Mumbai Port Authority’s retrospective rent hikes quashed; Bombay HC mandates fair rates and rejects profiteering-based land valuation for 145 petitions

A group of 145 writ petitions was filed by monthly tenants, fifteen-month lessees, long-term lessees and occupants of properties belonging to the erstwhile Board of Trustees of the Port of Bombay, now succeeded by the Mumbai Port Authority (“MbPA”). The petitions challenged revised lease rents, statements of rates (“SORs”), Gazette notifications and demand notices issued by the Tariff Authority for Major Ports (“TAMP”) and MbPA in respect of Port Trust lands.

The dispute arose from the Port Trust’s 1982 attempt to substantially enhance rents on the basis of the Kirloskar Consultants’ valuation of its land. The resulting litigation led to the “Compromise Proposals”, which were ultimately considered and modified by the Supreme Court in Jamshed Hormusji Wadia v. Board of Trustees of the Port of Mumbai, (2004) 3 SCC 214. The Supreme Court approved the proposals subject to revised rates of return of 10% for non-residential use and 8% for residential use, and declared them binding on the parties and other affected lessees.

Following the Supreme Court judgment, the Port Trust adopted Resolution No. 31/2004 and extended the operation of the compromise-based rents, with a 4% annual increase, to renewed leases up to 31 March 2024.

Subsequently, the Central Government’s Policy Guidelines for Land Management by Major Ports, 2015 (“PGLM 2015”) were applied to Mumbai township areas through a 2018 clarification. The policy contemplated fixation of SORs by reference to the highest of several market-value indicators and prescribed a minimum annual return of 6% of the latest market value.

TAMP thereafter issued Gazette notifications fixing SORs retrospectively for the periods 1 October 2012–30 September 2017 and 1 October 2017–30 September 2022. MbPA adopted those rates and issued demand notices seeking retrospective recovery of differential rent. After the Major Port Authorities Act, 2021 (“MPA Act”) came into force on 3 November 2021, MbPA issued a further Gazette notification fixing SORs for 2022–2027, effective from 1 June 2023.

Whether the compromise-based rates approved in Jamshed Wadia and subsequently adopted by the Port Trust continued to govern the petitioners’ leases up to 31 March 2024.

Whether TAMP had authority, after the MPA Act, 2021 came into force, to fix or publish SORs and lease rents under Section 49 of the repealed Major Port Trust Act, 1963.

Whether TAMP and MbPA could fix and recover lease rents retrospectively for periods preceding the relevant notifications.

Whether the first proviso to Section 27(1) of the MPA Act, 2021—which prohibits retrospective fixation and implementation of scales, fees, rates and conditions—applied to lease rent and use of Port assets.

Whether the market-value-based methodology under Clause 13 of PGLM 2015, particularly the requirement to adopt the highest of specified market-value factors, was inconsistent with the constitutional obligation of the Port Authority to act fairly and without profiteering or rack-renting.

Whether the SOR for 2022–2027 and the consequential demand notices issued by MbPA were legally sustainable.

The Court applied Article 14 of the Constitution, requiring State instrumentalities to act justly, fairly, reasonably and in the public interest even in contractual and landlord-tenant dealings.

Under Sections 49 and 50C of the Major Port Trust Act, 1963, TAMP was empowered to frame and publish SORs while that Act remained in force; Section 111 authorised Central Government policy directions to Port Trusts.

The Court relied principally on Jamshed Hormusji Wadia v. Board of Trustees of the Port of Mumbai, (2004) 3 SCC 214, which held that State landlords may revise rents to offset inflation, maintenance, taxes and administrative costs, but may not indulge in rack-renting, profiteering or arbitrary bargains.

It also relied on Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293, holding that public authorities dealing with tenants must act in public interest and are subject to judicial review; Trustees of the Port of Madras v. Aminchand Pyarelal, (1976) 3 SCC 167, recognising that Port Trusts are public bodies and not commercial organisations operated for private profit; and CIT v. Vatika Township (P) Ltd., (2015) 1 SCC 1, which states that legislation and delegated action are ordinarily prospective because retrospectivity is contrary to fairness.

Under Sections 27, 54, 58, 75 and 76 of the MPA Act, 2021, the Board may frame SORs for services and access to Port assets, but such rates must not operate retrospectively. The Major Port Authorities (Fixation and Implementation of Scale of Rates, Fees and Conditions) Rules, 2021 likewise prohibit retrospective fixation and implementation and require consideration of Central Government directions, market conditions, competitive pricing and stakeholder feedback.

The Court held that the Supreme Court’s decision in Jamshed Wadia, read with Port Trust Resolution No. 31/2004 and the earlier resolution granting renewed leases for 30 years with 4% annual increases, established that the compromise formula governed rents up to 31 March 2024. The Port Authority could not reopen that settled arrangement by applying PGLM 2015 retrospectively or by adopting a methodology directed at maximising market-value returns.

The Court further held that “rate” under the statutory scheme included rent and that Section 27’s prohibition against retrospectivity applied to all categories of rates and conditions under Section 27(1), not merely to rates for different classes of goods and vessels under clause (f). Since the 2012–2017 and 2017–2022 SORs were notified after the MPA Act came into force and purported to operate from earlier dates, they were invalid.

Independently, TAMP’s post-3 November 2021 exercise of tariff-setting power was unauthorised because, under the transitional scheme of the MPA Act, TAMP could function only as a substitute for the Adjudicatory Board and the Adjudicatory Board’s functions excluded tariff setting.

The Court also found that Clause 13 of PGLM 2015, insofar as it required selection of the highest market-value factor and thereby promoted maximum market-value extraction, conflicted with the Wadia principle against profiteering and rack-renting.

Although MbPA retained power under the MPA Act, 2021 to fix future rents, that power had to be exercised prospectively, transparently and on the touchstone of fairness, reasonableness and public interest.

The retrospective SOR notifications for 2012–2017 and 2017–2022, the related speaking orders, the Gazette notifications adopting or extending those rates, and the consequential demand notices were quashed and set aside.

The Court held that MbPA was entitled to fix rents after expiry of the compromise period, but only prospectively and consistently with the Wadia prohibition against profiteering and rack-renting and the requirements of fairness and reasonableness.

Clause 13 of PGLM 2015 was read down insofar as it required fixation of SORs for the Mumbai Port Trust/Authority solely on the basis of prevailing market value.

Pending interim applications were disposed of, with no order as to costs.