Dr. K.C. Nambiar vs The Rent Controller, Madras and others

Ramamurti, J.—All the above matters were heard together as they raise a common point challenging the vires of the Madras Buildings (Least and Rent Control) Rules 1961, concerning the fixation of fair rent for residential and non-residential buildings under 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 aid the State of Madras was impleaded as respondent as the validity of the Rules was questioned. W.A. No. 356 of 1964 which arises out of W.P. 221 of 1964 concerns the premises No. 2/157 Poonamallee High Road, Madras, in which the landlord had filed a petition for fixation of fair rent claiming Rs. 2375 at 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 he classified as non-residential building. W.A. No. 357 of 1964 is preferred against W.P. 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. 2584-40 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. C.R.P. No. 2543 of 1964 arises out of a petition H.R.C. 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 W.A. 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 C.R.P. 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 W.A. 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 S. 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 under or similar accommodation in similar circumstances during the 12 months prior to 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 S. 4 of Act 1949 would show that the fair rent will have to be fixed by the Controller on a consideration of all the factors mentioned in S. 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 S. 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 with the principles set out in Sub-S. (2) or in Sub-S. (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 per annum on the total cost of such building.

(b) the total cost referred to in Cl. (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 rate 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-Cl. (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 Cl. (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 less 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 nonresidential 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 25 per cent of the cost of construction as calculated in the manner specified in Sub-Cl. (i)

There is act much of a difference between Sub-Cl. (2) and Sub-Cl. (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 at 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. R. 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 Sch. I. Sch. I contains four classifications of residential buildings. The details contained in the classifications, Cls. 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. R. 9 provides the machinery for determining the cost of construction of the different classes of residential buildings fixing certain rates per sq. foot of plinth area for the ground floor, first floor, second floor and additional construction higher up separately for the four (sic) of buildings. R. 10 specifies that allowance should be made in respect of residential buildings, and this comprises 24 items like air conditioning, tube lights, plastic (sic) coating for walls, electric pump for water, flash outs, playground for children, tennis and badminton Courts, cattle sheds, usufructs of trees etc. R. 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 R. 8 in respect of residential buildings. R. 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. R. 12 (2) specifics the cost of construction of the four different classes of non-residential buildings at specified rate per sq. ft. of plinth area for first floor, second floor, and additional floor higher up. It may be mentioned that specific and separate rates are mentioned for four classes of buildings. Here too, R. 13 provides for allowances for special amenities comprising 15 Items. R. 14 provides that depreciation of buildings, both residential and non-residential, shall be calculated at the rates specified in Sch. 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 R. 9 read with Sch. I after allowing for the depreciation specified in Sch. II. Of coarse the cost of construction will take in the allowance for amenities provided in R. 10. Similarly the fair rent for non-residential buildings has to be fixed of the basis of the cost of construction calculated in accordance with R. 12 (2) read with Sch. I with regard to the classification of the buildings, read with Sch. II making allowances for depreciation. Here again allowances for amenities will have to be included in the cost of construction as specified in R. 13.

The argument of Mr. M.K. Nambiyar for the tenant in W.A. No. 356 of 1964 on the question of the vires was adopted by Counsel in the other two matters. Mr. Nambiar contended that the rules specifying the manner in which the cost of construction of a building, whether residential or non-residential, should be determined, are act only not in conformity with S. 4 but art directly opposed to and contrary to the main principle of valuation indicated in S. 4. According to learned Counsel, S. 4 authorises rules to be framed only far 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 to it of construction based upon a statutory uniform rate. The cost of construction under 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 S. 4(2)(b)(i) the words used are "cost of construction" while in significant contrast in S. 4(2)(b)(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 act the market value or the then cost of construction of the building, bat 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 S. 4(2)(b)(i) are understood as the original cost of contraction the rates that may be prescribed under S. 4(2)(b)(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 as difference between a residential or a non-residential building as similar language is used in S. 4(3) dealing with non-residential buildings. He urges that S. 4 has authorised only the usual method of determination of the cost of construction, i.e., to determine the original investment and the allow depreciation at a particular rate from the date of construction for the period, between the date of consternations 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 under 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 S. 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 Sch. I. The very fact that S. 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 maybe 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 consideration of locality, features of architectural interest and such other matters for which allowance is made at a percentage not exceeding ten per cent of the cost of construction is to be determined as on the date when the Act came into force and act 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 of the Scheme underlying S. 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 as 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 sack a building and the method adopted is to arrive at the cost of constriction 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 six 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 problem which the Legislature waited to avoid. The analogous provision, S. 4 of the Act of 1949, was differently worded. The main object underlying the resent prevision, S. 4 is that the determination of the cost of constriction mast 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 6 per cent of 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 bat quite a well established and familiar conception.

We may first refer to the decision of the Privy Council in Harichand v. Secretary of State (1939) 2 M.L.J. 722 : 50 L.W. 406 (P.C.) arising under 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 master Lord Macmillan observed at page 725 as follows:

Their Lordships could have appreciated that criticism if the principle or 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 part 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, it quite a well-known and recognised method of valuing buildings for the purpose of compensation.

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 v. Sri Narain Khanna (1942) 2 M.L.J. 289 : 55 L.W. 472 (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 bank in consideration of the age and the condition of the building. We are clearly of the opinion that under S. 4 of the Act of 1960, the Legislature has evolved a simple procedure adopting this well established contractor''s method of valuation of buildings we are equally clear that it was surly not the titration 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 Sch. 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 percolations 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 buildings, and they reveal that not much of a difference is made between lime 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 class of buildings.

It was next contended by Mr. Nambiyar that in providing for depreciation under Sch. II, the buildings have been classified under four headings, and that they have no correlation whatsoever with the classes of buildings specified in Sch. I for determining the cost of construction. He urges that under 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. Be 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 1 or 2%, 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 any one of the four types of buildings specified in Sch. 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 classes of buildings for which the method of cost of construction is provided for in Sch. I, at any rate, one single formula for depreciation must have been provided for under Sch. II. Here again learned Counsel by way of illustration made several permutations and combinations to show how Sch. 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 day 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 Councils 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-S. 2 of S. 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 Sch. 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 nay be adopted with such modifications 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 at page 533 :

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 Amalgamated Collieries Ltd. (1940) 3 A.E.R. 549 at 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 constriction, 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 under S. 4 of the Act.

We therefore confirm the orders of Veeraswami, J., and dismiss the writ appeals with costs, the cost fixed at Rs. 250.

C.R.P. 2543 of 1964 :-The building in this case is a non-residential one, No. 14, Sombudoss 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 this 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 2500 sq. ft. that of the first floor is 2500 sq. ft. and that of the second floor 1200 sq. ft. On the evidence the Rent Controller fixed the rate of the cost of construction at Rs. 13 per sq. ft. for the ground; Rs. 13 per sq. ft. for the first floor and Rs. 9 per sq. ft. for the second floor, making up a total cost of construction of Rs. 68,300. Allowing for depreciation for a period of 41 years at one per cent amounting to Rs. 45,080, he added ten per cent for maintenance, that is a sum of Rs. 4508 and a sum of Rs. 55416 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 nine per cent was arrived at Rs. 9458 resulting in monthly rent of Rs. 788. In this connection it may be mentioned that under Ex. P. 1 sale deed of the year 1961 this property had been purchased for a sum of Rs. 93600. 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.