Full Judgment Text
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PETITIONER:
MALPE VISHWANATH ACHARYA & ORS.
Vs.
RESPONDENT:
STATE OF MAHARASHTRA & ANR.
DATE OF JUDGMENT: 19/12/1997
BENCH:
B.N. KIRPAL, M. SRINAVASAN
ACT:
HEADNOTE:
JUDGMENT:
WITH
(WRIT PETITION (C) NOS. 17 AND 824 OF 1996)
THE 19TH DAY OF DECEMBER, 1997
Present:
Hon’ble the Chief Justice
Hon’ble Mr. Justice B.N. Kirpal
Hon’ble Mr. Justice M. Srinivasan
F.S. Nariman, Sr. Adv., Mulraj Shah, P.H. Parekh,
Jagdish Karia, Subhash Sharma, Ms. Dhun Chapgar, Ms. Sunita
Sharma, Nikhil Sakhardande, Sameer Parekh, Advs. with him
for the appellants.
M.S. Nargolkar, Sr. Adv., D.M. Nargolkar, S.M. Jadhav, Advs.
with him for the Respondents.
M.N. Shroff, Adv. for K.V. Sreekumar, Adv. for Intervenor.
J U D G M E N T
The following Judgment of the Court was delivered:
With
WRIT Petition @ Nos. 17 and 824 of 1996
Kirpal, J.
Lex injusta non est lex’, unjust laws are not laws, is
what is being contended by the landlords in their challenge
in these appeals, and the connected writ petitions, to the
validity of the relevant provisions of the Bombay Rents,
Hotel and Lodging House Rates Control Act, 1947 (hereinafter
referred to as ’the Bombay Rent Act’) in so far as it
provides that landlords cannot charge rent in excess of the
standard rent.
The appellants are landlords or their representatives
of different premises in Bombay which have been given on
rent to various tenants. They had filed in the High Court of
Bombay writ petitions challenging the constitutional
validity of Section 5(10) (B), Section 11 (1) and Section
12(3) of the Bombay Rent Act, inter alia, on the ground that
the said provisions pertaining to standard rent were ultra
vires Articles 14, 19 and 21 of the Constitution anc
consequently void. The main challenge to the said provisions
was on the ground that the restriction on the right of the
Landlords to increase rents, which ha been frozen as on 1st
September, 1940 or at the time of the first letting, was no
long a reasonable restriction and the said provisions had,
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with the passage of time, become arbitrary, discriminatory,
unreasonable and consequently ultra vires Article 14 of the
Constitution. By the impugned judgment the High Court
dismissed the writ petitions, inter alia, holding that the
object of the Bombay Rent Act was not to provide to the
landlord an adequate return on its investment and it was not
open to him to claim an increase in the rent by taking into
account the increase in the land privies etc. The Court also
observed that the writ petitions lacked particulars in order
to satisfy the Court that the relevant provisions of the
Bombay Rent Act were unreasonable or arbitrary.
The Bombay Rent Act came into force on 13th February,
1938 This Act was meant to be a temporary measure. The
original act was enacted only for two years, with a power to
the Government to extend the same by notification in this
behalf. this Act has been extended from time to time a least
on twenty occasions and the present extension remains in
force upto 31st March, 1998. Sections 5(10), 7, 9(b) and
11(1)(a) which are being impugned in the present cases read
as follows:
"5(10) "Standard rent" in relation
to any premises means-
(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, Hotel Rates
and Lodging House Rates (control)
Act, 1944, such standard rent; or
(b) when the standard rent is not
so fixed,-
subject to the provisions of
section 11,-
(i) the rent at which the premises
were let on the first day of
September 1940,
(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 September
1940, the rent at which they were
first let or
(iii-a) notwithstanding anything
contained in paragraph (iii), the
rent of the premises referred to in
sub-section (1A) of section 4
shall, on expiry of the period of
five years mentioned in that sub-
section, not exceed the amount
equivalent to the amount of net
return of fifteen per cent, on the
investment in the land and building
and all the outgoing in respect of
such premises: or]
(iv) on any of the cases specified
in section 11, the rent fixed by
the Court;
7. [(1)] Except where the rent is
liable to periodical increment by
virtue of an agreement entered into
before the first day of September
1940, it shall not be lawful to
claim or receive on account of rent
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for any premises any increase above
the Standard rent, unless the
landlord was, before the coming
Standard rent, unless the landlord
was, before the coming into
operation of this Act, entitled to
recover such increase under the
provisions of the Bombay Rent
Restriction Act, 1939, or the
Bombay Rents, Hotel Rates and
Lodging House Rates (Control) Act,
1944 or is entitled to recover such
increase under the provisions of
this Act [either before or after
the commencement of the Bombay
Rents, Hotel and Lodging House
Rates Control (Amendment) Act,
1986].
(2) (a) No person shall claim or
receive on account of any license
fee or charge for any premises or
any part thereof, anything in
excess of the standard rent and
permitted increase(or, as the case
may be, a proportionate part
thereto), for such premises if they
had been let, and such additional
sum as is reasonable consideration
for any amenities or other services
supplied with the premises.
(b) All the provisions of this Act
in respect of the Standard rent and
permitted increases in relation to
any premises let, or if let, to a
tenant, shall mutatis mutandis
apply in respect of any license fee
or charge and permitted increases
and the additional sum mentioned
above ].
9.(b) Before making any increase
under clause (a), the landlord
shall obtain a certificate from the
local authority that he was
required by it to make or to
provide such additions, he was
required by it to make or to
provide such additions,
alterations, improvements or
amenities and has completed them in
conformity with its requirements.
11.(1) [ Subject to the provisions
of section 11A in any of the
following cases the Court may, upon
an application made to it for that
purpose, or in any suit or
proceedings, fix the standard rent
at such amount as, having regard to
the provisions of this Act and
circumstances of the case, the
Court deems just-
Where any premises are first let
after the first day of September
1940 and the rent at which they are
so let is in the opinion of the
Court excessive; or
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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 [paragraphs (1)
to (iii) of sub-clause (10) of
Section 5; or
Where by reason of the premises
having been ; let at one item as a
whole or imparts and at another
time in parts or as a whole, or for
any other reason, any difficulty
arises in giving effect to this
Part; or
Where any premises have been or are
let rent-free or at a nominal rent
or for some consideration in
addition to rent; or
Without prejudice to the provisions
of sub-section (1A) of section 4
and paragraph (iii-a) of sub-clause
(b) of clause (10) of Section 5,
where the Court is satisfied that
the rent in respect of the premises
referred to therein exceeds the
limit of standard rent laid down in
the said paragraph (iii-a); or
Where there I any dispute between
the landlord and the tenant
regarding the amount of standard
rent,
Section 10 provides for an increase in rent where after
the commencement of the Bombay Rents, Hotel and Lodging
House Rates Control (Amendment) Act, 1986 a landlord is
required to pay any fresh rate, cases, charges, tax land
assessment, ground rent of land or any other levy on lands
and buildings. Section 10 A enables the landlord to make an
increase in the rent of the premises by a percentage
specified therein in respect of those premises which were
let on or before the first day of September 1940. Section
12, inter alia, provides that ordinarily there shall be no
ejectment of a tenant if he is ready to pay or is willing to
pay the standard rent with permitted increase in the manner
provided therein.
From the aforesaid provisions it is clear that in so
far as the question of fixation of standard rent is
concerned when the Act was enacted the premises fell into
two categories; (a) those let on 1st September, 1940 and;
(b) those let for the first time after 1st September, 1940.
According to Mr. Nariman these provisions provide as under:
A. Premises let out before 1st
September, 1940.
In respect of (a) i.e. premises let
out on or before 1.9.1940. rent
paid on that date is the standard
rent.
i) and thus the ret is pegged at
the rent paid as on 1.9.1940,
subject to the increases mentioned
below.
ii) Those increases are of three
types:
a) those permitted U/s 10A
In respect of premised let on or
before 1.9.1940; increases are
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permitted to the extent of 5% to
7.5% over the standard rent for
residential premises:
And 7.5% - 12.5% in respect of non-
residential premises-
This is a one time permitted
increase.
b) Increase on account of heavy
repairs, additional amenities and
repairs required to be carried out
under requisition from local
authorities; increase in monthly
rent is permitted to the extend of
15% per year on the actual cost
incurred without interest (Section
9)
c) Increase in ground rent, in
respect of leasehold premises paid
to the government, local authority
and statutory authority is allowed
to be passed on to the tenant by a
proportionate increase in monthly
rent (Section 10)
d) increase in amount of property
taxes after 13.2.1948 is allowed
to be passed on to the tenant by a
proportionate increase in monthly
rent (Section 10)
The cost which have to be absorbed
and borne by the landlord (without
entitlement to pass on to tenants)
therefore:
Entire cost of "tenantable" repairs
U/s 23, which if the landlord does
not carry out, and the tenant
carries out the same, the tenant is
permitted to deduct and recover the
same from the landlord from year to
year to the extent of 3 months rent
in a year together with interest at
the rate of 15% p.a.; under Section
23 as amended in 1987 by
Maharashtra Act No. 18 of 1987.
Landlord has had to bear the repair
cases from 1.1.1970: first levied
under the Bombay Building Repair
and Reconstruction Board Act, 1969
replaced by Maharashtra Housing and
Area Development Act, 1976 ( MHADA)
- to the extent of 10% of the
"ratable" value ( 8.5% of actual
rent in a year), which in effect
works out to one month’s rent in a
year.
50% of the total tax levied in lieu
of the abolition of the Inami
tenures ( w.e.f. 1.4.1971) under
Bombay city (Inami & Special
tenures) Abolition and Maharashtra
Land Revenue Code (Amendment ) Act,
1969; Sections 7,8,10.
In case of leasehold land, the
increase in ground rent paid by the
landlord to private parties, i.e.
parties other then Government,
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total authority, statutory
authority, etc. the entire increase
is to Be borne by the landlord and
no part of it can be passed on to
tenant. ( This is the effect of
Section 10 as amended by
Maharashtra Act No. 18 of 1987.)
B. Premises let out for the first
time after 1.9.1940-such premises
fall into 2 categories;
a) Where the landlord is himself
the owner of the building in which
flats are let to different tenants
mostly from 1940-1950.
b) Where the landlord is himself a
member of a co-operative housing
society and holds the flat as owner
member; but has let out the flat to
a tenant - the rent will stand
frozen at the amount paid on the
date of the first letting; by
reason of the definition of
"standard rent" under Section 5
(10) (b)(iii) of the Act ("where
they were first let after the first
day of September, 1940 the rent at
which they were first let"). These
are "ownership flats" in
"cooperative society buildings"
constructed in the post -1950
period. Almost all constructions
after 1950 are on this pattern.
c) In the decades of the fifties,
sixties and seventies, the landlord
member is invariably out of pocket
as the ever increasing amounts of
the outgoing and maintenance paid
to the Society are invariably more
than the actual amount of rent
received ( which had been frozen at
first letting)/
In the decade of the eighties and
the nineties however, the amount of
the first letting being
considerably higher, this incidence
does not occur. Since increase in
maintenance charges is absorbed in
the amount of rent fixed.
In both classes of cases i.e. the
premises let on or before 1st
September, 1940 and premises let on
or after 1.9.1940, there are no
statutory provisions which entitle
the landlord to move the Count for
an increase in standard rent. The
Scheme of the Act negatives any
such right (see Section 5 (10) read
with Sec. 11(1)(a)).
Mr. F.S. Nariman, learned senior counsel on behalf of
the appellants submitted that a legislation which, when
enacted, was justified on considerations of necessity and
expediency may, with the passage of time, become arbitrary
and unreasonable in changing circumstances. In view of the
constant escalation in privies due to inflation and
corresponding fall in the value of the rupee, ceiling on
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rentals, such as the one imposed by Section 5 (10)(a) and
(b) read with Section 7 and 11 of the Bombay RENT Act, is
totally arbitrary and unrealistic and , therefore,
unreasonable.
In reply it was submitted by Mr. N.S. Nargolkar,
learned senior counsel for the respondents that the writ
petitions which were filed by the appellants did not give
sufficient details as regards the rents which they were
receiving from the tenanted premises. It was, therefore,
contended that the claims made were hypothetical as there
was no sufficient material to decide the truth of the
assertions made by the appellants as regards negative
returns from their rented properties. It was further
submitted by the learned counsel that the respondent - State
has become aware of the rising prices at least since 1986
and this had resulted in Maharashtra Act 18 of 1987 being
passed whereby the Bombay Rent Act was amended. It was
contended that an important concession which was made by the
Amending Act was the introduction of Section 4 (1) A, which
provided that the provisions relating to standard rent and
permitted increases was not to apply for a period of five
years to any premises the construction or reconstruction of
which was completed on or after the appointed date, namely,
1.10.1987. This Amending Act also introduced Section 9
which; allowed to landlord to increase the rent for an
improvement or structural alteration of the premises,
excepting repairs under, Section 23 of the Bombay Rent Act.
Furthermore, it was submitted that the amended Section 6
also entitled to landlord to increase the rent by addition
of an amount not exceeding 15 per cent of the expenses
incurred on account of special addition or special
alterations or additional amenities, improvements or
structural alterations. The landlord was further entitled to
temporarily increase the rent at a rate not exceeding 18 per
cent of the standard rent for special or heavy repairs.
Reference was also made to Section 10 and 10A introduced by
the Amending Act of 1986 whereby landlord could increase the
rent in case he was required to pay fresh rates, charges
etc. to the Government or if he was required to cover the
increase in water and electricity charges. The learned
counsel reiterated that the State was aware and conscious
about the problem of the landlords and was proceeding in the
right direction to obviate their difficulties. In this
connection the attention of the Court was invited to the
constitution of a committee headed by Mr. V.K. Tembe in 1979
for the purpose of preparing a Unified Rent Control Act for
the entire State. The State Law Commission had examined the
recommendations of the Tembe Committee and submitted its
report. The Cabinet Sub- Committee had considered this
report as well as the Model Rent Control Bill, forwarded to
it by the Central Government, and this had resulted in a new
Rent Control Bill being introduced in the upper house of the
State Legislature in July, 1993. This bill has been referred
to the Select Committee and it was accepted that the reading
of the bill clause will be commenced in the State
Legislature.
There is considerable judicial authority in support of
the submission of learned counsel for the appellants that
with the passage of time a legislation which was justified
when enacted may become arbitrary and unreasonable with the
change in circumstances in the State of Madhya Pradesh Vs.
Bhopal Sugar Industries [ (1964) 6 S.C.R. 846 ] dealing with
a question whether geographical classification due to
historical reasons would be valid this Court at page 853
observed as follows:
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"Differential treatment arising out
of the application of the laws so
continued in different regions of
the same reorganised State, did not
therefore immediately attract the
clause of the Constitution
prohibiting discrimination. But by
the passage of time, considerations
of necessity and expediency would
be obliterated, and the grounds
which justified classification of
geographical regions for historical
reason may cease to be valid. A
purely temporary provision which
because of compelling forces
justified differential treatment
when the Reorganisation Act was
enacted cannot obviously be
permitted to assume permanency, so
as to perpetuate that treatment
without a rational basis to support
is after the initial expediency and
necessity have disappeared."
In Narottam Kishore Dev Varma and Ors. Vs. Union of
India and Anr. [(1964) 7 S.C.R. 55] the challenge was to the
validity of Section 87 B of the Code of Civil Procedure
which granted exemption to the rulers of former India State
from being sued except with the consent of the Central.
Government, Dealing with this question it was observed at
page 60 as follows:
" If under the Constitution all
citizens are equal, it maybe
desirable to confine the operation
of s.87B to past transactions and
not to perpetuate the anomaly of
the distinction between the rest of
the citizens and Rulers of former
Indian States. With the passage of
time, the validity of historical
considerations on which s. 87B is
founded will wear Civil Procedure
may later be open to serious
challenge."
In H.H. Shri Swamiji of Shri Admar Mutt etc. Vs. The
Commissioner, Hindu Religious & Charitable Endowments
Department and Ors. [ (1980) 1 S.C.R. 368] this Court was
called upon to consider the validity of the continued
application of the provisions of the Madras Hindu Religious
Endowment Act, 1951 in the area which had formerly been part
of State of Madras and which had latter become part of the
new State Of Mysore ( now Karnataka ) as a result of the
State Re- Organisation Act, 1956. In this connection at page
387-388 it was observed by this Court as follows:
An indefinite extension and
application of unequal laws for all
time to come will militate against
their true character as temporary
measures taken in order to serve a
temporary purpose. Thereby, the
very foundation of their
constitutionality shall have been
destroyed the foundation being that
section 119 of the State
Reorganisation Act serves the
significant Purpose of giving
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reasonable time to the new units to
consider the special circumstances
obtaining in respect of diverse
units. The decision to withdraw the
application of unequal laws to
equals cannot be delayed
unreasonably because of the
relevance of historical reasons
which justify the application of
unequal laws is bound to wear out
with the passage of time. In
Broom’s Legal; Maxim ( 1939
Edition, page 97) can be found a
useful principle "Cessante Ratione
legis Cessat Ipsa Lex", that is to
say, "Reason is the sour of the
law, and when the reason of any
particular law ceases, so does the
law itself".
This Court in Motor General Traders and Anr. Etc. etc.
Vs. State of Andhra Pradesh and Ors. Etc. etc. ()1984) 1
S.C.R. 594] had to consider the validity of Section 32B of
the Andhra Pradesh Building (Lease, Rent and Eviction)
Control Act, 1960. This section provided that the Act would
not apply to buildings constructed after 26th August, 1957.
This exemption had continued for nearly a quarter of a
century and it was argued that because of shortage of
housing accommodation since the section had been valid from
the commencement of the Act, therefore, it could not be
struck down at any time after it came into force. While
referring to earlier decisions in Bhaiyalal Shukla Vs. State
of Madhya Pradesh [(1962) Suppl. 2 S.C.R. 257] and Bhopal
Sugar Industries Ltd. (supra) it was observed at page 606 as
follows "what may be unobjectionable as a transitional or
temporary measure at an initial stage can still become
discriminatory and hence violative of Article 14 of the
Constitution of it is persisted in over a long period
without any justification." Dealing with the contention that
the impugned provisions had been in existence for over 23
years and had once been held to be valid by the High Court
and therefore this Court should not pronounce upon its
validity at this late stage, it was observed at page 614
that "what was justifiable during a short period has turned
out to be a case of hostile discrimination by lapse of
nearly a quarter of century... We are constrained to
pronounce upon the validity of the impugned provision at
this late stage because of grab of constitutionality which
it may have possessed earlier has become worn out and its
unconstitutionality is now brought to a successful
challenge".
In Rattan Arya and Ors. Vs. State of Tamil Nadu and
Anr. [(1986) 3 SCC 385 ] this Court had to consider the
validity of Section 30 (ii) of the Tamil Nadu Buildings
(Lease and Rent ) Control Act, 1960 which provided that
tenants of residential building being monthly rent exceeding
Rs. 400 were exempted from the protection of the Act whereas
no such restriction was imposed in respect of tenants of
non- residential buildings under the said Act. Holding that
the tenants of the residential buildings required greater
protection and that there was no justification in picking
out the class of tenants of residential buildings paying a
rent of more than Rs. 400/- per month and to deny them the
right conferred generally on all tenants of buildings,
residential or non-residential, and for this reason holding
Section 30 (ii) of the Said Act as being violative of
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Article 14 at page 389 and 390 it was observed as follows:
"It certainly cannot be pretended the provision is
intended to benefit the weaker sections of the people only.
We must also observe here that whatever justification there
may have been in 1973 when Section 30 (ii) was amended by
imposing a ceiling of Rs. 400 on rent payable by tenants of
residential buildings to entitle them to seek the protection
of the Act, the passage of time has made the ceiling
utterly unreal. We are entitled to take judicial notice of
the enormous multifold increase of rents throughout the
country. Particularly in urban areas. it is common knowledge
today that the accommodation which one could have possible
got for Rs. 400 per month in 1973 will today cost at least
five times more. In these days of universal, day to day
escalation of rentals any ceiling such as that imposed by
Section 30 (ii) in 1973 can only be considered to be
totally artificial and irrelevant today. As held by this
court in Motor General Traders v. State of A.P. a provision
which was perfectly valid at the commencement of the Act
could be challenged later on the ground of
unconstitutionality and struck down on that basis. What was
once a perfectly valid legislation, may in course of time, i
become discriminatory and liable to challenge on the ground
of its being violative of Article 14".
Lastly reference need be made to be made to Synthetics
and Chemicals Ltd. and Ors. Vs. State Of U.P. and Ors.
[(1990) 1 SCC 109] where at pages 156-157 it was observed
that "restriction valid under one circumstance may become
invalid in changed circumstances". Reliance in support of
this view was not only placed on some American decisions but
also on the decision of this Court in Motor General Traders
case (supra).
Mr. Nargolkar referred to the decision of this Court in
Sant Lal Bharti Vs. State of Punjab [(1988) 2 S.C.R. 107]
and contended that the ratio of the said decision is clearly
applicable to the present case. In Sant Lal’s case a two
Judge Bench of this Court was called upon to consider the
validity of Section 4 of the East Punjab Urban Rent
Restriction Act, 1949, which inter alia, provided that in
determining the fair rent the rent controller shall fix the
basic rent by taking into consideration the prevailing rates
of rent in the locality for the same or similar
accommodation in similar circumstances during a twelve
months prior to 1st January, 1939. It was held in that case
that the act in question had been passed in 1949 and it
pegged the rent prevalent for similar houses in 1938 and as
such it was not unreasonable per se. Even though there was
an increase in the rents after the second world war and the
partition of the country, it was held that fixing of the
rents at the 1938 level could not be regarded as
unreasonable when one of the objects of the act was to
restrict the increase by providing for certain provisions as
to fixation of a fair rent. In that case the main emphasis
of the appellants was to assail Section 4 by comparing the
said law with the legislation of different states. There was
no argument raised or considered, as is being done in the
present case, while relying on the decision of a Three Judge
Bench in the cases of Rattan Arya, Motor General Traders and
Synthetics and Chemicals (supra) that with the passage of
time and with the consequent change of circumstances the
continued operation of an act which was valid when enacted
may become arbitrary and unreasonable.
The aforesaid decisions clearly recognise and establish
that a statute which when enacted was justified may, with
the passage of time, become arbitrary and unreasonable. It
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is, therefore, to be seen whether the aforesaid principle is
applicable in the instant case. Can it be said that even
though the provisions relating to the fixation of standard
rent were valid when the Bombay Rent Act was passed in 1947
the said provision, as amended, can still be regarded as
valid now?
Reports of different committees and resolutions of the
minsters have been placed on record in an effort to show
that these official agencies have, since over the last two
decades, themselves felt that increase in rents was called
for. The correctness or the authenticity of this material
has not, in any way been doubted an therefore we see no
reason as to why this cannot be taken into consideration in
order to determine whether the submission of Mr. Nariman
merits acceptance. Reference may now be made to some of this
material:-
1. A rent act inquiry committee of 1977 commonly known as
Tembe Committee, was constituted by the Government of
Maharashtra which in its report submitted in the same
year recognised that the pegging down of the rents to a
date nearly thirty years back (at that time) had
deprived the property owners of a reasonable return on
their properties commensurate with the increase in the
cost of living and the cost of building materials. It
recognised that there were several small property
owners all over the State who had invested the life
time savings in building houses partly for the
residence and partly for being let out in order to
assure a steady income in old age. As a result of rent
control act, the return they got is inadequate even for
subsistence because of the step increase in the cost of
living. In para 6 (10) it observed that " having regard
to the general increase in the cost of living, the
Committee is of the view that there is a case for some
general increase although not to the extent claimed by
the property owners as the period of twenty years has
elapsed since the last increase was allowed.
2. The Maharashtra State Law Commission which submitted
its report in the year 1977 recommended the increase in
the rents in the following terms "the commission, feels
that there is immediate need for reasonable increase in
standard rent."
3. In the 12th report of Maharashtra State Law Commission
1979 on the rent control legislation para 91 dealing
with this aspect reads as follows:
" The Commission does not want the
rents to be static for long. The
inflationary trend reflected by the
rising consumer price index numbers
at all centers in the State makes
it imperative to make an objective
assessment of the situation at
regular intervals so that the
remedial action may be possible by
periodical variation in rents
according as the situation
demanded. Suggestions for such
periodical survey was also made to
the Commission by various
representatives in evidence. The
Commission by various
representatives in evidence. The
Commission feels that such a
periodical survey would be much
helpful in maintaining the balance
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between the landlord and the
tenant. The possibility of the
inflationary the landlord and the
tenant. The possibility of the
inflationary trend receding in
future - though such possibility is
not easy to entertain - cannot be
totally ruled out, in which case
the rents could be brought down to
as reasonable level. if on the
other hand, the inflationary trend
continues unabated, then a
reasonable rent increase may have
to be resorted to . it is true that
the Govt. can always take stock of
the situation and come up with an
appropriate measure to meet the
situation at any given time. But
the Commission does not want to
leave the matter to an action being
thought of by the Government. The
Commission thinks that it would be
proper to make a specific provision
in the unified Act which would cast
an obligation on the Government to
hold periodical reviews and to take
effective actions for rent
variations according as the
circumstances may warrant."
The Commission further stated:
" In big cities like Bombay, a
large number of slums have come
into existence. if the rigorous of
the Rent Act had not been there,
new houses would have been
constructed. At present 30 lakhs of
people in the city of Bombay stay
in slums and 11/2 lakh on pavement.
If new buildings had been
constructed, people who stay in
slums today might have been in a
position to get some decent
accommodation.
It was further stated
"The increase in the standard rent
must be considered from the point
of view of the Consumer Price
Index.
" It was pointed out to the
Commission that 46 percent of the
lands belong to low income group,
27 percent belong to middle income
group, and only 25 per cent belong
to the higher income group. These
figures will indicate that 75 per
cent of the so-called landlords are
really people who depend upon the
rent of the property for their
livelihood. To designate them as
’landlords’ itself is undesirable.
When one considers the financial
position of the tenants, compared
to the positions in 1940s, one
clearly sees that the monthly
income of these tenants has gone up
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from 100 to 400 at least. However,
there has not been a proportionate
increase in the rents."
4. A Report of Economic Administrative Reforms Commission
on Rent Control (commonly known as L.K. Jha Committee) was
presented to the Government of India in September 1982. In
paragraph 51 of the said report, it stated as follows:
" We now turn to the problem of
existing tenancies. Many of these
are very old and the rents were
fixed a few decades ago. These old
an frozen rents bear little
relation to the present day
maintenance costs, or to the
current returns from alternative
investments, or to the prevailing
market rents in respect of new
accommodation. In the case of new
construction we have suggested that
the periodical revision of rents
should be based on a partial
neutralisation of the effects of
inflation. Applying the same
principle to existing tenancies
where rents have remained frozen
for at least 5 years, what needs to
be done is to update those rents by
neutralising 50 per cent of the
inflation which has taken place
from the time of initial
determination of those rent upto
the present time."
The report further reads as under:
"Similarly in the case of existing
tenancies, all that needs to be
done is to provide a formula for
updating the old frozen rents, and
thereafter periodically revising
them."
5. On 21/22.5.1987 a conference of the Housing Ministers
of all the States was held to discuss various problems.
Decisions taken at that Conference were recorded in the form
of resolutions. With regard to Rent Control the unanimous
resolution at the conference of Housing Ministers reads as
under:
"RESOLUTION NO. IV RENT CONTROL
4.1. Realising the existing Rent
Control Laws, have resulted in:
(i) disincentive to further
investment in construction of
houses for rental purposes;
(ii) neglect of timely repairs and
maintenance of existing rental
housing stock; and
(iii) debilitating the resources of
municipal bodies by virtually
freezing their income from property
taxes which are based on rateable
values.
4.2 This conference urges upon the
Government of India to formulate
and communicate to the State
Governments for necessary action
suitable guidelines as soon as
possible during the current year
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for their consideration so as to
provide for the expeditious
amendment of Rent control Laws wit
a view to providing for:
(a) a reasonable return on
investment in housing which will be
comparable to, if no more
favourable then, the return from
and other avenues of investment,
(b) periodical upward revision of
rents to neutralise the crosion in
the real value of rents
(c) enabling expeditious
resumptions of possession of a
dwelling units for self occupation
by a landlord who is the owner of
only one such dwelling unit;
(d) delinking of municipal property
taxation from reteable values to
the extent they are regulated by
the Rent Control Laws,
(e) Leave and licence system,
(f) period tenancy,
(g) protection to tenants from
arbitrary eviction,
(h) exemption from the provisions
of the Act of new construction less
than 5 years,
(i) obviating delays in ligation by
laying down suitable expeditious
procedures, only one appeal to a
higher authority instead of multi-
level appeals constitution of
tribunals to deal with disputes
arising under the Act and barring
the jurisdiction of Civil Court
Act. "
6. In the Letter dated 24.7.1987 from the Ministry of Home
Affairs Government of India while communicating President’s
assent to 1987 amendment to the Bombay Rent Act it was
stated as follows:
"It is suggested that the State
Government may make subsequent
amendments to the principal Act
preferably within next 6 months by
incorporating the following
recommendation of the above
conference ( Housing Ministers
conference).
(a) Periodical upward revision of
rents to neutralise the erosion in
the real value of rents."
7. A conference of Chief Ministers of all states was held
at New Delhi in 1992. One of the topics discussed pertained
to static rents and the problems arising therefrom. A
unanimous recommendation of this conference made on 9.3.1992
in this regard was as under:
" 4.3 The frozen rents have led to
emergence of practices like key
money. this apart from creating a
block market in rental housing, the
Act has reduced the accessibility
of low income groups to rental
housing, as they cannot afford to
pay large deposits for rented
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premises."
4.4 The widening divergence between
the interests of landlords and
tenants has not only led to
increased litigation under Rent
Control Acts ( the rent control
cases make for a majority of the
cases in courts) but also to
increased crimes.
A large number of criminal cases
have their origin in disputes over
rented properties."
The recommendation further reads:
" The important principle is that while the tenant will
enjoy security of tenure is controlled premises, he should
agree to pay a rent that provides adequate return on
investment and provides for proper maintenance and taxes, so
that he does not enjoy an unfair advantage over the
landlord."
A perusal of the aforesaid extracts of reports and
resolutions clearly demonstrates that since the last two
decades the authorities themselves seem to be convinced that
the pegging down of the rents to the pre war stage and even
thereafter, is no longer reasonable. Unfortunately apart
from lip service little of note has been done. Even the Rent
control Bill introduced in 1993 has not yet become law.
It was submitted by Mr. Nariman that even after the
promulgation of the Rent Control act 1948 during the 1950s
and 1960s there was not much escalation in the market rents.
The rents which were determined during this period has
become the standard rent by virtue of the definition in
Section 5 (10) of the Bombay Rent Act. In the last few
years, due to rapid inflation there has been step escalation
of the expenses which the landlords have to incur without
there being any corresponding increase in the rents. This
has resulted, it was submitted, in the buildings not being
repaired as the expenses involved made it uneconomical for
the landlords to undertake this task.
As already noticed it had been contended by MR.
Nargolkar that realising the need being there for providing
some relief to the landlords amendments amendments were made
in the Bombay Rent Act in 1987. it was submitted that as a
result of these amendments the landlords will be able to
charge more rents and it cannot now be said that the Rent
Control Act is not valid.
It is true that some amendments were made in 1987 which
clearly indicate that the State Legislature was conscious of
the fact that there was a need to increase the standard
rent. The question, however, is whether the exercise which
was undertaken was merely cosmetic or did it bring about any
tangible increase in the standard rent. section 4 (10)A was
incorporated which provides that the provisions relating to
standard rent would be inapplicable for a period of five
years in respect of premises constructed or reconstructed
after the appointed date, namely,. 1.10.1987. Once this
’holiday’ comes to an end the tenant would be entitled to
get the standard rent fixed. The amendment of 1987 does not
do away with the principle of pegging down of the rent at a
rate when the premises are first let out. Increase in the
cost of maintenance or fall in the value of money or the
rise in the cost of index does not entitle a landlord to any
increase. There has been no other material change in the act
in this behalf. What the Amending Act of 1987 has done is
merely to consolidate and rearrange the sections of the
earlier act. Provisions contained in the present Sections 9,
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10 and 10A were found earlier, prior to the amendment in
1987, in Sections 10, 10A, 10AA, 10AAA, 10C, 10D, 10E, and
10G. The only change introduced in these sections was that
the rate of return on the expenses incurred for additional
amenities for heavy repairs has been increased. The
following tabulated comparative statement of the relevant
provisions before and after 1.10.1987 will bring out the
effect of the alteration, if any.
Tabulated Cooperative Statement
------------------------------------------------------------
After Amending Before Amending
Act 1987 Act of 1987
------------------------------------------------------------
S.9 (1) increase in rent on Identical provision in
S.9
account of structural which is there in the
original
alterations or improvement Act since 1948.
made with Tenants’ written
consent.
S.9 (2) increase on account of Similar provision in S.
10D(1)
special additions or additional which was introduced in
1953.
amenities.
S.9(3) increase on account of Similar provision in S.
10D(4)
additions, improvements or which was introduced in
1953.
additional amenities.
f
S.9 (3)(a)- Temporary increase Similar provision in S.
10E
is rent in account of special introduced in 1964.
or heavy repairs.
S.10- Increase in or fresh Similar provision in S.10
rate, cess, charge or tax (since inception of Act)
S.10A
paid to local authority. ( introduced in 1949),
S.10AA
( introduced in 1953)
S.10AAA
(introduced in 1962).
S.10 increase in rent on S. 10G introduced in 1973
account of increase in ground permitted recovery of one
rent paid to Govt. local third of increase.
authority or statutory
authority.
During the course of his arguments Mr. Mr. Nariman filed a
statement indicating the financial impact of the rent
restriction provisions on the assumption that the monthly
rent on 1.9.1940 was Rs. 100. This statement takes into
account the permitted increases incorporated in the Act
including that of 1987 from time to time. The submission was
as follows:
Assumption: that monthly rent on
1.9.1940 was Rs. 100 (exclusive of
Municipal taxes) This is an
accurate approximate average of
rents paid in September 1940 in
respect of flats of large areas
situated in good localities.
1(a) From September 1940 till
13.21948, when the Rent Act came
into force, the landlord continued
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to retain Rs. 100/- since the
burden of tenantable repairs was on
the tenant under Section 108 (m) of
the T.P. Act.
(b) After 13.2.1948 this burden has
been transferred to the landlord
(section 23): From 1.10.1987 upto
date, the tenant is permitted to
carry out " tenantable repairs" and
recover the entire cost with
interest at 15% per annum by
deducting an amount equivalent to 3
months rent in a year.
(c) Hence invariably the landlord
gets 25 per cent less than Rs.
100/- (Rs. 1200/- per year reduced
to Rs. 900/- per year) as
"tenantable repairs" are
necessarily recurring in old
buildings, and the cost of
tenantable repairs keeps rising.
2. From 1.1.1970 onward the
landlord has had to bear
continuously ten per cent of
"rateable value" (equivalent to
8.5% of the yearly rent) as "repair
cess" i.e. one month’s rent in a
year.
3. Thus in case of all buildings
constructed prior to 1.1.1970-
(date of levy of compulsory repair
cess - they constitute majority of
buildings in all urban areas the
landlord retains only 8 months rent
in hand every year as against 12
months rent he was getting in
September 1940:-
(a)) this is without taking into
consideration further inroads as a
result of ground rent paid in
respect of private leasehold lands
where increase in ground rent is
not permitted to be passed on
effect of Section 10)
(b) this is also without taking
into ’account ever increasing
outgoings and maintenance charges
paid to co-operative Housing
Societies by landlord members: not
permitted to be passed on to
tenants.
4. Meanwhile all this is further
accentuated by the fall in the
value of the rupee and rise in the
wholesale price index which has
totally eroded the amount
receivable as rent in the hands of
the landlord.
(A) taking base in 1940 at Rs.
100/- the value of the rupee in
1996 was only Rs. 1.5 in 1996
(B) in 1940 the wholesale price
index was 13.2. This has risen to
876 by 1996 66 time
(C) Value of one rupee silver coin
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of 1940, as on the 5th Dec. 1992
was Rs. 44/-
(D) Price of silver on 30.12.1939
was Rs. 52 per kg. It rose to Rs.
6945 per kg. On 31.12.1996, that
is, by 130 times.
5. Thus if in 1940 the landlord was
getting Rs. 1200/- per year as rent
(exclusive of Municipal taxes in
1996 or 1997 he is getting Rs. 800
per year and in terms of value of
rupee in 1940, this amount of Rs.
800 works out to only Rs. 12.12
(800/66)- against Rs. 1200 he was
getting in 1940."
To put simply in a tabulated from the following is the
comparative position of rent between 1940 and 1997 and the
amount retained by the landlord
Per Month
------------------------------------------------------------
1940 1997
------------------------------------------------------------
1) Rent per month inclusive of
Municipal Taxes (Rs.) 100 170.09
2) Amount of Municipal Taxes
to be paid by Owner (Rs.) 21.54 103.47
3) Amount of repair cess to be
paid by Owner (Rs.)
@ 10% of rateable value Nil 7.62
4) Amount retained by owner after
payment of Municipal taxes &
repair cess (Rs.) 78.46 64.00
N.B. No correction has been made for:-
1) The inflation/fall in purchasing value of the rupee
which was about 66 times between 1940 & 1996 and the
value of Rs. 100 in 1940 has come down to Rs. 1.5 in
1996.
2) Further in 1940 the tenants could not deduct any amount
towards repairs but under Section 23 of the Rent Act in
1997 they can deduct 3 months Rent per year.
The aforesaid illustration, which has not been
seriously disputed, clearly brings out the arbitrariness of
the standard rent provisions contained in the Bombay Rent
Act. It is true that the aforesaid illustration has
references to the monthly rent of Rs. 100 as on 1.9.1940
and does not relate to the premises which are let out after
the Act had come in force. As far as Section 5 (10) is
concerned the standard rent of the premises let out after
1.9.1940 is that rent at which the premises were fist let.
Even so with the rapid increase in the expenses for repair
and other outgoings and the decreasing net amount of rent
which remains with the landlord, clearly shows that the non
provision in the Act for reasonable increase in the rent,
with the passage of time, is leading to arbitrary results.
This is also demonstrated from the facts in the case of
petitioner no.3 who owns Unit No. A-18 on the first floor
admeasuring 808 sq. ft. in the property known as Shri Ram
Industrial Estate situated at 13 J.D. Ambedkar Road, Mumbai.
The said building belongs to a cooperative society and unit
no.A-18 was given on lease and license basis b an agreement
dated 23rd August, 1964 by the appellant to Lokmitra
Sahakari Printing and Publishing Society ltd. on a monthly
compensation of Rs. 686.80 per month. Liabilities of repairs
is on the appellant and according to it this amount received
in respect of the said unit by the appellant is Rs. 563 . 65
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per month inclusive of all taxes. Out of this sum the
appellant no. 3 has to pay Rs. 216.33 as municipal taxes
leaving a balance of Rs. 320.22. From this amount the
society outgoings is Rs. 250 per month, leaving a balance of
only Rs. 70.20 per month with the said appellant. Another
instance which has been given is that of appellant no.4 who
owns a property known as Ram Mahal situated at 8, Dinshaw
Vachha Road, Mumbai. The said building has 20 residential
flats and the building was purchased by appellant no. 4 in
the year 1955, although it had been constructed prior to
1940, Flat no. 15 on the 5th floor of the said building had
been let out by the previous owners to M/s Bennet Coleman &
Co. Ltd., who were the sitting tenants at the time when the
property was purchased. The flat measures 1710 sq. ft. and
monthly rent for the same is Rs. 460 per month inclusive of
permitted increase and repairs. According to the appellant
the income by way of rent has remained constant while the
expenditure has been increased and the total gross rent of
the building which he receives is Rs. 1,72,032 per annum
while it incurs an annual expenses of Rs. 1,93,245
consisting of BMC taxes, repairs, ground rent, maintenance
charges inclusive of small electricity bill and the
insurance premium. He is, therefore, suffering a loss of Rs.
21,213 every year. It is not necessary to examine the
correctness of these details except to note that what was
reasonable on 1st September, 1940 or in 1950s or in 1960s
can no longer be regarded as reasonable at this point of
time.
That the tenants are, by and large, now getting an
unwarranted benefit or windfall can also be illustrated by
taking an example of hypothetical tenant, i.e., an Assistant
in the Government of India posted at Bombay in the year
1948. At that time the pay scale of the Assistant was Rs.
160-10-300-15-450+20% H.R.A. + Rs. 15.50 C.C.A. On the basis
that he was drawing the maximum of scale, his total monthly
emoluments would be Rs. 485.50 and if he had in 1948 taken
premises on rent at Rs. 100/- per month, he would be paying
approximately 20% of his total emoluments by way of rent,
without taking into consideration any deduction for repairs.
That Assistant in 1997, after the report of 5th pay
Commission, would get a maximum basic salary of Rs. 9000+
30% H.R.A.+ Rs. 200 P.M. as CCA making the total emoluments
of Rs. 11900/- P.M. After taking into consideration the 1987
increase in rent, he would be paying about Rs. 170 p.m. in
respect of the same premises instead of Rs. 100/- which he
was paying in 1948. This enhanced rent, would, however,
represent only 0.9% of his salary. With the passage of time,
the percentage of rent which would be paid by that
hypothetical tenant would have gone down from 20% of his
total salary to only 0.9% and this wold be the case of most
of the tenants as we can take judicial notice of the fact
that from 1948 till now, incomes have increased
considerably, whereas the rent has increased only from Rs.
100/- p.m. to Rs. 170/- p.m.
On the other hand, in the aforesaid example, the
hardship to the landlord is that it was only in 1940 that he
had agreed to accept rent of Rs. 100 p.m. That was the real
income from rent which he had agreed to receive. Now with
the increase in taxes etc., he gots only Rs. 54 p.m. whereas
n 1940, he got Rs. 100 minus Rs. 21.54 (municipal tax ) i.e.
Rs. 78.46. So not only is he getting lesser amount in hand
but in terms of real value, after taking inflation into
account, he is getting only a pittance. For Rs. 100 p.m. of
gross rent which he was getting in 1940, he now in 1997 gets
a gross rent of about Rs. 170 which in real money terms,
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after taking the inflation into account, will be only about
Rs. 2/- P.M. of the 1940 value. Had the Rent Control Act not
been in force the landlord today may have been able to get
todays equivalent of Rs. 100 of 1940 as rent i.e. about Rs.
6650 p.m.
It is true that one of the reasons for enacting the
rent control legislation is to prevent exploitation of the
tenants by the landlords. One of the protections which has
been provided to the tenants in the rent legislation
throughout the country is the concept of standard rent. Each
State has definite laws with regard thereto. In some case,
like in Delhi, the rent control act is not applicable if the
rent is Rs. 3500/- or more while in the other states rent
control act is not applicable to certain categories of
persons. In the Bombay Rent Act, with which we are
concerned, the standard rent as on 1st September, 190 or the
first rent of the premises which was let out thereafter is
the standard rent. The paging down of rent, coupled with the
inability of the landlord to evict the tenants, has given
rise to unlawful tendencies. In the statement of objects and
reasons annexed to the L.A. Bill No. 79 of 1986 introduced
in the Maharashtra Legislature providing for amendment to
the Bombay Rent Control Act with regard to clause 3 it was,
inter alia, stated as follows:
" The freezing of standard rent
prevailing on the 1st September,
1940 has deprived the landlords of
getting reasonable and adequate
return to undertake maintenance and
repairs to the old buildings.
Despite the penal provisions in the
Act for charging any premium from a
tenant, such freezing of rent
results in charging ’pugree" or
deposit or similar illicit payment
which are widely prevalent. The
con-structio of new tenements on
rental basis has considerably
caused with the result that low and
middle income groups are not
getting premises on
rent............... "
(emphasis added)
Notwithstanding the fact that the State Legislature was
conscious of the illegal payments which are made because of
the rent restriction law no effective steps have been taken
so far to strike a balance between the interests of the
landlords and the tenants.
It is true that whenever a special provision, like the
rent control act, is made for a section of the Society it
may be at the cost of another section, but the making of
such a provision or enactment may be necessary in the larger
interest of the society as a whole but the benefit which is
given initially if continued results in increasing injustice
to one section of the society and an unwarranted largess or
windfall to another, without appropriate corresponding
relief, then the continuation of such a law which
necessarily, or most likely, leads to increase in
lawlessness and undermines the authority of the law can no
longer be regarded as being reasonable. Its continuance
becomes arbitrary.
The Legislature itself, as already noticed hereinabove,
has taken notice of the fact that puggrie system has become
prevalent in Mumbai because of the rent restriction act.
This Court was also asked to take judicial notice of the
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fact that in view of the unreasonably low rents which are
being received by the landlords, recourse is being taken to
other methods to seek redress. These methods, which are
adopted are outside the fore corners of the Law and are
slowly giving rise to a state of lawlessness where, it is
feared, the courts may become irrelevant in deciding
disputes between the landlords and tenants. This should be a
cause of serious concern because if this extn judicial back-
lash gathers momentum the main sufferers will be the
tenants, for whose benefit the Rent Control Acts are framed.
In so far as social legislation, like the rent control
act is concerned, the law must strike a balance between
rival interests and it should try to be just to all. The law
ought not to be unjust to one and give a disproportionate
benefit or protection to another section of the society.
When there is shortage of accommodation it is desirable,
nay, necessary that some protection should be given to the
tenants in order to ensure that they are no exploited. At
the same item such a law has to be revised periodically so
as to ensure that a disproportionately larger benefit them
the one which was intended is not given to the tenants. It
is not as if the government does not take remedial measures
to try and offset the effects of inflation. In order to
provide fair wage to the salaried employees the government
provides for payment of dearness and other allowances from
time to time. Surprisingly this principle is lost sight of
while providing for increase in the standard rent-the
increase made even in 1987 are not adequate, fair or just
and the provisions continue to be arbitrary in todays
context.
When enacting socially progressive legislation the need
is greater to approach the problem from a holistic
perspective and not to have a narrow or short sighted
parochial approach. Giving a grater than due emphasis to a
vocal section society results not marly in the miscarriage
of justice but in the abdication of responsibility of the
legislative authority. Social Legislation is treated with
deference by the Courts not merely because the Legislature
represents the people but also because in representing them
the entire spectrum of views is expected to be taken into
account. The legislature is not shackled by the same
constraints as the courts of law. But it’s power is coupled
with a responsibility. It is also the responsibility of the
Courts to look at legislation from the alter of Article 14
of the Constitution. This article is intended, as is obvious
from its words, to check this tendency; giving under
performance some over others.
Taking all the facts and circumstances into
consideration we have no doubt that the existing provisions
of the Bombay Rent Act relating to the determination and
fixation of the standard rent can no longer be considered to
be reasonable. The said provisions would have been struck
down as having now become unreasonable and arbitrary but we
think it is not necessary to strike down the same in view of
the fact that the present extended period of the Bombay Rent
Act comes to an end on 31st march, 1998. The government’s
thinking reflected in various documents itself shows that
the existing provisions have now become unreasonable and,
therefore, require reconsideration. The new bill is under
consideration and we leave it to the legislature to frame a
just and fair law keeping in view the interests of all
concerned and in particular the resolution of the State
Ministers for Housing of 1992 and the National Model law
which has been circulated by the Central Government in 1992.
We are not expressing any opinion on the provisions of the
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said Model law but as the same has been drafted and
circulated amongst all the States after due deliberation and
thought, there will, perhaps, have to be very good end
compelling reasons in departing from the said Model Law. Mr.
Nargolkar assured us that this Model law will be taken into
consideration in the framing of the proposed new Rent
Control Act.
We, accordingly, dispose of these appeals without
granting any immediate relief but we hold that the decision
of the High Court upholding validity of the impugned
provisions relating to standard rent was not correct. We
however refrain from striking down the said provision as the
existing Act elapses on 31.31998 and we hope that new Rent
Control Act will be enacted with effect from 1st April, 1998
keeping in view the observations made in this judgment in so
far as fixation of standard rent is concerned. It is,
however, made clear that any further extension of the
existing provisions without bringing them in line with the
views expressed in this judgment, would be invalid as being
arbitrary and violative of Article 14 of the Constitution
and therefore of no consequence. The respondents will pay
the Costs.
In view of the aforesaid the writ petitions are
disposed of