Holding

A tenant who pays advance rent in excess of the statutory limit may set off that amount against subsequent arrears without a separate request, and the doctrine of in pari delicto does not preclude relief; therefore the tenant is not a defaulter under s.11(1)(d).

Summary

The appellant, a firm, leased a room and paid two months' rent in advance with the understanding that the amount could be set off against future rent. When it failed to pay rent for September and October 1972, the landlord sought eviction under section 11(1)(d) of the Bihar Building (Lease, Rent and Eviction) Control Act, 1947, which mandates eviction for failure to pay two months' rent. The appellant argued that the advance rent, though in excess of the one‑month limit prohibited by section 3, could be adjusted against the arrears without any further request, and thus it was not a defaulter. The High Court held otherwise, requiring a specific request for adjustment and ordered eviction. The Supreme Court reversed, holding that the tenant could set off the excess advance rent without a separate request, that the doctrine of in pari delicto did not bar relief, and that the landlord could appropriate the amount towards arrears. Consequently, the High Court’s eviction order was set aside and the lower courts' decisions restored.

Issues considered

Whether a tenant who paid advance rent exceeding the statutory limit can set off that amount against subsequent arrears without expressly requesting adjustment, thereby avoiding liability as a defaulter under s.11(1)(d).
Whether the doctrine of in pari delicto bars the tenant's claim for set‑off when both parties violated s.3 of the Act.
Whether the landlord may appropriate excess advance rent towards arrears without the tenant's explicit direction.

Legislation cited

Bihar Building (Lease, Rent and Eviction) Control Act, 1947s. 11(1)(d), s. 3

Subjects

evictionrent arrearsadvance rentset‑offin pari delictolandlord‑tenantBihar Building (Lease, Rent and Eviction) Control Act

Judgment

SARWAN KUMAR ONKAR NATH
A
v.
SUBHAS KUMAR AGARWALLA

OCTOBER 9, 1987

B [E.S. VENKATARAMIAH, K.N. SINGH
AND S. RANGANATHAN, JJ.]

Bihar Building (Lease, Rent and Eviction) Control Act, 1947-S.
11( l)(d)-Eviction of tenant for default in payment of rent-In the
absence of any agreement to the contrary, tenant can claim set off "'
C against advance payment of rent accepted by landlord in violation of s. 3
of the Act and the Court cannot order eviction by invoking the doctrine
of in pari delicto.

When the appellant did not pay rent for September and October,
1972, the respondent filed a petition for its eviction from the premises in
D question under s. U(l)(d) of the Bihar Building (Lease, Rent and Evic-
tion) Act, 1947 which provided that on failure to pay two months' rent a
tenant was liable to be evicted from the premises taken on lease. The
appellant's defence was that it had paid two months' rent in advance at
the inception of the tenancy with an understanding that it could be set
off against the rent whenever necessary or required and, further, that
E since under s. 3 of the Act it was not lawful for the landlord to have
received any snm exceeding one month's rent in advance, it could not be
considered as a defaulter in payment of rent for purposes of s. ll(l)(d)
as, at least one month's rent which had been paid in excess of what was
permitted under s. 3 was liable to be adjusted towards the arrears. The
Trial Court dismissed the suit, and his appeal against the same having
f been rejected by the Additional Subordinate Judge, the respondent
approached the High Court by a Second Appeal. Although it accepted
the plea that the appellant had paid two months' rent in advance at the
inception of the tenancy, the High Court arrived at the finding that the
appellant had failed to pay the rent for the months of September and
October, 1972, on the ground that the appellant had not requested the
G respondent to adjust it towards the rent due for the aforesaid two
months. Observing that the rule of in pari delicto did not help the
appellant in this case, the High Court set aside the concurrent judg-
ments of the two courts below and directed eviction.

H Allowing the appeal by special leave,
414
•

SARWAN KUMAR v. S.K. AGARWALLA 415

HELD: The appellant could not be treated as a defaulter who had A
failed to pay rent for two months. [418E)

(i) The High Court approached the entire case in a technical
fashion. The respondent was not entitled to receive more than one
month's rent by way of advance. Yet, the respondent had received in B
advance the rent for two months. The receipt under which the said
advance was received does not state that the amount received was liable
to be adjusted towards the arrears of rent only on the appellant inform·
ing the respondent orally or in writing that such adjustment is to be
made. In the written statement, however, the appellant pleaded that the
amount paid by way of advance could be set off by way of rent whenever
necessary or required. This is not a case where there was any agreement C
to the effect that such adjustment could be made only on the tenant
asking the landlord to make such adjustment. Nor is this a case where
the tenant was liable to the landlord on any other account. The only
transaction between them was the lease in question and the amount in
question had been paid as rent in advance. There was also no agreement
that the amount was liable to be adjusted at the termination of the lease. D
It was, therefore, open to the respondent to appropriate the said sum
towards the arrears even without any option being exercised as regards
such adjustment by the appellant. [418A-D)

(ii) The High Court was also wrong in coming to the conclusion E
that the appellant could not rely on the provisions of s. 3 of the Act on
the ground that if the parties were in pari delicto the court would not
come to the rescue of either. [418El

Mohd. Salimuddin v. Misri Lal & Anr., [1986) 1 S.C.R. 622,
relied on. F

Guiab Chand Prasad v. Budwanti & Anr., A.I.R. 1985 Pat. 327,
referred to.

Budhwanti & Anr. v. Guiab Chand Prasad., 11987 l 1 Scale 501,
distinguished. G

CIVIL APPELDATE JURISDICTION: Civil Appeal No. 2607
i· of 1987. ·

From the Judgment and Order dated 6.1.1986 of the Patna High
Court in Appeal Decree No. 75 of 1978. H
•

416 SUPREME COURT REPORTS [1988] I s.c.R.

Avadh Behari and Y.K. Jain for the Appellant. )( ·
A
Shanker Ghosh and M.P. Jha for the Respondent.

The Judgment of the Court was delivered by

B VENKATARAMIAH, J. The appellant is a firm carrying on
business at Jharia. It took on lease a room bearing No. I in a building '"(
belonging to the respondent on a monthly rent of Rs. 70 on 7.11.1960
and paid in advance two months' rent, i.e., Rs.140. The appellant paid
rents regularly but did not pay the rent for the months of September
and October, 1972. Taking advantage of the non-payment of the rent
in respect of the said two months the respondent filed a petition for
c eviction against the appellant contending that the appellant had
-
become liable to be evicted from the premises in question under clause
(d) of sub-section (1) of section 11 of the Bihar Building (Lease, Rent
and Eviction) Control Act, 1947 (hereinafter referred to as 'the Act')
1
which provided that OI! failure to pay two months' rent a tenant was
D liable to be evicted from the premises taken on lease. The appellant
pleaded inter alia in his written statement that at the time of the incep-
tion of the tenancy it had paid the respondent a sum of Rs.140 as
advance rent with an understanding that the amount of advance could
be set off against the rent whenever necessary or required and that
since under section 3 of the Act it was not lawful for a landlord to claim .,L.
E or receive, in consideration of the grant, renewal or continuance of a
tenancy of any building, the payment of any premium, salami, fine or
any other like sum in addition to the rent or payment of any sum
exceeding one month's rent of such building as rent, in advance, the
appellant could not be considered as a defaulter in payment of rent for
purposes of clause (d) of section 11(1) of the Act as atleast one
F month's rent which had been paid in excess of what was permitted '
under section 3 of the Act was liable to be adjusted towards the f-.:<
arrears. The appellant, therefore, contended that in any view of the •
matter it could not be treated as a defaulter liable to be ejected from
the premises. Agreeing with the pleas of the appellant the trial court
dismissed the suit and the appeal filed by the respondent before the
a; Additional Subordinate Judge, Dhanbad against the judgment of the
trial court was also dismissed. The respondent filed a second appeal
before the High Court against the judgment of the Additional Subordi-
nate Judge. The High Court found that the appellant had failed to pay -r
the rent for the months of September and October, 1972 although it
accepted the plea of the appellant that he had paid the sum of Rs.140
H as rent in advance on the ground that the appellant had not requested
SARWAN KUMAR~. S.K. AGARWALLA (VENKATARAMIAll, J.] 417

the respondent to adjust the rent which he had paid in advan.ce A
towards the rent due for the months of September and October, 1972.
The relevant part of the judgment of the High Court reads thus:

"6. In paragraph 9 of the written statement, the respon-
dent stated that Rs.140 was advanced to the appellant, with
an understanding that it could 6e set off against the rent B
whenever necessary or required. It will, therefore, appear
that the respondent was entitled to claim adjustment if it
I
was necessary or required. The respondent neither orally
r nor in writing informed that it was exercising its option
under the agreement for adjusting the amount paid in
advance towards the rent of September and October, 1972. C
· Accordingly to the respondent's own showing, it remitted
the rent for these two months also alongwith rent of
November and December, 1972 in January, 1973. If it had
exercised its option under the agreement, there was no
necessity for it to remit the rent for the months of D
September and October because that amount was not due
as it had been paid by adjustment. Mr. Sinha submitted
that the pleading should not be construed in a pedantic
manner. There is no question of construing the pleadings in
this case in a pedantic manner because according to its own
case, the respondent was entitled to adjust the amount if
necessary or required and for that it was necessary for it to E
intimate the appellant that it was exercising his option.
Further, in the written statement no where it is asserted
that it niay be allowed to adjust the amount against the
rent of September and October, 1972. Since the option was
not exercised at any stage, the respondent cannot get the
benefit of the amount paid by it in advance to the appel- F
!ant. Mr. Merathia tried to make out that section 3 of the
Act prohibits the landlord to accept the rent for more than
one month and as the advance was for two months,' no
·benefit can be given to the respondent as the contract was
against the statute. It is true that if the parties are in pari
delicto court will not come in rescue of either. However. G •
that does not help the appellant."
l_ ...
I
'
Accordingly the High Court set aside the concurrent judgments of the "
two courts below and directed the eviction. This ·appeal by special
leave is filed by the appellant against the judgment of the High Court. H
418 SUPREME COURT REPORTS [1988) 1 S.C.R.

A It is unfortunate that the High Court has approached the entire
case in a technical fashion. It is not disputed that the respondent was
not entitled tq receive more than ohe month's rent by way of advance.
Yet, the respondent had received in advance the rent for two months.
The receipt under which the said advance was received does not state
that the amount received was liable to be adjusted towards the arrears
B of rent only on the appellant informing the respondent orally or in
writing that such adjustment is to be made. In the written statement,
however, the appellant pleaded that the amount paid by way of
advance could be set off by way of rent whenever necessary or re-
quired. This is not a case where there was any agreement to the effect
that such adjustment could be made only on the tenant asking the
landlord to make such adjustment. Nor is this a case where the tenant
C was liable to the landlord on any other account. The only transaction
between them was the lease in question and the amount in question
had been paid as rent in advance. There was also no agreement that
the amount was liable to be adjusted at the termination of the lease. It
was, therefore, open to the respondent to appropriate the said sum
D towards the arrears even without any option being exercised as regards
such adjustment by the appellant. The High Court erred in observing
that the appellant had not asserted in its written. statement that it may
be allowed to adjust the advance amount towards the rent due for the
months of September and October, 1972. In substance the plea set out
in para 9 of the written statement, amounts to such an assertion. In any
E case the appellant could not be treated as a defaulter who had failed to
pay rent for two months. The High Court was also wrong in coming to
the conclusion that the appellant could not rely on the provisions of
section 3 of the Act on the ground that if the parties were in pari
delicto the court would not come to the rescue of either.
-
F In Mohd. Salimuddin v. Misri Lal and another, [1986) 1 S.C.R.
622 this Court has held that where in a suit by landlord for eviction of
tenant it was found that the tenant, in order to secure the tenancy
advanced certain amount to the landlord (although in violation of
prohibition tci do so as embodied in section 3 of the Act) under an
agreement containing a stipulation that the loan amount was to be
G adjusted against the rent which accrued, and the amount so advanced
was sufficient to cover the landlord's claim of arrears of rent for the
relevant period, it could not be said that the tenant was not entitled to
claim adjustment of the loan amount so advanced against the rent
which accrued subsequently, simply because the loan advanced was in
violation of the prohibition contained in the Act. Accordingly, thi,;
H Court held that as the tenant was not in arrears of rent after the
SARWAN KUMAR v. S.K. AGARWALLA [VENKATARAMIAH, J.] 419

adjustment of loan amount towards the rent, he was not liable to be
A
evicted from the premises in question. This Court further observed
that the doctrine of in pari delicto was not attracted to such a situation.
The principle enunciated in the above case is equally applicable to the
case before us.

The learned counsel for the respondent, however, relied upon a B
Full Bench decision of the High Court of Patna in Galab Chand Prasad
v. Budhwanti and another, A.LR. 1985 Pat. 327 in which it had been
held that any excess rent paid by a tenant to his landlord in pursuance
of a mutually agreed enhancement of rent which was illegal did not get
automatically adjusted against all the subsequent defaults in the
payment of the monthly rent under the Act. The decree for eviction
passed by the High Court of Patna in the above case has no_ doubt been C
affirmed by this Court in Budhwanti & Anr. v. Guiab Chand Prasad.,
[1987] 1 SCALE 501. But, this Court affirmed the judgment of the
High Court not on the ground that the tenant in that case was a
defaulter in payment of rent but on the ground that the landlord
required the premises for his bona fide use and occupation. This Court D
in its judgment observed that "in the view we propose to take
.................. we do not think it necessary to go into the ques-
tion whether the appellants had committed default in payment of rent
and secondly even if they had committed default, they are entitled to
adjust the excess rent paid by them over a span of 30 years without
reference to the rule of in pari delicto. The reason for our refraining to E
go into these questions is because we find the decree for eviction
passed against the appellants can be sustained on the second ground,
viz., bona fide requirement of the shop for the business requirements
of the members of the joint family." It is not now necessary for us to
consider the correctness of the observation made by the Full Bench of
Patna High Court on the question of default and the right of the tenant F
to claim adjustment because what was claimed by way of adjustment in
the said case was a certain excess amount paid over a long period of 30
years as enhanced rent under a mutual agreement though such pay-
ment was contrary to law. But in the case before us the amount of
Rs.140 had not been paid as enhanced rent under any such agreement.
It was, in fact, an amount which had been paid in advance which was G
liable to be adjusted whenever it was necessary or required.

On the facts and in the circumstances of the case we are satisfied
that the appellant was not in arrears of two months' rent. We are of
opinion that the High Court was in error in holding that the appellant
was a defaulter who was liable to be evicted under clause (d) of sub- H
420 SUPREME COURT REPORTS [ 1988] l S.C.R.

A section ( 1) of section 11 of the Act. The judgment of the High Court is,
therefore, liable to be set aside and we accordingly set it aside. The
judgment of the trial court which has been affirmed by the first appel-
late court is restored. The appeal is accordingly allowed with costs.

B H.L.C. Appeal allowed.