the tenant pays, or : is ready and willing to pay, the amount. of the standard rent and permitted increases if any, and observes and performs the other conditions of the-tenancy, in so far as, they, are consistent with the provisions of the Act. Sub-.sea;(I) of S 13. which begins with a non obstante clause provides that a landlord shall be entitled to recover possession of any premises if the Court is satisfied that the case falls within any-of the clauses enumerated there under. Cl (hh) entitles the landlord to seek eviction on the ground that the premises consist of not more than two floors and are- reasonably and bona fide required by the landlord for the immediate purpose of demolishing them and such demolition is to be made for the purpose of erecting, new building on the premises sought to be demolished; or where the premises are land, such land is reasonably and bona fide required by the landlord for the erection of a new building. Where a Court passes a decree under Clause (hh) of sub-section (1) of S. 13, S. 17-B confers a right on the tenant to intimate to the landlord of his intention to occupy a tenement in the new building on its completion. S. 18 makes it penal for the landlord to receive any fine, premium, deposit or any consideration other than the standard rent and permitted increases, in respect of the grant, renewal or continuance of a lease of any premises. Similarly, S. 19 makes it penal for a tenant to receive any sum or consideration as a condition for the relinquishment, transfer or assignment of his tenancy. S. 21 enjoins upon the landlord to supply particulars regarding standard rent on demand by the tenant. Ss. 23 to 27 spell out the other obligations of the landlord vis a vis the tenant and the demised premises.

5.It is obvious from the scheme discernible from the aforesaid provisions that while on the one hand the Act seeks to curb exploitation of the tenants in the matter of realisation of rents by land lords, on the other hand it promises a fair and reasonable return on investment as and by way of animpetus to the owners of land to construct on their lands and to the owners of old and small superstructures to demolish them and constructnewbuildingswithgreateraccommodation in their place to overcome the problem of paucity of accommodation. The Act no doubt extends protection to the tenants from eviction but at the same time end upon them to pay the standard and permitted increases in respect of the premises in their occupation, regularly. S. 11 also enjoins upon the Court to fix the rent which it deems just as the standard rent in respect lot the premises in question. That is why Shah, J., in Bai Dahi V. GhAriasliam : AIR1956Bom162 emphasised that the rent which must be determined as standard rent must appear to the Court to be just having regard',to the provisions of the Act and the circuinstances of the case. Chagla, C. J ' in Saipansaheb Dawoodsaheb v. Laxman : AIR1955Bom435 observed that in fixing the standard rent the correct approach should be, what is the net return which a landlord shouid be reasonably allowed on his investment. It is in the background of this objective of the Legislature that the Court must proceed to fix the standard rent in respect of a demised premises whenever there is a dispute in that behalf between the landlord an d the tenant.

6. What then are the principles which should guide the Court in fixing the standard rent in respect of premises given on rent? Having regard to the language of S. 11 of the Act, the Court must fix what it considers to be just as the standard rent bearing in mind the provisions of the Act and the circumstances of the case. We have already read the relevant provisions of the Act and indicated the scheme and purpose thereof. circumstances of the case may now be kept in mind. The premises are situate in a well-developed and busy locality. They are being used for the purpose of running a Primary as well as a Secondary School. The school is being run in two shifts which is bound to increase the wear and tear and reduce the life of the building. The cost of maintaining the building in good condition would be fairly high. In addition, the cost of providing other services, such as water supply, etc. would also be more than normal. The entire building is designed and constructed with a view to housing a school. In fact, the first and the second floors were constructed at the behest of the opponents as they found it difficult to accommodate the increasing number of students the available space. Therefore, the superstructure was specially designed for the purpose of housing a school. Another factor which must be borne in mind is the possibility of the premises remaining vacant for some time in the event of the present opponents vacating the same. the upper floors have been specially dew signed for a school only those who are desirous of running a school in the said premises- will be interested in taking the premises, on rent. These are some of the circumstances which must weigh with the Court in fixing the standard rent of the premises in question.

7. Under S. 11 of the Act where the premises are let after first day of Sept., 1940, as in the instant case, the Court can interfere and fix the standard rent at such amount as it deems just and reasonable if the rent charged is in the opinion of the Court 'excessive'. The term 'excessive', according to Random House Dictionary (College Edition), means exceeding the usual or proper limit or degree, extravagant, extreme. inordinate, exorbitant or unreasonable Tendolkar, J. in Harilal v. Jain Co-op. Housing Society, : AIR1957Bom207 while pointing out that under Section 11(1)(a) of the Act, the intervention of the Court in cases of letting after Sept, 1, 1940 with contractual rent can only be where the rent is not only not reasonable, but exceeds by some substantial margin what is reasonable, so that it may be termed 'excessive', rightly observed that there is always a gap between what is reasonable and what is excessive. and what is excessive does not begin where what is reasonable necessarily ends. According to the learned Judge, if the contractual rent is within this gap between what is excessive and what is reasonable, the Court has no jurisdiction to fix a just rent in such a case. This view was later approved by a Division Bench of the Bombay High Court in Rukman,bai v. Sh;vnarayan : (1965)67BOMLR692 . 1 am in respectful agreement with the above view expressd by Tendolkar, J. it is, therefore, clear on the plain language of S. 11 of the Act that the Court has jurisdiction to interfere with the contractual rent if and only if it considers the same to be excessive, unreasonably high.

8. The next question to be considered is as regards the valuation of the land. Two questions require to be settled before we proceed to determine the land value; (I) whether land value has to be determined with reference to the date of letting or with reference to the date of purchase and (ii) how should the land value be apportioned, if at all, having regard to the fact that the different floors of the same building were constructed intervals of a few years. The question whether for the purpose of determining the fair and reasonable rent, the value of the land, is the value actually paid by the landlord at the date of purchase regardless of the date of the construction or letting of the building or whether it is the value of such land at the date of completion of the building or its actual letting, first arose for decision in Harilal's case (supra), However, in that case the learned Judge did not consider it necessary to determine this question as in his opinion the decision was not likely to make any difference on the question of fixation of standard rent. However. the very same question came up for consideration before the Division Bench of the Bombay High Court in Riukrnantbai's case (supra). K. K. Desai, J., speaking for the Division Bench observed that under the Act where premises are first ' let after Sept., 1, 1940, the standard rent should be ascertained as regards the land involved by determining fair return on the basis of the market value of the land at the time of the first letting. At the same time he observed that it would be open to the Court to consider the circumstance of the landlord having become owner of the land for a much smaller price at an anterior date than the date of first letting. This view is consistent with the scheme of the Act which on the one hand seeks to prevent exploitation of needy tenants while on the other it encourages owners to build on their lands by promising to them a fair return on their investment. There is nothing in the Act to conclude that the Legislature did not intend to allow the landlord to receive the benefit from the rise in the land value in respect of properties let for the first time after lst Sept., 1940. Such a view would run counter to the legislative policy to encourage new constructions on open lands to overcome the problem of paucity of accommodation, which is particularly acute in urban areas. In the aforesaid case the Division Bench has given convincing reasons on page 700 in support of its view with which I am in respectfull agreement.

9. That takes me to the question of apportionment of the land value. In the Instant case the superstructure admittedly stands on land admeasuring 321.30 sq. yards. As pointed out earlier, the owners initially built only the ground floor and later added the first and the second floors at the behest of the tenants. There is no dispute that according to the building bye-laws only one-third of the land could be built upon and two-thirds of the plot bad to be kept open. In other words,the minimum plot area required for raising a superstructure of the area of 321.30 square yards would be approximately 964 sq. yards. In the instant case. as there is a compound wall the valuation expert has calculated the land price on the basis that the total land required is 975 square yards, No exception can be taken, and indeed none was taken, so far as this approach is concerned. Even otherwise, it is well settled that where the building regulations permit only a portion of this land to be utilized for construction and the rest to be left open, the minimum land required for raising a superstructure of that size must be taken into accou6t for the purpose of determining the market value of the land consumed by the said superstructure. Accordingly, in the instant case for the purpose of fixation of standard rent the Court must process on the premise that the total lan:1 utilized by the owners for raising the superstructure in question is 975 square yards, In fact, it is on this premise that Mr. Shah tried to urge that the respondent3 are the tenants of 975 square yards of land, a contention rightly negatived by both the Courts below in view of the recital in the rent-notes.

10. That bring4 me to the crucial point which was hotly debated before me by the learned counsel for the rival sides, The point has been broadly formulated in the opening paragraph of this judgment and may now be explained in some detail. The ground-floor (with cellar) was constructed and let in 1964-65, the first floor in 1969 and the second floor in 1971. Indisputably the land prices in the city of Ahmedabad had risen between 1965 and 1969 and thereafter between 1969 and 1971. Even the respondent's expert says that the land prices were on the increase after 1958. Both the Courts below have for good reason held that the valuation report submitted by the landlords' expert is dependable. According to the said report the value of the land in the said locality can be assessed at Rs. 40/- per square yard in 1965. Rs. 70/- per square yard in 1969 and Rs. 100/- per square yard in 1971. 1 have already concluded that the date of letting is the material date for the purpose of determining the market value of the land for working out the fair rent or standard rent of the demised premises. I have also recorded my agreement with the view that the benefit of the increase in the market value of the land on which the demised structure stands would ensure to the landlord. For this reason the submission of Mr. Shah that once the full impact of the market value of the land is borne by the tenants in the fixation of rent of the ground floor portion, the landlords cannot be allowed any return on land value in fixing the standard rent of the subsequently built upper floors cannot be accepted, It such a view is taken it will be unjust for three reasons, namely (i) it will prove to be a disincentive to owner-; of existing structures to add floors to their existing buildings; (ii) there will be a wide disparity in the rent of two buildings built at or around the same time, as the rent of the building built for the first tin, e will be on the basis of the market rate of land at the date of letting which will carry the benefit of the rise in land prices while the rent of a floor added to an existing building will be denied the advantage of rise in land value, and (W) we would be ignoring the fact that the terrace area also has a market value and would fetch a price if the right to construct on the terrace area is given to a third party, in which case the said third party would be entitled to z1aim a return on the price paid by him for the terrace area. But then the question is, whether the whole rise in the value of the land during the said interval should fall on the added floor or floors or whether the said rise should be apportioned pro rata on the basis of the carpet area of each floor. Now, if all the floors of a building are constructed at one time, the land value is spread over all the floors and so also the increase in the land value should be proportionately spread over floor wise where floors are built at intervals. The vertical development of the property from time to time will not enhance the standard rent of the existing structure for the simple reason that the benefit of the rise in the value of the land available to the newly constructed floors will not be available to the existing structure even though the rise is allocated proportionately between all the doors including the, existing floor. In order that the disparity in the standard rent of the newly added floors and the existing floor may be within reasonable limits it is proper to allocate the rise floor wise rather than allow the entire rise to fall on the newly aided floor or floors and thereby hike up the standard rent. Having regard to the fine balance struck by the Act On the one hand it seeks to protect needy tenants against exploitation by unreasonable landlords; on the other hand it invites the owners to build on their lands and existing structures by promising to them a air re urn on their investment and having regard to the fact that land value is generally distribute:1 amongst all the floors if built at the same time and with a view to avoiding wide ranging disparity in the rents, I think it would. be reasonable to allocate the rise in the land value proportionately between all the floors in the case of a building to which floors are added subsequently at an interval of a few years.

11. Having set out the principle which should govern Courts in fixing the standard rent in respect of floors constructed at intervals of a few years on an existing building, the question that remains is regarding the application of the said principle to the facts of the present case. Both the Courts below misdirected themselves in the exercise of their jurisdiction under S. 11 read with S. 28 of the Act in refusing to allow anything towards the land ,value so far as the upper floors are concerned and in proceeding to determine the standard rent of the entire premises in the occupation of the tenants as if the entire building consisting of the ground floor, first floor and second floor was built at one point of time. I have already come to the conclusion that the benefit of the rise in land value between the date of letting of the ground floor and the date of letting of the first floor as well between the date of letting of the first floor and the date of letting of the second floor must be allocated floor wise on pro rata basis. On the question of land value and the cost of construction the trial Court preferred to place reliance on the report of the landlords' expert. In revision the Bench of the Court of Small Causes also placed reliance on the said report and determined the price of the land at the date of construction of the ground floor and the cost of construction of all the three floors on that basis. Yet surprisingly, on the question of rise in land prices the Bench did not rely on the said report even though the tenants' expert had also opined that the prices of land were on the increase from 1958 and onwards. Whether the prices had incre-IS7 ed or not during the relevant period is a question of fact which could not be gone into by the Bench under S. 29(3) of the Act. That section only empowers the Court to call for the case to satisfy itself that the order made was according to law. The Bench, therefore, clearly exceeded its jurisdiction by interfering with a finding of fact. Even otherwise, there is no valid reason to doubt the rise in land value as reflected in the said report. The error of both the Courts not to apportion the rise in land value, therefore, cannot be allowed to stand.

12. The trial Court held that the landlords were entitled to a return of six per cent on the cost of construction 'and 8-2/3 per cent on land value. In revision the Bench of the Court of Small Clauses allowed a return of six per cent on the land value and a net return of 61/2 per cent. on the cost of construction. The trial Court had allowed a sum of Rupees 2,809/- by way of annual outgoings under various heads but in revision the Bench of Small Causes while accepting in principle that the landlords would be entitled to outgoings did not make any allowance whatsoever under that head. This appears to be an error apparent on the face of the record and must, therefore, be corrected. A certain percentage just be a -lowed by way of outgoings fo7vacanciels, bad debts, obsolescence, depreciation and sinking fund, etc., which the Court must determine in the facts and circumstances of each case depending on the nature of construction, the use to which the property is put, the wear and tear etc. In the instant case the payment of rent would be regular as a sizeable part of the rent is reimbursed from the grant received by the school under the Grant in Aid Code. The structure is of R. C. C. make. The school is running two-shifts with the result that the maintenance cost would be fairly high. It is the statutory duty of the landlords under S. 23 of the Act to keep the demised premises in good repair. The possibility of bad debts and irregular payment of rent is minimized because of the grant received by the school under the Grant-In-Aid Code. Normally, the depreciation or sinking fund is allowed on 90 per cent of the cost of construction. Ordinarily in the case of a R. C. C. building with an expected life of 60 years the outgoings are allowed at the rate of 1/2 per cent. for repairs, 1/8 per cent. for insurance and .61 percent for depreciation on 90 per cent of the cost of construction i. e., 'a total of 1. 1 per cent on the total construction- cost. In the, present case the economic life of the building-must be calculated from the date of construction of the ground floor., It ,must also be borne in mind that as the demised premises will be used by a large number of students, around 750 1 believe, and that too in two shifts, the maintenance cost is bound to be more than the normal. Added to that is the fact that prices of building materials are ever on the increase while the purchasing power of the rupee is fast falling. In the backdrop of these circumstances I think it would be reasonable to allow outgoings at the rate of 1.25 per cent on the total cost of construction.

13. The return on the- cost of construction has been allowed by the Bench of the Court of Small Causes at 61/2 per cent on the following line of reasoning:-

'Now when the construction is made after the year 1958 when the bank rate had risen and the return on the gilt edged security also had risen and when the municipal taxes have also increased considerably, the gross return would be no doubt 8-2/3 per cent even taking into consideration the repairs, insurance, sinking fund or depreciation on the cost of construction etc. If the tenant has agreed to meet any of the ordinary outgoings himself or to pay the municipal taxes, the corresponding deduction must be made from the rent payable by the tenant. In the instant case, we are satisfied that the tenant is liable to pay taxes. If the gross return is allowed at 8.2/3% then from the total return we shall have to deduct the amount of taxes payable by the tenant, Taking into consideration the fact that municipal taxes on higher rent is more than 30 to 35 the net return should be allowed at 61/2% on the cost of construction.'

Mr. Pandya rightly submitted that the percentage of return on the value of the land and the cost of construction was linked with the rate of interest on giltedged securities (Government Securities) and the prevailing bank rate. He supported this submission by inviting my attention to Note 14 (iv) A on Page 420 of Andhyarujina's Law of Rent Control, which reads as under:-

'Ordinarily, the Bombay Small Causes Court allows 51/2 per cent. net return on the cost of construction, but where the construction is of 1952-53, when the bank rate had risen from 3 per cent, to 3 1/ 2 . percent. and return on the gilt -edged security, also had. risen a higher rate of return of 6 percent., on cost of construction is allowed. For the same reason, after 1958, net return on cost of construction is 61h per cent.'

He next pointed out that after December 1958, the Bank rate steadily increased and was 4/2 per cent in the beginning of 1963, 5 per cent in September 1964 and 6 per cent in February 1965. Of course, it came down to 5 per cent in March 1968 but- rose to 6 per cent by January 1971. Similarly, the return on the gilt-edged securities varied from 41/2 per cent in 1962-63 to 51/2 per cent in 1965-66 and 514 per cent in 1971-72. Mr. Pandya, therefore, rightly submitted that the learned Judges constituting the Bench of the Court of Small Causes failed to take into account this upward fluctuation in the Bank rate as well as return on gilt-edged securities while pegging down the net return at 61/2' per cent on the cost of construction. Mr. Pandya, therefore, submitted that if 21/2 per cent to 3 per cent above the gilt-edged securities or Bank rate is allowed on the cost of construction the net return would fluctuate between at least V/2 per cent to 8 per cent annum. The Court should also take note of the fact that between the date of commencement of construction and the date of letting the amount invested by the owners did not fetch any return whatsoever. In determining the return on investments made in real estate the Court must realize the fact that the standard rent once determined will not increase with the subsequent increase in the Bank rate, returns on gilt-edged securities and returns fetched by other investors from time to time, although the benefit of inflation by way of rise in the price of real estate will be available if and when the tenant vacates. Keeping in mind all these facts and the fact that the return on the investment of the owners of building must be less than what a hypothetical tenant would have to pay by way of interest on the capital borrowed for building the same superstructure for himself, I think it would be reasonable to allow a net return of 7 per cent on the cost of construction of the ground floor and 7.25 per cent on the cost of construction of the upper floors, since the municipal taxes are paid by the tenants.

14. There are some arithmetical errors committed by the Bench of the Court of Small Causes in its judgment which may be corrected at this stage. In paragraph 23 of its judgment while determining the cost of construction of the ground floor the Court directed a deduction of 10 per cent from the cost of construction worked out by the expert and arrived at a figure of Rs. 50,600/- which is an obvious error because the correct figure would be Rs. 60490-6049 = 54,441. So also while working out the cost of construction the learned Judges relied on the statement of the landlords' expert that the cost of construction of the first floor would be less by 8 per cent than the cost of construction of the ground floor. According to the expert the cost of construction of the ground floor at the date of construction of the first floor would be Rs. 260/- per sq. yard. If 9 per cent is deducted the cost of construction comes to Rs. 239.2 per sq. yard and accordingly the total cost comes to Rs. 76,855/- and not Rupees 72,300/-. The learned Judges committed the error of taking the rate of construction of the ground floor at the date of its actual construction and deducted 8 per cent there from instead of taking the rate of the construction of the groundfloor at the date of construction of the first floor. There is no dispute so far as the cost of construction of the second floor is concerned.

15. Mr. Shah, however, submitted that if this Court is inclined to examine the correctness of the Decision of the Bench of the Court of Small Causes not withstanding his objection to the maintainability of this application, he would like to point out a patent error committed by the Bench in fixing the land value so far as the ground floor is concerned. According to him the tenants are in occupation of only a part of the ground floor (ground floor 160.65 sq. Yards cellar 80.30 sq. Yards and mezzanine floor 25.10 sq. Yards) while the rest is in possession of others. According to the landlord's expert the market value of the land at the date of letting of the ground floor can be taken at Rs. 40/- per square Yard. Since the plot area is taken at 975 sq. Yards the total market value of the land works out to Rs. 39.0001-. The Bench of the Court of Small Causes has apportioned this value for all the three floors. Thus the value for the ground floor would be Rs. 13,000/-. Since half the ground floor is in possession of the tenant it ha3 deducted Rs. 6500/- and had thus taken the lan:1 value at Rs, 32,5001-. Now if the rise in land value is apportioned floor wise, this method cannot be adopted. Mr. Shah is right in his submission. Since the total land value at the date of letting of the ground floor is Rs. 39,000/-, and since one half the ground floor is let to the respondents, the land value so far as the ground floor is concerned can only be taken at Rs. 19.5001-.

15-A. There is one more submission which may be answered at this stage. Mr. Shah submitted that the ground floor was let to Safal English School for Rs. 425/plus taxes in 1965 and the said premises were later transferred to the respondents who, paid the rent at the said rate till it was raised to Rs. 501/- per month Plus taxes. He, therefore, submitted that in no case can the standard rent of the ground floor exceed Rs. 425/- per month. There is a twofold objection to this submission. Even though each floor was let separately the tenants preferred a single application for the fixation of the standard rent as if the different floors let at different times constituted a single dermises unit Objection was raised by the landlords to the maintainability of the application before the learned trial Judge but the same was spurned as is clear from paragraph 19 of the judgment. The learned trial Judge fixed the standard rent treating all the floors in the possession of the tenant as a single unit. The Bench of Synall Causes which heard the cross-revision applications also fixed the standard rent on the basis that all the floors in the occupation of the respondents constituted a single unit. It is, therefore, too late in the day now to have the unit broken up. The second objection is that the rent was increased from Rs. 425/- per month to Rs. 5011- per month as the! premises were transferred by Safal English School with goodwill as a running concern. It is the case of the landlords that they were entitled under Section 10C(1) of the Act to increase the rent not exceeding 25 per cent of the standard rent and accordingly the rent was mutually increased to Rupees 5011- per month plus taxes. If all the floors in the possession of the respondents had not been treated as a single unit, this contention of the landlords, which prima facie appears to have substance. would have been examined by the Courts below. Therefore, on both the grounds the submission fails.

16. The conclusions may now be tabulated and the standard rent determined an that basis-

Floor. Land value. Return on Cost of Net return on cost Out going Total ofland at 6% Construction. of Construction at 1.25% columns 3,5&6(1) (2) (3) (4) (5) (6) (7) Ground Rs. 1950 Rs 1170 Rs 54,441 Rs 3810at7% Rs 682 Rs 5662 floor. as fixed inpara 14.First Rs. 14695 Rs. 877 Rs. 76,855 Rs 5572 at Rs 969 Rs 7418 floor. 7.25 per cent.Second Re. 19500 Ra. 1170 Rs. 89,954 Rs 6522 at Rs. 1124' Rs 88167.25 per cent.Total ... Rs 21896Note: The land value of the two floors is worked out asunderFirst floor area 975 sq. yds. X Rs. 30 rise in price,divided between two floors = Rs. 14625/Second floor area 975 sq. yds. X Rs. 60 rise in price,divided between three floors = Rs. 19500/-

Thus the annual fair and reasonable return works out to Its. 21,896/- i. e., approximately Rs. 1825/- per month excluding taxes which the tenant has undertaken to pay under the rent notes. The agreed rent for the three floors in the occupation of the respondents is Rupees 2814/- which is clearly excessive. Therefore, this is a fit case in which the standard rent of the entire premises in the possession of the respondents should be fixed at Rs. 18251- excluding taxes to be paid by the respondents.

17. I will now answer the preliminary objection as to the maintainability of the present Civil Revision Applications raised by Mr. Shah the learned advocate for the respondents. According to Mr. Shah, these being Revision Applications under Section 115 of the Code of Civil Procedure, the High Court can interfere with the order of the Court below only if it appears that the subordinate Court has exercised jurisdiction not vested in it by law, or has failed to exercise jurisdiction so vested in it, or has acted in exercise of ith jurisdiction illegally or with material irregularity. In other words, according to Mr. Shah, the Section applies to jurisdiction alone, that is, in cases of illegal assumption of jurisdiction or the non-exercise of jurisdiction or the irregular exercise of jurisdiction, but it cannot be invoked to correct decisions on questions of fact and law. In support of this submission he invited my attention to three decisions of the Supreme Court: (1) Vora Abbasbhai v. Haji Gulamnabl, : [1964]5SCR157 Ratilal v. Ranchhodbhai, : [1965]57ITR335(SC) Bai Hiragauri Abdul Radar : AIR1973SC1336 . In the first case the Supreme Court held that the High Court had, in exercise of its powers under Section 115 of the Code of Civil Procedure, no authority to set aside the order merely because it was of the opinion that the judgment of the District Court was assailable on the ground of error of fact or even of law and In support thereof quoted with approval a passage from the decision of the Privy Council in Balakrishna Udayar v. Vasudeva Ayyar, (1917) 44 Ini App 261 - (AIR 1917 PC 71). In the second case the Supreme Court reiterated that the scope of Section 115 of the Code of Civil Procedure was restricted to matters pertaining to jurisdiction and the High Court is not empowered in exercise of its provisional powers to interfere with an order of a subordinate Court on the ground that its decision proceeded on an erroneous construction of some statutory provision. In the last case the Supreme Court once again emphasized that a subordinate Court which has jurisdiction to try a matter is entitled to construe a provision of law in the exercise of that jurisdiction and even if the construction placed by the subordinate Court is found to be erroneous in law, the High Court has no power to interfere with that conclusion on the ground that the subordinate Court exercised jurisdiction illegally or with material irregularity. It is clear from these three decisions to which my attention was drawn by Mr. Shah that the High Court can in exercise of provisional powers under Section 115 of the Code interfere only if the order of the subordinate Court is assai1ed on a question of jurisdiction, namely, the illegal -assumption -of. jurisdiction not vested in it or the illegal refusal to exercise jurisdiction vested it by law or the exercise of the- jurisdiction illegally or with material irregularity. The High Court has no jurisdiction under Section 115 of the Code to correct errors of fact and law, however gross they may be. In the present case, however, on the crucial question as to the apportionment of rise in land value where additional floors have been superimposed on an existing building at intervals, both the Courts below misdirected themselves in the exercise of their jurisdiction by totally omitting to apply the correct principle and allow a reasonable return on the increase in the value of the land during the interregnum. Similarly, as has been pointed out above, the Bench of the Court of Small Causes in the exercise of its provisional jurisdiction under the Act wholly ignored the fact that the landlord is entitled to an allowance by way of outgoings for vacancies, bad debts, obsolescence, depreciation and sinking fund. So also in determining the return on the cost of construction it totally ignored the material fact that after December 1958 the rate of interest on gilt-edged securities and the bank rate had steadily increased. Therefore, this is a case in which, in the exercise of its jurisdiction the lower Court acted with material irregularity in ignoring or overlooking the evidence on record as to the rise in land value to which the landlords were entitled under law so far as the construction of the upper-floors is concerned and in totally refusing to allow anything by way of outgoings after accepting the principle that the landlords would be entitled to a certain percentage or. the cost of construction by way of outgoings. So far as the refusal to allow outgoings is concerned, it appears to be an error apparent on the face of the record. So also, the lower Court totally overlooked the fact that the bank rate and returns on gilt-edged securities had increased after December 1958 and the landlords were, therefore, entitled to a proportionate increase in the return on the cost of construction. Besides, there are certain arithmetical errors committed by the lower Court which. are apparent on the face of the record and require correction. For these reasons. , I am of the opinion, that this is a case which falls under Clause '(c)' of S. 115 of the Civil P. C. I am, therefore, of. the opinion that the preliminary objetion raised by Mr. Shah 'Must fail.,

18. In the result the Revision Applications are partly allowed. The order passed by the learned Judges of the Bench of Small Causes fixing the standard rent. at Rs. 1317/- per month exclusive of taxes is set aside and instead the standard rent in .respect of the entire premises in the occupation of the respondents is fixed at Rs. 1825/- per month excluding taxes which are found payable by the respondents by both the Courts below. The order directing the landlords to pay the cost in Revision Application No. 23 of 1977 is also set aside. The rule in both the applications is made absolute accordingly. Looking to the extent of failure and success parties are directed to bear their own costs throughout.

19. Revision partly allowed.


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