Bombay Tyres International Ltd. vs Express Newspapers Private Ltd. and Another

M.N. Chandrukar, C.J.—All these three revision petitions two of which are by the tenant and one by the landlord, raise a question with

regard to the correctness of the fair rent fixed in respect of premises which are situated on the Mount Road, Madras, with a built up area of

18,047 sq. ft., 13,967 sq. ft., are covered by Go-down and 4,080 sq. ft. are covered by office premises.

The original agreed rent was Rs. 3,000 per month. The landlord filed an application for fixation of fair rent claiming Rs. 18,000 per month. The

Rent Controller fixed the fair rent at Rs. 6,801 per month. Against this order both the landlord and the tenant went in appeal. The tenant''s appeal

came to be dismissed. The landlord appeal came to be allowed partly and the fair rent was fixed at Rs. 9,825 per month. Since the appellate order

was passed in two appeals, one by the tenant and the other by the landlord, two revision petitions came to be filed by the tenant being C.R.P.

Nos. 2491 and 2492 of 1983. Strictly speaking, since there is a common order, which arises out of proceedings started only on one petition, two

revision petitions do not appear to be necessary at all and it would have been perfectly permissible for the tenant to file only one civil revision

petition.

In C.R.P. No. 178 of 1984, the landlord has challenged the reduction of its claim inasmuch as the rent originally asked by it has not been fixed

as fair rent. Substantially the two points on which parties seem to be at issue relate to the cost as estimated by the Appellate Authority in respect of

basic amenities and Schedule I amenities. In respect of basic amenities, the Rent Controller had estimated the cost to be 10 per cent of the cost of

construction. This was enhanced to 15 per cent by the Appellate Authority. In respect of Schedule I amenities, the Rent Controller had arrived at

an ad hoc figure of Rs. 10,000 which was, however, enhanced by the Appellate Authority at Rs. 46,788 being 5 per cent of the cost of

construction. Now, so far as the basic amenities are concerned, which are in the nature of facilities for water supply, electrical fittings and the

drainage system, the Rent Controller has merely observed that he was inclined to award 10 per cent of the cost of construction as the value of the

amenities. Now the Rent Controller himself has come to the conclusion that the cost of construction at the rate of Rs. 32 per sq. ft. would come to

Rs. 27,750. In so far as the basic amenities are concerned the relevant provision of law is in Section 4(5)(a) of the Tamil Nadu Buildings (Lease

and Rent Control) Act, which provides that the cost of construction of the building including cost of internal water-supply, sanitary and electrical

installations shall be determined with due regard to the rates adopted for the purpose of estimation by the Public Works Department of the

Government for the area concerned. A further discretion is, however given to the Rent Controller in appropriate cases to allow or disallow an

amount not exceeding 30 per cent of the cost of construction having regard to the nature of the cost of construction. I am informed that, so far as

the Public Works Department rates are concerned, the maximum rate with regard to the basic amenities referred to in Section 4(5)(a) of the Act is

22-1/2 per cent, allocated as 7-1/2 per cent in the case of water supply, 7-1/2 per cent in the case of sanitary fittings and 7-1/2 per cent for

electrical installations. Now it is obvious that the cost of construction which is to be determined is with reference to the time of pendency of the

proceedings, because under Clause (b) of sub-Section 5(a) of Section 4 of the Act, a depreciation has to be calculated. The best method would

have been to find out what exactly is the cost which has to be incurred for purpose of making available the basic amenities. Since the statute itself

indicates that the guideline is to be the rate adopted for the purpose of estimation made by the Public Works Department, those rates will

undoubtedly be taken into account. There has to be some rational basis with regard to the percentage to be adopted even within the range

permissible by the statute before a decision is arrived at with regard to the cost in respect of the provision of the amenities. It must be remembered

that even the law contemplates fair rent to be fixed as a return on the investment made by the landlord. In a case of fixation of fair rent, judicial

notice must be taken of the fact that cost of construction and cost of materials which have to be used for the construction of a building including the

fittings for water supply, sanitary fittings as well as for making electrical installations have always been escalating and are considerably high.

Therefore, having regard to the prevailing high level of cost of materials used for construction of a house, there has to be a realistic approach in the

matter of estimating the cost of construction and the cost of making amenities available. Therefore, within the range prescribed by the statute the

percentage has to be fixed on a realistic basis. This can only be done after ascertaining the normal cost of material necessary for providing the basic

amenities. Assuming for the sake of argument that the cost of construction of a building is Rs. 1,00,000 without of course including the water

supply facilities, drainage facilities and electrical fittings, I think judicial notice can be taken of the fact that within only 10 per cent of this cost, it is

hardly possible to meet the cost of these amenities. Therefore, it cannot be said that the increase of the percentage from 10 per cent to 15 per cent

as awarded by the Appellate Authority is so excessive which should be interfered with in these revision petitions.

It is argued, on behalf of the tenant that there was no challenge in the grounds of appeal to the estimated cost of the basic amenities. Assuming

that to be so, it is quite permissible for the landlord to canvass on the material on record the question of law as to whether 10 per cent of the cost

was adequate or not.

In so far as Schedule I amenities are concerned, it must be observed straightaway that there was no justification for the Rent Controller to arrive

at an ad hoc figure of Rs. 10,000 for being added to the cost of construction. Schedule I amenities also involve capital expenditure. In the instant

case, Schedule I amenities consist of facilities like overhead water supply tank, compound wall, mosaic flooring, electrical motor, pumpset and

open space around v the structures. As already pointed out the whole basis of fixation of fair rent u/s 4 of the Act is to ensure the fair return on the

capital invested by the landlord. Therefore, even so far as Schedule I amenities are concerned, the actual capital cost incurred cannot be said to be

wholly irrelevant. Rs. 10,000 to say the least, is a ridiculous figure to cover these several facilities. Though it may be that the Appellate Authority

was not right in basing the cost of those amenities only on the basis of the extent of the area in the occupation of the tenant, it cannot be said that

the extent of the area is a relevant consideration for the purpose of ascertaining the cost incurred. The larger the plinth or the carpet area, the larger

will be the extent of the facilities and consequently higher will be the cost. In any case, the ad, hoc amount of Rs. 10,000 allowed by the Rent

Controller has no basis whatsoever. The Appellate Authority cannot be said to have erred in working out the allowance of 5 per cent in place of

the ad hoc amount of Rs. 10,000 fixed by the Rent Controller. The total cost has come to Rs. 5,77,504. Ten per cent of this would be Rs. 57,750

and roughly 5 per cent with regard to these amenities would be between Rs. 28,000 and Rs. 29,000 which cannot be said in any case to be

excessive. These were the only substantial questions argued. The other findings of the Appellate Authority are clearly findings of fact. Accordingly,

there is no reason to interfere with the order of the Appellate Authority.

Consequently, all the three revision petitions are dismissed. There will be no order as to costs.