Holding

The phrase "prevailing fair rent in the area" denotes the prevailing market rent for similar premises, not the fair rent fixed by the Controller, and the tenant must pay rent as per the compromise (25% less of that prevailing rent).

Summary

The landlord filed an eviction petition which was disposed of by a compromise decree allowing the tenant to occupy the reconstructed premises at a rent "25% less of the prevailing fair rent in the area." After reconstruction the tenant took possession by executing the decree without invoking Section 27 of the Karnataka Rent Control Act, which provides a right of re‑entry. The landlord contended that rent should be calculated on the fair rent fixed by the Controller under Section 14, while the tenant argued that the decree meant 25% less of the prevailing market rent for similar premises. The High Court held that the fair rent must be fixed by the Controller and set the rent accordingly. The Supreme Court reversed, holding that the phrase "prevailing fair rent in the area" refers to the prevailing market rent, not the statutory fair rent, and that the parties did not waive Sections 26‑28. It fixed the prevailing rent at Rs 4,000 per month and ordered the tenant to pay Rs 3,000 per month (25% less) from the date of possession. The appeal was allowed and the tenant was directed to pay the arrears within three months.

Issues considered

Whether the tenant, having not invoked Section 27, is bound by the rent stipulated in the compromise decree.
Interpretation of the phrase "prevailing fair rent in the area" in the compromise decree – does it refer to the statutory fair rent under Section 14 or to the prevailing market rent for similar premises.
Whether the parties waived the provisions of Sections 26 to 28 of the Karnataka Rent Control Act by entering into the compromise.
What is the appropriate method for determining the prevailing rent in the area for the purpose of the decree.

Legislation cited

Constitution of Indias. Article 142
Karnataka Rent Control Act, 1961s. 14(6), s. 21(1)(j), s. 26, s. 27, s. 28

Subjects

rent controlevictioncompromise decreefair rentprevailing rentlandlord-tenantreconstructionSection 27Article 142Karnataka Rent Control Act

Judgment

A ABBOBAKER AND ANR.
v.
MAHALAKSHMI TRADING CO.

FEBRUARY 10, 1998

B [ S. SAGHIR AHMAD AND G.B. PATTANAIK, JJ.]

Rent Control and Eviction
Karnataka Rent Control Act, 1961 : Sections 14(6), 21(1)0) and 26
to 28.
c Demolition and reconstruction of building-Eviction petition disposed
of on the basis of compromise entered into between landlord and tenant-
Compromise stipulated that tenant would be accommodated in the new
building after reconstruction on rent "at concessional rate of 25% less of the
prevailing/air rent in the area"-Tenant got possession of the premises after
D executing the compromise decree without taking recourse to right of re-entry
into the reconstructed building under S. 27- "Fair rent"-Meaning a/-
Held : As the tenant has not taken recourse to S. 27 he is liable to pay the
rent as agreed to under the compromise decree-Expression ''prevailing fair
rent in the area" does not indicate the fair rent as f1Xed under S. 14 as such
E fixation does not depend upon the prevailing rent in the area-But it
indicates the reasonable rent received in the area in respect of similar
premises.
"Prevailing fair rent in the area"-Modes of arriving at-By calling
upon the Controller to determine the same by taking evidence from the
parties not being guided by considerations of fair rent under the statute-
F By requiring a valuer to inspect the premises and submit a report/or ultimate
finding by Supreme Court-By calling upon the counsel for the parties to
indicate the prevailing rent in the area in respect of the premises in possession
of the tenant and determine the/air rent on that basis-Since first two modes
involve protracted litigation and delay the last mode is preferred in the
interest ofjustice-Hence, having regard to the suggestions given at the Bar,
G the location of the premises, the rent at which the tenant was occupying the
earlier premises which stood demolished and the new construction, the
prevailing fair rent in the area f1Xed by Supreme Court under Art. 142 for
the premises in question with a view to doing complete justice in the matter-
Constitution of India, 1950, Art. 142.
H The appellant-landlord filed an eviction petition against the tenant-
762
' Jy
,

,. ABBOBAKER v. MAHALAKSHMI TRADING CO. 763
respondent. The said eviction )letition was disposed of on the basis of a A
{ compromise entered into between the landlord and tenant. The compromise
... petition formed a )!art of the decree of the court. The compromise sti)lulated
that the tenant would be accommodated in the new building after re-construction
on a rent "at concessional rate of 25% less of the prevailing fair rent in
the area." After the building was re-constmcted the tenant got the 11ossession
B
of the Jlremises by executing the compromise decree without taking recourse
to Section 27 of the Karnataka Rent Control Act, 1961.

The a11pellant-landlord approached the High Court contending that the
res)Jondent-tenant could not have merely obtained possession of the premises
without 11aying the rent as stipulated in the compromise decree. The c
res11ondent-tenant contended that the tenant would be liable to pay 25% less
of the fair rent to he determined by the Controller under Section.14 of the
.... Act. The High Court held that the fair rent of the premises had to be
determined by the Controller under Section 14 of the Act. The High Court
further held that the tenant would be liable to pay the rent at a concessional D
rate of 25% less of such fair rent determined by the Controller. Being
aggrieved by the High Court's judgment the ap)lellant-landlord preferred the
)!resent ap)leal.

Allowing the appeal, this Court
E
HELD: 1.1. Section 27 of the Karnataka Rent Control Act, 1961
;'.,;_
recognises the tenant's right of re-entry into the reconstructed building.
But, in the present case, the tenant has not taken recourse to the procedure
11rescribed under Section 27 for exercising his right of re-entry but on the
other hand has got back 11ossession by executing the compromise decree.
.)-
F
Hence, the tenant is liable to pay the rent as agreed to under the compromise
decree. [768-E-H]
2.1. The exJlression "prevailing fair rent in the area" does not indicate
the 'fair rent' as fixed by the Controller under Section 14 of the Act as such
fixation does not depend upon the prevailing rent in the area. But it indicates
the reasonable rent received in the area in res)lect of similar premises. G
[769-E-F)
~_,_)- 2.2 "Prevailing fair rent in the area" can be arrived at by calling
upon the Controller to determine the prevailing rent in the area in respect
of the 11remises by taking evidence from the parties not being guided by the
considerations of fair rent under the statue. The second option available is H
+
,E

I·

764 SUPREME COURT REPORTS [1998] l S.CR ..---
A to require a valuer to inspect the premises and submit a report for ultimate
,...
.
r

finding by this Court as to what would be the prevruling rent in the area. The
third option is by calling upon the counsel for the parties to indicate as to •
what would be the prevailing rent in the area in respect of the premises in
possession of the respondent and determine the fair rent on that basis. Since
the first two modes involve protracted litigation and delay the last mode is
B
preferred in the interest of justice. Hence, having regard to the suggestions ').-
given at the Bar, the location of the premises and the rent at which the
respondent was occupying the premises which stood demolised and the new
construction which has come up, the prevailing fair rent in the area is fixed
at Rs. 4000 per month under Article 142 of the Constitution with a view to
c doing com1ilete justice in the matter. But in terms of the compromise decree
the respondent being entitled to occupy at a concessional rate of 25% less
of the prevailing rent it would be liable to pay Rs. 3000, per month.
[769-H; 770-A-C-H; 771-A)

D
CIVIL APPELLATE JURISDICTION : Civil Appeal No .. 757of1998.
)'..
..
From tlle Judgment and Order dated 22. 8. 96 of the Karnataka High
Court in H.R.R.P. No. 1769 of 1995.

R.F. Nariman, N.P.S. Panwar and S.N. Bhat for the Appellant.

E G.V. Chandra Shekhar and P.P. Singh for the Respondent.

The .Judgment of the Court was delivered by :

G.B. PATTANAIK, J'. Leave granted.

F This appeal is by the landlord against the order dated 22nd August,· (
1996 passed by the Karnataka High Court in HRRP No. 1769of1995 arising
out ofHRC No. 66of1994. The appellant - landlord filed the aforesaid HRC
case under Section 2l(l)(j) of the Kamataka Rent Control Act against the
tenant - respondent in respect of the premises in question. The aforesaid
G proceeding was ultimately disposed of on the basis of a compromise entered
into between the parties and the terms embodied in the compromise petition
dated 22nd April, 1994 formed a part of the decree of the court. In accordance
with the aforesaid compromise decree the tenant delivered the vacant
possession of the tenanted premises and the landlord was permitted to demolish
and reconstruct a new building thereon. It was also stipulated in the
H compromise that the tenant will be accommodated in the two shop rooms
ABBOBAKER v. MAHALAKSHMITRADING CO. [G.B. PATTANAIK, J.] 765
measuring 200 sq. ft. each on tlie ground floor soon after tlie new construction A
... is over and be furtlier accommodated in two shop rooms measuring 200 sq .
feet each in cellar floor for the purpose of godown after tlie construction is
over. Clause (5) of tlie compromise decree dealt witli the rent to be paid by
tlie tenant on occupying tlie premises in tlie new building after construction
of tlie same. The dispute in tlie present case centres rom1d the terms and
B
conditions of the aforesaid clause (5) and what was the rent intended to be
-..(
paid by tlie tenant for occupation of one ship in tlie cellar floor and one ship
in the ground floor. The appellant - landlord on getting vacant possession of
tlie tenanted premises, demolished tlie same and put up a new construction.
The tenant - respondent filed a petition for getting possession of the newly
built shops in accordance with the compromise decree dated 22.4.1994 and the c
said petition was registered as Execution Petition No. 204of1995. In the said
execution proceedings tlie appellant - landlord was set ex-parte and the
executing court directed issue of delivery warrant. Subsequently, under the
orders of the executing court tlie lock was broke open and witli tlie police help
the tenant - respondent got tlie possession of the premises as per the D
compromise decree and the execution case was close~. The landlord - appellant
approached the High Court against the order of the executing court directing
delivery of the possession in favour of tlie respondent and obtained an
interim order of stay of issuance of delivery warrant on 6.12.1995, but much
before the said date the premises in question had been possessed by the
E
respondent - tenant on 28,11.1995, and therefore, the interim order issued by
tlie High Court became infructuous. The landlord - appellant before the High
Court thougli·raised a contention tllat the compromise decree cciuld not have
been executed but Mr. R.F. Narinlan, learned senior counsel, appearing for the
' appellant did not press the same. The tenant thus has obtained possession
of 400 sq. ft. of tlie newly constructed building in execution ofthe compromise F
'r
decree and that has become final. A further contention had been raised by
the landlord before the High Court to the effect that the compromise decree
is an integrated one and under the decree tliough tlie tenant would be entitled
to get possession of two shop rooms measuring 200 sq. feet each after tlie

-
·"'
•.
new construction of tlie shop rooms are over but the said tenant is also liable G
to pay rent at a concessional rate of 25% less of tlie prevailing fair rent in
the area and without discharging tliat obligation the tenant could not have
merely obtained possession of the two shop rooms measuring 400 sq. feet in
execution of a part of the decree. The tenant, however, resisted the aforesaid
contention by contending that tlie tenant would be liable to pay 25% Jess of H
766 SUPREME COURT REPORTS [1998] l S.C.R.

A the fair rent to be detennined by the Controller under Section 14 of the Act ,..
and until that detennination is made the landlord cannot resist the execution
of the decree in relation to possession of the two shop rooms measuring 400
sq. feet. The High Court on consideration of the rival contentions and applying
its mind to the terms and conditions of the compromise decree came to the
B conclusion that the parties waived under the agreement the provisions of
Section 26 to 28 of the Act and after construction of the new building the
tenant is entitled to get possession of two shop rooms measuring 400 sq. feet
in accordance wi.th the provisions of the compromise decree. The High Court
further came to the conclusion that the fair rent for the premises has to be
determined by the Controller under Section 14 of the Act, and therefore, it
c would be open for the parties to approach the Controller for fixation of fair
rent in respect of the premises which has been put in possession of the
tenant, so that, the Controller would determine the same and on such
determination being made the tenant would be liable to pay the same at a
concessional rate of 25% less of the fair rent. It is this direction of the High
'o Court which is the subject matter of challenge in the present appeal.
Mr. R.F. Nariman tlie learned senior counsel appearing for the appellant
contended that the High Court committed serious error in falling back upon
the provisions of the Act for the pmpose of fixing the rent of the premises,
possession of which had been given to the tenant under the compromise
E decree, having held that by the compromise entered into between the parties
the provisions of Sections 26 to 28 of the Act have been waived. The learned
senior counsel further .urged that the expression 'prevailing rent in the area'
in clause (5) of the compromises decree is foreign to the criteria for fixation
of fair rent of a building by the Controller under Section 14(6) of the Act and
I
F on a plain grammatical meaillng being given to the words used in clause (5), r'
the only conclusion that can be arrived at is that the parties intended that '
the tenant would pay rent at a concessional rate of 25% less of the prevailing
rent in the area in respect of one shop in the cellar floor and one shop in the
ground floor and the conclusion of the High Court to the contrary is wholly
unsustainable. Mr. G.V. Chandra Shekhar the learned advocate appearing for
G the respondent on the other hand contended that use of the phrase 'fair rent'
on clause (5) of the compromise decree can only refer to the fair rent to be
detennined by the Controller under the provisions of the Act and therefore,
the impugned order of the High Court is immune fonn interference by this
Court. Mr. Shekhar further contended that allowing the landlord to charge rent
H for the premises higher than the fair rent to be fixed by the Controller would
ABBOBAKER v. MAHALAKSHMITRADING CO. [G.B.'PATTANAIK, J.) 767
be against the public policy and would frustrate the object for which the very A
enactment was made and as such court should be slow in giving a meaning
to the tenns of a compromise which would be against the public policy. Mr.
Shekhar further contended that in the absence of any mechanism as to how
the prevailing rent in the area could be determined it would be only logical
to hold that the parties intended under the aforesaid clause (5) for.fixation of B
fair rent by the Controller in exercise of power under Section 14 of the Act.

Having considered the rival submi5sions at the Bar and having examined
the terms and conditions of the compromise decree the question that arises
for our consideration is : what in fact was intended by the parties with regard
to the payment of rent in respect of the shops to be occupied by the tenant C
in the new building after the construction is over? To answer this question
it would be appropriate to extract clauses (4) and (5) of the application for
compromise which fonned a part of the decn~e:

"4. In the new building the petitioners shall accommodate the
respondent in the two shop rooms measuring 200 Sq. feet each shown D
in red colour and demarcated as 'A' &'B' comprised in the ground
floor facing Azizuddin Road mentioned in the petition sketch soon
after the new construction of the aforesaid two shop rooms is over.

In the new building facing Santhegalli Road, the petitioner also E
should accommodate the respondent in 2 shop rooms demarcated as
'C' & 'D' 200 sq. feet each in cellar floor for the pmpose of godown
as shown in green colour in the petition sketch after the construction
oftl1e same on or before 31.12.1995.

5. That the respondent is not liable to pay any deposit for any F
of the said new shop rooms both to the cellar and ground floor.
However, the respondent shall pay rent at a concessional rate of 25%
less of the prevailing fair rent in that area in expect of one shop in
the cellar floor and one shop in tl1e ground floor. And no concession
in the fair rent will be allowed in !he godown premises in cellar floor G
another shop room in the ground floor facing Azizuddin Road."

As it transpires from the records of this case, tl1e landlord had filed an
application for demolition and reconstruction under Section 2l(l)(j) of the
Karnataka Rent Control Act (hereinafter referred to as 'the Act'). Under the
said provision the premises in question must be reasonably and bona fide H
768 SUPREME COURT REPORTS (1998) 1 S.C.R
~
A required by the landlord for the purpose of immedijlte demolition and such
demolition is to be made for the purpose of erecting a new building in place
of the premises sought to be demolished. The aforesaid application was
disposed of on the basis of the compromise arrived at between the parties
>-
.."'
as already stated and such order providing for re-delivery of posse;ssion to
B U:: : tenant after construction of the new building by the landlord is an
execi..table decree and has been executed by the executing court. Under \.-

Section 21 (1 )(j) of the Act, the landlord has a right to evict a tenant from the
premises in question, if he reasonably and bona fide requires the same,
immediately fot the purpose of demolishing and erecting a new building
thereon. After obtaining an order of eviction and getting possession of the
c premises if the landlord does not demolish the premises in question within
(
the period specified in the order then the tenant gets a right of re-entry-for
which purpose the tenant may give his landlord a notice of his intention to
occupy the premises and the landlord has the obligation to deliver the vacant
possession of the same to the tenant forthwith as per Section 26 of the Act.
D Under sub-section (3) of Section 26 a landlord can also be convicted if he fails
to demolish and construct a new building without any reasonable excuse or
fails to comply with the order of the court. Section 27 of the Act confers a
right on the tenant to get possession of the premises after the same be
constructed and for that purpose the tenant has to give a notice to the
E landlord of his intention to occupy the new building on its completion and
this notice can be served on the landlord within six months from the date on
·which the tenant delivered vacant possession of the premises. Thus, Section
2'1 "recognises his right of re-entry into the reconstructed building on the
terms and conditions mentioned therein. But in the case in hand the tenant
has not taken the recourse to procedure prescribed under Section 27 for
F exercising his right of re-entry but on the other hand has got back possession 1"
by executing the compromise decree. When the High Court as in the present
case came to the conclusion that the parties to the compromise decree in fact
waived the provisions of Sections 26 to 28 of the Act then necessarily it could
not have arrived at the conclusion that in respect of the tenament now under
G occupation of tenant in execution of the compromise decree fair rent has to
be fixed by the ·Controller under Section 14 of the Act. The tenant having
executed the compromise decree providing for re-delivery of possession to
~-
the tenant after reconstruction by the landlord without taking recourses to
filing of application under Section 27 of the Act, is also liable to pay the rent
H as agreed to under the compromise decree in respect of the two shops
ABBOBAKER v. MAHALAKSHMI TRADING CO. [G.B. PATTANAIK, J.] 769
ineasuring of area of 400 sq. feet in the new building. The question, therefore, A
arises is as to what was the rent agreed upon by the parties under clause (5)
of the compromise decree? Does it refer to the fair rent to be fixed by .the
Controller under Section 14 of the Act or it refers to the prevailing rent in the
area in respect of the tenament in question. There is no dispute that under
Section 14 of the Act Controller has been vested with the power for fixing B
the fair rent of a building. In fixing such fair rent the Controller is required
· to take into consideration the rental value of the building as entered in the
property tax assessment book of the local authority for the year in which the
building was constructed as is apparent from Section 14(6) of the Act. Under
the proviso to the said provision when no such records are available, the
Controller may fix the fair rent calculated on the basis of six per cent per C
annum of the aggregate amount of the reasonable cost of construction and
the market price of the land comprised in the building on the date of the
commencement of the construction. Thus, in the matter of fixation of fair rent
under sub-section (6) of Section 14 of the Act the prevailing rent in the area
is not germane and has no application. On the other hand, on the basis on D
relevant data in respect of the very building as provided in the statute the
Controller is required to decide the matter and fix the fair rent. Judged from
this stand point the expression 'prevailing rent in that area' used in clause
(5) of the terms of compromise is suggestive of the only conclusion that the
parties intended that the liability of the tenant to pay rent after occupying the E
new premises is at a concessional rate of 25% less of the rent which would
be prevailing in the area in respect of similar premises. The Word 'fair rent'
in clause (5) does not refer to the fair rent to be fixed by the Controller under
the statute. The expression 'fair' has been used in contradistinction with the
expression 'unfair' or 'unreasonable' In other words, the prevailing rent in the
area in respect of similar premises must be the reasonable rent received in the F
area in respect of similar premises and not a fanciful or whimsical rent which
a particular tenant might be offering to a landlord in the area in question. In
this view of the matter, we are of the considered opinion that the High Court
committed an error in inteipreting clause (5) of the compromise decree to mean
that the tenant would be liable to pay rent at a concessional rate of 25% less .. G
of the fair rent to be fixed in respect of premises by the Controller under
Section 14 of the Act. The said conclusion of the High Court is accordingly
set aside.

The next question that crops up for consideration is how the prevailing H
770 SUPREME COURT REPORTS [1998] l S.C.R.

A fair rent in the area in respect of the premises can be arrived at. One possible
mode is to call upon the Controller to determine the prevailing rent in the area
in respect of the premises by taking evidence from the parties not being
guided by the considerations of fair rent under: the stature but in such a case
the litigation will be protracted and the tenant would continue to occupy th\:
B premises without paying any rent therefor notwithstanding the terms of the
compromise· decree by which he is equally bound, as the landlord. We are not
inclined to adopt this procedure as that would not be in the interest of justice.
The other option available is to require a valuer to inspect the premises and
submit a report for ultimate finding by this Court as to what would be the
prevailing rent in the area but that procedure also would be subject to several
C imponderables and would take considerable time in arriving at any final
conclusion. Ii is in this context in course of hearing we had called upon the
counsel appearmg for the parties to indicate as to what would be the prevailing
rent in the area in respect of the premises in possession of the respondent.
While Mr. Nariman, appearing for the appellant indicated to us that the
D prevailing rent would be Rs. 8,000 basically relying upon the rent which the
appellant himself is receiving from other tenants @ 20 rupees per square feet,
the learned coilnsel for the respondent on the other hand submitted that at
the most it would be only Rs. 1,000, the city of Mangalore not having
developed much in the last decade. The premises in question is located in the
E well known city of Mangalore in the State of Kamataka. It is difficult to accept
that a reasonable rent in respect of 400 sq. feet would be a petty sum of Rs.
1,000. But at the same time submission of the learned counsel for the respondent
that the appellant's self-seiving statement that he has let out premises in the
area @ 20 rupees per sq. ft. cannot form the basis to arrive at any conclusion
as to what would be the prevailing rent in the area, is also of great force. To
F avoid further protraction of litigation and for doing complete justice in respect
of the matter in this appeal we think it appropriate to exercise our jurisdiction 1
under Article 142 of the Constitution and to decided as to what would be the
prevailing rent in the area for the purpose of enforcing clause (5) of the
compromise decree. Having considered the relevant suggestions given at the
G Bar and the rent at which the respondent was occupying the earlier premises
which stood demolished and the new construction have come up, we think
it appropriate to hold that the prevailing rent in the ttrea in respect of the
premises in question should be Rs. 10 per sq. ft. and as such 400 sq. ft., in
occupation of the respondent would fetch a rent of Rs. 4000 per month. But
H in terms of the compromise decree the respondent being entitled to occupy
-er·
'

ABBOBAKERv. MAHALAKSHMI TRADING CO. [G.B. PATTANAIK, I.] 771
at a concessional rate of 25% less of the prevailing rent, he would be liable A
"'- to pay Rs . 3000 per month and this he is required to pay from the date he
has taken possession of under the orders of the executing court, and we
accordingly so direct. The entire arrears till today should be paid within 3
months from the date of this order and he would continue to pay regularly
at that rate until any further enhancement is made by the competent authority
under the statute. Needless to mention if the respondent fails to pay the B
appellant the areas of rent at the rate of Rs. 3000 per month within 3 months
as indicated above then he would be liable to be evicted and the appellant
can take steps for eviction of the respondent from the premises. This appeal
is acsordingly allowed with the aforesaid directions. There will be no order

- as Wm~

v.s.s. Appeal allowed.
C