Issac Ninan v. State Of Kerala

Radhakrishnan, J.:— A question of general public importance involving the constitutional validity of Sections 5, 6 and 8 of the Kerala Buildings (Lease and Rent Control) Act, 1965, hereinafter called the “Act”, has been posed before us. When this Original Petition came up before a learned single Judge, it has been referred to a larger Bench on account of the general importance of the question. Petitioner is challenging the constitutional validity of Sections 5, 6 and 8 of the Act.

2. Section 5 of the Act deals with determination of fair rent for a building leased to a tenant either for residential or non-residential purpose. Section 6 has imposed a ban against further increase of the rent from what has been fixed by the court as fair rent except in one contingency where some additions or improvements or alterations are made by the landlord to the building. Section 8 has imposed a restriction on the landlord from claiming or receiving or even stipulating for payment of rent in excess of the fair rent. Petitioner contends that the three provisions together would affect his livelihood as he is depending on the income from the rent of the building let out to different tenants and are hence offensive to Article 21 of the Constitution of India. He further contends that the above provisions are unjust, unreasonable and arbitrary and hence they offend Article 14 of the Constitution. Alternatively, petitioner contends that the above provisions put together amount to unreasonable restriction on his right to carry on the business in renting out buildings and hence they offend Article 19(1)(g) of the Constitution of India.

3. Mindful of the fact that on earlier occasions constitutional validity of the above provisions has been challenged unsuccessfully, learned counsel for the petitioner contended that changed circumstances are of considerable importance in testing the vires of the impugned provisions albeit the survival of those provisions in conditions prevailing at the time of their enactment (vide Motor General Traders v. State of A.P, (1984) 1 SCC 222 : AIR 1984 S.C 121).

4. Senior counsel for the petitioner relied on the decision reported in Olga Tellis v. Bombay Municipal Corporation, (1985) 3 SCC 545 and contended that right to live under Article 21 includes the right to livelihood also. According to the senior counsel, Article 19(1)(g) extends to the carrying on any business which included the business in owning and leasing out buildings for commercial and non-commercial purposes. According to the counsel, construction of buildings and letting them out to tenants to earn income out of that will come within the term ‘business’ and is hence a right guaranteed under Article 19(1)(g) of the Constitution. He elaborated that the limitation imposed on a person on enjoyment of such right should not be arbitrary or of excessive nature beyond what is required in the interest of public. The restriction which arbitrarily and excessively invades the right cannot be said to contain the quality of reasonableness, unless it strikes a proper balance, between the freedom guaranteed in Article 19(1)(g) and social control provided in Article 19(6). He also argued that the restriction imposed under Section 5 stating that the fair rent can be fixed taking into consideration the condition prevailing at the time of letting and further the stipulation for taking into consideration the property tax or house tax fixed by the local authority as the basis is illegal, unreasonable and violative of Article 19(1)(g).

5. On our request, learned Additional Advocate General Shri V.K Beeran appeared for the respondent State. He submits that the rent control legislation being a social legislation, its object is to protect the weaker sections of tenants from unreasonable eviction and unfair rent. Learned Additional Advocate General submitted that the Act held the field for nearly 30 years and therefore the various provisions of the Act regarding fixation of fair rent cannot be challenged at this distance of time. Specific reference was made to Article 39(c) of the directive principle of State policy and learned Additional Advocate General contended that the purpose behind the legislation was to prevent concentration of wealth. He relied on Article 31-C of the Constitution and contended that no law giving effect to the policy of the State towards securing all or any of the principles laid down in Part-IV shall be deemed to be void on the ground that it is inconsistent with, or takes away or abridges any of the rights conferred by Articles 14 or 19 and no law containing a declaration that it is for giving effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy. Learned Additional Advocate General relied on the decision of the Supreme Court in State of Tamil Nadu v. L. Abdu Kavur Bai, (1984) 1 SCC 515 : AIR 1984 S.C 326 and contended that though the directive principles of the State Policy are not enforceable yet the court should make a real attempt at harmonising and reconciling the directive principles and the fundamental rights and any collision between the two should be avoided as far as possible.

6. The Act was made for the State of Kerala to regulate leases of building and to control rent for such buildings. Prior to the enactment of Act 2 of 1965, rent control legislation in force was the Kerala Buildings (Lease and Rent Control) Act, 1959 (Act 16 of 1959). Prior to that the Travancore-Cochin Buildings (Lease and Rent Control) Order, 1950 was in operation in erstwhile Travancore-Cochin area of the Kerala State while the Madras Buildings (Lease and Rent Control) Act, 1949 was in force in the Malabar area. They were temporary statutes enacted as a temporary measure to meet certain contingencies. Operation of those legislation ended with the expiry of time.

7. Before rent control legislations were brought in the relationship between landlords and building tenants was governed by the Transfer of Property Act. Tenant was inducted with his tacit agreement to be regulated by the conditions embodied in the contract and could not be allowed to repudiate the agreement reached between him and the landlord during that period. However, as a piece of social reform in order to protect tenants against capricious and arbitrary eviction, legislature stepped in and afforded special protection to the tenant by conferring on him the status of a statutory tenant who could not be evicted except under the conditions specified and the procedure prescribed by the Rent Control Acts. Thus to this extent, the agreement of lease, and the provisions of Transfer of Property Act stood superseded.

8. Justification for rent control legislation has been upheld by the Supreme Court in Nagindas v. Dalpatram ((1974) 1 SCC 242 : AIR 1974 S.C 471). The following observations are pertinent:

“The strain of the last world war, Industrial Revolution, the large scale exodus of the working people to urban areas and the social and political changes brought in their wake social problems of considerable magnitude and complexity and their concomitant evils. The county was faced with spiralling inflation, scaring cost of living, increasing urban population and scarcity of accommodation. Rack renting and large scale eviction of tenants under the guise of the ordinary law, exacerbated those conditions making the economic life of the community unstable and insecure. To tackle these problems, and curbe these evils, the legislatures of the States in India enacted Rent Control Legislations”.

9. The prefix ‘standard’ or ‘fair’ to the term ‘rent’ itself denotes that it is distinct from unconscionable or exhorbitant contractual rent. The expression ‘standrard’ is indicative that it is an actual or ideal in the eye of law. Similary, the expression ‘fair rent’ means a rent which is fair and proper in the eyes of law. The determination of fair or standard rent is neither reduction of the agreed rent nor enhancement of the agreed rent.

10. We would now examine the relevant provisions of the Act relating to fixation of fair rent in the above background. Section 5 of the Act which deals with determination of fair rent contains the following provisions.

11. Sub-section (1) of Section 5 compells the Rent Control Court (for short ‘the Court’) to fix the fair rent of a building if an application is filed for that purpose. Sub-section (2) requires that the court shall in fixing the fair rent, take into consideration the property tax fixed by the local authority at the time of letting. But in the proviso to the sub-section a limit is prescribed for the fair rent as this: fair rent shall in no case exceed by more than fifteen per cent of the monthly rent on the basis of which the property tax was fixed in the register prevailing two years preceding the date of application. Sub-section (3) deals with a situation where no property tax has been fixed by the local authority etc., and then the court can take into consideration the prevailing rates of rent in the locality for similar accommodation. Sub-section (4) is for providing fixation of fair rent by the Accommodation Controller in respect of the building he allots. Sub-section (5) enjoins an obligation on the court to give intimation to the local authority regarding the fair rent fixed. This is to enable the local authority to make necessary entries in the register concerned. The above are in substance the postulates contained in Section 5.

12. Section 6 contains a ban that no further increase in the fair rent fixed by the court shall be permitted, except in the only event of landlord making any addition or improvement or alteration to the building. Section 7 is not of much importance for this purpose as it only says that when tax or cess of a building is increased, landlord can recover such increase (not exceeding 5% of the fair rent) from the tenant.

13. Section 8 of the Act imposes a restriction on the landlord not to claim, receive or even stipulate for payment of anything in excess of such fair rent. As per Section 17(2) of the Act, a duty is cast on the landlord to attend to the periodical maintenance and necessary repairs of the building. If he fails to attend to such maintenance or repairs, the consequences are that tenant can move the Accommodation Controller and with his permission the tenant can carry out all such maintenance etc., and deduct the cost from the rent. Sec. 29(2) says that if the landlord receives unconscionable rent in respect of the building he shall be punishable with simple imprisonment for a term which may extend to three months. (‘Unconscionable rent’ means the rent which is more than double the fair rent that could be fixed for the building under Sec. 5 of the Act). What is the implication of this? If a tenant thinks that the fair rent which might be fixed is only a piffling, and considering the importance of the locality and the increase of his turn over he himself offers to pay a little more than double of that amount, the landlord is disabled from receiving it because he would then be exposed to prosecution and jail sentence.

14. Petitioner is the owner of a two storeyed commercial building along with his sister. The building is situate on K.K Road in Kottayam town which is the most commercially important artery of the town. According to the petitioner, his main source of livelihood is the rent received from the building. Some of the rooms in the building were let out to the tenants long prior to the commencement of the Kerala Act. The rent of those shop rooms having plinth area of 198 sq. ft. was Rs. 35/- per month during the period when they were let out. The tenants who were occupying the shop rooms have grown in business. Some of the tenants of the shop rooms increased the rent of Rs. 350/- per month around the year 1987. According to the petitioner the prevailing rates of rent at this area is Rs. 6/- per sq. ft. (which means Rs. 1,188/- per month for an area of 198 sq. ft.). At least that is the range of rent which other landlords are getting from their tenants for the shop rooms which belong to them. According to the petitioner, because of the phenomenal increase in the cost of living and the depletion of money value, he finds it difficult to make both ends meet as the rent which he receives is hardly sufficient even to make periodical maintenance and necessary repairs of the building etc. It is not disputed that cost of materials and labour to carry, out such maintenance and repairs have gone up spiralling high.

15. The intention in bringing a legislation like the Act was to regulate the lease of building and to control the rent, and not to make the rent static. The situation which prevailed in the year 1965 when the legislation was enacted was far different. Supreme Court in Motor General Traders v. State of A.P ((1984) 1 SCC 222 : AIR 1984 S.C 121) has observed that what was once a non-discriminatory piece of legislation may in course of time become discriminatory and be exposed to a successful challenge on the ground that it violated fundamental rights of the Constitution.

16. We have given our anxious consideration to the various contentions raised by counsel on either side. The Act, as already stated, is to regulate the leasing of buildings and to control the rent of such buildings in the State of Kerala. As held by the Supreme Court in Ganapat Ram v. Gayatri Devi ((1987) 3 SCC 576 : AIR 1987 SC 2016) the Rent Control Act is a beneficial legislation, beneficial to both the landlord and the tenant. It protects the tenant against unreasonable eviction and exhoribitant rent. It also ensures certain limited rights to the landlord to recover possession on stated contingencies. Legislation does not confer any vested right on the tenants. As held by the Supreme Court in Inter Mohan Lal v. Remesh Khanna ((1987) 4 SCC 1) there is no presumption in all cases that the tenants are weaker sections. By lapse of time the tenants (at least many of them) doing business in commercial buildings taken on rent are far more affluent financially than the owners of the building in which they do business. Though the rent control legislation is stated to be a beneficial one, it must be reasonable just and fair. It is true that there is a presumption as to the constitutionality of the provisions of a legislative enactment and the Act should be so read as to prevent it from being exposed to the vice of unconstitutionality. But the presumption will stand rebutted if the scrutiny of the impugned provision would unmistakably establish that it violates a fundamental right.

17. The word “control” can only mean to check and not to take away any vested right. Supreme Court held in Sham Rao Vittal v. Kasaragod Panduranga Mallaya Co. Bank Ltd. ((1972) 4 SCC 600) the word control is synonymous with superintendence and management or authority to direct restrict or regulate. In State of Mysore v. Allum Karibasappa ((1974) 2 SCC 498 : AIR 1974 SC 1863) Supreme Court has observed that the word “control” suggests check restraint or influence. Of course, the Supreme Court has observed in Corporation of Nagpur v. Ramachandra G. Modak ((1981) 2 SCC 714 : AIR 1984 SC 626) that the word “control” has a very wide connotation and amplitude and includes a large variety of powers which are incidental or consequential to achieve the powers vested in the authority concerned. But those observations cannot be used to expand the contours of “control” to deprive the rent of a person for all practical purposes.

18. Considering the word ‘control’ in the above perspective we are of the view that rent control legislation cannot be used to make the rent amount to remain static always unmindful of the vicissitudes in economic conditions, plummetting money value and improvements of the locality from commercial angles. We are also inclined to accept the contention of learned senior counsel for the petitioner that if the effect of the provision is to keep the rent static by fixing fair rent, it would not be fair rent at all when situation changes on account of the factor mentioned above. On the contrary it would become unfair rent then.

19. Supreme Court held in State Of Madras v. V.G Row (AIR 1952 S.C 196) reasonableness of the restriction is to be considered both from the point of substantive law as well as procedural law. In deciding the reasonableness of the restriction several circumstances such as the purpose of the Act, the condition prevailing in the country at the time of enactment, duration of the restriction, extent and nature of the restriction, are to be taken into consideration.

20. Magnitude of the unreasonableness resulting from a combined operation of Sections 5, 6 and 8 can be explained through a hypothetical illustration: Suppose there are two identical buildings situated close to each other on the same road belonging to two different landlords or to the same landlord, and both were leased out to two different tenants. One tenant has applied for fixation of fair rent in 1965 and the court fixed fair rent by reaching the maximum limit prescribed in Section 5 on the basis of the rental value shown in the property tax register - say Rs. 100/- per month. The tenant of the other building did not apply for fixation of fair rent, but he was good enough to increase the rent periodically. Municipality has also revised the rental of this building from time to time which could have gone upto say Rs. 1,500/- per month by 1995 (as the interval here is 30 years). In 1993 a new tenant was inducted into this building and that tenant has applied for fixation of fair rent in 1995. The court can now determine the fair rent based on the latest rental value fixed by the Muncipality which was prevailing during two preceding years. Fair rent then could be fixed as Rs. 1,500/- per month. Now it may be remembered that the court cannot increase the fair rent of the former building from Rs. 100/- per month. Even the local authority cannot revise the rental of it in the register. If the illustration becomes a reality (it is quite possible to have such a situation) what unjust consequences the situation would create. For the identical building situated adjacent to it the fair rent is Rs. 100/- per month whereas for the other building it becomes Rs. 1,500/- per month. We cannot think that the above illustration can be ignored as a mere fiction. It is a very plausible consequence if the above three sections would remain in the Statute book.

21. Disparity between the cost of living or the rupee value in 1965 and 1995 is so massively vast that it is absolutely unrealistic to act on the former for any final reckoning as for the latter. If a building was leased out in 1950, the property tax fixed would have been, from the angle of today's money value, a piffling. The requirement in S. 5(2) that the court shall take into consideration the property tax fixed at the time of lease, if to be followed in 1995 in respect of a building leased in 1950, the result would be ostensibly unjust and unreasonable. We bear in mind that no provision is included in the Act for ???.

22. Nor can we shut our eyes to the other side of the picture. A tenant who took the building for commercial purposes in 1950 could increase his turn over of his business many many times and as a corollary his margin of profit would have enhanced leaps and bounds. But the person who built the building (in which the tenant conducts the business) is entitled to get a rent based on 1950 money value. Similar position arises in the case of a residential building. The tenant who occupies the building would have augmented his resources or at least his income today is on a par with the present money value. But the man who invested money to build a house in which the tenant is residing is entitled to get rent only at the rate based on the money value which prevailed at the time of letting.

23. By calling such a rent “fair rent” would not make, it fair. In reality such a rent would be an unfair rent.

24. We consider yet another side of the picture. The landlord has a liability to make periodical maintenance and necessary repairs of the building. Fair rent can be fixed for that building in accordance with the provisions in Sec. 5 of the Act in the year 1965. He has to bear the cost of repairs and maintenance carried out today at the rate of such costs prevailing today. During the 30 years interval cost of materials and labour charges have spiralled up in geometrical proportion. Nobody would dispute that there could be no comparison between the cost and labour charges now and those prevailed 30 years ago. But it is impermissible for the landlord to say that he cannot afford to carry out such maintenance on the premise that the fair rent fixed is a very small amount. Section 17(2) of the Act enjoins on him to attend to the periodical maintenance and necessary repairs. If he fails to do so, the tenant gels the right to carry out such work and the charges and costs incurred by him can be deducted with interest at the rate of 6% per annum from the fair rent payable by him. It is quite possible that there would be no balance for the landlord in such a case. What is the devastating consequence for the landlord due to fixation of fair rent? Even the entire amount he would get for one full year as fair rent of the building may not be sufficient to meet the cost which he might incur for repairs and maintenance during that year.

25. The only beneficiary in the above circumstances in the building tenant. He had no investment in the building. He has no liability to bear any expenses for maintenance and repairs.

26. Apart from the fact that the impugned provisions are unjust and unreasonable as they offend Article 14 of the Constitution, we may say that those provisions would offence Article 19(1)(g) also.

27. Legislature cannot deprive a citizen of his fundamental right to carry on any business. The word “business” in Article 19(1)(g) has received a very pragmatic and realistic constriction by the Constitution Bench of the Supreme Court in Sodan Singh v. New Delhi Municipal Committee ((1989) 4 SCC 155 : AIR 1989 S.C 1988). The following observations are apposite in this context:

“‘Business’ is a very wide term and would include anything which occupies the time, attention and labour of a man for the purpose of profit. It may include in its form trade, profession, industrial and commercial operations, purchase and sale of good, and would include anything which is an occupation as distinguished from pleasure. The object of using four analogous and overlapping words in Art. 19(1)(g) is to make the guaranteed right as comprehensive as possible to include all the avenues and modes through which a man may earn his livelihood. In a nut-shell the guarantee takes into its fold any activity carried on by a citizen of India to earn his living. The activity must of course be legitimate and not anti-social like gambling, trafficking in women and the like”.

28. We have no doubt, in our mind in the light of the above observations that constructing buildings and letting them out for rent to tenants would also fall within the ambit of “business” in Article 19(1)(g) of the Constitution. The phrase reasonable restriction connotes that limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interest of general public. Legislation while arbitrarily invades the right cannot be said to contain the quality of reasonableness unless it strikes a proper balance between the freedom guaranteed in Article 19(1)(g) and the social control permitted under clause (6) of Article 19, it must be held to be warranting in that qualities. If so, the combined operation of Sections 5, 6 and 8 of the Act is a gross invasion on the right of a landlord to carry on business.

29. We are also of the view that the prohibition contained in Section 6 of the Act is an unreasonable restriction on the right to livelihood envisaged in Art. 21 of the Constitution. The ban against the landlord that he shall not receive anything in excess of the fair rent even from the willing tenant who is ready to voluntarily pay in accordance with the prevailing rate of rent in the locality is an unreasonable restriction on the right to carry on business envisaged in Art. 19(1)(g) of the, Constitution. At any rate Section 5 cannot stand alone without subsidiary and incidental provisions for periodical revision of the fair rent. The legislative scheme provided through Sections 5, 6 and 8 is a package and are mutually dependent. One provision therefrom cannot be extricated from the other two to keep it alone alive. We are, therefore, of the opinion that the impugned provisions do not stand the test of reasonableness. Accordingly we declare that provisions relating to fair rent, i.e, Section 5, 6 and 8 of the Act, put together are ultra vires the Constitution of India and are void.

30. Original Petition is allowed.