Dr. K.C. Nambiar and Others vs The Rent Controller and Others

Ramamurti, J.—All the above matters were heard together as they raise a common point challenging the vires of the Madras Buildings

(Lease and Rent Control) Rules, 1961, concerning the fixation of fair rent for residential and non-residential buildings u/s 4 of the Madras Buildings

(Lease and Rent Control) Act of 1960 (hereinafter referred to as the Act). The tenants and the landlords are different and the State of Madras was

impleaded as Respondent as the validity of the rules was questioned. Writ Appeal No. 356 of 1964, which arises out of Writ Petition No. 221 of

1964, concerns the premises No. 2/157, Purasawalkam High Road, Madras, in which the landlord has filed a petition for fixation of fair rent

claiming Rs. 2,575 as fair rent per month as against Rs. 187.50 now paid as monthly rent. The tenant is a practising Surgeon and is running a

nursing home in the premises, which, therefore, must be classified as nonresidential building. Writ Appeal No. 337 of 1964, is preferred against

Writ Petition No. 220 of 1964, concerning premises No. 24, Halls Road, Egmore, in which the landlord has claimed fixation of fair rent in the sum

of Rs. 2,584-40 per month as against the existing monthly rent of Rs. 375 paid by the Petitioner who is having a tutorial college in the premises. In

both the cases, the tenants filed the aforesaid writ petitions praying for a writ of prohibition forbearing the Rent Controller from proceeding with the

enquiry on the ground that the rules framed under the Act, for fixing the fair rent are ultra vires. Veeraswami J., did not accept the contention of the

tenants and dismissed the writ petitions holding that the Lease and Rent Control Rules are valid. Civil Revision Petition No. 2543 of 1964, arises

out of a petition H.R.C. No. 2591 of 1963, filed by the landlord for fixation of fair rent of No. 14, Sembudoss street, G.T., Madras, which was

fixed at Rs. 788 per mensem and on appeal it was confirmed. The revision petition is preferred by the tenant complaining that the fair rent fixed is

very excessive; the learned Counsel for the Petitioner also questions the vires of the rules. At the outset it has to be mentioned that arguments

before us in the two writ appeals, Writ Appeals Nos. 356 and 357 of 1964, were confined to the question of the vires of the rules and no

arguments were advanced about the merits of the controversy, as they are pending before the Rent Controller and the writs of prohibition were

filed even at the threshold. We are, therefore, not expressing our opinion whatsoever regarding the correctness or otherwise of the stand taken up

by the landlord and the tenant as regards the details and the fair rent to be fixed for the premises in question. It is only in Civil Revision Petition No.

2546 of 1964, that arguments were advanced about the correctness of the fair rent as fixed by the authorities.

We shall first take up for consideration Writ Appeals Nos. 356 and 357 of 1964. The Rent Control Act of 1949, which re-enacted after

necessary amendments the old law relating to the regulation of the letting of residential and non-residential buildings and the control of rents of such

buildings contained in the provision of Section 4 for fixation of fair rent. The substance of the provision was that fair rent should be fixed with due

regard to the prevailing rates of rent in the locality for the same or similar accommodation in similar circumstances during the twelve months prior to

the 1st April 1940 and to the rental value as entered in the property-tax assessment book of the municipal authorities after allowing an increase at a

certain percentage over such rent or rental value with some difference between a residential and non-residential building. A perusal of Section 4 of

the Act of 1949, would show that the fair rent will have to be fixed by the Controller on a consideration of all the factors mentioned in Section 4.

Under the Act of 1960, this method of calculation for fixing the fair rent was given up and an entirely different basis has been introduced. It is

necessary to extract Section 4 of the Act which runs as follows:

Fixation of fair rent.--(1) The Controller shall, on application by the tenant or the landlord of a building and after holding such enquiry as the

Controller thinks fit fix the fair rent for such building in accordance with the principles set out in Sub-section (2) or in Sub-section (3) as the case

may be, and such other principles as may be prescribed.

(2)(a) The fair rent for any residential building shall be at six per cent gross return pet annum on the total cost of such building.

(b) The total cost referred to in clause (a) shall consist of--

(i) the cost of the construction as calculated according to such rates for such classes of residential buildings as may be prescribed less the

depreciation at such rates as may be prescribed.

(ii) the market value of that portion of the site on which the residential building is constructed.

and shall include such allowances as may be made for considerations of locality in which the residential building is situated, features of architectural

interest, accessibility to market, dispensary or hospital, nearness to the railway station or educational institution and such other amenities as may be

prescribed:

Provided that such allowances shall not exceed ten per cent of the cost of construction as calculated in the manner specified in sub-clause (i).

(3) (a) The fair rent for any non-residential building shall be at nine per cent gross return per annum on the total cost of such building.

(b) The total cost referred to in clause (a) shall consist of--

(i) the cost of construction as calculated according to such rates for such classes of non-residential buildings as may be prescribed legs the

depreciation at such rates as may be prescribed.

(ii) the market value of that portion of the site on which the non-residential building is constructed.

and shall include such allowances as may be made for considerations of locality in which the non-residential building is situated, features of

architectural interest, accessibility to market'' nearness to the railway station and such other amenities as may be prescribed and of the purpose for

which the non-residential building is used:

Provided that such allowances shall not exceed twenty-five per cent of the cost of construction as calculated in the manner specified in sub-clause

(i).

There is not much of a difference between sub-clause (2) and sub-clause (3) except that in the case of a residential building, the fair rent for

residential building shall be at six per cent gross return per annum on the total cost of such building while in the case of non-residential building it is

nine per cent on the gross return. The total cost has to be determined by taking into account the cost of construction less the depreciation, plus the

market value of the portion of the site on which the building is constructed. It is also to include allowances for amenities subject to a maximum of

ten per cent on the cost of construction. The rules formulate the basis and the data for determining the cost of construction as well as the

depreciation. Rule 8 provides that the residential buildings shall be classified into four classes based upon the specifications and the materials used

in the construction thereof as specified in Schedule I. Schedule I contains four classifications of residential buildings. The details contained in the

classifications, classes I to IV, relate to the nature of the foundation, basement, superstructure, doors and windows, lintels, roofing, plastering and

flooring, sanitation and also the nature of the building materials used therein, such as brick work, country brick work, made of cement or mortar,

mud work, first class teak wood, best seasoned country wood. The classifications also deal with the proportion in which the several building

materials are used, as well as the depth of the foundation and the thickness of the wall and such other factors which enter into the computation of

the cost of construction. Rule 9 provides the machinery for determining the cost of construction of the different classes of residential buildings fixing

certain rates per square foot of plinth area for the ground floor, first floor, second floor and additional construction higher up separately for the four

classes of buildings. Rule 10 specifies that allowance should be made in respect of residential buildings, and this comprises 24 items like air-

conditioning, tube lights, plastic emulsion coating for walls, electric pump for water, flush outs, playground for children, tennis and badminton

courts, cattle-sheds, usufructs of trees, etc. Rule 11 deals with the classifications of non-residential buildings into two categories, (i) factories and

godowns and (ii) other non-residential buildings. The other non-residential buildings are classified into four different classes according to the

classifications laid down in Rule 8 in respect of residential buildings. Rule 12(1) provides that the cost of construction of non-residential buildings,

i.e., factories and godowns, shall be calculated at a uniform rate of 62 Paise per cubic foot of the cubic contents of the building. Rule 12(2)

specifies the cost of construction of the four different classes of non-residential buildings at specified rates per square foot of plinth area for first

floor, second floor and additional floors higher up. It may be mentioned that specific and separate rates are mentioned for four classes of buildings.

Here too, Rule 13 provides for allowance for special amenities comprising 15 items. Rule 14 provides that depreciation of buildings, both

residential and non-residential shall be calculated at the rates specified in Schedule II. It is unnecessary to refer to the other provisions of the rules

of the Schedules.

From the above analysis it will be seen that the fair rent of residential buildings has to be determined based upon the cost of construction as

calculated in Rule 9 read with Schedule I after allowing for the depreciation specified in Schedule II. Of course the cost of construction will take in

the allowance for amenities provided in Rule 10. Similarly the fair rent for non-residential buildings has to be fixed on the basis of the cost of

construction calculated in accordance with Rule 12(2) read with Schedule I with regard to the classification of the buildings, read with Schedule II

making allowances for depreciations. Here again allowances for amenities will have to be included in the cost of construction as specified in Rule

13.

The argument of Mr. M.K. Nambiyar for the tenant in Writ Appeal No. 356 of 1964, on the question of the vires was adopted by Counsel in

the other two matters. Mr. Nambiyar contended that the rules specifying the manner in which the cost of construction of a building, whether

residential or nonresidential, should be determined, are not only not in conformity with Section 4 but are directly opposed to and contrary to the

main principle of valuation indicated in Section 4. According to learned Counsel Section 4 authorises rules to be framed only for the purpose of

determining the original total cost of the building thereby meaning the actual investment made by the owner at the time when he actually constructed

the building, and not the cost of construction based upon a statutory uniform rate. The cost of construction u/s 4(2) is to consist of the cost of

construction of the building, and the market value of that portion of the site on which the building is constructed. He urges that in Section 4(2)(b)(i)

the words used are cost of construction while in significant contrast in Section 4(2)(6)(ii) as regards the site the words the market value are used to

indicate that it is only in the case of the latter, i.e., the site, the intention of the Legislature is to take the actual market value into consideration, while

in the case of the cost of construction it is not the market value or the then cost of construction of the building, but it is the original cost of

construction, i.e., the actual investment made at its inception. According to learned Counsel if the words cost of construction in Section 4(2)(b)(i)

are understood as the original cost of construction the rates that may be prescribed u/s 4(2)(6)(i) should relate only to the original cost of

construction, and not to any notional or standard rates of construction. It may be mentioned that so far as this argument is concerned there is no

difference between a residential or a non-residential building as similar language is used in Section 4(3) dealing with non-residential buildings. He

urges that Section 4 has authorised only the usual method of determination of the cost of construction, i.e., to determine the original investment and

then allow depredation at a particular rate from the date of construction for the period between the date of construction and the date when the Act

came into force. In substance his argument is that the rules have evolved a method which is just the reverse of the method contemplated u/s 4(2),

inasmuch as the rules provide for the determination of the cost of construction of a particular class of building at a statutory rate as on the date

when the Act came into force, and thereafter make allowance for depreciation at a particular rate, the depreciation working backwards. We are

unable to agree with this contention. In the first place we are of the opinion that the language of Section 4 itself is clear that what the Legislature has

in mind on the question of the cost of construction, is what has been specified under the rules and Schedule I. The very fact that Section 4(2)(b)(i)

provides that the cost of construction is to be according to such rates for such class of residential buildings as may be prescribed shows that it is

not actual cost of construction, but it is the cost of construction which can be determined on the basis of rates as may be specified. The words such

rates for such classes of residential buildings as may be prescribed clearly carry with it the conception of the fixing of a statutory rate which may or

may not have any relation to or connection with the actual investment. Again the provision of allowance with regard to considerations of locality,

features of architectural interest and such other matters for which allowance is made at a percentage not exceeding 10 per cent of the cost of

construction is to be determined as on the date when the Act came into force and not the actual original investment. In other words, the provision

for a calculation according to the rates is a complete negation of the idea of the actual original investment. We are clearly of the opinion that the

intention or the scheme underlying Section 4 is that the rent that should be fixed must secure a return of six per cent gross per annum on the total

cost of the building. In other words the landlord must get the six per cent on the present value of the property which means the present market

value of the site and the money that may be required to bring into existence a building of that pattern, and that age with those materials at the time

when the Act came into force. So far as the market value of the site on the date when the Act came into force is concerned it presents no problem.

But as regards the value of the building as on the relevant date the only method that can be adopted and which has been adopted by the

Legislature is to find out the investment that may be required for bringing into existence such a building and the method adopted is to arrive at the

cost of construction as on the date of the Act and then allow depreciation backwards. In other words the intention of the Legislature is quite clear

that so far as the building is concerned, he must get a return of 6 per cent gross, not on his original cost of construction, but on the value of the

building as on the date of the Act. We see no warrant to hold that the Legislature intended to make a vital difference between the valuation of the

site, which is the market value, and the cost of construction of the building which is the original cost of construction or investment as contended for

by Mr. Nambiyar. The acceptance of the contention of Mr. Nambiyar would frustrate the very object of the provision and would create difficulties

and problems which the Legislature wanted to avoid. The analogous provision, Section 4 of the Act of 1949, was differently worded. The main

object underlying the present provision, Section 4, is that the determination of the cost of construction must be easy and workable and of a uniform

standard. If Mr. Nambiyar''s contention is accepted the Rent Controller will have to find out the actual investment in the construction of the building

by the original owner. The building or buildings might have been constructed several decades ago, 50 years, 75 years or even 100 years ago. The

building might have changed several hands during the long number of years. It will be well nigh impossible to find out the actual cost of construction

of the building, which means the value of the materials used in the construction of the building and the labour charges. Evidence on such matters

could almost be impossible.

Even in the Act of 1949, the value of the building was not related to the original cost or investment. We have no hesitation whatsoever in holding

that it was clearly not the intention of the Legislature to introduce such complications or deny to the landlord at least six per cent on the value to him

of this building at the time when the Act came into force. It is significant to notice that this method of determining the value of the cost is nothing

new but quite a well established and familiar conception.

We may first refer to the decision of the Privy Council in Hari Chand v. Secretary of State (1939) 2 M.L.J. 722 (P.C.) arising u/s 4 of the Land

Acquisition Act. In that case certain property comprising land and building erected there were acquired by the Government under the Land

Acquisition Act and the question arose about the compensation payable in respect of the building. The Privy Council held that while awarding

compensation for the building the principle of fixing the value is by ascertaining the cost of reproducing a building and then allowing for depreciation

and cost of the repairs and that such a method is a recognised method of valuation. Dealing with the matter Lord Macmillan observed at page 725

as follows:

Their Lordships could have appreciated that criticism if the principle of valuation adopted had been that of proceeding upon the rental value of the

buildings, but in the present case the method adopted has been what is commonly known as the contractor''s method. The subject to be valued

being a building apart from the site, the principle of fixing value by ascertaining the cost of Reproducing the building at the present time and then

allowing for depreciation in consideration of the age of the building and for the cost of such repairs as might be required apart from depreciation, is

quite a well-known and recognised method of valuing buildings for the purpose of compensation, (italics mine).

We may next refer to the Bench decision of this Court in M. Ethirajulu Naidu Vs. A. Ranganatham Chetty and Others, , in which the principle of

the above decision of the Privy Council above referred to was applied. In that case a lease deed provided that at the time of the resumption the

lessee was to be paid the market value of the building put up by him on the termination of the lease and the clause provided that the price shall be

fixed according to the market value of the building as at the time of ascertainment. The official referee fixed the value of the building at Rs. 18,000

having regard to the cost of reproducing a building and the depreciation to be allowed as per the decision of the Privy Council, and this method of

valuation by the official referee was accepted by the Bench as the correct one. The same well known and well established contractor''s method of

valuation of reproducing a building on the relevant date with due allowance for depreciation carried backwards to the date of the construction was

adopted and applied by the Judicial Committee again in a land acquisition case in Secretary of State for India v. Sri Narain Khanna ILR (1942)

All. 601 (P.C.). The Privy Council reiterated the same principle that in valuing a building, apart from the site, the correct method is to ascertain the

cost of reproducing the building at the time of the acquisition and then allow depreciation back in consideration of the age and the condition of the

building. We are clearly of the opinion that u/s 4 of the Act of 1960, the Legislature has evolved a simple procedure adopting this well established

contractor''s method of valuation of building. We are equally clear that it was surely not the intention of the Legislature to evolve a system beset

with innumerable practical difficulties and almost impossibility of proof.

Learned Counsel next contended that the four classifications in Schedule I are incomplete and do not cover all the buildings, and so long as the

rules and the Schedule do not prescribe the method or the basis for determining the cost of construction of a particular class of building the Rent

Controller will have no jurisdiction to proceed with the matter, as in the absence of rules he cannot fix the fair rent. By way of illustration learned

Counsel attempted several permutations and combinations in the use of building materials, such as cement, lime, mud, good teak, country wood,

with a view to make out that the list is not exhaustive. We are unable to agree with the above contention. The classifications deal with the main

features of the building and they reveal that not much of a difference is made between time mortar or cement mortar. In our opinion, the Rent

Controller, in determining to which class the particular building would fall under, will have to take into account the main features of the building and

the quality of the building materials used. In the nature of things, it is impossible to exhaustively formulate all the classes of buildings.

It was next contended by Mr. Nambiyar that in providing for depreciation under Schedule II the buildings have been classified under four

headings, and that they have no correlation whatsoever with the classes of buildings specified in Schedule I for determining the cost of construction.

He urges that u/s 4 when the rules provide for determining the cost of construction the rules must provide for the cost of construction of various

classes of buildings and at the same time make corresponding provision for depreciation of that class of buildings. He urges that a different

classification and a different rate, though uniform, does not satisfy the requirements of law, and the rules should be held as ultra vires as not

providing a proper method of depreciation. We are unable to agree with this contention. Depreciation may be provided for at one uniform rate

alike for all the buildings. Learned Counsel accepts that if one uniform rate, say one or two per cent, is fixed for all buildings even though for cost

of construction the buildings are classified into different categories no exception can be made. His complaint really is that if the buildings do not

come under anyone of the four types of buildings specified in Schedule II there is no method by which depreciation can be worked out for that

particular type of building. In substance his contention is that the types of buildings for depreciation should be exhaustive to cover all the class of

buildings for which the method of cost of construction is provided for in Schedule I, at any rate one single formula for depreciation must have been

provided for under Schedule II. Here again learned Counsel by way of illustration made several permutations and combinations to show how

Schedule II would be unworkable and would not apply to several classes of buildings. We are unable to agree with this contention. In the matter of

depreciation the Legislature has simply followed the standard rates of depreciation adopted by municipal authorities for rating purposes when they

levy property tax. This is a well known method and we are satisfied that is sufficient and easily workable. As is well known depreciation has to be

made generally for the age of the building, based upon the nature of the mixture that is used, cement, lime or clay and the quality of the timber that

is used. These are the essential building materials which deteriorate and decay on account of age calling for depreciation allowance. Other matters

are not generally taken into account. This simple working formula has been adopted by the Legislature.

In the course of the arguments learned Advocate-General drew our attention to the notification by Local Self Government Department, dated

16th June 1930 which specified the rates of depreciation communicated to municipal council and union boards and at the time when the rules were

framed under the Rent Control Act this formula has been completely adopted. It may be useful to extract the same here:

Under provision (a) to Sub-Section 2 of Section 82 of the Madras District Municipalities Act, 1920, the annual value of buildings, the gross annual

rent of which cannot be easily estimated, shall be deemed to be 6 per cent (six per centum) of the estimated present cost of erecting them, less a

reasonable amount on account of depreciation. Rule 18 of Schedule IV to the Madras Local Boards Act, 1920, similarly provides that in the case

of railway stations and Government buildings, the estimated present cost of erecting the building less a reasonable amount on account of

depreciation shall be deemed to be the capital value. It has been suggested to the Government that a standard of depreciation should be fixed for

the above purpose. The Chief Engineer (General, Buildings and Roads) reported that it is difficult to lay down a hard and fast rule in the matter of

fixing a percentage for depreciation of buildings in all cases, as depreciation depends on various factors such as location, climatic conditions at site,

the nature of materials used on the construction, the attention paid to regular maintenance, etc. He has however suggested certain rates which are

specified in the Appendix and which may be adopted with such modification as may be necessary to suit special circumstances. The Government

approve the rates suggested by the Chief Engineer and commend them to Chairmen of Municipal Councils and Presidents of Union Boards for

adoption in the assessment of buildings to property tax or house tax as the case may be. They however desire to make it clear that the standard

rate given for each kind of buildings is intended only as a general guide and that it should be adopted with alterations as may be necessary with

reference to all the circumstances in each particular case.

Before concluding we may refer to the following observations of Lord Dunedin in Murray v. Inland Revenue Commissioners (1918) A.C. 541,

553:

It is our duty to make what we can of statutes, knowing that they are meant to be operative, and not inept, and nothing short of impossibility should

in my judgment allow a judge to declare a statute unworkable.

as well as the observations of Viscount Simon L.C. in Nokes v. Doncaster Collieries (1940) 3 All E.R. 549 , 554:

...if the choice is between two interpretations the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a

construction which would reduce the legislation to futility, and should rather accept the bolder construction, based on the view that Parliament

would legislate only for the purpose of bringing about an effective result.

Applying these principles we hold that the rules are valid and are in consonance with the power conferred u/s 4 of the Act.

We, therefore, confirm the orders of Veeraswami J., and dismiss the writ appeals with costs of the State.

Civil Revision Petition No. 2543 of 1964 : The building in this case is a non - residential one, No. 14, Sembudoss Street, a very important

business locality in the city of Madras. The building consists of a ground floor, a first floor and the second floor. Two witnesses were examined on

the side of the landlord, P.W. 1, the Petitioner''s authorised clerk and P.W. 2, a civil engineer who inspected the building and also prepared the

report and a plan. From his evidence and the report the details of the building can be gathered. The Rent Controller relying upon the evidence

found that the plinth area of the ground floor is 2,500 square feet that of the first floor is 2,500 square feet and that of the second floor 1,200

square feet. On the evidence the Rent Controller fixed the rate of the cost of construction at Rs. 13 per square foot for the ground ; Rs. 13 per

square foot for the first floor and at Rs. 9 per square foot for the second floor, making up a total cost of construction of Rs. 68,300. Allowing for

depreciation for a period of forty-one years at 1 per cent amounting to Rs. 45,080 he added 10 per cent for maintenance that is a sum of Rs.

4,508 and a sum of Rs. 55,416 towards the value of the site. He thus fixed the total value at Rs. 1,05,004. On this calculation the annual rent

calculated at 9 per cent was arrived at Rs. 9,456 resulting in a monthly rent of Rs. 788. In this connection it may be mentioned that under exhibit

P-l sale deed of the year 1961 this property had been purchased for a sum of Rs. 95,600. The appellate authority considered this evidence and

accepted the basis of calculation adopted by the Rent Controller and dismissed the appeal. Hence the revision petition by the tenant.

The complaint of the tenant is that there is no basis for increasing the rent from Rs. 400 to Rs. 788 per month. We see no substance

whatsoever in this complaint. Having regard to the very busy locality and the important centre in which the property is situate in the city the rent

fixed can by no means be said to be excessive. In fact we would say it has erred on the other side. The authorities had sufficient evidence before

them to warrant the findings arrived at. Their appreciation of the evidence is correct. In any event we see no ground whatsoever for interference in

revision.

The civil revision petition is, therefore, dismissed with costs of the landlord-Respondent.