Breach Candy Hospital Trust v. The Collector, Bombay City District & Ors.

Judgment

1. By this petition the Petitioner, which is the company registered under the Companies Act, challenges the decision of the State Government contained in the Kambli 2 wp807.96 Memorandum dated 29th August, 1989 for increase in the lease rent of the land of which lease was granted by the Government to Mercantile Bank of India (Agency) Limited as also the communication dated 18-1-1990 from the Collector, Bombay whereby the decision of the Government to increase the amount of rent is communicated to the Petitioner.

2. The facts which are relevant and material are that the Governor of Bombay entered into Indenture of Lease with the Mercantile Bank of India (Agency) Limited, a company registered under the Indian Companies Act, 1913, for grant of lease of the land situated on the West side of Warden Road, Bombay admeasuring 21,238 sq. yards, on payment of rent of Rs.1,096 and 6 annas annually. The lease was granted for a period of 99 years. On 18-05-1949 a supplementary deed was entered into between same parties namely Governor of Bombay and Mercantile Bank of India (Agency) Limited in relation to the same lease. In that Deed earlier Lease Deed was referred to and it was recited: “AND WHEREAS the said rent of Rs.1,096-6-0 Kambli 3 wp807.96 was calculated as follows: (a) Rs.556/- for the portion of the demised premises called the car-park-land coloured pink on the said plan hereto annexed and admeasuring 3,946 square yards or thereabouts; (b) Rs.540-6-0 for the portion of the demised premises called the aforeshore land, coloured green and blue on the said plan hereto annexed and admeasuring 17,292 square yards or thereabouts. “ By the supplementary Lease Deed the amount of rent payable was increased and now it was stated that the building to be erected shall not exceed 70 ft. in height. We are not concerned with other conditions that were imposed by the supplementary Lease Deed, in this petition.

3. On 17th September, 1955, one more supplementary Lease Deed was entered into between same parties namely the Governor of Bombay and Mercantile Bank Kambli 4 wp807.96 of India (Agency) Limited and by this document again the amount of rent payable was increased. On the next date i.e. on 18th September, 1955 a Deed of Sub-Lease was entered into between Mercantile Bank of India (Agency) Limited and Bombay Europen Hospitals Trust, which is the predecessor of the Petitioner, whereby the sub-lease of the land admeasuring 14273 sq.yards is granted to the Petitioner on the terms and conditions which are contained in this Lease Deed. Admittedly, the Petitioner has constructed a hospital on the land which is in existence for the last several years. On 26th April, 1982 a communication was addressed by the Head Lessee to the Collector of Bombay stating therein that the Petitioner has approached the Head Lessee for permission to expand the hospital building further to a height of 104 ft. and therefore, the sanction of the Collector was sought for increasing the height of the Building. It appears that the Petitioner also approached the Government for permitting the Petitioner to increase the height of the building. By communication dated 13th August, 1986 addressed to the Director of the Petitioner, the Government in Urban Kambli 5 wp807.96 Development Department approved under rule 19(2) the grant of additional FSI to the extent of 50% (viz 0.67) over and above permissible FSI of 1.33 subject to the conditions which were mentioned in that letter. The condition of increase of lease rent was not one of the conditions mentioned in the communication dated 13th August, 1986. It appears that the Collector of Bombay addressed a communication to the Government in Revenue Department seeking instructions from the Government about deletion of the conditions in the Lease Deed in relation to maximum height of the building to be erected on the plot. In response to that communication dated 13th August, 1986 the Government sent a Memorandum to the Collector dated 29th August, 1989 informing the Collector the Government’s decision that the Government has decided to delete the conditions from the Lease Deed in relation to maximum height of the Building to be erected on the plot and it was further stated that because additional F.S.I. Is granted it amounts to granting additional land to the Petitioner and therefore, as per the present market rate i.e. Rs.12,500/- per sq.meter, the rent should be charged on the Kambli 6 wp807.96 land admeasuring 6011.70 sq.meters.. Thus, the Government decided to charge rent at the market rate of the land. Thus, by this decision the Government decided to modify the term in the lease deed between the Governor and the Head Lessee in relation to the rate of lease rent. The decision of the Government was communicated to the Petitioner by the Collector by his communication dated 18-1-1990. The Petitioner was asked to pay pursuant to this decision an amount of Rs.60,11,700/- as lease rent. The Petitioner, therefore, has approached this court challenging the action of the State Government of changing the term in the contract in relation to the amount of lease rent unilaterally.

The learned Counsel appearing for the Petitioner first submitted that the lease of the land was granted to the Petitioner under the provisions of the Land Revenue Act, then in force in the State of Bombay. That Act was repealed by the Maharashtra Land Revenue Code 1966. Section 336 of the Maharashtra Land Revenue Code repeals the Bombay Land Revenue Act 1876 as also the Bombay Land Revenue Code Kambli 7 wp807.96

1879. He submitted that, however, as per the third proviso to Section 336 the lease granted under the Repealed Law continues in force unless and until superseded by any action taken under the Maharashtra Land Revenue Code. The learned Counsel, then, refers to the provisions of Sections 38 and 39 of the Maharashtra Land Revenue Code to submit that so far as lease money for the land which is granted on lease by the Government is concerned, it is determined by the terms of the lease and not unilaterally by the Government.

5. The learned Counsel next submitted, relying on the judgment of the Division Bench of this Court in the case of Ratti Palonji Kapadia and anr v/s. State of Maharashtra and ors, (1992) 94 Bom.L.R. 697, that even assuming that the Government has power to increase the lease rent that has to be increased by the State Government in consonance with the provisions of Article 14 of the Constitution of India and the provisions of the Rent Act. The learned Counsel submitted that in any case the power could have been exercised by the Government in consonance with the Kambli 8 wp807.96 principles of fair play, as has been held by the Division Bench in its judgment in the case of Ratti Kapadia, referred to above. The learned Counsel pointed out to us that the judgment of the Division Bench in Ratti Kapadia’s case has been approved by the Supreme Court in its judgment in the case of Jamshed Hormusji Wadia v/s. Board of Trustees, Port of Mumbai and another, (2004) 3 SCC 214.

6. The learned Counsel appearing for the State Government on the other hand submitted that as per the terms and conditions of the agreement between the Head Lessee and the Petitioner, the terms and conditions of lease between the Government and the Head Lessee are binding on the Petitioner. The learned Counsel submitted that as the Petitioner has been granted additional FSI, it amounts to granting additional land on lease to the Petitioner and therefore a new relationship between the parties comes into existence therefore, the Government is entitled to recover rent for the additional land which is granted to the Petitioner at the market rate. Kambli 9 wp807.96

7. The learned Counsel submits Government has not decided to change the lease rent for the land which is already granted to the Petitioner. The Government is merely charging additional lease rent for the land which becomes available to the Petitioner because of grant of additional FSI. In the submission of the learned Counsel the Government is entitled to charge additional rent for the last which becomes available to the Petitioner because of grant of additional FSI.

8. It is clear from the record that so far as charging of rent is concerned, the amount of rent was fixed by the agreement entered into between the Government and the Head Lessee. That amount of rent, according to the Petitioner, could have been changed only by another agreement entered into between the Government and the Head Lessee. In the present case, admittedly, no such agreement has been entered into. From the conduct of the parties and various agreement entered into by the parties it is Kambli 10 wp807.96 clear that under the Law that was in force at the relevant time the amount of rent of the Government land given on lease could be fixed by an agreement between the parties. By section 336 of the Maharashtra Land Revenue Code the terms of the lease granted under the Repealed Law have been continued. Provisions of following proviso to Section 336, in our opinion, are relevant. They read as under: Provided that, the repeal shall not affect- (a) the previous operation of any law so repealed or anything duly done or suffered thereunder; or (b) any right, privilege, obligation or liability acquired, accrued, or incurred under any law so repealed; or (c) any penalty, forfeiture or punishment incurred in respect of any offence committed against any law so repealed; or investigation, proceeding, (d) proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid; and any such investigation, proceeding, legal proceeding or remedy may be instituted continued or enforced, and any such penalty, forfeitures or punishment may be imposed as if this Code had not been passed; Kambli 11 wp807.96 Provided further that, any temporary alienation made by a member of an aboriginal tribe before the commencement of this Code by mortgage, lease or otherwise under the Central Provinces Land Alienation Act, 1916 (C.P. II of 1916), shall be regulated in accordance with the provisions of that Act, as if this Code had not been passed; Provided also that, subject to the preceding provisos, any any saving provisions made in any of the Chapter of this Code, anything done or any action taken including any rules, assessments, appointments and transfers made, notifications, orders , summons, notices, warrants and proclamations issued, authorities and powers conferred, forms and leases granted, survey and boundary marks fixed, record of rights and other records framed or confirmed, rights acquired, liabilities incurred and times and places appointed under any law so repealed shall, in so far as it is not inconsistent with the provisions of this Code, be deemed to have been done or taken under the corresponding provision of this Code, and shall continue to be in force accordingly unless and until superseded by anything done or action taken under this Code.

9. Perusal of the 3rd proviso quoted above shows that lease granted under the Repeal Law continues in force and it is deemed to have been granted under the provisions of the Maharashtra Land Revenue Code and it can be superseded only by something done in accordance with the provisions of the Code. The provisions of the Code which are Kambli 12 wp807.96 relevant for that purpose are the provisions of Section 38 and Section 39. They read as under:

38. Power to grant lease:- It shall be lawful for the Collector at any time to lease under grant or contract any unalienated unoccupied land to any person, for such period, for such purpose and on such conditions as he may, subject to rules made by the State Government in this behalf, determine, and any such case the land shall, whether a survey settlement has been extended to it or not, be held only for the period and for the purpose and subject to the conditions so determined. The grantee shall be called a Government lessee in respect of the land so granted.

39. Occupant to pay land revenue and Government lessee to pay rent fixed.- Every occupant shall pay as land revenue the assessment fixed under the provisions of this Code and rules made thereunder; and every Government lessee shall pay as land revenue lease money fixed under the terms of the lease.

10. Perusal of the provisions of Section 38 shows that the land can be disposed of by the State Government either by grant or by contract and conditions on which the land is granted are to be found in the grant and the grant is subject to provisions of Rules framed. According to provisions of Section 39, land revenue is payable by the grantee to whom Kambli 13 wp807.96 occupancy rights are granted as per the Rules framed under the Code and so far as lease is concerned, lessee has to pay the land revenue and lease money fixed under the terms of the lease. Therefore, combined reading of Section 38 and Section 39 shows that lease of the Government land can be granted by contract between the Government and the lessee and the lease money is determined by terms of the lease. It is, therefore, obvious that variation in the lease rent or lease money can be made bilaterally by contract between the parties. The contract may be either oral or in writing and not unilaterally by any one of the parties. Perusal of the document on record shows that the increase in the lease rent was brought about in the present case by the Memorandum dated 29th August, 1989 issued by the State Government and it was the unilateral decision of the State Government. In our opinion, therefore, the decision contained in the Memorandum dated 29th August, 1989 increasing the lease rent was contrary to the contract between the parties as well as contrary to the provisions of the Maharashtra Land Revenue Code. Kambli 14 wp807.96

11. Even if it is assumed that the Government was in the position to increase the amount of lease rent because additional FSI was permitted, then also , in our opinion, in view of what is said by the Division Bench in its judgment in the case of Ratti Kapadia, referred to above, it could not have been done unilaterally by the State Government without taking Head Lessee and Sub-Lessee into confidence. The observations of the Division Bench in paragraph 25 of its judgment in Ratti Kapadia, in our opinion, are relevant. They read as under: It was next urged before us that 25. principles of natural justice require that before the State decides to increase rents the affected lessees should be heard. We would not like to go so far. The principles of natural justice and fair play require that persons who are affected by any proposed administrative action are given an adequate notice of what is proposed, or are taken into confidence, so that they may, if they so desire, make representations or bring relevant facts to the notice of the administrative authority. The Supreme Court in the case of K.T.Shephard and Ors. v. Union of India and ors, (supra) has said (at page 694) Even when a State agency acts administratively, Kambli 15 wp807.96 rules of natural justice would apply. As stated, natural justice generally requires that persons liable to be directly affected by proposed administrative acts, decisions or proceedings be given adequate notice of what is proposed so that they may be in a position (a) to make representation of their own behalf; (b) or to appear at a hearing or enquiry (if one is held); and (c) effectively to prepare their own case and to answer the case (if any) they have to meet. In the present case the question of holding an enquiry does not arise. But principles of fair play and natural justice do require that the State should disclose to the affected lessees the basis on which the rent is proposed to be increased and reasons for the same, thereby taking them into confidence. In the present case the State has not disclosed so far any satisfactory basis except for pointing out that the market value in the area has gone up substantially. Even in determining the market value the State Government has not taken into account the fact that the plots are already leased to the lessees and are built upon and occupied by owners or tenants. To take hypothetical market value of an open plot of land for calculation of hypothetical lease rent in comparison to which the proposed rent would appear reasonable is, in our view not a justified exercise.

12. The decision of the Division Bench has been referred to with approval by the Supreme Court in its judgment in Jamshed Wadia’s case (supra). Following portion from paragraph 17 of that judgment, in our opinion, is Kambli 16 wp807.96 relevant. It reads as under: “....... A Division Bench of the Bombay High Court presided over by Mrs.Sujata Manohar, J. ( as her Lordship then was) held in Ratti Palonji Kapadia v. State of Maharashtra that the exemption from the provisions of the rent control law casts an obligation on the State and its instrumentalities and authorities to comply with the public policy of ensuring a fair return of investments without charging exorbitant rates based on the prevailing market price of the land. Thus, a balance has to be struck between ensuring a fair return on investment and charging exorbitant rates based on the prevalent market prices of land, which would be of utmost relevance to any other landlord. The State Government in order to justify a steep increase in rent, cannot plead exploitative increases in prices of lands. Reference in this connection may also be made to Kumari Shrilekha Vidyarthi v. State of U.P. Wherein this Court held that while acting in the field of contractual rights the personality of the State does not undergo such a radical change as not to require regulation of its conduct by Article 14. It is not as if the requirements of Article 14 and contractual obligations are alien concepts which cannot coexist. Our Constitution does not envisage or permit unfairness or unresonableness in State action in any sphere of activities contrary to the professed ideals in the Preamble. Exclusion of Article 14 in contractual matters is not permissible in our constitutional scheme. In P.J.Irani v. State of Madras the Constitution Bench observed that a tenant in a building owned by the State or its instrumentality is not liable to eviction solely because the tenancy has terminated. The existence of rent control legislation, though not Kambli 17 wp807.96 applicable to such building, is suggestive of the State’s Policy of protecting tenants because of the great difficulty of their obtaining alternative accommodation. Two things are clear from the above quoted portion from the judgment of the Supreme Court, (i) that the observations made by the Division Bench in its judgment in the case of Ratti Kapadia’s case have been approved by the Supreme Court and (ii) the Supreme Court has held that even while acting in the field of contractual rights the personality of the State does not undergo such a radical change as not to require regulation of its conduct by Article 14. The Supreme Court has also held that the State Government in order to justify a steep increase in rent, cannot plead exploitative increases in prices of lands. In the present case, that is what has preciously been done by the State Government. In our opinion, therefore, unilateral action of the State Government of increasing the amount of rent is violative of the guarantee of Article 14 of the Constitution of India. In our opinion, therefore, the petition has to be allowed. Kambli 18 wp807.96

13. In the result, therefore, petition succeeds and is allowed. Rule is made absolute in terms of prayer clause (a) of the petition. No order as to costs. (D.K.DESHMUKH, J.) (N.D.DESHPANDE, J.)