MIS. HOTEL KINGS AND ORS. v. SARA FARHAN LUKMANI AND ORS.

The Judgment of the Court was delivered by:

H ALTAMAS KABIR, J. Leave granted in both the special leave petitions.

HOTEL KINGS v. SARA FARHAN LUKMAN! [ALTAMAS KABIR, J.) 719

Respondent Nos. l to 4 in both the special leave petitions are th~ A owners of a plot of land measuring about 2739.50 sq.yds. bearing survey No. 37, situated at Juhu, Greater Bombay. The said land was leased to one Mls.H. Bloch Engineering Pvt. Ltd. by a registered deed of lease dated 3rd November,

1966. By a deed of assignment dated 8th June, 1970, the said lessee transferred and assigned the demised property to Mis. Yashdhir Hotels Pvt. Ltd., a company registered under the Companies Act. The original lease was for 98. B years commencing from I st November, 1966. By virtue of the deed of assignment dated 8th June, 1970, Mls.Yashdhir Hotels Pvt. Ltd. became the lessee of the said land for the unexpired period of the lease and became a tenant under the respondent Nos. I to 4. The lease rent was initially fixed at Rs.3,2151- per month, but was thereafter increased to Rs.3,4501- per month. As C Mis. Yashdhir Hotels Pvt. Ltd. defaulted in payment of rent for more than six · months, the respondent Nos. 1 to 4 issued a notice dated 1st February, 1983 to Mis. Yashdhir Hotels Pvt. Ltd .. It appears that on receipt of the notice, Mis. Yashdhir Hotels Pvt. Ltd. tendered rent to the lessors for a period of fourteen months but the same was refused as the same did not constitute the entire arrears of rent payable by the lessees. It was also the claim of the lessors that the lessee had unlawfully sublet the demised property.

Having refused to accept the rent for fourteen months tendered by the lessee, the lessors filed a suit, being R.A.E.No.7321253811983, claiming possession on the ground that the lessee had defaulted in payment of the rents.

Apart from the lessee, certain other parties were made defendants in the suit on the allegation that the suit property had been sublet by the lessee in their favour. The defendants filed their written statements and while admitting that Mis. Yashdhir Hotels Pvt. Ltd. had become the tenant of the leasehold F ·premises by virtue of the deed of assignment, denied that the lessee was in arrears of rent as alleged. According to the defendants, the lease rent; which was initially fixed at Rs.3,2151- per month and was thereafter enhanced to Rs.3,450/- per month, was payable after every six months and not monthly as claimed by the lessors. It was also contended that although the rent had been tendered by cheque along with a letter dated 23rd April, 1983, the same had G been wrongly refused by the lessors. It was also contended that since the period of lease was 98 years which was still subsisting, and there was no breach of any of the terms and conditions of the lease, the lessors were not entitled to get possession of the suit property. It was the specific case of the

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A defendant Nos. 2 to 5 that under the deed of lease, the Jessee was entitled to let out the structure erected on the leasehold property or any part thereof.

The learned trial judge, on an assessment of the evidence adduced by the parties, came to the conclusion that the rent of the suit property was payable every six months. Consequently, even if the defendants were in arrears of rent for more than six months on the date of the notice dated 1st February, 1983, the lessors were not entitled to possession in view of the provisions of Section 12(3)(a) of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947, (hereinafter referred to as the "Bombay Rent Act.") On the basis of the aforesaid finding, the learned trial court dismissed the lessors' suit for possession.

The lessors preferred an appeal against the said order of the learned trial judge which was numbered as Appeal No.7611997. In the appeal, the Appellate Bench of the Small Causes Court, Bombay, came to a conclusion that the rent for the demised premises was payable every month and not after six months as held by the trial court. Holding further that the notice terminating the defendants' tenancy was legal and valid, the appellate court decreed the suit for possession on the ground mentioned in Section l2(3)(a) of the Bombay Rent Act.

Aggrieved by the order of the Appellate Bench of the Small Causes E Court, Bombay, the lessee filed a Writ Petition, being No.6812/2005. Other defendant Nos. 2 to 5 also filed a separate Writ Petition, being No. 6813/2005. As both the writ petitions arose out of the same judgment, they were taken up together for disposal by the Bombay High Court and were disposed of by a common judgment dated 8th February, 2006, which is the subject matter of challenge in both these appeals.

After looking into the. various provisions of the lease, the High Court affirmed the view of the Appellate Bench of the Small Causes Court that the rent was payable each month and not after every six months and that the finding in this regard was unassailable. The High Court was also of the view that since the lessee had committed breach of the conditions of the lease deed and had become a defaulter, it was not entitled tc the protection of Section 114 of the Transfer of Property Act, 1882.

These appeals have been filed by the lessee and the defendant Nos. 2 to 5. M/s.Yashdhir Hotels Pvt. Ltd. has filed Civil Appeal arising out of SLP H

HOTELKINGSv.SARAFARHANLUKMANI[ALTAMASKABJR,J.) 721

(C) No. 7400/2006 and defendant Nos. 2 to 5 have filed Civil Appeal arising A out ofSLP (C) No.7186/2006.

Since both the appeals arise out of a common judgment passed by the High Court, with the consent of the parties, they have been taken up together for hearing and disposal. B Appearing on behalf of the lessee-Mis. Yashdhir Hotels Pvt. Ltd., Mr. R.F. Nariman, senior advocate, urged that both the Appellate Bench of the Small Causes Court at Bombay, as also the High Court, had committed a grave error in holding that the rents for the demised premises were payable on .a monthly basis and not after every six months. His main contention was based on the definition of "rent" in Section l 05 of the Transfer of Property Act, 1882, which provides as follows:-

"105. Lease Defined.- A lease of immovable property is a transfer o'f a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

lessor, lessee, premium and rent defined.- The transferor is called the lessor, the transferee, is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent."

It was urged that the aforesaid definition was very wide and included payment of consideration of various kinds. It was urged that in clause (a) of paragraph 3 of the terms and conditions of the lease, it has been categorically indicated 1 F that in addition to the monthly rents, the lessee is required to pay and discharge all existing and future rates, and municipal taxes, dues, duties, development, betterment and other charges of any nature whatsoever for the · time being payable either by the landlord or the tenants in respect of the lands and premises or any building or structure for the time being standing thereon or on an:' part thereof. It was also indicated that the ground rent would be G a net payment to the lessors without any deduction whatsoever and the lessors would not in any event be liable to pay any rates, taxes and assessment and/or outgoings whatsoever at any time during the continuance of the lease. It was contended that the said condition clearly indicates that the rates and taxes and other outgoings in respect of the demised premises and the building H

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to be erected thereon formed part of the rent payable by the lessee in respect .. of the demised premises. According to Mr. Nariman, the rent stipulated under the lease deed and the rates and taxes payable in respect of the demised premises formed the components of the rent payable in respect of the demised premises.

B Mr. Nariman urged that while no amount above the standard rent could be claimed by the landlord in respect of a premises let out, the Act made provision for certain "permitted increases" which has been defined in Section 5(7) of the said Act. In this regard, reference was made to Section 10 of the Act which provided for increase in the rents above the standard rent on C account of increase in rates, cess, charges, tax, land assessment, ground rent, land or any other levy on lands and buildings. Section 10(3) indicates that the amount of the increase in rent would be recoverable from each tenant in proportion to the rent payable by them. Reference was also made to Section ! 1(2) of the said Act which provides that if there is any dispute between the landlord and the tenant regarding the amount of permitted increase, the Court D may determine such amount. It was submitted that since the municipal rates and taxes weq~ payable after every six months and the same formed an integral {

component of rent, it must also be held that the rents for the demised premises were also payable after every six months.

HOTEL KINGS v. SARA FARHAN LUKMAN! [ALTAMAS KABIR, J.] 723

Mr. Nariman contended that his contention was further strengthened by the definition of "standard rent" in Section 5 (l 0) of the Bombay Rent Act which made reference to Section 11 which included various components such as "permitted increases" which were related to the increase in municipal rates and taxes and other outgoings in respect of the demised premises. Mr. Nariman submitted that the same was in consonance with the concept of 'rent' as understood in Section I 05 of the Transfer of Property Act wherein the same has been referred to as the "consideration."

Referring to the terms of the lease deed executed in favour of the original lessee Mis. H. Bloch Engineering Pvt. Ltd., Mr. Nariman pointed out that the premises had been leased with the specific intention that the lessees would be entitled to erect and construct buildings and structures thereon for' residential purposes and for garages and while there was a provision in the deed of lease that the lessee would not be entitled to assign, transfer, mortgage underlet or otherwise part with it interest in the demised premises or the building or building erected thereon without the prior consent in writing of the lessors, the same was subject to the provisions of clause 6 which, on the other hand, provided that the lessee would after the buildings and/or structures are completed, be at liberty to assign the demised premises to co-O'perative housing societies and/or limited company or any person whatsoever. Mr. Nariman urged that since assignment had been specifically permitted under the aforesaid provision of the lease deed, the induction of the respondent E Nos. 2 to 5 was in accordance with the provisions of the lease deed and could not be faulted or made a ground for eviction of the lessee. Though reference was made to the definition of the expression "tenant" in Section 5 (11) (aa) of the Bombay Rent Act, the same does not appear to be relevant for deciding the present civil appeals. F Mr. Soli J. Sorabjee, Sr. advocate, who also appeared for the appellants, reiterated Mr. Nariman's submission that 'permitted increases' under the Act became part of the rent and was, therefore, a component of the rent itself. Mr. Sorabjee, in support of his contention, referred to the decision of this Court in The Bombay Municipal Corporation v. The Life Insurance Corporation of India, Bombay, reported in [ 1970] l sec 791, wherein the question arose G as to whether the levy of educational cess should be taken into consideration in fixing the annual valuation of a building. While considering the said '·· question, this Court was also called upon to consider the issue as to whether a permitted increase under Section 5 (7). of the Bombay Rent Act, would be part of the rent which the landlord is entitled to receive from the tenant. On H

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A the second issue, this Court inter alia held as follows:-

"It is quite clear that Section 7 does not prohibit the recovery of the increase to which landlord may be entitled under the provisions of the Act in addition to the standard rent. The obvious implication of the definition of "permitted increases" in Section 5 (7) is that such an increase becomes a part of the rent. The language which has been employed in Sections 9, IO and IOAA seems to indicate that the Legislature treated the permitted increase as a part of the rent which the landlord would be entitled to receive from the tenant."

A somewhat similar view was expressed in Mis. Sarwan Kumar Onkar Nath v. Subhas Kumar Agarwalla, [1987] 4 SCC 546, wherein this Court held that since the rent for two months had been paid in advance by the tenant to the landlord on the understanding that the advance amount would be liable to be adjusted towards arrears of rent whenever necessary or required, the tenar,t could not be evicted on the ground of.default in payment of rent of two months even if the tenant failed to ask the landlord to make adjustment of the advance amount. G A submission was made that a lawful sub-tenant who had been inducted under the terms and conditions of the lease also became the lessee of a portion of a proportionate area of the land under the structure and decree for eviction obtained against the lessee would not bind the lawful sub-tenant. Reference was made to a decision of the Bombay High Court in Dinkar S. H Vaidya v. Ganpat S. Gore and Ors., AIR (1981) Bombay 190, wherein in

.. HOTELKINGSv. SARA FARHAN LUKMAN! [ALTAMAS KABIR,J.]

paragraph 37 it was explained that the defendants who were tenants or 725 A owners in respect of the structures only must be deemed to be sub-tenants in respect of the land and since no notice had been given to them under Section 12 (2) by the plaintiff-landlord, demanding all the arrears of rent, no decree for eviction could be passed ag!!inst them to hand over vacant and peaceful possession of the land to the plaintiff. B It was urged that, in any event, since the private respondents had been lawfully inducted into the premises in respect of the portion of the structure thereon and the lease was still subsisting, they had acquired a right to remain in the premises under the lease deed itself and, were not, therefore, bound by the eviction decree passed against the lessee. C On behalf of the lessors it ~as denied that the lessee was not a monthly tenant and was required to pay rents after every six months. Mr. Sundaram, Sr. advocate, urged that the said case was an innovation and had not been argued before the courts below. Referring to the provisions of the lease deed wherein it had been made clear that during the term of the lease, the lessees were required to pay the monthly rent reserved therein, Mr. Sundaram urged that this new plea was being introduced on behalf of the respondents in order to avoid the consequences of Section 12 (3) (a) of the Bombay Rent Act. It was urged that such a plea had been made only to be rejected in view of the categorical provisions of the lease deed itself. It was further urged that on an erroneous interpretation of the relevant provisions of the lease deed, the trial court had arrived at the conclusion that the present case would be governed under Section 12 (3) (b) of the Bombay Rent Act, 1947, prior to its amendment in 1987 and not under Section 12 (3) (a) thereof. However, the Appellate Bench of the Small Causes Court at Bombay had rectified the error and had correctly held that the case being made out orally on behalf of the p lessee that the rent was payable after an interval of every six months could not be accepted having regard to the written document in which it had been stipulated that the rents were payable on a monthly basis.

The High Court supported the view taken by the Appellate Bench of the Small Causes Court at Bombay and granted the defendants time till 31st G May, 2006 to vacate the suit property.

On the question of default, it was pointed out by Mr. Sundaram that the trial court had come to a finding that the entire arrears of rents had not been sent by the lessee to the lessors prior to 7th March, 1983 and since only a part of the rent in arrears had been offered to the lessors by cheque, the same H

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A had been returned back to the lessee. Despite such finding, the trial court on an erroneous interpretation that the lease was governed under Section 12 (3) (b) of the Bombay Rent Act, dismissed the suit for eviction. The said position was reversed by the Appellate Bench of the Small Causes Court which allowed the appeal and set aside the judgment and order of the trial court and further decreed the suit for possession as well as for arrears and mesne B profits.

It was then argued that the interpretation sought to be given to the expression "permitted increases" as being part of the rent payable by the tenant was fallacious, as would be evident from Section IO of the Bombay C Rent Act. Sub-section (I) of' Section l 0 of the said Act. reads as follows:-

" l O. Increase in rent on account ofpayment ofrates etc. - (l) On and after the commencement of the Bombay Rents, Hotel and Lodging House Rates Control (Amendment) Act, 1986, where a landlord is required to pay to Government or to any local authority or statutory authority, in respect of any premises any fresh rate, cess, charges, tax, land assessment, ground rent of land or any other levy on lands and buildings, or increa$e in rate, cess, charges, tax, land assessment, ground rent of land or any other levy on lands and buildings, he shall, notwithstanding anything contained in any other provisions of this Act but save as otherwise expressly provided in any other law for the time being in force, be entitled to make an increase in the rent of such premises.

Provided that, the increase in rent shall not exceed the amount of any such rate, cess, charges, tax, land assessment, ground rent of land or any other levy on lands and buildings, as the case may be." F Mr. Sundaram submitted that the wording of the above provision would indicate that on account of increase in the rates, cess, charges, tax, land assessment, ground rent of land or any other levy payable by the landlord to the government or any local authority or statutory authority, he would be entitled to make an increase in the rent of such premises. Mr. Sundaram G submitted that it had not been indicated that the increase in rates and taxes would themselves become part of the rent and the suit had been rightly decreed by the Appellate Bench of the Small Causes Court at Bombay for possession, arrears of rent and mesne profits.

Mr. Ranjit Kumar, learned Sr. counsel who appeared for the lessors in H

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Civil Appeal arising out of SLP (C) No.7186/06 assailed the judgment both of A the Appellate Bench of the Small Causes Court and that of the High Court in so far as they related to the appellants in the said appeal who had been inducted into the premises by the lessee. Referring to the Deed of Lease, Mr. Ranj it Kumar submitted that though by virtue of clause 6 thereof the right to assign the buildings and structures to be erected on the demised premises had been given to the lessee, the same could not be read in isolation of clause B 3 (o) which makes it clear that the lessee would not be entitled to assign, transfer, mortgage, under-let or otherwise part with its interest in the demised premises or the building or buildings thereon without the prior consent in writing of the lessors.

Reference was also made to Section 14 of the Bombay Rent Act which c provides as follows:-

"Certain sub-tenants and licensees to become tenant on determination of tenancy.

(I) When the interest of a tenant of any premises is determined for D any reason, any sub-tenant to whom the premises or any part thereof have been lawfully sub-let before the I st day of February 1973 shall subject to the provisions of this Act, be deemed to become the tenant of the landlord on the same terms and conditions as he would have held from the tenant, if the tenar.cy had continued. E (2) Where the interest of a licensor, who is a tenant of any premises is determined for any reason, the licensee, who by section ISA is deemed to be a tenant shall, subject to the provisions of this Act, be deemed to become the tenant of the landlord on the terms and conditions of the agreement consistent with the provisions of this F Act."

Mr. Ranjit Kumar urged that there is no pleading to indicate whether the appellants had been inducted into the premises prior to I st February, 1973, to entitle them to the benefit of the aforesaid provision. On the other hand, I

Section 15 of the said Act disentitled a tenant from sub-letting or assigning G his interest in the tenanted premises.

Mr. Ranjit Kumar urged that in such circumstances both the Appellate Bench of the Small Causes Court as well as the High Court were correct in directing the appellants in Civil Appeal arising out of SLP (C) 7186/06 to H

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A vacate the premises along with the lessee.

Responding to the submissions made by Mr. Sundaram and Mr. Ranjit Kumar, Mr. Nariman reiterated his earlier submissions and referred to a decision of this Court in Karnani Properties Ltd v. Augustin, [1957] SCR 20 which was followed in the case of Puspa Sen Gupta v. Susma Ghose, [1990] 2 SCC 651 B holding that where certain special amenities were to be provided by the landlord, the same could be taken into consideration for fixation of the standard rent. In other words, the same would fonn part of the consideration contemplated in Section I 05 of the Transfer of Property Act to be a component of the expression "rent".

C The fate of the Civil Appeal arising out of SLP (C) 7400/06 hinges on the question as to whether despite the specific provisions of the lease deed for payment of the lease rents on a monthly basis in advance on or before the 5th day of each and every English calendar month, whether the trial judge was right in holding that in effect having regard to the provisions relating to payment of rates and taxes and other outgoings by the lessee, the lease would be governed under Seetion 12 (3) (b) and not 12 (3) (a) of the Bombay Rent Act.

The fate of Civil Appeal arising out of SLP (c) 7186/06 will depe11d on the question as to whether the appellants therein had been lawfully inducted into the demised premises and, if so, whether they would be bound by the decree for possession passed against the appellant in Civil Appeal arising out ofSLP (C) 7400/06.

Having given our anxious consideration to the submissions urged on behalf of the respective parties and the provisions of the Bombay Rent Act F and the various decisions cited, we are of the view that the decision of the Appellate Bench of the Small Causes Court at Bombay as affinned by the High Court holding that the lease was governed under Section 12 (3) (a) of the Bombay Rent Act was correct. The lease deed makes it abundantly clear that the lease rent was required to be paid on a monthly basis. In fact, in G paragraph I of the tenns and conditions of the lease deed it has, inter a/ia, been indicated as follows:-

" ......... TO HOLD THE DEMISED PREMISES unto the Lessee for the tenn of98 years commencing from the 1st day ofNovember, 1966.but ~ renewable and detenninable as hereinafter provided yielding and paying H

HOTELKINGSv.SARAFARHANLUKMANI[ALTAMASKABIR,J.] 729

therefore for the period ending on the 31st day of October, 1968 a A token rent of Rupee one per month and from the lst day of November, 1968 yielding and paying during the remainder of the said term of 98 years the monthly rent of Rs.3,215/- (Rupees three thousand two hundred and fifteen) payable in advance regularly or before the 5th day of each and every English Calendar month the first of such monthly payments to be made on or before the 5th day of November, 1968 and subsequent payments to be made on the corresponding day of each succeeding month during the remainder of the term hereby granted ..............."

The said position has been further reiterated in paragraph 3 (a) of the said deed of lease.

The argument advanced on behalf of the lessee that notwithstanding the said stipulation, since the lessee was required to pay the rates and taxes which formed part of the permitted increase and was, therefore, a part of the rent payable, does not appeal to us. The consequential submission made in this regard that since the rates and taxes were payable either annually or after every six months, and the same formed part of the rent, it must be held that the rents were payable not each month but after every six months, does not also appeal to us.

Notwithstanding the decisions in the Bombay Municipal Corporation E case and Raju Kakara Shetty (supra), the views expressed therein are distinguishable on facts with the facts of these two appeals. Both the said judgments deal with payment of education cess under the Maharashtra Educataion (Cess) Act, 1962, under which the landlord is liable to pay such cess annually but has the right to recover the amount so paid by him from the tenant in addition to the standard rent as a part of the rent itself. By F operation of law education cess has been made a component of the rent payable by the tenant in respect of the tenanted premises. In such a case, the concept of 'permitted increase' would include the cess payable as part of the rent itself. In the instant case, however, the lessee is required to pay the rates and taxes and other outgoings for the demised premises in respect G whereof the landlord has been given the right to effect permitted increase equivalent to the amount paid towards rates and taxes. The same does not, in our view, make such payment a part of the rent though it may be a consideration for the grant of lease. The 'permitted increase' in the instant case serves as a yardstick for the landlord to increase the rents on account H

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A of payment of rates and taxes by the landlord.

Consequently, even though the lease deed contained a provision for payment of the rates and taxes exclusively by the lessee and it is also stipulated that the lessor will have no liability therefor, the lease will still be governed under Section 12 (3) (a) of the Bombay Rent Act as held by the B Appellate Bench of the Small Causes Court at Bombay and affirmed by the High Court. The expression "consideration" indicated in Section I 05 of the Transfer of Property Act has been used in a generic sense to include the price paid or promised or of money, a share of crops, service or any other thing of value. On the other hand, the lease deed specifies the amount to be paid as rent each month while the rates and taxes and other outgoings are treated to be the separate liability of the lessee, no doubt having regard to the intention of the parties that a building was to be erected by the lessee on the demised land.

Once we have arrived at the aforesaid conclusion, the other submissions made on behalf of the appellant in Civil Appeal arising out of SLP (C) No.7400/06 become irrelevant.

However, having regard to the provisions of the lease deed, there can be little doubt that the decree for possession passed against the lessee will not bind the appellants in the Civil Appeal arising out ofS.L.P. (C) No. 7186 E of 2006 who have acquired an independent status under the provisions of the deed of lease permitting assignment of the structure to be erected on the demised land. In their case, the question of induction prior to lst February, 1973, would have no application. Although, it has been submitted by Mr. Ranjit Kumar that the provisions of clause 6 of the lease deed must be read with clause 3(o) thereof, the intention of the parties on the reading of the lease deed as a whole appears to be that the lessee would be entitled to make construction on the demised premises which could be assigned by it to third parties who would acquire an independent right therein subject to the terms and conditions of the head lease. Since the appellants in the Civil Appeal arising out of S.L.P. (C) No. 7186 of 2006 were lawfully inducted into the premises by virtue of clause 6 of the lease deed they will not be affected by the decree for possession passed against the lessee.

Civil Appeal arising out of SLP (C) No.7400/06 is, therefore, dismissed.- while Civil Appeal arising out of SLP (C) No. 7186/06 is allowed. The judgment and decree of the Appellate Bench of the Small Causes Court as well as High H

HOTEL KINGS v. SARA FARHAN LUKMAN! [AL TAMAS KABIR, J.] 73 l

Court are affirmed as far as Civil Appeal arising out of SLP (C) 7400/06 is A concerned, and is set aside as far as it relates to the appellants in Civil Appeal arising out ofSLP (C) 7186/06.

In the facts of the case, the parties will bear their respective costs.

v.s.s. C.A. 4732/06 allowed and CZ.A. 4733/06 dismissed. B