Full Judgment Text
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PETITIONER:
K.C. NAMBIAR
Vs.
RESPONDENT:
THE IV JUDGE OF THE COURT OF SMALL CAUSES,MADRAS & ORS.
DATE OF JUDGMENT:
18/08/1969
BENCH:
SHAH, J.C. (CJ)
BENCH:
SHAH, J.C. (CJ)
RAMASWAMI, V.
GROVER, A.N.
CITATION:
1970 AIR 1656 1970 SCR (2) 906
1969 SCC (2) 465
ACT:
Madras Buildings (Lease & Rent Control) Act, 1960, s.
4(3)(b)(i) (ii)--"Cost of construction" if original cost or
market value at the date enactment of the Act.
HEADNOTE:
By s. 4 of the Madras Buildings (Lease & Rent Control)
Act, 1960 the fair rent for any non-residential building is
to be fixed on the total cost of such building and under
sub-s. 3(b) the total cost is to consist of three
components: (i) the cost of construction as calculated
"according to such rates for such classes of non-residential
building as may be prescribed, less depreciation at such
rates as may be prescribed"; (ii) the market value of that
portion of the site on which the non-residential building
is constructed, and (iii) such allowances not exceeding 25%
of the cost of construction as may be made for locality
features of architectural interest, accessibility to market,
nearness to a railway station other amenities as may be
prescribed. The State Government framed rules prescribing
rates for the calculation of the cost of construction of
different classes of non-residential buildings.
The appellant, a tenant of a non-residential building
applied to the High Court of Madras for a writ of
prohibition against the Controller restraining him from
proceeding with an application for fixation of fair rent.
He contended that the expression "cost of construction"
s. 4(3)(b)(i) meant the cost of the original construction
and not the market value of the structure at the date of
enactment of the Act and therefore the rules were
inconsistent with the intention and ambit of the Act: The
High Court dismissed the application. Allowing the appeal,
HELD: The expression "cost of construction" in sub-s.
3(b)(i) when used in juxtaposition with the expression
"market value" in sub-s. 3(b)(ii) is used to denote not the
market value but the cost of the original construction. The
Legislature could not have used two different expressions
for providing that the market value of the building and the
market value of the site shall form components of the total
cost of a building. If the expression "cost of
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construction" is equated with the market value it would
necessarily include the special advantages of the situation
of the building, its amenities and architectural features
and there is no reason why these allowances should be
included twice. once as part of component (i) and again as
part of component, (iii). Again, if the meaning of the
expression "cost of construction" were "market value"’ it
would mean the market value having regard to the market
conditions of real property which may go on changing year
after year. But the ’State had accepted by r. 12 that the
cost of construction was a fixed quantity related to the
date on which the Act was brought into force. [912 B-C, G-H]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2225 of
1966.
Appeal from the judgment and order dated August 6, 1965
of the Madras High Court in Writ Appeal No. 356 of 1964.
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K.K. Venugopal and R. Gopalakrishnan, for the appellant.
Lily Thomas, for respondent No. 3.
S. Govind Swaminathan, Advocate-General for the State
of Tamil Nadu, E.S. Govindan and A.V. Rangam, for respondent
No. 8.
The Judgment of the Court was delivered by
Shah, Ag. C.J. The Legislature of the State of Madras
enacted the Madras Buildings (Lease and Rent Control) Act,
1960. Section 4 of the Act (insofar as it is relevant)
provides :--
"(1) The Controller shall, on
application by the tenant or the landlord of a
building and after holding such inquiry as the
Controller thinks fit fix the fair rent for
such building in accordance with the
principles set out in sub-section (2) or in
sub-section (3), as the case may be, and such
other principles as may be prescribed.
(2)
(3)(a) The fair rent for any non-
residential building shall be at nine per
cent, gross return per annum on the total cost
of such building.
(b) The total cost referred in clause
(a) shall consist of---
(i) the cost of construction as
calculated according to such rates for such
classes of non-residential building as may
be prescribed less the depreciation at such
rates as may be prescribed;
(ii) the market value of that portion
of the site on which the non-residential
building is constructed;
and shall include such allowances as may be
made for considerations of locality in which
the non-residential building is situated,
features of architectural interest,
accessibility to market, nearness to the
railway station and such other amenities as
may be prescribed and of the purpose for which
the non-residential building is used.
Provided that such allowances shall
not exceed twenty-five per cent. of the cost
of construction as calculated in the manner
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specified in sub-clause (1)".
908
Section 34 confers upon the State Government power to make
rules to carry out the purposes of the Act. Pursuant to
the authority conferred by the Act, the State Government has
published rules. Rules 11 to 14 deal with classification of
nonresidential buildings, calculation of the cost of
construction of the different classes of non-residential
buildings, allowance for amenities in respect of non-
residential buildings and calculation of depreciation of
non-residential buildings. Rule 11 provides :--
r. 11--"(1) Non-residential buildings
shall be classified into two categories,
namely :-
(i) Factories and godowns; and
(ii) other non-residential buildings.
(2) The non-residential buildings
belonging to the category specified in sub-
rule (1)(ii) shall be classified into four
different classes according to the
classifications laid down in rule 8 in respect
of residential buildings".
r. 12--"(1) The cost of the construction
of nonresidential buildings belonging to the
category specified in rule 11(1)(i) shall be
calculated at the rate of 62 naye Paise per
cubic foot of the cubical content of the
building.
(2) The cost of construction of the
different classes of non-residential buildings
belonging to the category specified in rule
11(1)(ii) shall be calculated at the rates
specified below :-
Class I Ground Floor .. Rs. 16 per square foot of plinth
area.
First Floor .. Rs. 13 per square foot of plinth
area.
Second Floor .. Rs. 12 per square foot of plinth
area.
Class II -- Ground Floor.. Rs. 13 per square foot of plinth
area.
First Floor .. Rs. 10 per square foot of plinth
area.
Second Floor .. Rs. 9 per square foot of plinth
area.
Class III Single-Storeyed .. Rs. 10 per square foot of
plinth area.
Class IV -- Single-Storeyed .. Rs. 5 per square foot of
plinth area.
Note.--In case of every additional floor
higher up, the rate per square foot shall be
one rupee less than the rate per square foot
for the floor immediately below."
r. 13--"When calculating the cost of
construction of non-residential buildings,
allowances shall be made for the following
amenities in addition to those specified in
section 4(3)--
(1) air-conditioning;
(2) lifts;
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(3) electric fans;
(4) tube-lights;
(5) number of electric points;
(6) fans;
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(7) ventilators;
(8) electric pump for water;
(9) flush-outs;
(10) fixed wash-basins;
(11) stair-cases;
(12) out-houses;
(13) cattle-sheds;
(14) garden or vacant ground appurtenant to
the building enjoyed by the tenant; and
(15) usufructs of trees, if any, enjoyed by
the tenant".
r. 14--"The depreciation of buildings
shall be calculated at the rates specified in
Schedule II".
Dr. K.C. Nambiar is the tenant of 2/137, Purasawalkam
High Road, Madras at a monthly rental of Rs. 187-50. He
conducts a nursing home in the premises. The landlord of
the premises applied to the Controller claiming that fair
rent of the premises in the occupation of Dr. Nambiar be
fixed at Rs. 2,575 per month. Dr. Nambiar applied to the
High Court of Madras for a writ of prohibition against the
Controller from proceeding with the application for fixation
of fair rent. He pleaded that the "rules framed by the
State Government in exercise of the power vested in them by
s. 4 were inconsistent with the intention and ambit of the
Act" and were on that account invalid. The petition was
heard by a single Judge with several other petitions in
which the validity of the rules was challenged. The learned
Judge passed an order dismissing the petition, and the order
was confirmed in appeal by the High Court. Dr. Nambiar has
appealed to this Court with certificate granted by the High
Court.
It was urged on behalf of Dr. Nambiar before the High
Court that the expression "cost of production" in sub-s.
(3) of s. 4 means the cost of the original construction and
the landlord was not entitled to claim that the fair rent be
fixed on the basis of cost which may be estimated to be
incurred for reproducing a similar building at the date of
the application or the date on which the Act was brought
into force. The learned Single Judge rejected the
contention. He observed that "the statutory sense in which
the word ’cost’ or the phrase ’total cost’ is used in sub-
s. (2)(a) is not the original cost or the original
expenditure incurred for the construction of the building.
’Total cost’
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in s. 4(2) is a composite concept consisting of three
components out of which the cost of construction for the
purpose of arriving at the total cost is to be calculated
according to the rates prescribed for each class of building
Prescribed and not the initial expenditure incurred in the
construction". The learned Judge proceeded then to observe
:--
"Normally, the notion of depreciation is
a subsequent fall in value or reduction of
worth due to deterioration arising from age,
use and other causes and it is. deducted from
the last value of the building as reduced by
previous depreciation. But the depreciation
calculated at the prescribed rates is under s.
4(2) (b) to be deducted from the cost of the
construction as calculated according to the
rates prescribed. When the cost of
construction is arrived at on such basis, the
depreciation at the prescribed rate is to be
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deducted therefrom backwards. This mode of
deduction of depreciation is no. doubt a
reverse process. But there seems to be
nothing strange in such a manner of arriving
at the cost of construction..."
The High Court in appeal observed:
"In the first place we are of the
opinion that the language of s. 4 itself is
clear that what the legislature has in mind on
the question of the cost of construction, is
what has been specified under the rules and
Sch. 1. The very fact that s. 4(2)(b)(i)
provides that the cost of construction is to
be according to such rates for such class of
residential buildings as may be prescribed
shows that it is not actual cost of
construction, but it is the cost of
construction which can be determined on the
basis of rates as may be specified. The words
"such rates for such classes of residential
buildings as may be prescribed" clearly carry
with it the conception of the fixing of a
statutory rate which may or may not have any
relation to or connection with th
e actual
investment. Again the provisions of allowance
with regard to considerations of locality,
features of architectural interest and such
other matters for which allowance is made at a
percentage not exceeding 10% of the cost of
construction is to be determined as on the
date when the Act came into force and not the
actual original investment. We seen no
warrant to hold that the Legislature intended
to make a vital difference between the
valuation of the site, which is the market
value, and the cost of construction of the
building which is the original cost of
construction or investment as contended for by
Mr. Nambiyar."
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These observations interpreting sub-s. (2) of s. 4 apply
also to the interpretation of sub-s. (3 ) of s. 4, because
the relevant provisions in regard to determination of the
cost of construction of nonresidential buildings are
identical.
By sub-s. (1 ) of s. 4 the Controller is invested with
authority to fix fair rent of buildings in respect of which
an application is made in accordance with the principles set
out in sub-ss. (2) & (3) and such other principles as may be
prescribed. Under sub-s. (3 ) fair rent of any non-
residential building is to be computed at nine per cent of
the gross return per annum on the total cost of such
building and the total cost of the building is to consist of
three components--(1) the cost of construction; (ii) the
market value of the portion of the site on which the non-
residential building is constructed; and (iii) such
allowances not exceeding 25% of the cost of construction as
may be made for locality, features of architectural
interest, accessibility to market, nearness of a railway
station and other amenities ’as may be prescribed.
On behalf of Dr. Nambiar it is urged that the "cost of
construction" only means cost incurred for constructing the
building when it was put up, and the cost of such additions
as may have been subsequently made. On behalf of the
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landlord ’and the State of Madras it is urged that the
expression cost of construction means the cost of
reproducing a similar building at the date on which the Act
was brought into force and therefore in determining fair
rent the Controller must determine for the purpose of s.
4(3)(b)(i) the cost of such reproduced building according to
rules in that behalf and deduct therefrom the depreciation
at the prescribed rate. In other words, it is intended to,
determine under sub-s. (3) (b) (i) the market value of the
structure at the date of the enactment of the Act.
The Legislature has used in sub-section (3) (b) (i) the
expression "cost of construction" and in sub-s. ( 3 ) ( b )
( ii ) "market value". It is difficult to accept that the
Legislature has used two different expressions for providing
that the market value of the building and market value of
the site shall form components of the total cost of a
building. In Black’s. Law Dictionary, 4th Edn. at p. 415
--"cost" it is stated "means the amount originally expended
in performing a particular act or operation, or for
production or construction, as of a building." There is, not
infrequently great difference between the cost of an article
and the value’ of an article. Cost of an article in terms.
of money is what the owner has. expended to obtain it; the
value of the ,article is ordinarily its market value in a
market actual or hypothetical. It may be conceded that the
expression "cost" is sometimes used as meaning the value of
an article. But the expression "cost of construction" in
sub-s. 3 (b)(i) for determining the first component when
used in juxtaposition with
LI 5Sup.CI/69--14
912
the expression "market value" in sub-s. 3(b) (ii) is, in our
judgment, used to denote not the market value but the cost
of the original construction. There are inherent
indications in cls. (i), (ii) and (iii) of sub-s. (3) which
go to prove that the expression "cost of construction" was
no.t intended to. mean the market value. The expression
"cost of building" includes not only the expenses incurred
,for constructing the building, but also the value of
advantages which the site of the building offers, such as
accessibility to markets, nearness to a railway station,
special amenities, and features of ’architectural interest.
If the expression "cost of construction" is equated with the
"market value", it would necessarily include the special
advantages of its situation, amenities and its
architectural features. But the Legislature has provided for
including in the cost of the building apart from the cost of
construction, the value of allowances for favourable
situation, amenities and architectural features. That is
a ground for holding that the value of allowances is not
included in the cost of building.
Amenities such as air-conditioning, lifts, electric
fans, tubelights, number of electric points, fans,
ventilators, electric pump for water, flush-outs, fixed
wash-basins, stair-cases, out-houses, cattle-sheds, garden
or vacant ground appurtenant to the building enjoyed by the
tenant and usufructs of trees, if any, enjoyed by the tenant
will also be included in the cost of building as allowances.
But many of these amenities would be taken into account in
determining the market value of the building. The learned
Advocate-General appearing on behalf of the State of Madras
was unable to explain why the Legislature in the
determination of the cost of building for arriving at the
fair rent, if the view expressed by the High Court is
correct, enacted that these allowances should be included
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twice, once as part of component (i) and again as part of
component (iii).
The learned Trial Judge has rightly pointed out that in
determining the cost of construction, if the contention of
the State be accepted in determining the first component of
the cost of building will be the cost of reproducing the
building at a given time reduced by the depreciation
computed on the life of the building--a process which
reverses the normal method of making ’allowances for
depreciation. Again, if the meaning of the expression "cost
of construction" were "market value" it would mean that the
market value having regard to the market conditions of real
property which may go on changing year after year. But the
State has accepted by r. 12 the cost of construction is a
fixed quantity related to the date on which the Act was
brought into force. Therefore by prescribing the rate at
which the cost of construction is to be determined under r.
12, the expression "cost of construction" is neither the
original cost, nor the value of the building at a given time
during the life of
913
the Act, but an artificial value related to the assumed cost
of construction on the date on which the Act was enacted.
The Advocate-General, however, submitted that in
respect of old buildings it may not be possible to ascertain
what the cost of construction of a particular building was.
But that argument cannot support an interpretation which the
plain words used by the statute do not warrant. Counsel for
the appellant pointed out, that P.W.D. rates in respect of
different classes of buildings for many years are available,
and it should not be difficult for the Controller, having
regard to. the P.W.D. rates which would form a fairly
reliable basis for determining, what the cost of
construction of a particular type of building was. The
argument that the "cost of construction" of a building is to
be such cost as may be prescribed, invites the answer that a
provision which, without any guidance, leaves it to the
executive authority to fix whatever that authority thinks is
the cost of construction, is invalid on the ground of
excessive delegation. If the Legislature has sought to
confer authority upon the executive to fix the rates and to
call them cost of construction, the Legislature has
abdicated its authority in favour of the executive which in
law is not permissible. This however was not the argument
which was advanced before the High Court, for it was the
case of the State that the rates specified in the rules were
rates which were actually prevailing in 1961 in respect of
different classes of buildings.
It was also urged that allowing depreciation at the
rates prescribed in Sch. II to. the rules might unduly
depreciate the value of the properties and the landlord may
not get a fair return. But it has been a common feature of
rent restriction legislation all over India that the
landlord is not allowed the benefit of unearned increment of
the value of his construction. That is why in practically
every statute relating to rent restriction legislation rent
is pegged down to either a fixed period or to standard rent
which is generally related to the cost of construction
originally incurred.
We are accordingly unable to agree with the High Court
that the Legislature intended by the use of the expression
"cost of construction" and "market value" used in cls. (i)
and (ii) of sub-s. (3) the same concept of determining the
value of a building reproduced at the date when the Act came
into force and reduced by depreciation at the prescribed
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rates.
Some argument about the true meaning of Note (2) to.
Sch. II which provides for the standard rates of
depreciation was raised before us. The ,language used in
that NOte, even as explained by the illustrations, is
obscure.
We are in this case not called upon to determine the
meaning of that clause. if the expression "cost of
construction" in sub-s.
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(3) (b) (i) means the cost of construction of the building
as originally erected with such additions as may be required
to be made for subsequent improvements, r. 12 which
prescribes the rates at which the cost of construction is to
be computed plainly goes beyond the terms of the section.
The appeal is allowed. The order dismissing the petition
is discharged. The Controller will determine the fair rent
according to the provisions of the Act uninfluenced by r.
12. The appellant will be entitled to his costs in this
Court and the High Court.
R.K,P.S. Appeal allowed.
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