Martin Burn Limited vs Steel Authority of India Ltd.

Ajit Kumar Sengupta, J.—The short question which calls for determination in this interlocutory application is that whether the Court can fix the rent of the premises which is governed by the provisions of West Bengal Premises Tenancy Act, 1956. Shortly stated the facts are that Martin Burn Limited instituted a suit against the Steel Authority of India Limited (hereinbefore referred to as the "SAIL") praying for a decree for adjudication, determination and settlement of the monthly amount for occupation of the fourth and fifth floor of the premises no. 1, R. N. Mukerjee Road, Calcutta from February, 21, 1937 till August 20, 1989, interest and cost.

The case of the plaintiff is that by a registered deed of lease dated August 16, 1974 demised in favour of one Shresth Agencies Private Ltd. the entire 3rd, 4th and 5th floors of the said premises for a period of 5 years commencing from 21st August, 1974 with option for renewal for three successive terms of 5 years each provided the notice of intention to obtain such renewal was given three months before the expiration of the said lease and also three months before the expiration of each of the first two renewed periods. Under the said Deed of Lease Shresth Agencies Private Ltd. was given the right to create sub-lease.

The Shresth Agencies Private Ltd. before the expiry of the first period of 5 years gave notice of its intention to exercise option for renewal in terms of the said lease for further period of 5 years and, accordingly, the said Deed of Lease stood extended and/or renewed till August 20, 1984.

Before the expiry of the First term of renewal Shresth Agencies Private Ltd again gave notice of its intention to renew the lease for second terms of renewal for five years in terms the said Deed of Lease and, accordingly the said Deed of Lease stood renewed and/or extended till August 20, 1989.

On or about 30th October, 1986 the said Shresth Agencies Private Ltd. surrendered the Lease to the petitioner and made over actual possession of the third floor of the said premises and issued a Letter of Attornment dated October 29, 1986 addressed to the defendant with direction upon the Defendant, who had been permitted by Shresth Agency Private Ltd., to occupy the 4th and fifth floors of the said Premises to attorn and pay the rent and all other charges to the Petitioner directly on and from November 1, 1986.

At the time of surrender of the lease Shresth Agencies Private Ltd. represented to the Petitioner that they had entered into an agreement for sub-lease with the Defendant which Shresth Agencies had agreed to grant and the Defendant agreed to obtain sub-lease of the 4th and 5th floors of the said Premises on the terms and conditions mentioned in the letter dated February 12/13, 1981 written by the Defendant to Messrs. Shresth Agencies Pvt. Ltd.

From the said letter dated February 12/13th, 1981, it appears that the Defendant had entered into an agreement with Shresth Agencies Pvt. Ltd. for obtaining sub-lease of the entire 4th and 5th floors of the said Premises measuring 40304 Square feet on the following terms and conditions.

a) Monthly rental will be at the rate of Rs.4.75 paise sq. ft.

b) The defendant will make an interest free Security Deposit with Shresth Agencies Pvt. Ltd. and the said Security deposit will be adjusted against the amount for the last four months of the tenancy.

c) The Deed of Lease containing the terms and conditions as negotiated and finalised will be executed as per the Draft enclosed with the said letter.

The said ketter dated February 12/13, 1981 also lays down the condition that the Defendant would give a loan of Rs.24,00,000/- to Shresth Agencies Pvt. Ltd., but the Plaintiff was informed by the Shresth Agencies Pvt. Ltd. that no such loan was actually given by the Defendant.

From the Draft Deed of Lease enclosed with the said letter dated 12/13th February, 1981, it transpires amongst other that the Agreement between Shresth Agencies Pvt. Ltd. and Defendant provided for grant of a sub-lease for a term ending on the 20th day of August, 1984 with an option on the part of the Defendant to obtain extension for further period of 2 years 6 months from the date of expiry provided the Defendant gave notices in writing to Stresth Agencies Pvt. Ltd, at least six months before the date of expiry of its intention to extend, the lease on the same terms and condition and thereafter on the expiry of the extended period of 2 and 1/2 years. The Defendant would have further option to renew the terms of sub-lease for another period of 2 years and six months by giving at least six months'' notice prior to the expiry of the renewal for 2 years 6 months would be at such enhanced rate or rates as will be mutually agreed upon. The said Agreement between Shresth Agencies and the Defendant expressly provided as will appear from the said Draft Deed of Lease that the renewal would be granted provided the terms of lease in favour of Shresth Agencies was extended by the Petitioner.

Shresth Agencies Private Limited represented that the Defendant had been allowed to take over possession of the entire 4th and 5th floors in pursuance and in part performance of the said agreement for sub-Lease, but no deed was ultimately exceuted and further that the Defendant had exercised option for the first term of 2 and 1/2 years, that is to say, till the 20th of February, 1987.

Messrs. Shresth Agencies Private Ltd. made over to the Petitioner the said amount of Security Deposit of Rs. 6,00,000/- made by the Defendant.

On and from November 1, 1986, the Defendant started paying to the plaintiff, the monthly sum of Rs. 1,91,444/- for their occupation of 4th and 5th Floors of the said Premises.

Messrs. Shresth Agencies Private Ltd. made over to the petitioner the Original letter dated July 2, 1986, bearing reference OSA 08(2) issued by the defendant purporting to exercise the option to renew for further period of 2 years 6 months from February 20, 1987 at the existing terms and conditions. The said Notice dated july 2, 1986 was for renewal of the Second term of 2 and 1/2 years and under the Agreement between the Shresth Agencies Private Ltd., and the Defendant the rent for the said period of renewal would be at such enhanced rate as would be mutually agreed upon.

In view of exercise of option for the second renewal by the defendant as aforesaid the negotiation started between the petitioner and the respondent for arriving at a mutually agreed enhanced rate for the 4th and 5th Floors of the said premises. Ultimately the Defendant by letter dated May 7, 1987 stated that increase in the existing rate by 20 per cent would be sufficient and in addition thereto the Defendant would pay surcharge, multistoried tax, Urban Land Tax as well the portion of increase, if any, in respect of both share of Municipal taxes. The petitioner could not agree to the said proposal for enhancement of rate by mere 20 per cent which according to the petitioner was not reasonable and was not commensurate with the rate of rent as was prevailing at the relevant time.

Enhancement of the existing rate by 20 percent would be Rs.5.70 paise Sq. Ft. The petitioner by its letter dated May 8, 1987, pointed out to the respondent that the market rate of rent was Rs. 15/- per square feet but by way of good gesture the Plaintiff offered to reduce the monthly rent for the term of second renewal to Rs. 10/- per square feet.

The Third floor of the said Premises of which vacant possession was delivered up by Shresth Agencies Private "Ltd., has been let out in or about June 1987 at a monthly rent calculated at the rate of Rs. 12.25 paise per Square feet. This fact was brought to the notice of the Defendant by the Petitioner''s letter dated Duly 1, 1987. In or about 16th December, 1986 Punjab National Bank has taken on tenancy an area of 8350 Sq. ft. on the ground floor of the said Building at a monthly rent calculated at the rate of Rs. 15/- per Sq. ft.

The respondent did not. accept the said offer of the petitioner which was made as and by way of good gesture and therefore, the said offer lapsed.

The case of the petitioner is that it has not been possible for the petitioner and the respondent to mutually agree upon the monthly amount payable for the occupation of 4th and 5th floor of the Premises by the respondent for the Second Term of 2 and 1/2 years commencing from Februry 21, 1987, and ending on August 20, 1989.

The respondent is continuing the occupation of the said 4th at 5th floor of the said Premises having an area of 40,304 Sq. ft. It appears that it was agreed between the petitioner and the respondent that till the rate for payment of the monthly amount was mutually settled the Defendant would continue to make payment at the rate last paid and upon mutual settlement the petitioner would raise supplementary bill for the amount of short fall.

In view of exercise of option for renewal by the defendant and the failure of the parties to mutually agree upon the rate, it is submitted that this Court should assess, settle and determine quantum of enhancement of rate at which the defendant would be obliged to pay for the 4th and 5th floor of the premises for the period from February 21, 1987 till August 20, 1989 upon making such enquiry as may be deedmed fit and proper. Accordingly in the said suit an application was made, inter alia, praying for as follows :-

"a) A Commissioner be appointed for the purpose of ascertaining the amount of rent or occupation charges or the net profits that should be reasonable for the area of 40304 square feet comprising the 4th and 5th floors of the sid Martin Burn Building at 1, R. N. Mukherjee Road, Calcutta, as on 21st February, 1987 by making such local inspection, and taking such evidence and making such enquiry as the Commissioner may deem fit.

b) A Writ of commission be issued in favour of the Commissioner to be appointed by the Hon''ble Court in Form No. 9 of Appendix ''H'' of the first Schedule of the Code of Civil Procedure.

c) Time be fixed for submission of the report by the Commissioner and upon submission of such report the same may be treated as part of the records of the suit.

d) Upon submission and consideration of the report of the Commissioner, the Hon''ble Court may be pleased to determine and settle the monthly amount of rent or occupation charges for the 4th and 5th floors of Martin Burn Building at No.1, R. N. Mukherjee Road, Calcutta, payable by the defendant for the period commancing from 21st February, 1987 till August 20, 1989, and pass appropriate order or issue direction upon the defendant".

On the said interlocutory application a Commissioner was appointed to ascertain the reasonable rate of rent in an around the suit premises. That order was not objected to by any of the parties. The Commissioner has since submitted his report. 1 shall refer to the said report later.

The contention of the respondent is that the respondent was originally tenant under the said Shresth Agencies Private Limited who surrendered their sub-lease and defendant after attornment became directly a tenant under the petitioner on the same terms and conditions. The lease was originally for twenty years which was an unregistered deed. Any lease for more than one year is compulsorily registrable under the Indian Registration Act. In the circumstances the tenancy is governed under the West Bengal Premises Tenancy Act, 1956. In any event any lease for less than 20 years is governed by the West Bengal Premises Tenancy Act, 1956. In other words the contention of Dr. Banerjee appearing for the respondent is that there cannot be any question of enhancement of the rent excepting in accordance with the provisions of the West Bengal Premises Tenancy Act. Dr. Banerjee has however very fairly stated that SAIL agreed to enhance the rent upto Rs. 5.75 per Sq. ft. which is not acceptable to the petitioner.

The contention of Dr. Banerjee cannot be accepted for more than one reason. As indicated earlier the SAIL has exercised the option of renewal contained in the draft lease which has not been registered. The renewal period will expire on August 20, 1989. SAIL is in occupation under the renewal clause contained in the said unregistered lease. The option of renewal is in the nature of permissive occupation protected by Section 53A of the Transfer of Property Act and no tenancy is created. No deed of lease for the renewal period has been executed or registered.

Reference may be made in this connection to a decision of this Court in the case of Braithwaite & Co. Ltd. v. M/s. R. P. Agarwalla & Bros. (P) Ltd. & Anr., reported in (1984)2 CLJI. There the plaintiff filed suit for eviction of defendant, Braithwaite & Co. (India) Ltd. from a furnished residential flat on the ground floor of a multi-stories building commonly known as Landsdowne Court in South Calcutta. Plaintiff also claimed mense profits in the suit. During the pendency of the suit Braithwaite & Company Ltd., a Central Government Undertaking was added as defendant No.2 and allowed to contest the suit by filing a written statement. The suit was decreed on contest. Defendant no.2 preferred the instant appeal to this Court. The short but interesting point for consideration in that appeal was whether the plaintiff-respondent was entitled to recover possession of the suit property, treating, defendant no.2 as a trespassor, in otherwords, whether defendant No. 1 whose interests had subsequently vested in defendant no.2 could be treated as a tenant of the suit premises or whether the only right available to that Company was to claim protection of its possession in terms of section 53A of the Transfer of Property Act.

There this Court held as follows : -

" A lease of immoveable property from year to year, or for any term exceeding one year, or reserving a yearly rent, can be made only by a registered instrument u/s 107 of the Transfer of Property Act. In the absence of its registration, the Deed of Lease cannot affect the immoveable property comprised therein. The plaintiff-respondent''s case was that the Lease-Deed which was required to be registered and that not having been registered, the defendant no. 1 who had taken possession of the disputed flat in part-performance of the said contract, had only enjoyed the protection u/s 53A of the Transfer of Property Act. The term of 25 years as stipulated in the said unregistered deed of lease having already expired, the bar u/s 53A the Act imposed upon the plaintiff-respondent had already been lifted and the plaintiff was entitled to recover possession from the defendant no.2, the successor-in-interest of the defendant no. 1 who no longer enjoyed any right to protect its possession."

The renewal clause in the instant lease provides as follows : -

" The lessee shall have the option to have the period of the tease extended by a further period of two years six months from the date of expiry of the present term provided the lessee gives a notice in writing to the lessor at least six months before the date of expiry of the present term of his intention to extend the lease on the same terms and conditions as are contained herein and thereafter on the expiry of the extended period of 2 and 1/2 years the lessee shall have further option to renew the term of the lease by another period. of two years six months provided a notice for such exercise of option of renewal is given at least six months prior to the expiry of the renewal period on same terms and conditions except that the rent for the last period of renewal for two years six months would be at such enhanced rate or rates as will be mutually agreed upon. However, it is made quite clear that such renewal will be granted provided the term of the head lease in favour of the lessor is extended by a further period of five years by the Superior Landlord M/s. Martin Burn Ltd., on expiry of the existing lease in favour of the lessor herein and the lessor shall take all reasonable and bonafide and requisite steps for the renewal of the said Head Lease in terms of the. intents of these presents."

It has not been possible for the parties to mutually agree upon the enhanced rate of rent for the renewal period. SAIL offered enhancement of 20% by their letter dated 7.5.87 which inter alia, records as follows:

Sub : Office premises at Martin Burn House at 12, Mission Row, Calcutta occupied by Steel Authority of India Limited.

Please refer to your letter mentioned above on the subject.

The Committee constituted by us for negotiation with you in this regard discussed the matter with your Mg. Director in your presence at your office on 29.4.87. The Committee explained their views for their recommendation for enhancement of existing rent and service '' charges for electrical fittings by 20% and 15% respectively.

In this regard we would like to mention the following:-

i) We are having our office premises on lease/rental basis at different buildings in Calcutta. Requests of respective landlords for increase of existing rent are being considered keeping in view the recent hike in maintenance cost of the buildings and increase in Corporation rates/tax. The lessors/landlords in respect of other premises have never pressed for increase in rent based on prevailing market rent since such claim is considered in law as untenable.

ii) We are also spending substantial amount for proper maintenance of our office at Martin Burn Building to guard your interest in the property.

iii) There have been no structural improvements in the building. Every year we face unspeakable inconvenience owing to roof leakage. The lifts are also very old and do not ensure uninterrupted services. You have not provided us with any additional facility. You have simply maintained existing facilities.

iv) We are agreeable to pay proportionate surcharge, Multi-storied Tax, Urban Land Tax as well as portion of increase, if any, in respect of both shares of Municipal Rates and Tax and we are also agreeable to bear and pay proportionately any new tax. or taxes to be imposed under any Statute. Even though under the Law increase in rent save as provided therein is not permissible, but in token of our good jesture we fell that increase in the existing rent by 20% as suggested by us shall be sufficient to take care of present hike in the maintenance cost of the building.

In the circumstances explained above, we would request you to please appreciate our approach and confirm our proposal so that the lease deed can be suitably amended after sorting out other minor points by mutual discussions."

In terms of the letter dated 7th May, 1987 the increase of the existing rate would be only 20%. Enhancement of the existing rate by 20% would be Rs.5.70p. per sq. ft. the rate as existing before the commencement of the second term being Rs.4.75p. per sft.

According to the petitioner the said rate of Rs.5.70p. per sft. is inadequate in view of the market rate of rent which has been prevailing at the relevant time. The petitioner has claimed that the market rate of rent is Rs. 15/- per sft. It is therefore not disputed that the parties have failed to come to an agreement as to the question of increase in the rate of rent.

When the parties have been unable to mutually agree upon the terms and conditions for renewal, the Court will be at liberty to settle the terms. There is no dispute as to the area. In this connection reference may. be made to several decisions on the question as to whether the Court has the power to settle the rent when the parties could not agree. Reference may be made to the decision of the Mysore High Court in the case of H. V. Rajan v. C. N. Gopal reported in AIR 1961 Mys. 29. There the. Court was concerned with the construction of the renewal clause. The said clause reads as follows :

" After the expiry of the period of 5 years fixed under this lease the lessees shall have the option of 5 years but subject only to such terms and conditions as may be mutually agreed upon." The Court held:

" The parties are at controversy as regards the true meaning of this clause. According to the plaintiff, the clause means that the lessor and the lessee may choose to renew the lease if they are able to agree on the terms. In other words he contends that it was merely an agreement to negotiate for a fresh lease. Ordinarily the renewal clause in a lease deed, is an important term of the agreement. Courts will be reluctant to ignore that clause on the ground that it is vague, unless on a reasonable construction no meaning can be attached to it."

We think that the parties to Ex. L did attach some meaning to that clause. What then is its import ? One way of reading this clause is, that the parties had agreed to renew the lease, for a further period of five years in accordance with the original terms, unless otherwise modified by mutual agreement. The relevant portion of the clause says : ''''the lessees shall have the option of five years but subject only to such terms and conditions as may be mutually agreed upon." An agreement to renew the lease without more must be deemed to be an agreement to renew as per the original terms.

This appears to us to be a reasonable interpretation to be placed on clause 14 of Ex.L. Even if we agree with the plaintiff''s contention that the renewal provided is dependent on the agreement between the parties on other terms, on the basis of decided cases, we have no hesitation in reading that clause as providing for an agreement between the parties on terms reasonable. If the parties are at variance as to those terms then the Courts will step in see Robinson v. Thamas Mead Estate Ltd. (1947)1 Ch. 334, Foley v. Classique Coaches Ltd. (1934)2 KB 1; Kilas and Co. Ltd. v. Arcos Ltd., 1932-147 LT 503; Jardine, Skinner Co. v. Rani Surat Sundari Debi, 5 Ind. App. 16 (PC); Prodyot Coomer Tagore v. Maynuddin, AIR 1938 Cal. 724. Authorities on this point can be multiplied. But we see no necessity for it."

Reference has also been made in the case of Robinson v. Thames Mead Park Estate, Limited reported in 1947 Ch. D. 334. There by a memorandum of agreement, dated july 22, 1941, and entered into between a landlord and a tenant, it was agreed that the tenant should take a tenancy of a piece of land from July 22, 1941, until April 22, 1944. By clause 2 the tenant convenanted to erect, during the first twelve months of the tenancy, a dwelling (which it was understood between the parties was to be of a temporary nature) on the land, with drainage to satisfy the bye-laws of the local authority. Clause 19 contained a covenant by the landlord that "subject to the tenant having faithfully performed and "observed" all her agreements therein under a grant of building lease, for a term of not less than sixty years and not more than ninety-nine years, at a ground rent of role a year, from a date mutually agreed on, provided that the tenant should undertake to erect a private dwelling on the land. As a result of delay, due to various clauses, the temporary house and drainage were not completed within the first year of the agreement:, but the obligations of the tenant in those respects had been satisfied by April 19, 1944. The landlord having refused to grant the building lease, the tenant commenced an action for specific performance.

There the Court held as follows :

" That it was sufficient for the purpose of cl. 19 of the agreement that the tenant, when she came to give her notice calling on the landlord to grant the lease, had then ended any previous breaches of covenants or failure to perform the covenants.

Also that the rest of cl. 19 was not of so vague and uncertain a character as to'' be unenforceable, and that its language was sufficient to give certainty and to enable the court, in default of commencement between, the parties, to fix what was reasonable, and necessary to direct specific performance or its equivalent. Bastin v. Bidwell (198I) 18 Ch. D. 238 distinguished."

Reference may also be made to the decision in the case of Maharajah Bahadur Sir Prodyot Coomer Tagore v. Maynuddin Mia & Ors,, reported in 68 CLJ 435. There also the renewal clause was construed. There the Court held as follows : -

" The Jaw as to renewal clauses is well summarised in the case of Secretary of State for India in Council v. A. H. Forbes (4), It is there pointed out that if the option in lease does not state the terms of renewal, the new lease will be for the same period and on the same terms as the original lease in respect of ail the essential conditions thereof, except as to the covenant for renewal. This is the ordinary Jaw as to a renewal clause, but what is contended for the tenants defendants is that this is not an ordinary renewal clause. The terms of the lease make it clear that the tenants are to continue after the expiry of the term until there is a reassessment at the instance of the landlord and thereafter the renewal of the lease subject to the tenant does not consent to such reassessment that the landlord would have right to re-entry and not otherwise."

Reliance has also been placed in the decision of Messrs. Jardine, Skinner & Co. v. Rani Surut Soondari Debi reported in 5 Indian Appeals 164. There the Privy. Council observed as follows : -

" If the rent at which the plaintiff offered to renew the lease were too high, the defendants were not bound to accept it but in that case it lay upon them to take measures to compel the Plaintiff to renew at a proper rate, having regard to the stipulations of the lease. This they did not do at any time before the commencement of the suit otherwise than by stating in the letter of the 4th of November 1873, their readiness to accept a renewal at a rent to be fixed in accordance with the terms stipulated. Even in their defence to the suit, though, they stated that they were ready to take a pottah upon the terms stipulated, they still, as already stated, set up a right of occupancy at the rent of Rs. 609. 4a. a year."

On the facts and circumstances of the case I am of the view that the Court has the power to settle the rent payable when it could not be mutually agreed by the parties on the basis of the renewal clause contained in the lease. When the renewal clause provides that for renewal of the lease, terms shall be mutually agreed upon, if the parties cannot agree upon a reasonable rent.

In this case, in exercise of power under Order 26 Rule 3 of the Code of Civil Procedure, a Commissioner was appointed. The Commissioner has given hearing to both the plaintiff and the defendant and both have appeared before him and produced evidence. Commissions in his report dated 24.11.87 has determined Rs.9.75 per sft. as the reasonable rate of rent on an average. No exception to the report has been taken by any of the parties. Time for taking exception has expired by and the report has become final.

SAIL had offered enhancement of rent by 20% in its letter dated 7.5.87. Therefore, SAIL cannot now contend that the amount payable during the relevant period should not be enhanced at all. The only question is what would be the quantum of enhancement.

The Com after considerin the various facts came to the finding that Rs.9.75 per sft. would be the reasonable rent on an average.

The Com referred to the rent payable by Punjab National bank who is occupying a portion of the ground floor of the same building and who has been paying at the rate of Rs.15/- per sq. ft. United Bank of India who is occupying an adjacent building viz., 3B, Lallbazar Street has been paying rent at the rate of Rs. 14/- per sq. ft. since July 1985. The Commissioner has said that the rent of the ground floor should be arround Rs. 15/-per sq. ft. In paragraph 22 of his report he has recorded as follows :

" Thus according to my wisdom the rent for the fourth floor of the building in question should be Rs. 10.50, being 30% less than the rent for the ground floor and the rent for the fifth floor of the building in question should be Rs. 9/- being 40% less than the rent for the ground floor. Since the defendant was paying rents, as" I have been told, at the same rate for both the floors, 1 think the average of Rs.9/- and Rs. 10.50 being Rs.9.75 should be the reasonable rent on occupation charges for the area of 40304 sq. ft. comprising the 4th and 5th floors of the building in question as on 21st February, 1987."

Apart from the Commissioner''s report, the Court can take judicial notice of the fact of rise in the rate of rent in commercial complex. Having regard to the findings of the Commissioner and having regard to the fact that the Commisioner''s report has not been assailed by any of the parties, the defendant shall pay rent at the rate of Rs.8.50 per sq. ft. which according to me would be fair and. reasonable. This enhancement will, however, be operative from 20th February, 1987 till 20th August, 1987 during the period of lease. The arrear shall be paid by the respondent to the petitioner within two weeks from the date of communication of this order. The petitioner is directed to resume normal water supply if not already done. The petitioner shall also operate the lift in terms of the existing agreement.

All parties shall act on the signed copy of the minutes of the operative part of the order and judgment.