Rent Control Act.

Rent Control Acts in India
The law in a changing society

By M.D. Rijhwani

Posted on 15th May 2002
Genesis of lease:
After the industrial revolution in Europe in the nineteenth century, emerged a middle class between two well etched classes namely feudal lords and their subjects. The middle class became the vehicle for the commerce of the manufactured goods. They soon became rich in the incarnation of industrialists and businessmen, scientists, professors, bankers and their aides, the directors of joint stock companies and still lower the vast number of professionals as managers in industry and commerce. In fact they formed the backbone of new civilization thrown up by the new conditions.
All the groups forming higher and lower middle class aspired to live with the grace and comforts of feudal lords. They started living in luxurious houses either built by them or acquired on lease. The building activity in urban areas grew up by leaps and bounds with the insatiable demand of the expanding middle class. One way of investing money then was to build houses and give them on to business houses for commercial purposes or for housing the ambitious middle class. The investment therein was branded as gilt-edged security as the advantage in building houses and letting them on rent was that the investment in immoveable property was more safe compared to the investment in commerce and other fluctuating securities and earned a definite income continuously according to the rules of demand and supply and also had the easy liquidity in the sale of the property on expiry of the lease or subject to the lease already granted which would expire sooner or later and then the property liquefied. The tenants who stayed on in spite of the expiry of lease could either be evicted by self help or by the decree of a court which could be obtained easily according to the general law of the land. The scene of liquidity froze in the frame of time till the outbreak of the First World War in 1914.

Rent Restriction Acts: Their features
In the war, rows of houses were destroyed by bombing and those lying vacant in tenantable condition were requisitioned. Most of the buildings had deteriorated for want of repairs. The prices of all commodities went up including those of building material. The demand for housing became acute. The lessors (landlords) who normally renewed leases resorted to action for eviction and started charging heavy rents for fresh leases. In England, the government stepped in and passed laws called rent restrictions acts (1) to prevent landlords increasing rents above the maximum rents permitted by the new laws (2) to give tenants security of tenure by preventing landlords from evicting them without an order of the court which could not be given except on certain specified grounds like default in the payment of rent, sub-letting, making structural alterations, and the landlord’s genuine need to occupy the premises and some more. The acts were a piece of social legislation protecting lessees in occupation as it would have been hard for them to find out another suitable premises which had become scarce and exhorbitant in rent. The protection was specifically given to the persons in occupation of a tenement and on their death to the members of their family living with them. In respect of the tenancy of commercial premises, it went to the next of kin. (The terms lease and tenancy have the same meaning, the difference being only historical).
As against these rights namely the security of tenure coupled with the right to pay only the standard rent, which were meant for personal protection of tenants, the acts took away the historical right of a tenant to assign the lease to an other person or sublet the premises. The tenant, therefore, was not allowed to profiteer by assigning the tenancy or subletting it which he could do as per the law before the passing of the acts.
In England the first rent control act was passed in 1915, the Increase of Rent and Mortgage Interest (War Restrictions) Act, 1915. Thereafter many rent acts were passed like Increase of Rent and Mortgage Interest (Restriction) Act, 1920 (Act of 1920) and later in the years 1923, 1933, 1938, 1939, 1957 and 1965.
In India, the first law was passed in Bombay Presidency in 1915 on the model of English law and thereafter in 1939 which was repealed and replaced by a comprehensive law called the Bombay Rents, Hotel, and Lodging House Rates Control Act, 1947 which has now been repealed and replaced by the Maharashtra Rent Control Act, 1999. The Maharashtra Rent Control Act, 1999 also repeals two Rent Control Acts in force in the Marathwada and Vidarbha region of Maharashtra and presents a unified law on the subject of rent control.
Similar laws were passed in other provinces in India as a first step in the enthused social awakening.
In England, landlords and tenants by and large respected the law, but, in India, they stultified the whole objective of the social legislation. The tenants started subletting parts of the premises on labels called paying guests or the whole of the premises on fabulous payments on the so called care taker arrangement. The cautious among them paid a share to the landlords from the money obtained for transfer of tenancy i.e. one surrendered the tenancy and the other took a fresh one in his favour. Again the Bombay Land Requisition Act was passed in 1948 to requisition the lands and houses which had fallen vacant for public purposes and forced the landlords to notify the vacancy of tenancy to the government and on the government refusing to occupy the vacant houses the landlords could create a fresh tenancy. The Land Requisition Act was largely misused.
The tenants who obtained the unique protection were required to be strictly regular in payment of rent and if they defaulted, were penalized severely in forfeiture of tenancy and finally ejectment by decree of the Court of law. Later on some states like Maharashtra became rational by removing the sting from the law of forfeiture of tenancy by providing for payment of interest at the rate of 9 per cent per annum on the amount of the arrears of rent a defaulted payment.
After the passing of the acts in the last fifty years, virtually all commercial premises have changed hands at least ten times and the landlords given a fair share each time. In residential premises also, the landlords got a good slice each time the tenancy changed hands.
New commercial premises came to be built after Second World War on a grand scale around the already existing old business centres. They were either leased on a premium or on high rents which now appear to be lowly. In such class of premises again, the tenancy has been transferred a number of times. Those who prospered went away for bigger places and those who did not were brought out. The landlord had a finger in every pie. In metropolitan cities like Bombay and Delhi the present tenant is not the original tenant of war days but is the man who well knows the history of the seven generations of his forefathers but not that of the tenants before him who have far outnumbered his grand fathers, each one of them having paid a share of premium to the landlord and gone away happily. It is the landlord who can tell the tale. The present tenant who came in five or ten years ago may be paying a seemingly paltry amount as rent but who can deny that he and the tenants before him had successively paid a share of premium which will sustain the landlord and his family for generations to come. The landlord has collected, during the last fifty years, the value of his property five fold and still retaining the invaluable right of reversion; reversing the fate of tenant rather than reverting to the land.
Rents Acts in operation:
The Bombay Rent Act, 1947 was amended in 1959 introducing an exception to the prohibition of assignment of tenancy of commercial premises. That was that a tenant of commercial premises, while disposing of the whole of his stock in trade, his assets and liabilities, along with the goodwill of the business (name and style), could assign the tenancy to a purchaser of his business. This was a welcome provision which gave mobility to the business.
The housing shortage continued to worsen. Needy persons took premises on leave and licence paying large deposits and heavy licence fees. At times the courts tore off the label of licence and declared the transaction to be a lease which brings in protection of the rents acts, security of tenure and the right to get the rent standardised.
Normally the arrangement of leave and licence was literally honoured and on expiry of the term of licence, the possession was quietly handed over. In spite of the two judgements of the Bombay High Court following a judgement of the Supreme Court dispelling the clouds hovering over the genuine transaction of lease, very few people went to the courts. And whenever they went there they were looked down upon by the stern eye of the courts for retracting from the gentleman’s agreement. In preface to my book “Lease and Licence Distinguished” (N.M.Tripathi, 1968) I had said, “Rent Control legislation is one of the forms of social legislation. Any attempt to evade the operational effects of the legislation is viewed by the courts as a dishonest act and to claim its protection is equally considered ungentlemanly unless an additional case for survival is made out. Surely, this changing face of the courts keeps the balance between the freedom of contract and the struggle for survival.”
The happy balance existing in the society and largely managed by the courts was tilted by the amendment to the Bombay Rent Act commencing from the 1st February 1973 transforming all licensees with subsisting agreements into deemed tenants and making it an offence for a tenant thereafter to give a premises on leave and licence. The legislation put a fear in the mind of the people dispensing accommodation, creating scarcity all around.
One unsavoury consequence of the Amendment Act of 1973 was that even pure licences given out of good will for a short period and for a reasonable licence fee without taking any deposit were also protected even though they were created just a few days prior to the 1st February, 1973. This ruined many an honest licensor and many upright licensees were tempted to take immoral, though legal stand and claim tenancy. What is worse, rich companies, banks, governments and governmental bodies which need no protection as an individual licensee does, have claimed advantage of the amendment.
Similarly the sub-tenancies created before the 1st February 1973 was legalized by amendment to the Bombay Rent Act in the year 1987.
After a long period of fourteen years came the respite from another piece of legislation in 1987 amending the Bombay Rent Act, pinning down the arrangement of leave and licence to its literal sense allowing no scope for interpretation by the courts. An agreement of leave and licence could not be constructed as camouflage of the lease but to be governed strictly by the terms of the agreement. It gave a fillip to the dispensation of the vast volume of accommodation lying idle since then.
Soon thereafter the Central Government announced the national housing policy which recommended the rationalization and far as possible to achieve the uniformity of the rent laws in all the states in India. Not being satisfied with the formulation of a general broad policy it also drafted a terse and no nonsense model rent law which among other things recommended 1) exempting the application of rent law for a period of fifteen years from the houses newly constructed or substantially renovated 2) exempting the application of the law from residential as well as non residential premises charging more than a prescribed rent 3) making a provision of creating tenancies for a limited period 4) fixation of standard rent on the market value of the land and the cost of construction. 5) revision of rent of existing tenancies on a graduated scale and again the periodic revision of rent on the prevailing consumer index and 6) setting up two tier system of adjudication with rent controllers and tribunals ousting the jurisdiction of courts and establishing speedy and simplified procedures for settling disputes within a year.
Then finally came the Maharashtra Rent Control Act, 1999 consolidating the three acts in the state of Maharashtra. A draft bill vouching adherence to model rent law with a great fanfare in early nineties was circulated in public inviting suggestions from them. After lying in limbo for nearly eight years the act was passed commencing from 31st March 2000. It has failed to swim with the essential thrust of the model rent law as well as the aspirations of the people. Since it has not affected in any manner the status or tenure of tenancies acquired under the said earlier three acts which otherwise would have belied the logic of present economic conditions the standard rent which has been made revisable at five per cent could have been made revisable at a uniform licence fee charged in cases of premises given on leave and licence and can be said to be reasonable in the current inflationary trends.

Maharashtra Rent Control Act, 1999: Salient Features:
The new act that is the Maharashtra Rent Control Act, 1999 has in the preamble said what changes it is going to make. It says, “the act is to unify, consolidate and amend the law relating to the control of rent and repairs of certain premises and of eviction and for encouraging the construction of new houses by assuring a fair return on the investment by landlords and to provide for the matters connected with the purposes aforesaid”.
The salient features of the new act of 1999 are :-
1) Consolidation of the three acts as mentioned above but omitting the application of the act relating to the control of rates of hotels and lodging houses.
2) Withdrawing the application of the act from the companies (S.3. (1) (b)).
The new rent control act of 1999 has withdrawn the application of the act from the banks, public sector undertakings, or any corporation established by or under any central or state act, or foreign missions, or international agencies, multinational companies and limited companies having a paid up share capital of more than rupees one crore. This suggestion was given by me in my article in a daily in 1978 and repeated by me in the second edition of my book “Lease and Licence Distinguished” thus: “What a fall! . … … … The amendment of 1973 converted certain licenses into leases into leases and offered a morsel to the needy and struggling persons. The companies and other like groups snatched it away and gulped it. … … … It is really sad to see a company paying high salaries to its directors and officers along with all the conceivable perquisites, rich dividend to its share holders and with its capability to spend away the funds on any obscure heads while at the same time claiming the protection of the rent acts. ………. Now what is the way out? A company takes premises on lease for a fixed period and then refuses to vacate it on expiry of the stipulated period taking a stand that the lease is protected under the rent act or that the premises given on leave and licence comes within the protection of the amendment of 1973. How is the company to be compelled to restore the socio-economic balance achieved by the tradition of “company lease?” … … … An ideal solution is a suitable legislation to specifically exclude the companies incorporated under the companies act, foreigners, foreign governments, their consulates and trade representations, the central and state governments in India and such like from the protection of the rent acts.”
However the new act while withdrawing protection from the companies has not withdrawn the protection from the premises let to the government or to local authority or taken on behalf of the government who have enjoyed the protection of the rent acts from the very beginning and continue to enjoy the said privilege. The picture has changed now. The government is no more a government with only policing duties. It has taken to wings to fly into the far away skies of economic adventurism with the avowed adoption of socialistic pattern of society as a form of governance. It has lot of money to squander away. Then why should they not pay the rent according to market forces or acquire new premises on prevailing market rate? The new act ought to have withdrawn the protection from the government also.
The discrimination against the companies is unconstitutional in so far as the government falls in the same class as the companies and there are no intelligible differentia that can separate the companies from the government in regard to the objective to be achieved by the enactment withdrawing the protection of the rent act from the companies and not from the government.
3) Withdrawing the application of provisions of standardization of rent from the premises, whether old or newly constructed, which have not been let or given on licence for a continuous period of one year (S.6)
By amendment to section 4 of the Bombay Rent Act (inserting sub-section 1A after Section 4) in 1987 the provisions relating to standardization of rent were withdrawn for a period of five years to buildings constructed after the 1st October 1987 so that the landlord could recover a larger part of his investment in that period according to the rules of demand and supply. Similar provisions had been enacted in other states long ago.
The new act of 1999 carried the concept further. The provisions relating to standard rent have been withdrawn from the premises given on tenancy or license in buildings whether old or newly constructed where they have not been let or given on licence for a continuous period of one year. It would have been abreast of the times if the tenancies created after the commandment of the act had been exempted altogether from the operation of the act that is not only from the provisions of the standardization of rent but also from the protection of tenure under the Act.
4) After having given maximum rights to tenants the legislature began to zealously secure to landlords payment of rent under the English acts as well as under the earlier acts in India. It scripted a draconian provision that if a tenant remained in arrears of rent for more than six months and if he failed to pay them within one month next after the month in which he received the notice, the tenancy stood forfeited and on suit being filed the court had no choice but to pass the decree of eviction. The maxim ‘ignorance of law is no excuse’ which was treated by law books as archaic and quoted by judges with a wink to confuse junior lawyers was applied here without showing remorse. The hapless tenants came to be evicted in droves. Even the Supreme Court raised its hands in reading discretion to have been invested in judges to avert the consequence of forfeiture. Finally in 1987 the legislature woke up in the cries of tenants and watered down the stringent law. The forfeiture was not to take effect if the defaulter deposited in court the arrears of rent with simple interest at the rate of nine per cent per annum on the first day of the hearing of the suit and complied with other conditions including the payment of the cost of suit. Such relief was not made available after availing of two such chances.
However under the new act of 1999 the relief against forfeiture can be availed of every time the defaulter complies with the simple requirements laid down in section 15(3), which are more or less similar that is if, within a period of ninety days form the date of the service of the summons of the suit, the tenant pays the standard rent and permitted increases then due together with simple interest on the amount of arrears of rent at fifteen per cent per annum and thereafter continues to pay regularly such standard rent and permitted increases till the suit is finally decided and also pays the cost of the suit as directed by the court. The proviso limiting the chances of relief against forfeiture only for two such defaults in the provisions of the old act has been conspicuously omitted here. Thus the payment for the arrears of rent are equated, as it were, with the collection of bill each time for payment of services rendered or goods sold with the compound interest customarily charged on delayed payments, the compound interest here being the cost of the suit. The penalty of simple interest at the rate of fifteen per cent per annum and the cost of the suit which in these days is back breaking is a sufficient deterrence to making default in payment of rent.
5) Under the Act of 1947 the standard rent once fixed could not be increased or decreased. Only the permitted increases could be increased if new areas of collecting social charges were to be traversed. Now under the new act increase in standard rent is permitted annually at the rate of four per cent (s.6). As the security of tenure, one of the two basic tenets on which all rent control acts were founded, has not been touched, it would have been keeping with the times if the standard rent, which has justifiably not been allowed to be revised retrospectively and which in any case was always a lesser principle and now evaporating in inflationary heat, had been allowed to be increased at the rate of at least ten per cent annually which is the norm in the transactions of letting premises on leave and licence for more than a year and yet considered a pittance by economics of the present day.
6) Registration of the agreement of tenancy as well as leave and licence has to be compulsorily made by landlord or licensor on pain of imprisonment and fine. Tenant or licensee has been allowed in absence of registration of agreement to prove the terms orally (s.55).
7) Payment of premium as consideration for the grant or relinquishment of tenancy which was made illegal in England and India with civil and criminal consequence has been explicitly permitted to encourage dealings in black and white which were hitherto in black only, to generate money for circulation in the market as well as tax for the exchequer.
If you call it leave and licence, it is leave and licence: In Delhi and New Delhi the concept of the grant of tenancy for a limited period or the rent act not applying to a tenancy when the rent charged exceeds a certain amount was introduced long ago as a precursor to the laws rationalizing the rent acts. But the amendment of 1987 to the Bombay Rent Act, 1947 inserting section 13A2 was a consummate step in that direction. The classic distinction between the concept of lease which has well-defined ingredients giving a right in immovable property and that of licence which only makes the user lawful without creating a right in immovable property, kept alive by subtle reasoning, called quibbling by judges in private conversation, has been changed by the legislature to sub-serve the interests of the fast changing society. The clear-out lease by mutual agreement can be so arranged as to give it a character of ephemeral licence to occupy an immovable property for a short period of time; only the business premises have been left untouched for the reasons of their easy availability for an asking price and the stakes in the business being so high and engaging that fighting for the gains of lease, which are being diluted from time to time, look chicken-feed. The new act of 1999 has planted the said amendment whole sale in section 24 thereof.
9) Government allottees under the Bombay Land Requisition Act, 1948: The Supreme Court in the case of H.D. Vora (1984) 2 SCC 337, gave an innovative judgement that the continuance of the requisition of premises for more than thirty years which was conceptually temporary in character was a fraud on the power of the government which in effect did the acquisition of the property without paying the market value of the property in the guise of requisition and ordered the government to release the landlord’s premises from requisition The landlords whose premises remained under requisition for more than thirty years got a manna from heaven and quickly filed the writ petitions in the Bombay High Court for an order directing the government to derequisition their premises. As the Government Pleader on the original side of High Court, Bombay in the mid-eighties I stood defenceless and alone facing the juggernaut unleashed by the Supreme Court. The High Court allowed the petitions and passed the orders of eviction. The allottees went to the Supreme Court.
The cases were referred to the constitutional bench of five judges. The majority by four to one (AIR 1994 SC 2319) by yet another subtle interpretation of law confirmed the judgment given earlier in H.D. Vora’s case. Justice P.B. Sawant in his minority judgment agreeing with the reasoning of the majority on questions of law however ruled differently on when the allottees should vacate the premises and said that since the landlords with the tenements freed from requisition would get the same standard rent they would not be prejudiced if some more time was given to the allottees to find out suitable place for them. The government by amendment to the Bombay Rent Act, 1947 trying to rescue the allottees redefined their status as deemed tenants. The provision was challenged in Bombay High Court in the case of Ramji Premjibhai Gohil, 1998 (4) MLJ 523 and finally struck down as ultra vires the constitution as beyond the legislative competence. The said provision has been transplanted as section 27 of the new act of 1999 which on fresh challenge is declared unconstitutional in Subhash Laxmidas Majithia, W.P. No. 1595 decided on 30.4.2001 by Bombay High Court following its earlier decision in Ramji’s case. The allottees are now waiting for the verdict of the Supreme Court with their hands raised in prayer.