Bhatia Co-Operative Housingsociety Ltd. vs D.C. Patel

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 18 of 1952

Decision Date: 5 November 1952

Coram: Mehr Chand Mahajan, Vivian Bose, Natwarlal H. Bhagwati, D.A.S.

In this matter the petitioner was Bhatia Co-Operative Housing Society Ltd. and the respondent was D C Patel; the judgment was rendered on 5 November 1952 by a bench consisting of Justice Mehr Chand Mahajan, Justice Vivian Bose, Justice Natwarlal H Bhagwati and Justice Das, Sudhi Ranjan. The case is reported in the 1953 volume of the All India Reporter at page 16 and also in the 1953 Supreme Court Reports at page 185, with subsequent citations in various law reports spanning from 1957 to 1991. The dispute concerned the applicability of Section 4(1) of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, which exempts premises belonging to the Government or a local authority from the operation of the Act, and whether that exemption extended to a suit brought by a lessee of such a government or local authority against his sub-lessee. The factual backdrop involved a building site that had been auctioned by the City Improvement Trust of Bombay to a bidder on the condition that the bidder erect a building of a prescribed description costing not less than Rs 50,000; upon completion the site together with the building was to be leased to the bidder for a term of nine hundred ninety-nine years at a fixed annual rent. The court held that the lease deed was constructed so that the building erected by the bidder remained the property of the Trust and not of the bidder, and consequently the premises fell within the definition of property belonging to a local authority under Section 4(1). Therefore the suit by the lessee against his sub-lessee was not governed by the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, and could appropriately be instituted in the Bombay City Civil Court. In addition, the court affirmed that a civil court possesses inherent jurisdiction to determine its own jurisdiction and may entertain a suit even if, after such an inquiry, it discovers that it lacks jurisdiction. The judgment arose from Civil Appeal No 18 of 1952, which challenged the decision and order dated 12 December 1949 of the Bombay High Court (Division Bench of Justices Weston and Shah) in First Appeal No 456 of 1949, the latter having reversed, on the ground of lack of jurisdiction, the judgment and decree dated 24 January 1949 of the Bombay City Civil Court in Civil Suit No 106 of 1948. The Attorney-General, M C Setalvad, appeared for the respondent.

Counsel for the appellant was S B Jathar, appearing on behalf of India, with another counsel assisting, while counsel for the respondent was N P Engineer, assisted by E H Bhaba. The judgment was delivered on 5 November 1952 by Justice Das. The matter before the Court was an appeal filed under special leave, challenging the decision and decree dated 2 December 1949 issued by a Division Bench of the Bombay High Court, comprising Justices Weston and Shah. That High Court decision had set aside an earlier finding of lack of jurisdiction and had reversed the judgment and decree for possession rendered on 24 January 1949 by the Bombay City Civil Court, directing that the plaint be returned for presentation before the appropriate court. The Court noted that there was no dispute concerning the material facts necessary for adjudicating the appeal. According to the records, on 15 April 1908 the Board of Trustees for the Improvement of the City of Bombay put up for auction plots numbered 16, 17 and 18 of new survey numbers 8234, 8235 and 8244, situated in the Princess Street Estate of the Board. The combined area of the plots was 2,235 square yards and they were to be let subject to specified conditions. The highest bid was placed by Sitaram Luxman, who was consequently declared the tenant. The annual rent per square yard was to be calculated at four and a half percent of Rs 29 per square yard. Sitaram Luxman signed the memorandum of agreement that incorporated the auction conditions and bound himself to them. He complied with clause 3 by depositing the required money and, upon payment, took possession of the plots. Clause 7 required him, within the time specified, to construct and complete a building costing not less than Rs 50,000, comprising five floors with suitable offices, drains and other facilities, according to plans and specifications prepared by an architect approved by the Board and subsequently approved by the Board. Clause 17 stipulated that as soon as the main building was roofed, he was to insure the building jointly with the Board, and, until the lease was granted, to keep the buildings and works insured for their full value. Clause 18 provided that immediately after the completion of the buildings and works to the satisfaction of the Trust Engineer, as evidenced by a certificate, and provided the contract had not been previously terminated, the Trustees would grant the tenant, or an approved nominee accepted by the tenant, a lease of the plot together with the buildings for a term of 999 years measured from the date of the auction, with the yearly rent to be calculated in accordance with the accepted bid for the plot. Clause 25 gave the Board the authority, in the event that the buildings were not fully completed within the stipulated time or other specified contingencies occurred, to forfeit the deposit and to take and retain possession of the plots and any buildings or works then standing thereon. Pursuant to this agreement, the subsequent events unfolded as recorded.

The Court observed that Sitaram Luxman had constructed a building on the plots, which subsequently became known as the New Sitaram Building. The completion of that building was formalised by an indenture of lease dated 19 April 1916, executed between the Trustees for the Improvement of the City of Bombay and Rustomji Dhunjibhoy Sethna, who acted as the receiver of the estate of Sitaram Luxman appointed by the High Court in Suit No 720 of 1913. Under that agreement, and in consideration of the money expended on erecting the structures as well as the rent and covenants reserved therein, the Trustees demised to the lessee the entire parcel of land that formed part of their Princess Street estate together with the buildings standing thereon. The lease was granted for a term of nine hundred ninety-nine years commencing on 15 April 1908. The lessee was required to pay a nominal rent of one rupee up to 15 January 1909 and thereafter a yearly rent of Rs 2,916, to be paid in equal quarterly instalments. By the terms of the indenture the lessee covenanted to pay all rates and taxes, to refrain from using any unbuilt portion of the land without the lessor’s consent except as open space, and not to demolish, add to or alter any of the buildings without such consent. The lessee also undertook to maintain all drains, sewers and related infrastructure, to repair, pave, clean, paint and amend the buildings and walls, and to permit the lessor and the lessor’s employees to inspect the premises upon giving forty-eight hours’ notice. The lease further limited the use of the demised premises to residential purposes, offices or schools and expressly prohibited its use as a public house, liquor shop or for any other trade or business. Throughout the term the lessee was required to keep the buildings insured against fire in the joint names of the lessor and lessee and to rebuild or restore the structures if they were destroyed or damaged. A clause allowed the lessor to re-enter the premises upon non-payment of rent for thirty days or for any breach of the lessee’s covenants.

The Court further noted that in 1925 all the properties of the Trustees for the Improvement of the City of Bombay were vested in the Bombay Municipality by virtue of Bombay Act XVI of 1925. By a deed of assignment dated 26 April 1948, Shri Bhatia Co-operative Housing Society Limited, a society registered under the Bombay Co-operative Societies Act VII of 1921, acquired the lessee’s interest in the demised premises. On 29 June 1948 the appellant served a notice on the respondent, who was occupying Block No B/2 on the ground floor of the New Sitaram Building as a monthly tenant at a rent of Rs 52-5-9, requiring him to vacate the premises by 31 July 1948. The respondent, through his counsel, replied that he had consistently paid the rent and complied with all the terms of his tenancy, and he invoked the protection afforded by the Bombay Rents, Hotel and Lodging House Rates Control Act 1947.

In this case the respondent had not vacated the premises after the notice to quit expired, and the appellant therefore instituted summary suit number 106 of 1948 in the City Civil Court at Bombay seeking vacant possession of Block B/2 on the ground floor of the New Sitaram Buildings together with mesne profits from 1 August 1948 until possession was delivered. After setting out the material facts, the appellant submitted that the Bombay Rent, Hotel and Lodging House Rates Control Act, 1947 (Act LVII of 1947) did not apply to the demised premises. The respondent filed a written statement in which he contended, on the basis of section 28 of the same Act, that the City Civil Court lacked jurisdiction to entertain the suit. He further asserted that he had performed and observed all the conditions of his tenancy, that he was ready and willing to continue to do so, that the New Sitaram Building had been constructed at the expense of the appellant’s predecessor in title, that the premises belonged to the appellant and not to the Government or any local authority, and that consequently he was entitled to the protection of Act LVII of 1947. Setting aside the question of whether the appellant might be entitled to any compensation, the pleadings raised essentially two points of law, each framed as two separate issues: first, whether the court possessed jurisdiction, and second, whether Act LVII of 1947 applied to the premises in dispute. The learned judge of the City Civil Court, after a careful and detailed consideration of the matters, answered both issues in favour of the appellant and decreed the suit. The respondent appealed this judgment to the High Court. The High Court reversed the trial judge’s decision, holding that Act LVII of 1947 did apply to the premises and that, by virtue of section 28, the City Civil Court was not competent to entertain the suit. Accordingly, the High Court ordered that the plaint be returned to the appellant for filing in the appropriate court. The High Court declined to grant the appellant leave to appeal to the Supreme Court, but the appellant subsequently applied for and obtained special leave to appeal. Counsel for the respondent then raised a preliminary objection, relying on the language of section 28 of the Act, which provides that in Greater Bombay only the Court of Small Causes has jurisdiction to try any landlord-tenant suit concerning recovery of rent or possession where any provision of that part of the Act applies, and that no other court may entertain such a suit or claim. The respondent argued that if the appellant’s contention that the Act does not apply to the premises were true, then section 28, being an integral part of the Act, could not be invoked to deprive the City Civil Court of jurisdiction.

In this case, the Court observed that if the appellant succeeds in establishing that the Act does not apply to the premises, then section 28, which is an integral part of the Act and removes the jurisdiction of all courts except the Small Causes Court in Greater Bombay, cannot be invoked by the respondent. The Court stated that the decisive issue for determining whether the City Civil Court had jurisdiction to entertain the suit was to ascertain, in light of section 4 of the Act, whether the Act applied to the premises at all. The Court explained that if the Act applied, the City Civil Court would lack jurisdiction; if the Act did not apply, the City Civil Court would retain jurisdiction. The Court noted that the question immediately arose as to which authority should decide this contested point. It reaffirmed the settled principle that a civil court possesses inherent power to determine the scope of its own jurisdiction, even though such an inquiry may ultimately reveal that the court lacks jurisdiction over the suit. Accordingly, the Court agreed with the High Court that the preliminary objection raised by the respondent was not well founded in principle or authority and should be dismissed. The Court identified the principal dispute between the parties as the question of whether the Act applied to the demised premises. The Court indicated that resolving that dispute required a true construction of section 4(1) of the Bombay Act LVII of 1947, which reads: “4. (1) This Act shall not apply to any promises belonging to the Government or a local authority or apply as against the Government to any tenancy or other like relationship created by a grant from the Government in respect of premises, taken lease or requisitioned by the Government; but it shall apply in respect of premises let to the Government or a local authority.” The Court observed that the subsection consists of three distinct parts: (i) the Act does not apply to premises belonging to the Government or a local authority; (ii) the Act does not apply as against the Government to any tenancy or other like relationship created by a grant from the Government concerning premises taken on lease or requisitioned by the Government; and (iii) the Act does apply to premises let out to the Government or a local authority. The appellant Society contended that the demised premises were originally owned by the Trustees for the Improvement of the City of Bombay and presently belong to the Bombay Municipality, both of which are local authorities; therefore, the Society argued that the Act does not apply to those premises. Conversely, the respondent urged that the purpose of the Act, as stated in its preamble, is, among other things, to control rent. Accordingly, the respondent argued that the legislation was intended to apply only to the relationship between landlord and tenant, and that section 4(1) provides an exemption or exception to that general purpose. The Court noted that the first two parts of section 4(1) were intended to exempt two categories of landlord-tenant relationships.

Section 4 (1) of the Act provides two separate exemptions from its operation. The first exemption applies when the Government or a local authority lets out premises that belong to it. The second exemption applies when the Government lets out premises that it has taken on lease or has requisitioned. It is clear that the language of the second part expressly exempts “any tenancy or other like relationship” created by the Government. In contrast, the first part does not mention any tenancy or similar relationship; instead it merely exempts the premises themselves belonging to the Government or a local authority. If the legislature had intended the first part to operate in the same way as the second, it would have used identical wording and stated that the Act shall not apply to any tenancy or other like relationship created by the Government or a local authority in respect of premises belonging to them. The fact that the same phrasing was employed in the second part but omitted in the first indicates that the legislature did not aim to exempt the landlord-tenant relationship in the first case. Rather, the purpose of the first part was to give the premises owned by the Government or a local authority a blanket immunity from the Act. Counsel for the respondent argued that this immunity should be confined only to the Government or the local authority that owns the premises. Had that been the legislative intention, the statute would have explicitly said that the Act is inapplicable “as against the Government or a local authority”. Because the statute does not contain such language, the only reasonable conclusion is that the legislature deliberately chose different wording to exempt the premises themselves, not merely the governmental owner.

The implication of interpreting the first part as a blanket exemption for the premises is that the exemption would extend not only to the relationship between the Government or a local authority and its lessee, but also to the relationship between that lessee and any sub-tenant. Such a broad construction would defeat the entire purpose of the Act, since most lands in Greater Bombay are owned by the Government or various local authorities, for example the Bombay Port Trust and the Bombay Municipality. If those premises were entirely excluded, the majority of tenants would lose the protection and benefits intended by the legislation. The preamble to the Act makes clear that its object is to consolidate the law relating to the control of rents and repairs of certain premises, not of every premises in the city. The legislature may have believed that granting immunity to government-owned premises would accelerate the development of those lands by encouraging lessees to take up building leases on favorable terms. However, the primary aim of giving such immunity was to protect the interests of the Government or the local authority, and that protection is achieved only when the immunity attaches to the premises themselves and can be enjoyed by the lessee deriving title from the government owner.

In this case, the Court observed that the purpose of granting immunity to premises owned by the Government or a local authority was to enable those authorities to secure building leases on terms that are favourable to them. The Court further cited the observation of Romer L. J. in the decision of Clark v. Downes (1), a ruling later affirmed by Lord Goddard C. J. in Rudler v. Franks (1), that such immunity tends to enhance the value of the reversionary right that remains with the Government or the local authority. The Court noted that the legislature may have been persuaded by the belief that the Government or a local authority would act fairly and reasonably, and therefore was inclined to accord such entities an exemption from the operation of the Act. Nevertheless, the Court emphasized that the principal aim of providing this exemption was to safeguard the interests of the Government or the local authority itself. Accordingly, the Court held that the exemption must attach to the premises in question and that its benefit must extend not only to the Government or the local authority but also to any lessee who derives title from them. The Court rejected the argument advanced by counsel for the respondent that the exemption should apply solely to the Government or the local authority, leaving a lessee without the benefit of the exemption and thereby subjecting the lessee to the provisions of the Act. If that construction were accepted, section 15 of the Act would prohibit the lessee from sub-letting the premises or any portion thereof, rendering any building lease from the Government or a local authority essentially worthless. The Court reasoned that such an outcome would defeat the legislative purpose of encouraging the grant of building leases by the Government or a local authority, and would make the exemption illusory. In the Court’s view, the consideration of protecting the interests of sub-tenants in premises belonging to the Government or a local authority could not outweigh the plain meaning of the preamble and the opening portion of section 4(1), nor could it frustrate the fundamental objective of protecting and promoting the interests of the Government or a local authority by conferring an immunity on its property. Finally, the Court addressed the respondent’s contention that the expression “belonging to” should be interpreted in its ordinary sense rather than in a technical legal sense. The Court observed that, under the lease, the lessee had erected the building at his own expense, held the building for a term of nine hundred ninety-nine years, possessed the right to sub-let the building in whole or in part, determine the rent and other terms, eject sub-tenants, and assign the lease. Consequently, the Court concluded that it was reasonable to describe the building as belonging to the lessee, while the rights retained by the lessor under the lease were merely securities intended to preserve the

In this case the Court observed that the High Court had held that, although the lease instrument formally identified the building as belonging to the Bombay Municipality, which succeeded the original lessors, the substantive ownership lay with the appellant, who was the assignee of the lessee. The Court was unable to accept that reasoning and stated that there was no justification for deciding that the substance of the arrangement diverged from its formal expression. By the operative terms of the lease, the demised property consisted not only of the land but also of the building that stood upon it, and this demission represented an act of ownership exercised by the lessor over both the land and the structures. The Court referred to section 105 of the Transfer of Property Act, which characterises a lease as a transfer only of the right to enjoy the demised premises, and clarified that a lease does not convey any ownership interest in the demised property, unlike a sale governed by section 54 or a mortgage governed by section 58.

The Court further explained that, under the specific covenants of the lease in the present matter, the lessee was not free to utilise the building for any purpose he chose. The lease restricted the lessee to using the premises solely as offices, schools or residential accommodation, and prohibited any trade or business use without the lessor’s consent. Moreover, the lessee could not demolish the building, make additions or alterations, or construct on the open space without the lessor’s permission. In the event of destruction of the premises by fire or any other cause, the lessee was obliged to reinstate them. The lease also granted the lessor the right to enter and inspect the premises at any time, provided a notice of forty-eight hours was given. These extensive covenants, the Court said, clearly demonstrated that the dominant control and the true ownership rested with the lessor.

The Court noted that the rights attributed to the lessee were limited to the enjoyment of the premises, which are typical of well-drawn leases, whereas the ownership of both land and building remained with the lessor. Although the lessee had erected the building at his own expense, he had done so for the benefit of the lessor and in accordance with the terms of the lease. The Court held that the expenditure incurred by the lessee in constructing the building served as consideration for the grant of a lease that extended for 999 years over both the building and the land, possibly at a nominal rent that the lessor would not have otherwise accepted. Consequently, by the terms of the agreement the building became the property of the lessor, and the lessor demised both land and structure, which, in law and in fact, belonged to the lessor. The Court acknowledged that the law of fixtures under section 108 of the Transfer of Property Act may differ from English law, but affirmed that section 108 is subject to any agreement the parties have chosen to make.

In this case, the Court observed that the agreement expressly made the building a part of the land and therefore the property of the lessor, and that the lessee consequently obtained only a lease for the demised premises. The Court held that the lessee, or any person asserting a claim through the lessee, could not now maintain that the building does not belong to the lessor. The Court explained that a forfeiture of the lease does not, for the first time, create a title in favour of the lessor; rather, a forfeiture merely enables the lessor to re-enter upon property that has always been his own. Referring to the authority of Lord Macnaghten in Heritable Reversionary Company v. Mullar (1892) A.C. 598 at 021, the Court quoted that the words “property” and “belonging to” are not technical terms in Scots law but must be understood in their ordinary sense, being essentially interchangeable: a man’s property is that which is his own, and what belongs to him is his property. The Court then expressed the view that the lessor’s interest in the demised premises could not be described as a contingent interest that would become vested only upon the expiry or earlier determination of the lease, because such a description would prevent the lessor from having demised the premises, including the building, before any termination and would preclude him from exercising ownership or control over the premises as he presently does under the covenants of the lease. The factual position, the Court affirmed, is that after the building was erected the lessor became its owner, and from that time onward the demised premises, including the building, have remained the lessor’s property, subject only to the lessee’s right of enjoyment under the lease. The Court further stated that if the building were held to belong to the lessee because he erected it at his own cost and based on the attributes of ownership advanced by counsel, then, between the local authority—being the lessor—and the lessee, the building would likewise be deemed to belong to the lessee and the Act would consequently apply. The Court found such a result untenable, for it would imply that the Government or a local authority would perpetually be bound by the Act in respect of any building erected by a lessee under a building lease granted over the authority’s land, thereby rendering the immunity granted to the Government or local authority utterly illusory and worthless. Accordingly, the Court concluded that the demised premises, including the building, belong to the local authority and lie outside the operation of the Act. With the Act therefore inapplicable, the appellants were fully within their rights to commence an ejectment suit in the City Civil Court, and the Court correctly possessed jurisdiction to entertain the suit and to pass the decree that it did. The result, therefore, is that the Court affirmed the lower Court’s jurisdiction and decree.

The Court allowed the appeal and consequently set aside the judgment and decree that had been rendered by the High Court. By setting aside that decree, the Court restored the decree that had originally been passed by the City Civil Court. The effect of the restoration was that the earlier order of the City Civil Court regained its operative force and the findings and relief contained therein again became enforceable. In addition, the Court ordered that the appellant would be awarded costs in respect of the entire proceedings, and that such costs would be payable in all courts that had been involved in the litigation. Accordingly, the Court recorded that the appeal was allowed. The order restoring the City Civil Court decree also meant that any rights and liabilities recognized by that decree were revived. The costs award covered legal expenses incurred at each stage of the dispute, ensuring that the appellant would not bear any financial burden for the unsuccessful challenge in the High Court. The Court also identified the persons who had acted as agents for the parties: the agent representing the appellant was identified as P. G. Gokhale, while the agent representing the respondent was identified as S. P. Varma.