Holding

A stipulation for a refundable advance rent exceeding one month’s rent is void under s.7(3) of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, rendering the advance payable immediately and precluding eviction of a tenant under a thirty‑year lease lacking a forfeiture clause.

Summary

The appellant, Modern Hotel, leased a commercial premises for thirty years starting 9 September 1969 and paid an advance of Rs 6,500, of which Rs 1,500 was to be adjusted against rent and the balance of Rs 5,000 was to be refunded after the lease expired. The landlord filed an eviction suit in October 1973 alleging rent arrears. The lower courts held the tenant in default, relying on the landlord’s account books and s.34 of the Evidence Act. On appeal, the Supreme Court held that the lease clause allowing a refundable advance beyond one month’s rent is void under s.7(3) of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960, making the advance payable to the tenant immediately and precluding a finding of default. The Court also observed that, in the absence of a forfeiture clause, the thirty‑year lease continued under the Transfer of Property Act and could not be terminated by eviction. Consequently, the eviction decree was set aside and the appeal allowed.

Issues considered

Whether a stipulation for an advance rent exceeding one month’s rent and refundable at the end of the lease is void under s.7(3) of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960.
Whether the advance amount held by the landlord is deemed payable to the tenant immediately, thereby negating any alleged rent arrears.
Whether a lease of a fixed term of thirty years without a forfeiture clause can be terminated by eviction under the Transfer of Property Act.
Whether the landlord’s reliance on s.34 of the Evidence Act was sufficient to prove non‑payment of rent.

Legislation cited

Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960s. 7(2)(a), s. 7(2)(b), s. 7(3)
Indian Evidence Act, 1872s. 34
Transfer of Property Acts. 11(g)

Subjects

advance rentrefundable advancelease evictionnull and void stipulationTransfer of Property Actforfeiture clauselandlord-tenantEvidence ActdefaulterAndhra Pradesh Buildings Act

Judgment

MODERN HOTEL, GUDUR REPRESENTED BY A
M.N. NARAYANAN
v.
K. RADHAKRISHNAIAH & ORS.

APRIL 26, 1989 B

~[RANGANATH MISRA AND M.N. VENKATACHALIAH, JJ.]

-- Andhra Pradesh Buildings (Lease, Rent and Eviction) Control
Act, 1960: s. 7-Advance rent refundable at the expiry of lease-
Stipulation-Validity of-A mount whether adjustable-Tenant whether
a defaulter. C

The proviso to s. 7(2)(a) of the Andhra Pradesh Buildings (Lease,
Reut aud Eviction) Control Act, 1960 prohibits payment of any sum
exceeding one month's rent by way of advance, clause (b) thereto makes
any such sum refundable or at the option of the tenant otherwise adjust- D
able, and sub-s. (3) declares the stipulation for payment of rent in
advance beyond that of one month as null and void.

_,~ The appellant-tenant took the demised premises on a thirty year
lease beginning from September 9, 1969 and paid a large amount as
advance, only a part of whieh was adjustable towards the stipulated E
rent in the subsequent months and the balance was to be paid back
under a valid receipt after the expiry of the lease period. The lease deed
did not have a forfeiture clause. The respondent-landlord initiated
action for eviction in October 1973 on the plea that the tenant had failed
to pay rent for a certain subsequent period. The tenant advanced the
! ' plea of payment. The landlord placed the account books of the appel- F
lant and claimed the benefit of s. 34 of the Evidence Act. All the courts
-~below found that the payment as claimed had not been established.

In this appeal by special leave, it was contended that the balance
of advance which lay in the hands of the respondent-landlord was either
refundable to the tenant or adjustable against rent under s. 7 of the Act, G
--+ and if out of that snm the arrears were available to be adjusted the
tenant was not at all in default; that the lease of 1969 being for a term of
thirty years certain, eviction could not be claimed against a contractual
tenant during the subsistence of the lease, and that the lease did not
have a forfeiture clause so as to bring the matter within the ambit of
section 1ll(g) of the Transfer of Property Act. H

725
726 SUPREME COURT REPORTS [1989] 2 S.C.R.

Allowing the appeal by special leave,
A
HELD: 1. The stipulation in the lease-deed that the amount of
advance would be refundable at the end of the tenancy was null and
void under s. 7(3) of the Act. The said amount became payable to the
tenant immediately. It was thus held by the landlord on account of the
B tenant on the date of tiling of the petition for eviction. The tenant could "\
not, therefore, be considered a defaulter for a smaller amount by not
paying the rent for some months. [7300, 729BC, 730E] '

Mohd.\ Salimuddin v. Misri Lal & Anr., [1986] I SCR 622 and
M/s. Sarwan Kumar Onkar Nath v. Subhas Kumar Agarwalla, [1987] 4
...
sec 546 referred to.
c
· 2. The lease being for a term of thirty years was to expire in
September, 1999. The deed did not stipulate a forfeiture clause. In the
absence of such a clause the contractual tenancy was subsisting under
the provisions of the Transfer of Property Act. There could not, there-
D fore, be any eviction from such a tenancy. l730F]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4108
of 1982.

From the Judgment and Order dated 23.12.1981 of the Andhra
E Pradesh High Court in C.R.P. No. 3547 of 1981. .

P.P. Rao, R. Venkataramani, V.G. Pragasam and Satya Mitra
Garg for the Appellant.
-
.,>

P. Krishna Rao, B. Krishna Prasad and K.K. Gupta for the
F Respondents.

The Judgment of the Court was delivered by

RANGANATH MISRA, J. This is a tenant's appeal by special
leave against the order of eviction from a commercial premises at
G Gudur in Andhra Pradesh. The Controller, the Appellate Authority +----
and the High Court have concurrently found that the appellant was a
wilful defaulter liable to be evicted.

Under document No. 1327 of 1969, a thirty-year lease with an
annual stipulated rent was granted in favour of one Narayanan, a
H p_artner of the hotel, for a term of 30 years beginning from 9th of
MODERN HOTEL v. K. RADHAKRISHNAIAH [MISRA, J.] 727

September, 1961. For the first 15 years rent was stipulated at the rate
of Rs.150 per month and for the second span of 15 years rent was to be A
escalated to Rs.200 per month, and the tenant undertook to pay the
rent by the 9th of every succeeding month.

The lease-deed further stipulated:
B
"Out of the advance of Rs.6,500, the second party shall
deduct every month Rs. 75 from the stipulated rent upto
Rs.1,500 and the balance of Rs.5,000 shall be paid back to

- the second party by the first party under valid receipt after
the expiry of the lease period."

Thus, by March 1971 the amount of Rs.1,500 had been adjusted and C
the landlord held Rs.5,000 refundable to the tenant.

Action for eviction was initiated on the plea that the tenant had
failed to pay the rent for a certain subsequent period. Courts below
debated the main-perhaps the only-contention as to whether the D
.,, plea of payment which the tenant advanced had been established. On
behalf of the landlord the account books of the Hotel were placed and
the benefit of s. 34 of the Evidence Act was claimed. Lot of attention
was bestowed in the Courts below on the question as to whether. the
oral evidence along with the presumption arising under s. 34 of the
Evidence Act had not established the position that no payment as E

-
,'!;
claimed had been made. On the finding that payment had not been
established, eviction was ordered.

Two contentions have been advanced by Mr. P .P. Rao appearing
for the appellant to maintain that the order of eviction was contrary to
y law and cannot be sustained. Reliance is placed on s. 7 of the Andhra F
-~
Pradesh Buildings (Lease, Rent & Eviction) Control Act, 1960,
(hereafter 'Act') in support of the stand that the sum of .Rs.5,000
which lay as advance in the hands of the respondent-landlord was
either refundable to the tenant or adjustable against rent and if out of
the sum of Rs.5,000 the arrears were available to be adjusted, the
tenant was not at all in' default. It has next been contended that the G
lease of 1969 was for a term of 30 years certain and eviction has been
claimed against a contractual tenant during the subsistence of the
lease. Admittedly, the lease does not have a forfeiture clause so as to
bring the matter within the ambit of s. 11 l(g) of the Transfer of Pro-
perty Act. The application for eviction, a copy of which is available on
the record (at p. 10 of the second paper-book), refers to a notice in H
paragraph 7 in the following terms:
728 SUPREME COURT REPORTS [1989) 2 S.C.R.

"The petitioners caused a registered notice through their
A counsel dated 28.10.1973 to the respondent demanding the
rent due and also for the eviction from the schedule
mentioned premises since the respondent has become a
wilful defaulter. The respondent received the notice and
has not chosen to give any reply."

B It, therefore, follows, appellant's counsel has contended, that the lease . \
remained unterminated and the right created under the lease cannot '
be taken away by filing an application for eviction on the plea of wilful
default in the matter of payment of rent.

Section 7 of the Act as far as relevant, provides:
-
c "7 (2) Where the fair rent of a building has not been so ~-
fixed-

(a) the landlord shall not, after the commencement
of this Act claim, receive or stipulate for the payment of
D any premium or other like sum in addition to the agreed c
rent:

Provided that the landlord may receive, or stipulate }--'
for the payment of, an amount not exceeding one month's
rent by way of advance;
E
(b) save as provided in clause (a), any sum paid in
excess of the agreed rent whether before or after the com-
mencement of this Act, in consideration of the grant,
-
continuance or renewal of the tenancy of the building after y
,such commencement, shall be refunded by the landlord to
F the person by whom it was paid or, at the option of such ~·
person, shall be otherwise adjusted by the landlord.
Ii!
(3) Any stipulation in contravention of sub-section
(1) or sub-section (2) shall be null and.void."

G The lease-deed described the amount of Rs.6,500 as advance at
~
four places and stipulates adjustment of a sum of Rs.1,500 out of it and
the balance amount of Rs.5,000 to be paid back to the tenant after the
expiry of the lease period. The provio to s. 7(2)(a) prohibits payment
of any sum exceeding one month's rent by way of advance and sub-s.
(3) declares the stipulation for payment of rent in advance beyond that
H of one month' as null and void.
MODERN HOTEL v. K. RADHAKRISHNAIAH [MISRA, J.] 729

The receipt of Rs.6,500 by the landlord was, therefore, cor.trary A
to law and opposed to public policy. A sum of Rs.1,500 has already
been adjusted in the manner indicated in the petition for eviction and
the fact that a sum of Rs.5,000 was still held by the landlord was
admitted therein. On the facts appearing on the record it is thus clear
that the landlord held a higher amount than the rent due on the date
when the petition for eviction was filed on the plea of wilful default of B
payment of rent. The stipulation of holding the excess amount of
' Rs.5,000 free of interest to be refunded under a valid receipt after the
· expiry of the lease period is the null and void stipulation and the
amount of Rs.5,000 in the hands of the landlord was an amount held

•
by the landlord on account of the tenant on the date of filing of the
petition for eviction.
c
This Court in Mohd .. Salimuddin v. Misri Lal & Anr., [1986] 1
SCR 622 had occasion to deal with a more or less similar situation
arising under the Bihar Buildings (Lease, Rent & Eviction) Control
Act, 1947. There, a sum of Rs.2,000 had been advanced by the tenant
to the landlord stipulating adjustment of the loan amount.against the D
rent which accrued subsequently. The landlord asked for eviction on
the ground of arrears of rent by filing a suit. The trial court had
decreed the suit but the lower appellate court reversed the decree by
··~ holding that the tenant was not in arrears of rent since the amount
advanced by the tenant was sufficient to cover the landlord's claim of
arrears. The High Court, however, vacated the appellate judgment E
and restored that of the trial court holding that the loan amount by the
tenant was in violation of the prohibition contained ins. 3 of the Bihar
i Act and the tenant was in arrears of rent and liable to be evicted. This
Court set aside the judgment of the High Court by saying:
y "The view taken by the High Court is unsustainable F
inasmuch as the High Court .has lost sight of the fact that
~.
the parties to the contract were unequal. The tenant was
acting under compulsion of circumstances and was obliged
to succumb to the will of the landlord, who was in a
dominating position. If the tenant had not agreed to
advance the loan he would not have been able to secure the G
tenancy."

· The ~ourt referred to the doctrine of pari-delicto and held that the
same was not applicable against the tenant.

In Mis. Sarwan Kumar Onkar Nath v. Subhas Kumar Agarwalla, H
730 SUPREME COURT REPORTS [1989] 2 S.C.R.

A [1987] 4 SCC 546, Salimuddin's case came for consideration. This was
also a dispute under the Bihar Act where two months' rent had been
paid in advance by the tenant to the landl6i·d on the stipulation that
the advance amount would be liable to be adjusted towards arrears of
rent, whenever necessary or required. The Court held that the tenant
B could not be evicted on the ground of default in the payment of rent
for two months even if the tenant failed to ask the landlord to make
adjustment of the advance amount in the abse~oe of any agreement
requiring the tenant to inform the landlord as to when such adjustment~
is to be made. This Court said that when the Rent Act prohibited the '
landlord to claim such advance payment, the tenant could not be con-
sidered to be a defaulter and the doctrine of [Jari-delicto was not at-
e tracted to such a fact-situation.
Mr. Rao building upon the ratio of these two decisions rightly
contended before us that when the landlord had Rs.5,000 on tenant's
account with him which he was holding for years without paying
D interest and against the clear statutory bar, there could be no justifica-
tion for granting a decree of eviction on the plea of arrears of rent. In
view of the fact that the stipulation that the amount would be refund-
able at the end of the tenancy is null and void under s. 7(3) of the Act,
the amount became payable to the tenant immediately and the land-
lord with Rs.5,000 of the tenant with him could not contend that the
E tenant was in default for a sma!ler amount by not paying the rent for
some months.

The second contention advanced before us is equally weighty.
The lease being for a term of 30 years is to expire in September, 1999.
As we have already said, the lease did not stipulate a forfeiture clause
F and in the absence of a forfeiture clause in the lease leading to termi-
nation by forfeiture, the contractual tenancy was subsisting under the
provisions of the Transfer of Property Act and there could not be any
eviction from such a tenancy.

We are somewhat surprised to find that these irresistible
G defences were not advanced in the Courts below and the course of the
litigation was confined to a consideration of s. 34 of the Evidence Act.

The appeal is allowed, the concurrent decision of all the three
Courts below directing the tenant to be evicted are set aside and the
application for eviction is dismissed with costs throughout. Hearing fee.
H in this C0 urt is assessed at Rs.3,000.

P.S.S. 'Appeal allowed.
f,