Mrs. Sujata Manohar, J.:— Appeals Nos. 1141 of 1991 and 1152 of 1991 are in respect of Writ Petitions Nos. 3215 of 1991 and 3511 of 1991 respectively. These writ petitions have been admitted but no interim orders have been granted. These appeals are from the order refusing to grant any interim reliefs. By consent of parties the original writ petitions are also placed for hearing along with the group of Petitions Nos. 433 of 1987 and others. The respondents waive service in respect of these two petitions.
2. All these petitions pertain to 48 plots of land situated at Mount Mary, Bandra Band Stand, Bombay. The respondent i.e the State of Maharashtra is the owner of these plots of land. The State has executed long term leases in respect of these plots of land in favour of private parties from 1907 onwards. The petitioners in these writ petitions are the prasent lessees of these 48 plots of land from the State Government. They have challenged in these writ petitions a decision of the State Government dated 14th March, 1986 under which the State Government has increased the lease rent in respect of residential plots of land in question to 25 times what the petitioners were paying as lease rent prior to 1st January, 1981 while renewing the leases of the petitioners for a period of 10 years from 1-1-1981 to 1-1-1991. Although the rent has been so increased from 1-1-1981 the decision in this regard has been taken only on 14-3-1986 and is intimated thereafter to the petitioners. A few of the petitioners were informed of this increase as late as in 1991 for the first time.
3. We will refer in detail to the facts in Writ Petition No. 433 of 1987 for the sake of convenience. The petitioners in this petition are lessees of Government land bearing Plot No. 209 situate at Bandra, Band Stand admeasuring 1226 square yards. The land was first leased to the lessee for a term of 50 years commencing from 1st January, 1901 at the yearly rent of Rs. 35/-. The lease deed is dated 25th July, 1907. Under clause 6 of this lease deed, it is provided as follows:
“6. And it is Hereby Further Agreed that in case the lessee shall duly pay the said rent, and perform all and every the conditions aforesaid to the satisfaction of the Collector, the Lessee shall at the expiration of the said term of fifty (50) years be entitled to a renewal of the lease hereby granted, on a rental then to be fixed in reference to the general value of unimproved land similarly situated and not in reference to the special value given to the land hereby demised by improvements effected by the Lessee for such further term and on such conditions as may then be determined by the Collector acting under the orders of the Governor of Bombay in Council.”
4. After obtaining the lease the lessee in 1907 constructed a bungalow on the said plot. The bungalow consists of a ground floor, a mezzanine floor and first floor. The carpet area of the ground floor is about 2786 square feet. The ground floor of the bungalow was let out in the year 1933 and the ground floor is even now occupied by the family of the said tenant at a gross rent of Rs. 99/- per month in view of the provisions of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947. The plot of land and building are assessed to Municipal property taxes on the basis of rateable value of Rs. 2210/-.
5. The period of the lease expired on 31st December, 1950. After expiry of the lease, the respondents continued to recover ground rent from the petitioners at the rate mentioned in the original lease, that is to say, at the rate of Rs. 35/- per year. On 30th March, 1955 a letter of that date was addressed to the petitioners informing them that the Government had ordered that the lease should be renewed for a period of 30 years with effect from 1-8-1951. The rent for the period 1-1-1951 to 31-7-1951 would be recovered at the rates mentioned in the expired lease. In respect of the renewed lease the revised rent was fixed at 5% of the full market value of the land determined after taking into consideration the improvements, if any made by the lessee. The Government was also granting to the lessees a concession regarding payment of rent. For the first 10 years the full amount of lease rent or 25 times the amount paid under the expiring lease whichever was less would be payable. For the next 10 years, the full amount or 50 times the amount paid under the expiring lease, whichever was less, would be payable, and for the remaining period the full lease amount would have to be paid.
6. Accordingly as on 1-1-1981 the petitioners were paying in respect of this plot lease rent at the rate of Rs. 1250/- per annum. Although the lease expired on 1-1-1981, no action was taken for renewal of this lease till March 1986 when, as a result of the impugned Government Resolution, all the leases in question were renewed for a period of 10 years from 1-1-1981 on a revised lease rent as per the Government resolution of 14-3-1986. The amount in the present case comes to Rs. 31,250/-. Unlike the previous renewal the lease has also been renewed only for a period of 10 years up to 1-1-1991. The petitioners have challenged such a renewal and the increase in the lease rent as arbitrary and unreasonable.
7. We need not examine the facts of the other writ petitions which are before us which are essentially similar, except for the purpose of noting that the rights in respect of most of the 48 plots in question to which the Government Resolution of 14th March, 1986 applies, have been transferred by the original lessees with the consent of the State Government in favor of Co-operative Housing Societies and/or builders who have constructed multi storied buildings on the plots which are now transferred to the members of such Societies. On some plots a portion of the plot has been sold while in respect of a few plots, as in the case of the petitioners in Writ Petition No. 433 of 1987, the full F.S.I of the plot has not been utilised.
8. We have to examine whether the Government Resolution of 14th March, 1986 under which lease period of these 48 plots is extended from 1-1-1981 to 31-12-1990 at a revised lease rent for residential plots at the rate of 25 times the rent prevailing as on 1st of January 1981, and for commercial plots at 50 times the rent prevailing prior to 1st of January 1981, can be considered as a fair and reasonable one, looking to all the circumstances; or whether the action of the State Government is arbitrary and unreasonable.
9. By the same Government Resolution a plot for Retreat House which is being used for charitable purposes has been granted a concessional increase in rent. We are not concerned with this concession in the present case.
10. The Government Resolution of 14th March, 1986 does not set out any reason for the increase nor does it set out the basis on which the increase in lease rent has been worked out. In the affidavit in reply however, the respondents have stated that as on 31st December, 1980 when the leases expired, the market value of open plots of land at Bandra, Band Stand were very high. According to the respondents the market value of similar plots in adjoining areas ranged between Rs. 1,200/- to Rs. 1,500/- per square metre. According to the respondents, in the case of the plot in Writ Petition No. 433 of 1987, for instance, the market value of the land as on 1-1-1981 would be around Rs. 15,37,635/-. The State Government has further stated that according to the prevailing policy of the State Government, lease rent is fixed at 8% of the full market value of the land in case of fresh leases of open plots of land, full market value being the market value plus 20 times non-agricultural assessment. By this calculation the lease rent which the State Government should charge for the plot in Writ Petition No. 433 of 1987 would be Rs. 1,26,258.25 ps. This according to the State Government itself, would be exorbitant and unreasonable. Hence, in order to lessen the burden on the lessees, the State Government took a policy decision recorded in the order of 14th March, 1986 to charge only 25 times or 50 times the existing lease rent, as the case may be.
11. Ms. Anklesaria, learned Government Pleader has submitted that looking to the market price of these plots, the lease rent which the Government is charging under Government Resolution of 14th March, 1986 is very reasonable. According to her this rent strikes a correct balance between the market value and a fair return to the Government avoiding extortionate rent being charged to the lessee. The affidavit also states that the Government has taken into account the fact that the leases were old leases and also the fall in the value of the rupee, though it is not made clear in the affidavit in what manner the fourmula of 25 times or 50 times the existing rent has been arrived at.
12. In considering whether in increase of 25 times or 50 times the existing lease rent is reasonable or not we have to bear in mind that these are not fresh leases of open and undeveloped plots of land, where the lessees hope to make profit by developing the land. These are renewals of existing leases. Most of the lessees or their predecessors in title have already developed the plots of land leased out to them. The plots cannot therefore be evaluated as open and undeveloped plots of land. Any reference to the market value of open plots of land in the area, therefore, would he highly misleading in this context.
13. It is well settled that even when the State exercises contractual rights, the action of the State Government must be fair and informed by reason. The State cannot act arbitrarily or capriciously. As far as private lessors are concerned, we have in this State the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, which covers, inter alia, the right of a landlord to increase lease rent. The public policy underlying the Bombay Rents, Hotel and Lodging House Rates Control Act is that while the landlord is entitled to a reasonable return on his investment, he is not entitled to profiteer or take advantage of increase in land prices on account of various market forces. The Rent Act is not made applicable to the State Government. But the State Government has been exempted from the application of the Bombay Rents, Hotel and Lodging House Rates Control Act in view of the fact that it is not expected to behave like an ordinary landlord but is expected to behave fairly and in a reasonable manner. In other words, the State Government must also comply with the public policy of ensuring basically, a fair return on investment on land without charging exorbitant rates based on the prevailing market prices of land.
14. In the case of Jayantilal Dharamsi v. The Board of Trustees of Port of Bombay reported in (1990) 92 BLR 596 a learned Judge of this Court was required to consider the action of the Bombay Port Trust which sought to increae substantially, the rents which it was charging to lessees of its lands. The increase was on the basis of the prevailing market value of the land belonging to the Bombay Port Trust. The learned Single Judge said that the Bombay Port Trust, in seeking to exact rent which would correspond to the present day market value of the land, was violating the basic assumption underlying the Rent Control legislation. He held that the Rent Control legislation has been enacted on the basis of the public policy which is thus stated by him:
(i) The land owner/landlord is entitled to a reasonable return on his investment/cost.
(ii) The landlord/owner is not entitled to profiteer/take advantage of increase in land prices by seeking an increased return demanding higher rent computed on the basis of such increase in land prices.
15. He said that though the underpinnings of the Rent Act may not apply in the strict sense to the Bombay Port Trust or any other local body exempted under section 4(1) of the Rent Act, the Bombay Port Trust was not expected to behave as an ordinary landlord would. An ordinary landlord tries to extract the best possible profit which he can, from his holding. That is why the Legislature had to intervene. And this was done in public interest to make laws to prevent landlords from exploiting tenants by compelling them either to pay exorbitant rents or else face eviction. He held that the Bombay Port Trust would, however, be entitled to get protection against an erosion in the rental as a result of inflationary trends; but no more. This judgment of the learned Single Judge covers a situation which is comparable to the situation before us, and we agree with the reasoning of the learned Single Judge.
16. In the case of Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay, reported in (1989) 3 SCC 293 : AIR 1989 SC 1642 the Supreme Court also considered the position of the Bombay Port Trust and its dealing with the lands owned by it in the light of the Bombay Rents, Hotel and Lodging House Rates Control Act. The Supreme Court said:
“When the State, the local bodies and public authorities which are ‘State’ within the meaning of Article 12, are exempted from the purview of Rent Control legislation, the basis of exemption is that such bodies would not be actuated by any profit making motive so as to unduly enhance the rents or eject the tenants from their respective properties as private landlords are or are likely to be. They would not act for their own purpose as private landlords do, but must act for public purpose ……. Where there is arbitrariness in State action, Article 14 springs in and judicial review strikes such an action down. Every action of the executive authority must be informed by reason. So, whatsoever be the activity of the public authority, it should meet the test of Article 14.”
17. In that case the Supreme Court upheld the action of the Bombay Port Trust in evicting certain tenants of minor portions of plots and allotting plots to the holders of major portions of such plots as reasonable and not arbitrary.
18. It was urged by the respondents that in increasing lease rent, they have not acted unreasonably, unfairly or in violation of the principles of Rent Control legislation because they are not seeking to charge rent on the basis of the current market value of land. They have only charged 25 times the previous rent. But the respondents do seek to establish that charging 25 times or 50 times the previous rent is reasonable by referring to what they would have charged for the plot, had it been an open plot leased out for the first time now, i.e by comparing the new proposed rent with the lease rent based on the current market value of land. The very norm for comparison is a wrong norm. An increase in rent by adopting such standards of comparison would be contrary to the policy underlying Rent Control legislation. Otherwise every landlord can justify rent increases in this manner.
19. It was submitted before us by the respondents that their right to increase the rent flows from clause 6 of the indenture of lease set out earlier and similar clauses in the lease deeds in the other petitions. But in exercising this right the State must act fairly and reasonably and in accordance with the public policy as laid down in the Bombay Rent Act, although the Act may not strictly apply to the State Government. The State Government while dealing with the lessess of these lands must act in a fair manner. As is observed by the Supreme Court in the case of K.I Shephard v. Union of India, reported in (1987) 4 SCC 431 : AIR 1988 SC 686, fair play is a part of public policy and is a guarantee for justice to citizens. In our system of Rule of Law, every social agency conferred with power is required to act fairly so that social action would be just and there would be furtherance of the well-being of citizens. Both Article 14 and principles of natural justice require such fair play on the part of the State in exercising its rights.
20. In the case of Ku. Shrilekha Vidyarthi v. State of U.P, reported in (1991) 1 SCC 212 the Supreme Court said that even in matters pertaining to the State's contracts with private parties, the requirements of Article 14 are attracted. Even while exercising contractual rights the State cannot cast off its personality and exercise unbridled power unfettered by the requirements of Article 14 and claim to be governed therein only by private law, principles applicable to private individuals whose rights flow only from the terms of the contract without anything more. The Supreme Court said that it is not as if the requirements of Article 14 and contractual obligations are alien concepts, which cannot co-exist. Therefore, total exclusion of Article 14 — non-arbitrariness which is basic to the rule of law — from State actions in contractual field is not justified.
21. In the case of Mahabir Auto Spares v. Indian Oil Corporation, reported in (1990) 3 SCC 752 also the Supreme Court said that even in the field of private law the State cannot act arbitrarily or mala fide. That was a case where the respondents had arbitrarily terminated the contract with the petitioners. The Court said that even when the State enters the contractual field, there must be fairness to the party concerned. Having regard to the nature of the dealing between the parties, the State ought to have taken the appellant into confidence.
22. It was also urged that under clause 6 of the deed of lease the State Government is entitled to take into account the value of unimproved land similarly situated while increasing rent. In our view this is not correct interpretation of clause 6. The clause merely provides that improvement effected by the tenant on the land cannot be taken into account by the landlord for increasing rent at the time of renewal of lease. Even otherwise the clause does not give power to the State Government to increase rent bearing in mind the increase in the market value of the land. Even if it did, public policy requires that this power is exercised in public interest and in a fair and reasonable manner. The public policy is not to exploit the occupants of lands by charging them exorbitant rents based on the high increase in prices of lands in urban areas. The State Government cannot plead such exploitative increases in prices of lands so as to justify a steep increase in rent.
23. Undoubtedly in the present case the rent is not based on the market value of open plots of lands similarly situated. But this steep increase in the market price of open lands is held up before us as justifying the increase lesser rent which the State is charging. The comparison, in our view, is unwarranted. What we will have to examine is whether increase in the lease rent of the magnitude of 25 or 50 times, can be considered as fair and reasonable. One can understand the State taking into account the fall in the value of the rupee over the years, and an adequate return in terms of the changing value of the rupee or increase in maintenance costs and so on. We have however, not been shown any material to indicate any reasonable basis for increasing the existing rent 25 or 50 times.
24. What is worse, although the leases have expired on 1-1-1981, they were not renewed till 1986 or later and the increased rent is being charged retrospectively from 1-1-1981. This, in our view, is also unfair. What is more, while the original grant of lease was for a long period of 50 years and it is previously renewed also for a reasonably long period of 30 years, the present leases are renewed only for 10 years. We have not been shown any justification for renewing the leases for this relatively short period. In fact, to some of the petitioners in this group of writ petitions, the renewal of lease was communicated in 1991, after even the renewal period came to an end. Bearing in mind that these are leases which were originally granted for the purpose of development of the land in question, and that on the basis of their long term leasehold rights in these lands, the lessees have constructed buildings on these lands, the renewal for a period of only 10 years also requires some justification and some basis to be disclosed. This is not forthcoming.
25. We were informed that the resolution of 14th March, 1986 was with the full consent of the Finance Ministry, as rent less than what would be charged for new leases was to be imposed. But no material has been disclosed which would indicate the factors which weighed with the authorities in arriving at this decision. As set out earlier, the resolution of 14th March, 1986 does not set out any basis for increasing the rent 25 or 50 times. The reasons are disclosed for the first time in the affidavit in reply. We have already discussed these reasons earlier. Moreover, we do not have any material even to show that the reasons which are now set out in the affidavit in reply had, in fact, weighed with the authorities when they took the decision. We have not been shown even other comparable instances of rent being charged by other public authorities while granting renewals of a similar kind.
26. It was also urged on behalf of the respondents that there are a series of decisions of our High Court as well as the Supreme Court which lay down that when the State Government enters into a transaction of sale of its properties or leases out its properties, it must ensure that the best possible price is obtained. The monies so fetched can be utilised by the State for its various public activities. These decisions however, cannot have any application to the present case. They deal with a situation where the State is disposing of one of the assets belonging to it to an outsider. Obviously an attempt must be made to ensure that the asset fetches the best possible price - except in a case where the asset is being given to a backward or handicapped group as a supportive measure or to a charitable organisation. The present case is not such a case. In the present case the lands belonging to the State were already leased to the lessees more than 80 years back. These were long term leases for the purpose of development of the plots in question. The leases have been renewed in the past for long terms. When such lease become due for renewal, the principles which would be applicable are the principles which govern the Rent Control legislation rather than those principles which would govern the disposal of a property belonging to the State. The ratio of the Supreme Court in the case of Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay (supra) is the ratio which would be applicable in a situation like the present one.
27. It was next urged before us that principles of natural justice require that before the State decides to increase rents the affected lessees should be heard. We would not like to go so far. The principles of natural justice and fair play require that persons who are affected by any proposed administrative action are given an adequate notice of what is proposed, or are taken into confidence, so that they may, if they so desire, make representations or bring relevant facts to the notice of the administrative authority. The Supreme Court in the case of K.T Shephard v. Union of India (supra) has said (at page 694):
“Even when a State agency acts administratively, rules of natural justice would apply. As stated, natural justice generally requires that persons liable to be directly affected by proposed administrative acts, decisions or proceedings be given adequate notice of what is proposed so that they may be in a position (a) to make representation of their own behalf; (b) or to appear at a hearing or enquiry (if one is held); and (c) effectively to prepare their own case and to answer the case (if any) they have to meet.”
28. In the present case the question of holding an enquiry does not arise. But principles of fair play and natural justice do require that the State should disclose to the affected lessees the basis on which the rent is proposed to be increased and reasons for the same, thereby taking them into confidence. In the present case the State has not disclosed so far any satisfactory basis except for pointing out that the market value in the area has gone up substantially. Even in determining the market value the State Government has not taken into account the fact that the plots are already leased to the lessees and are built upon and occupied by owners or tenants. To take hypothetical market value of an open plot of land for calculation of hypothetical lease rent in comparison to which the proposed rent would appear reasonable is, in our view not a justifiable exercise.
29. In these circumstances the petitioners are entitled to succeed. We set aside the Government Resolution of 14th March, 1986 and the consequent orders and the notice of demand which have been issued on the petitioners herein and direct the respondents to renew leases afresh on the terms and conditions based upon principles set out earlier. Till such time as new lease rents are fixed by the State Government in accordance with law and the leases are renewed for a reasonable period, the petitioners shall continue to pay the existing rent for the period commencing from 1-1-1981 onwards until such time as new lease rent is fixed by the State Government in accordance with law. In the order of 14th March, 1986 a special rent has been fixed for Retreat House and we have been informed that similar special low rent is proposed to be fixed for other lessees which are charitable organisations. These cases stand on their own facts and our orders will not affect the action taken by the State Government for the renewal of lease of Retreat House and properties belonging to other charitable organisations. We have not been called upon to consider the fairness or otherwise of the action of the State in that regard.
30. In the circumstances there will be no order as to costs.
31. There will be no order on the appeals Nos. 1141 of 1991 and 1152 of 1991 in view of the fact that the writ petitions have been disposed of by the above order.
32. In Writ Petition No. 821 of 1987 the petitioners have deposited in Court a sum of Rs. 1,70,230/- with the Collector. Out of this amount, the Collector shall be entitled to retain the lease rent at the rate of Rs. 1174/- per annum and the petitioners shall be entitled to a refund of the balance amount. The amount so determined to be refunded to the petitioners as expeditiously as possible.
Petitions allowed.