IN THE HIGH COURT OF SINDH AT KARACHI
Mr. Justice Muhammad Shafi Siddiqui
F.R.A No. 22 of 2017
M/s. Pharmacie Plus
Abdul Latif & others
Date of Hearing:
Through Mr. Kashif Hanif Advocate
Through Mr. Muhammad Zahid Kabeer Advocate
Muhammad Shafi Siddiqui, J.- Appellant has raised a legal question as to whether a term for periodic enhancement of rent in an expired lease/rent agreement would continue and remain in force in respect of a property, which is governed by Cantonments Rent Restriction Act, 1963.
2. Brief facts of the case are that an application under section 17 of Cantonments Rent Restriction 1963 Act, 1963 was filed as Rent Case No.36 of 2016 by the respondent against the appellant. Along with main application an application for depositing the rent at an enhanced rent w.e.f. November 2016 onwards was also filed. The Rent Controller while disposing of the application directed the appellant to deposit the rent at enhanced rate i.e. Rs.354,919/- w.e.f. November 2016 onwards while considering clause 2 read with clause 15 of the expired rent agreement.
3. Learned counsel for the appellant submitted that such term of the agreement, being not in consonance with the 1963 Act, ceases not only on the expiry of the agreement but also at the time when it was alive, and the order for depositing rent at the enhanced rate was not only without jurisdiction but also unlawful. He submitted that though without prejudice to his right, he (appellant) continued to deposit rent at the previous rate and the office of the Rent Controller continued to accept the rent at the previous rate pending adjudication of the rent case, however all of a sudden the office refused to receive the rent and ultimately the defence was struck of in terms of Section 17(9) of 1963 Act, which is impugned being final order.
4. Learned counsel for the appellant submitted that this case is covered by a judgment in the case of Muhammad Yousuf v. Abdullah reported in PLD 1980 SC 298 in which the Four-Member Bench of Hon’ble Supreme Court held, as argued, that the proposition of continuing the terms of an expired lease agreement would not prevail as being not supported by law. The rights and liabilities were observed to be governed by the Ordinance and not by the terms of the expired lease agreement. Counsel submitted that the subsequent view of different benches of Hon’ble Supreme Court were in respect of mode of payment for which a mechanism was provided, both in the 1963 Act and in Sindh Rented Premises Ordinance, 1979. The 1963 Act is absolutely silent insofar as enhancement of rent at any rate is concerned hence the term is contrary, perhaps even at the time when agreement was alive. Thus, learned counsel submitted that the order of the Rent Controller for depositing rent at an enhanced rate was not lawful and since there was no remedy available the appellant has challenged it in terms of final order dated 15.05.2017.
5. Learned counsel for respondent on the other hand has relied upon the case of Uzma Construction Co. v. Navid H. Malik reported in 2015 SCMR 642 which sets the issue at rest that where parties have mutually agreed for advance payment of rent of each month then the said term will bind the parties even after expiry of terms of the tenancy agreement and has supported the impugned order.
6. I have heard the learned counsel and perused the material available on record.
7. The first case which discussed the issue of expired lease agreement is of Muhammad Yousuf (Supra) under Cantonments Rent Restriction Act, 1963 in which in the first instance the Hon’ble Supreme Court was of the view that the Ordinance specified the grounds on which the tenant can be evicted but as the expiry of lease is not a ground on which a tenant can be evicted, it is clear that the covenant accepted by the appellant to hand over vacant possession “at the time of the determination of the lease” was illegal and could not have been enforced. The other clause of the lease agreement, as referred in the said case to be illegal, by the counsel, as being inconsistent with the expressed provisions of Ordinance is of penal interest in case of non-payment of rent before the date as fixed for its payment. This was held to be illegal and unlawful as the Ordinance expressly prohibits the landlord from recovering anything in excess of fair rent. Similarly, the agreement to the extent that the appellant under clause 5 of the lease shall not approach any authority for fixation of fair rent, was contrary to the provisions of Ordinance. Ultimately in the aforesaid judgment the learned Bench of Hon’ble Supreme Court while referring the case of Morrison’s observed as under, which has an impact on this case:-
“Morrison's case was, therefore, followed by the Indian Federal Court iz Kai Khushroo Benzonjee Capadia v. Bai Jerbai Hirjibhoy Warden and another (1) and we would follow it for the further reason that the renewal of a lease on its expiry by holding over can arise very seldom as long as rent laws, in the form in which we have known them for the last forty years or so, remain in force. As we explained, this is because the said Ordinance renders illegal many of the usual covenants accepted by lessees in lease agreements. Thus, for example, in the instant case, there could be no question of the renewal of the lease agreement of 10-1-1964, because of the many clauses in this agreement which were illegal, therefore, what Mr. Rahimtoola really meant by the renewal of the lease was the renewal of those terms only of the lease which were not hit by the provisions of the said Ordinance. But, if we were to accept this submission m the absence of an express provision in that behalf in the lease agreement, it would mean foisting upon the appellant an agreement to which he had never consented. It is true that the terms of the lease, which were not hit by the said Ordinance, could have been enforced during the pendency of the lease, and, similarly these terms could have been enforced when the lease was renewed for a period of six months in June 1964, under the express provisions of clause 1(d). But the express provision of an automatic renewal of the lease was confined to one period of six months only,, therefore, the payment of rent after 10-6-1965 could not amount to an offer by the appellant to renew the lease on the basis of those terms of the lease which were not inconsistent with the said Ordinance. No doubt the parties could have entered into such an agreement, but an agreement to renew only some of the terms of a written agreement is not to be lightly inferred, and in any case, it cannot be inferred from the mere tender of rent by the appellant and its acceptance by the respondent, because the parties were bound by the overriding provisions of the said Ordinance.
8. The learned Bench of the Hon’ble Supreme Court in the said case further went to observe that:-
As, in our opinion, the rights and liabilities of the appellant, in the instant case, are governed exclusively by the said Ordinance, the question of the amount of rent due from him has to be determined in accordance with the provisions of clause (i) of subsection (2) of section 13 of the said Ordinance. Under this clause, a tenant has to pay the rent due from him "within fifteen days of the expiry of the time fixed in the agreement of tenancy with his landlord or in the absence of any such agreement within sixty days from the period for which the rent is payable;". The words "the agreement of tenancy" mean an agreement which is in force, and not an agreement which has expired and his dead. Therefore, in the instant case, when the respondent filed his eviction application on the 9th of May 1970, the appellant was in default in the payment of rent for the month of December 1969, and for the months of January and February 1970. The rent thus due from him was Rs.600. But, as against this, the respondent had failed to return to the appellant the "security deposit" of Rs.1,000 despite the expiry of -the lease agreement. The respondent was no doubt entitled to deduct the electricity charges before returning this amount, but even after deducting these charges, the amount lying with him far exceeded Rs.600.
It is true that the appellant had not demanded the return of his deposit on the expiry of his lease, and further as debtor, it was for him to find the creditor, therefore, e should have informed the respondent to adjust the arrears of rent against his deposit with the respondent. This he did not do, but even on the footing that this resulted in a failure to pay rent within the meaning of section 13 of the said Ordinance, it was a very technical default and it would reduce the law to a farce, if the respondent was evicted for being in debt to the respondent (on account of his failure to pay rent) when in fact the overall position was that the respondent was in debt to the appellant. Therefore, there could not be a more appropriate case for the exercise of the Court’s discretion under section 13 of the said Ordinance in the tenant’s favour. Accordingly, even on the footing that the appellant was in technical default in the payment of rent on the date of the eviction application filed against him, we have no hesitation in exercising our discretion in his favour. We, therefore, set aside the eviction order passed by the three Courts below and allow the appellant’s appeal. However, as the appeal turned on a question of law which had not been decided by this Court, we leave the parties to bear their own costs.”
9. In the case of Zarina Khawaja v. Agha Mehboob Shah reported in PLD 1988 SC 190 while dealing the case under Sindh Rented Premises Ordinance, 1979 the learned Bench keeping in view the observations of the earlier Benches including the case of Muhammad Yousuf (Supra) laid down the principles as under:-
We have carefully considered the implication of various judgments of the Supreme Court which deal with the question of continuance of the terms of agreement of tenancy, after its termination. Leaving aside the theoretical possibilities all of them can be interpreted consistently on the following lines:
ONE: notwithstanding the enactment of the rent laws the relationship of landlord and tenant would continue to be determined and regulated in accordance with:
(a) the general law; and,
(b) the terms of tenancy between the parties,‑ But, subject to a very important condition that in case of repugnancy of either of these two elements to any of the provisions of the rent law the latter shall prevail; meaning thereby that the provisions of the general law and/or the covenants, in the agreement to the contrary, shall have no effect;
TWO: during the continuance and subsistence of the agreement of tenancy, the question of relationship of landlord and tenant, the regulation of that relationship particularly via‑a‑via the determination and payment of rent; as also the eviction, shall be governed by the covenants contained in the agreement; provided that those covenants do not come in conflict with the provisions of the rent law and in case of conflict the provisions of that law will prevail notwithstanding any term of agreement to the contrary;
THREE: after the expiry of the agreement of tenancy the general law of holding over by the tenant has not been repealed or modified by the rent laws except to the extent that it comes in conflict with the provisions of the Rent Restriction Law. On the contrary, it was specifically provided in the definition of a 'tenant' in section 2 of the West Pakistan Urban Rent Restriction Ordinance, 1959, that a tenant would include "a tenant continuing in possession after the termination of the tenancy in his favour". The definition of tenant in the present Sind Law also provides that a tenant would include "any person who continues to be in possession or occupation of the premises after the termination of his tenancy". Not only this, the present Sind Law made it more clear when the provisions contained in sections 6 and 15 (2)(i) of the Sind Rented Premises Ordinance, 1979, providing that no tenancy would remain valid beyond the mutually agreed period and that a tenant would be liable to be evicted on termination of such period, were repealed. The obvious reason was that the pre‑existing law before the re‑enactment was kept intact; namely, that the previous tenancy arrangements between the parties will continue to operate notwithstanding the termination of the period and will govern the continuance of tenancy as visualised in the definition of the tenant holding over. However, notwithstanding the continued operation of the terms of the agreement after the termination of the agreement; by process of law as aforesaid, its provisions whenever they are in conflict with the rent law, shall not be operative. For example, if a special method of eviction of the tenant is provided in the terms of the agreement which are repugnant to the provision contained in the relevant Rent Restriction Law, the latter shall prevail to the extent of repugnancy. Section 15 of the Sind Law is explicit on this point. Same was the position in the repealed Law. Similar would be the case relating to some other situations, for example, the determination of the fair rent. Similarly the vice versa position would also be correct. The terms of the so‑called expired agreement which are not repugnant to the rent law shall continue to operate. For example, the rate of rent, the mode of payment thereof including its; advance payment or deposit, provision for agreed increase in rent' provided it is not after the determination of fair rent, provision for re‑entry of a tenant after he vacates the premises for re‑construction, all covenants which support the conditions in section 15 of the Sind Law and section 13 of the Law repealed by it, and similar other conditions and comments. There is useful discussion on this aspect in the case of Muhammad Yunus Malik v. Mst. Zahida Irshad 1980 SCMR 184. We accordingly answer the 4th question in the negative and hold that the terms of an expired agreement as such, continue in operation, to the extent they are not repugnant to the Rent Law. Indeed same would be the position with an unexpired agreement also.”
10. Last but not least somehow similar questions were raised in the case of Uzma Construction Company (Supra). This case was in respect of mode of payment of rent. It was the case of tenant that after expiry of the agreement the mode of advance payment of rent should not have been enforced and that a grace period of 60 days in terms of Section 17(2)(i) of 1963 Act should have been provided. The learned Bench in the referred case was of the view that even after expiry of tenancy period, the terms, as regards mode and time of payment, shall continue to remain in force between the parties, as being not repugnant to the statutory provisions where the parties have mutually agreed for advance payment of rent for each month.
11. The question that now required determination is the auto enhancement of rent at the rate of 7% under 1963 Act. Section 7 of 1963 Act provides a remedy of increase by way of fair rent. This section has its own limbs to determine the fair rent and the law further prohibits any increase on this fair rent once determined under section 7. There shall not be any increase with or without consent of the tenant on this fair rent unless some addition, improvement or alternation, otherwise than by way of ordinary or usual repair, has been made in the building at the landlord’s expense. This is the requirement of Section 7.
12. In the instant case the parties have agreed for enhancement of rent on the existing rent by 7% within three years. Terms of Section 8 of 1963 Act provides that once it is determined and fixed under section 7 it shall not be lawful either with or without consent of a tenant to increase the rent unless addition, improvement or alternation was made in the building other than by ordinary or usual repairs at the expense of landlord. Section 7(5) of 1963 Act provides that when fair rent of the building has been fixed under this section, or where the rent of the building has been determined by an agreement between landlord and tenant, no further increase in the fair rent shall, during the continuance of tenancy be permissible within a period of three years from the date fixed by the Controller under subsection (3) or from the date of agreement, as the case may be. The question is whether subsection 5 of section 7 prohibits the parties to re-determine the quantum of rent within three years, than the one agreed originally in the agreement. The relevant clauses of the agreement dated 30.09.2014 i.e. 2 and 15 are reproduced as under:-
“2. That the monthly rent of the Demised Premises has mutually agreed upon at Rs.331,700/- (Rupees Three Hundred Thirty One Thousand Seven Hundred only) .
15. That rent of the said premises shall be increase 7% after every eleven (11) months.”
13. Under Cantonment Rent Restriction Act, 1963 the rent agreed mutually in a rent agreement is also deemed to be a fair rent, which is in addition to its determination by the Rent Controller in terms of Section 7(5) of 1963 Act, which prohibits enhancement in such rent i.e. fair rent within a period of three years from the date fixed in the agreement unless, of course, where some addition, improvement or alteration has been carried by the landlord. Such addition and improvement may entitled the parties to re-negotiate the quantum of rent but that is not the case here as the landlord has not claimed such enhancement on the basis of proviso of making some addition, alteration or improvement. Section 8 in furtherance restricts the increase with or without consent of the tenant unless some addition, improvement or alteration was provided other than minor or usual repair. For the convenience entire Section 7 and 8 of the 1963 Act is reproduced as under:-
7. Determination of fair rent. --(l) The Controller shall, on an application by the tenant or landlord of building, fix fair rent for such building after holding such enquiry as he may think fit.
(2) The fair rent shall be fixed after taking into consideration the following factors, namely –
(a) the rent of the same building or similar accommodation in similar circumstances prevailing in the locality at the time of, and during the period of twelve months prior to the date of, the making of the application;
(b) the rise, if any, in the cost
of construction and of the repair and maintenance charges as well as changes in
the existing taxes after the commencement of the tenancy; and
(c) the rental value of the building as entered in the latest assessment list of the Cantonment Board as proposed under Section 72 of the Cantonments Act, 1924 (II of 1924).
(3) The fair rent
fixed under this section shall be payable by the tenant from the date to be
fixed by the Controller which shall not be earlier than the date of filing of
(4) If the fair rent fixed under sub-section (2) exceeds the rent being paid by the tenant on the date of the filing of the application under this section, the maximum increase of rent payable by the tenant shall not be more than twenty-five per cent of the rent already being paid by him.
(5) When the fair rent of a building has been fixed under this section, or where the rent of any building has been determined by an agreement between the landlord and the tenant, no further increase in such fair rent shall, during the continuance of tenancy be permissible within a period of three years from the date fixed by the Controller under sub-section (3) or from the date of the agreement, as the case may be, except in case where some addition, improvement or alteration has been carried out at the landlord's expense and at the request of the tenant.
(6) The fair rent as increased on grounds of some addition, improvement or alteration made permissible under this section shall not exceed the fair rent payable under this Ordinance for a similar building in the same locality with such addition, improvement o' alteration and it shall not be chargeable until such addition, improvement or alteration has been completed.
(7) Any dispute between the landlord and tenant in regard to any increase claimed on grounds of some addition, improvement or alteration made permissible under this section shall be decided by the Controller.
8. Increase of fair rent in certain cases. -(l) Where the fair rent of the building has once been fixed under Section 7, it shall not be increased with or without the consent of the tenant unless some addition, improvement or alteration otherwise than by way of ordinary or usual repair has been made in the building at the landlord's expense and, if the building be in the occupation of a tenant, at the tenant's request in writing, or unless a new tax has been imposed or an existing tax has been increased.
(2) Every dispute between a landlord and his tenant relating to the increase of rent under sub-section (1) shall be decided by the Controller:
Provided that the Controller shall in no case allow any increase beyond seven and a half per centum of the cost of the addition, improvement or alteration made in the building or, beyond the amount of the additional tax payable by the landlord, as the case may be.”
14. Definition of fair rent under Sindh Rented Premises Ordinance, 1979 is different than the one provided in Cantonments Rent Restriction Act, 1963. Rent agreed mutually in an agreement is also deemed to be the fair rent within the meaning provided under section 7(5) of 1963 Act. Thus, irrespective of the agreement being expired, such covenants even are not permissible during the subsistence of the agreement in terms of restriction imposed by section 7(5) and 8 of 1963 Act. Even ratio of the judgment in the case of Zarina Khawaja and Uzma Construction Co. (Supra) subsequent to the judgment/case of Muhammad Yousuf (Supra) talks about the covenants not in consonance with the parent law hence I find the two clauses on the basis of which the enhancement was made within three years of execution of agreement, contrary to Section 7(5) and Section 8 of Cantonments Rent Restriction Act, 1963 and hence no enhancement could have been made unless the recourse of the proviso was fulfilled.
15. In view of the above, I allow this First Rent Appeal and set aside the judgment of the Rent Controller. Since the ejectment application also included the ground of personal requirement, I remand the case to the Addl. Rent Controller for its disposal in accordance with law.