Karnani Properties Ltd vs Augustin

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 32 to 34 of 1955

Decision Date: 9 November 1956

Coram: Bhuvneshwar P. Sinha, B. Jagannadhadas, Syed Jaffer Imam

In the matter of Karnani Properties Ltd v Augustin, decided on 9 November 1956, the Supreme Court of India delivered its judgment through a bench comprising Bhuvneshwar P Sinha, B Jagannadhadas and Syed Jaffer Imam, and the decision was reported as 1957 AIR 309 and 1957 SCR 20. The appellant, Karnani Properties Ltd, was the common landlord of three premises for which three parallel proceedings were instituted by the respective tenants seeking standardisation of rent under section 9 read with Schedule A of the West Bengal Premises Rent Control (Temporary Provisions) Act of 1950. Under the lease agreements, the landlord was obligated to provide a consolidated monthly rent that included electric installations, supply of electric current for consumption and other special amenities. The landlord contended that the special incidents of the tenancies removed them from the ambit of the Act, and alternatively argued that clause (g) of section 9 should apply, thereby allowing the rent to be increased in proportion to the rise in electricity charges and the government duty payable thereon. The Rent Controller rejected these contentions and fixed the standard rent in accordance with the rules laid down in Schedule A of the Act. On appeal, the Chief Judge of the Small Causes Court applied clause (g) of section 9, granted relief for the higher electricity charges and government duty, and fixed a higher standard rent. The tenants sought revision before the High Court, which held that clause (g) did not apply and, albeit not entirely, affirmed the Rent Controller’s determination. The landlord then obtained special leave to appeal on questions of law. The Supreme Court held that the Act did apply to the premises and that the standard rent had to be determined under the provisions of clause (g) of section 9, thereby restoring the decision of the Chief Judge. The Court explained that the term “premises” as defined in section 2(8) of the Act was sufficiently wide to encompass tenancies with their special incidents, and that the consolidated monthly rent for the landlord-provided amenities fell within the comprehensive meaning of “rent” used by the Act, making it subject to control. The Court further observed that the contrary view expressed in Residence Ltd v Surendra Mohan did not accurately reflect the legal position, and it cited the authorities Property Holding Co Ltd v Clark (1948) I K B 630, Alliance Property Co Ltd v Shaffer (1948) 2 K B 464 and Residence Ltd v Surendra Mohan, A I R 1951 Cal 126, in support of its reasoning.

The Court noted that the decisions in Shaffer (1948) 2 K.B. 464 and Residence Ltd. v. Surendra Mohan, A.I.R. 1951 Cal. 126 were cited for guidance. It observed that the legislature, in enacting the West Bengal Premises Rent Control (Temporary Provisions) Act, 1950, intended the Act’s operative provisions to have a broad reach, and that the definition of “premises” was deliberately wide. Consequently, the Court held that merely inserting a term into a lease, when that term is not one of the expressions enumerated in any clause of section 9, does not remove the tenancy from the Act’s coverage. The Court further stated that to give the Act full effect, the judiciary must interpret its provisions as expansively as the statute permits. In the present matter, where the lease stipulated a consolidated monthly rent, the Rent Controller and other authorities empowered by clause (g) of section 9 were authorized to determine the standard rent by considering all payments that formed part of the agreed rent. The Court clarified that those authorities were not barred from applying any other relevant provisions of the Act, either partially or wholly, in order to arrive at a rent that is fair and reasonable. The judgment then set out the procedural posture: the appeals were civil appeals numbered 32 to 34 of 1955, taken by special leave from the Calcutta High Court’s judgment and order dated 5 September 1952 in revision cases 3257, 3258 and 3259 of 1951, which themselves arose from the Court of Small Causes, Calcutta, 4th Bench, order of 7 September 1951 in rent appeals 115, 743 and 744 of 1951. The Solicitor-General of India, assisted by counsel, represented the appellant, while counsel for the respondent represented the tenant. The judgment was delivered on 9 November 1956 by Justice Sinha. The substantive issue before the Court was whether the provisions of section 9 of the Act applied to the three premises that were the subject of the separate lower-court proceedings, and, if so, which specific clause of that section was applicable. The landlord was the appellant in each appeal, and the tenant was the respondent. To focus on the legal questions, the Court summarized the undisputed facts without delving into the detailed calculations of basic or standard rent. It recorded that the appellant possessed several municipal properties collectively known as the Karnani Mansions, located at 25-A Park Street and adjoining premises at the junction of Park Street and Free School Street in Calcutta.

There were approximately two hundred ten flats of various configurations and shop-rooms in the Karnani Mansions, and each of these units was let separately to tenants. In each of the three cases that later reached this Court, the tenant had been admitted to the tenancy by the predecessor-in-title of the appellant, who was the landlord. The tenancy in every case comprised a single room, a bathroom and a covered verandah, together with the use of several fans, electrical plug points, towel racks, a basin, a commode and a glass shelf. The landlord also supplied electrical energy at no extra charge for the operation of lamps, fans, a radio, cooking ovens, ironing appliances, laundry equipment and refrigerators, and the landlord was responsible for repairing the electrical installations and sanitary fittings. In addition, the landlord provided services such as night guards, sweepers and liftmen. Each tenant applied before the Rent Controller of Calcutta, invoking section 9 read with Schedule A of the West Bengal Premises Rent Control (Temporary Provisions) Act, 1950, seeking fixation of a standard rent for the flat occupied. The landlord opposed the applications on several grounds. First, it asserted that the Rent Controller lacked authority under the Act because the premises were outside its ambit. Second, it pointed out a substantial increase in maintenance costs, in repair and replacement of electrical and other installations, and a considerable rise in the electricity charge imposed by the Calcutta Electric Supply Corporation Ltd. together with the accompanying Government duty. Third, it argued that if the Court held the premises to be governed by the Act, the landlord would be entitled to a proportionate increase in rent to reflect those charges, and that the Act’s silence on a specific provision for increasing rent in respect of such charges indicated that the Act was not intended to apply to the tenancies in question. After inspecting the premises, the Rent Controller fixed a standard rent in accordance with the rules laid down in Schedule A, and stipulated that the rent would become effective on 1 September 1950. The landlord appealed this order to the Chief Judge of the Small Cause Court, Calcutta. The appellate authority allowed the landlord’s appeal in part, raising the standard rent above the amount determined by the Rent Controller by applying clause (g) of section 9. The appellate authority rejected the landlord’s contention that the premises, which benefited from the special services and amenities, were outside the scope of the Act, and granted relief for the higher charges for electricity consumption and the Government duty. Consequently, the standard rent fixed by the appellate authority exceeded the original rent that the parties had originally agreed.

In each of the three matters, the parties brought their disputes before the High Court of Calcutta exercising its revisional jurisdiction. The learned single judge of that court entertained the revisional applications and allowed them in part, thereby giving effect, although not in every respect, to the earlier order of the Rent Controller. The judge also held that clause (g) of section 9 of the Act did not apply to the facts and circumstances of the cases that were before the court. In reaching that conclusion, the judge relied upon a Division Bench decision of the same High Court in Residence Ltd. v. Surendra Mohan, a decision that, as was agreed by counsel, was factually on all fours with the present disputes. After the High Court rejected the appellant’s petition for a certificate under article 133 of the Constitution, the appellant obtained special leave to appeal from this Court on the basis of common questions of law, and consequently the appeals in the three cases were heard together.

The learned Solicitor General appearing for the appellant advanced essentially two points for determination. First, the appellant contended that the Act should not apply to the premises because the tenancy created certain specific incidents, as disclosed in the standard-form lease exhibited as Exhibit J in Civil Appeal No. 42 of 1955 between the appellant and Miss M. Augustin and as found by the courts of fact below. Second, the appellant submitted that, if the Court were to conclude that the premises did fall within the ambit of the Act, then clause (g) of section 9 should be applied to the tenancies as was done by the appellate authority.

Turning to the first point, the Court observed that a new argument had been raised for the first time before it. The appellant argued that the definition of “premises” contained in section 2(8) of the Act would not, in its ordinary sense, encompass the tenements in question, and that, if any provision of the Act were to be attracted, clause (3) of section 2 defining “hotel or lodging house” might be a more appropriate classification. Since this line of argument had not been advanced in the lower courts nor even included in the statement of the case filed before this Court, the Court declined to consider it, even on the assumption that it did not require fresh findings of fact. The Court noted that the matters had not been litigated on that ground and that, in its view, it was untimely to introduce a fresh controversy at this stage. Consequently, the Court proceeded to examine whether the definition of “premises” in section 2(8) of the Act was sufficiently comprehensive to apply to the cases before it. The definition reads: “premises” means any building or part of a building or any hut or part of a hut let separately and includes – (a) the gardens, grounds and out-houses (if any) appertaining to such building or part of a building or hut or part of a hut, (b) any furniture supplied or any fittings affixed by the landlord for use of the tenant in such building or part of a building or hut or part of a hut, but does not include a room or part of a room or other accommodation in a hotel or lodging house …

The Court explained that the statute defined “premises” to mean any building or part of a building, or any hut or part of a hut let separately, and that the definition expressly included the gardens, grounds and out-houses, if any, that were attached to such a building or hut. It further stated that the definition covered any furniture supplied by the landlord for the tenant’s use and any fittings affixed by the landlord to the building or hut. However, the definition expressly excluded a room or part of a room, or any other accommodation, in a hotel or lodging house, and also excluded a stall in a municipal market as defined in clause (44) of section 3 of the Calcutta Municipal Act, 1923, or in any other market maintained by or belonging to a local authority. The definition also excluded a stall let at variable rent in different seasons for the retail sale of goods in any other market as defined in clause (39) of section 3 of the Calcutta Municipal Act, 1923, or clause (30) of section 3 of the Bengal Municipal Act, 1932. The appellant contended that the definition of “premises” therefore did not cover tenements that were provided with special facilities and conveniences that the landlord had agreed to supply to the tenants. In support of this argument, reference was made to the definition of “premises” in earlier legislation such as the Calcutta Rent Act (Bengal Act III), 1920, the Calcutta House Rent Control Order, 1943, the Calcutta Rent Ordinance (No V), 1946 and the West Bengal Premises Rent Control (Temporary Provisions) Act, XXXVIII of 1948, which had been superseded by the Act in question.

The Court observed that it would be unproductive to examine the nuances of the definitions contained in the various previous statutes because the task was to interpret the Act as it stood at the relevant time. Although the Act had later been replaced by the West Bengal Premises Tenancy Act (Act XII), 1956, the parties agreed that the dispute concerned the earlier Act. The Court noted that the definition of “premises” in the earlier statute was drafted in very wide terms, encompassing not only gardens, grounds and out-houses attached to a building or hut, but also furniture supplied by the landlord and any fittings affixed to the structure, indicating the legislature’s intention to cover all kinds of lettings. The Court further observed that, taken together, the definitions of “premises” and “hotel or lodging house” virtually exhaust the entire field of landlord-tenant relationships, subject only to the specific exclusions mentioned in the definition of “premises.” Both parties admitted that the tenancies under consideration were governed by the terms set out in Exhibit J, the most important of which was clause (1) stating that the tenant would occupy the flat by paying a monthly rent of Rs 100 to the Bank, inclusive of hire of two air-conditioned fans and the extra Government duty on electric current, together with other specified charges.

The tenancy agreement required the tenant to pay the full amount of rent without any reduction or abatement, and the payment was to be made to the Bank on or before the seventh day of the month following the month for which the rent was due. The agreed rent was stated to be inclusive of charges for electric current used for fans, lights, a radio and an electric stove whose wattage could not exceed six hundred watts and which could be used only for heating meals and making tea. The rent also covered the use of the lift, the supply of hot and cold water, and the portions of municipal taxes that were attributable to both the owner and the occupier. From the language of this clause it is evident that the landlord was obligated to make available not only the electrical fittings such as fans but also the actual supply of electricity needed to operate those fittings, together with the radio and the electric stove. The parties argued that the tenancy therefore included, in addition to the physical building, structures, and permanent fixtures, the provision of electric power at no additional charge.

The court noted that Section 9 of the Rent Control Act, which deals with the fixation of standard rent, does not expressly contemplate adjustments to rent on the basis of changes in the rates for electric current or the Government duty levied on such electricity. None of the clauses (a) through (f) of Section 9 refer to these considerations; clause (b) refers only to increases in municipal taxes, rates or cesses. The only potentially relevant provision is the residuary clause (g), and the court indicated that whether clause (g) applies to the present dispute would have to be examined when the second point of controversy is addressed. At this stage the court observed that the legislature was aware that unforeseen contingencies might arise which were not covered by the specific clauses (a) to (f) of Section 9, the operative section for determining standard rent. Consequently, the question narrowed to whether a contractual stipulation whereby the landlord agrees to supply additional amenities such as electricity removes the tenancy from the operation of the Act. The Act was enacted “to make better provision for the control of rents of premises” and defines “premises” in very wide terms. Therefore, it would be difficult, if not impossible, to accept the contention that the legislature intended a narrow application of the Act limited by the landlord’s clever stipulations. To give full effect to the statutory provisions, the court must interpret them as broadly as possible within the language of the Act. In view of these considerations, the court concluded that the supply of the said amenities does not alter the applicability of the Act to the premises in question. The court also referred to the decision of the Court of Appeal in the relevant precedent for further guidance.

In the judgments of Property Holding Co. Ltd. v. Clark and Alliance Property Co. Ltd. v. Shaffer, the Court followed an earlier decision and held that where a lease agreement required the tenant to pay not only a sum that could properly be described as rent for the premises but also additional amounts for lighting, cooking equipment, furnishing, cleaning of the hall and staircase and other similar amenities, the aggregate of those payments constituted rent. The facts in Property Holding Co. Ltd. v. Clark were that the written agreement between the landlord and the tenant provided for a payment of £110 a year as rent and an additional payment of £30 a year for the extra amenities and conveniences such as lighting, cooking equipment, furnishing and cleaning of the hall and staircase. The landlord instituted an action for rent at the rate of £140 a year, and the tenant contended that the proper rent was only £110 and that the total sum of £140 a year was not entirely rent. The Court of Appeal allowed the landlord’s appeal and held that the standard rent was £140 a year and not merely £110. In delivering the judgment, Asquith L.J. adopted the language of Younger L.J. in Wilkes v. Goodwin, stating that the word “rent” in this exception means not rent in the strict sense but the total payment under the instrument of letting, comparing it to the notion of “board” which is not rent. He paraphrased the statement of Shearman J. in Nye v. Davis, with which he agreed. The Lords of the Court of Appeal rejected the contention that the additional payment was not part of rent and held that the payment for the extra amenities was also part of rent within the meaning of the English Act that corresponds to the Bengal Act. Those English decisions serve as authorities for the proposition that “rent” includes not only what is ordinarily described as rent in a landlord-tenant agreement but also payment for special amenities supplied by the landlord under the agreement. The term “rent” has not been defined in the Act and therefore must be taken in its ordinary dictionary meaning. If, as indicated, the term rent is comprehensive enough to include all payments agreed by the tenant to be paid to the landlord for the use and occupation not only of the building and its appurtenances but also of furnishings, electric installations and other amenities agreed between the parties to be provided by and at the cost of the landlord, then the conclusion is inescapable that all that is encompassed by the term “rent” falls within the purview of the Act, and the Rent Controller and other authorities have the power to control the same.

In the decision reported at 2 K.B. 56, the Court observed that rent includes not only the use of the premises and its appurtenances but also the cost of furnishings, electrical installations and other amenities that the parties have agreed will be supplied by the landlord at his expense. From this observation, the Court concluded that everything captured by the term “rent” falls within the scope of the Act, and consequently the Rent Controller and other authorised bodies possess the power to regulate such rent. Accordingly, the Court dismissed the first contention put forward by the appellant. However, the Court found the second contention raised by the appellant to be well founded. The Court then referred to the definition of “standard rent” contained in element (10) of section 2, which states that “standard rent” in relation to any premises means: (a) the standard rent determined in accordance with the provisions of Schedule A; and (b) where the rent has been fixed under section 9, the rent so fixed, or the rent that would have been fixed if an application had been made under that section. This definition incorporates the provisions of Schedule A and section 9. It was uncontested that before the present proceedings were initiated by the tenants, no standard rent had been determined for the premises concerned. Schedule A to the Act, in clause (1), defines “basic rent”, and clause (2) provides the formula for computing standard rent once the basic rent is established. Each tenant in the present appeals relied on section 9 read with Schedule A to fix the standard rent for his premises. The Court then examined which of the clauses listed in the definition applied to the tenancy terms. Clause (a) could not apply because it was not true that there was no cause for alteration of the standard rent as determined by the schedule, given that electric charges, government duty on electricity, and municipal taxes had all risen. Clause (b) also could not apply, since it did not fully encompass the present cases, where increases were not limited to municipal taxes but also included electric charges, government duty on electricity and the cost of other services and amenities specifically supplied under the agreement. Clause (c) was inapplicable because there was no addition, alteration or improvement to the premises. Clause (d) was likewise irrelevant, as no furniture beyond what the landlord had already provided was supplied for the tenant’s use. Clause (e) was not invoked by either party, as the special circumstances contemplated therein were absent. Finally, clause (f) was also not applicable to the present facts.

The Court observed that clause (f) was plainly inapplicable because the premises had been constructed well before the date of December 31, 1949. Consequently, the only clause that could still be relevant was clause (g), which reads: “Where no provisions of this Act for fixing standard rent apply to any ‘Premises’, by determining the standard rent at a rate which is fair and reasonable.” The Court then examined the contract between the landlord and the tenant in each case, especially clause (1) of the agreement previously quoted. That clause showed that the landlord had undertaken not only to install electrical and other fittings but also to provide electric power and other services without requiring a separate charge. It was undisputed that the counsel for the tenants-respondents admitted that the rent fixed in each case incorporated payment for those additional amenities and services, although the amounts for those items were itemised separately in the agreement. The agreement itself expressly stated in paragraph 1 that the rent was a consolidated sum covering all such amenities and services.

Even after acknowledging this point, the respondents’ counsel relied heavily on a decision of a Division Bench of the Calcutta High Court, decided on a Letters Patent Appeal from a single judge’s judgment in Residence, Ltd. v. Surendra, reported in (1) AIR 1951 Cal 126. That precedent held that the Act applied to a tenancy whose terms included the additional conveniences and facilities supplied by the landlord, a conclusion the Court agreed with. However, the Calcutta case also asserted that the rent paid for a flat did not include any payment for the extra facilities and conveniences provided by the landlord for the tenant’s use. The High Court judge explained: “In my judgment when a flat is let, with the landlord agreeing to provide certain free services, what is let is the flat and what is paid is paid for the flat with the landlord providing certain amenities or performing certain obligation. What is paid is rent for the flat and no part of it can be truly regarded as payment for the services.” The Court, while respecting the learned judge’s experience, disagreed with that view, noting that the judge had also relied on decisions of the Court of Appeal and the King’s Bench Division, which interpreted the term “rent” broadly to include not only the narrow ordinary rent but also payment for additional conveniences and amenities. The judge further observed: “If he”.

In this case the Court observed that when a tenant undertakes obligations under a tenancy agreement, the agreed monthly or yearly payment may be adjusted to reflect those obligations, but such adjustment does not alter the character of the payment, which remains rent. The Court noted that the earlier observations could be reconciled only if the term “rent” were understood in different senses depending on the context. If the judge employed “rent” in its comprehensive meaning, as the Act requires, the statement would not contradict the appellant’s argument that the standard rent must be fixed by taking into account every component that formed the lump-sum amount described in the agreement as rent. This interpretation was supported not only by the language of the Act but also by the specific terms of the contract between the parties.

The Court then turned to the statutory provisions, stating that element (g) of clause 9 of the Act authorised the Rent Controller and other authorities to fix the standard rent after considering all the constituents that together constitute the total sum shown in the agreement as the monthly rent. These authorities were mandated to determine a rent that was fair and reasonable, and they were not barred from applying any provision of the Act that could be relevant, whether in whole or in part. Accordingly, the Rent Controller, relying on clause (b) of section 9, gave the landlord credit only for the increase in municipal taxes and no further adjustments. By contrast, the Appellate Authority applied element (g) of section 9 and arrived at a fair and reasonable rent by also taking into account the increased electric charges and the Government duty on electricity consumption, as well as the higher cost of providing other amenities and services.

Having concluded that element (g) of clause 9 applied to the tenancy terms in the present matters, the Court held that the Appellate Authority’s decision aligned more closely with the statutory requirements than the decisions of the Rent Controller or the High Court. Because the figures determined by the Appellate Authority had not been contested before this Court, the Court directed that the orders of the Appellate Authority be reinstated and that the orders of the High Court and the Rent Controller be set aside. The appeal was therefore allowed in part, as indicated. Nevertheless, in accordance with the directions previously given by this Court when granting special leave, the appellant, although successful on the merits, was required to pay the costs of the respondents, with one set of hearing fees to be divided equally among the three respondents.

The Court observed that the fee charged for conducting the hearing of the matter should be shared equally by each of the three respondents. Accordingly, the Court ordered that the total hearing fee be divided into three equal portions, with each respondent required to bear one of those portions. By making this allocation, the Court intended that the financial burden of the hearing fee be distributed uniformly among the parties who were respondents in the case. In addition to the direction regarding the hearing fee, the Court also addressed the status of the appeal itself. The Court concluded that the appeal could not be dismissed in its entirety, nor could it be granted in full. Instead, the Court held that the appellate request was successful only to a limited extent. Consequently, the Court determined that the appeal was to be allowed in part, meaning that some of the relief sought by the appellant would be granted while other aspects of the appeal would not be permitted. This partial allowance of the appeal, together with the equal division of the hearing fee among the three respondents, formed the final operative orders of the Court in this matter.