Maharashtra Govt Decision Hiking Lease Rentals In Mumbai's Bandra Not Extortionate: High Court

The Bombay High Court has held that the State Government's decision to calculate lease rent based on the value of land given in the 'Ready Reckoner' was not arbitrary. However, it ruled the Government Resolution allowing lease rent revision every 5 years, as per the value of land on date of such revision, was invalid because the original lease deed did not stipulate such revision.

The Division Bench of Justice Somasekhar Sundaresan and Justice B. P. Colabawalla were considering a bunch of petitions challenging the constitutional validity of the Maharashtra State's Government Resolutions (GR), namely, 2006 GR, 2012 GR and 2018 GR. The government had granted long-term leases of government land to various lessees, located in Bandra, Mumbai.

The 2006 GR adopted 'Annual Statement of Rates' ('Ready Reckoner') to determine the value of the leased-out government lands. 'Ready Reckoner' is the annual statement prepared by the State government, showing the average rates of lands and buildings (residential or commercial) in various parts of the State, Thus, Ready Reckoner determines the market value of a land and/or property in a particular area of the State.

Further, the 2012 and 2018 GRs provided a methodology to calculate the lease rent at which the expired leases would be renewed by the Government.

The petitioners contended that the fixation of such lease rent on the basis of the value of the land, as provided in the Ready Reckoner, significantly increased the rent payable by them, thus making the rent increase manifestly arbitrary and unreasonable.

The High Court decided on the following three issues: (a) Whether the Government could fix the lease rent for the lands leased to the petitioners on the basis of the Ready Reckoner? (b) Whether the increase in lease rent provided in 2006, 2012 and 2018 GRs is exorbitant or arbitrary? (c) Whether the Government could revise the lease rent every 5 years, based on the value of land on date of such revision?

Lease fixed based on Ready Reckoner

The Petitioners contended that as per the judgment in Ratti Palonji Kapadia vs. State of Maharashtra & Ors., (1992) Mh. LJ 1356), the Bombay High Court had set-aside the State Government's decision to increase the lease rent of the petitioners by 25 times for residential buildings and 50 times for commercial buildings. As the Court in Ratti Palonji Kapadia had observed that State could not act arbitrarily while exercising contractual rights, the petitioners relied on it to contend that the value of the land (as per the Ready Reckoner) could not be considered for calculating the revised lease rent.

The Court however rejected the petitioners' contention, noting that in Ratti Palonji Kapadia case, the court did not lay down an absolute prohibition against the government revising lease rents based on the market value of the land.

The Court stated that the lease rent could be increased considering the market value of the land, if it is done in a fair and reasonable manner and the lease rent is not exorbitant. It noted that in 2012 and 2018 GRs, the lease rent was fixed by considering only 25% of the value of the land and not on full market value of the land.

“…the lease rent is not fixed on the basis of the full market value of the land as if it is an open undeveloped plot of land, but by taking into consideration only 25% of the value of the land [as per the Ready Reckoner]. This is for the reason that the lessees are sitting lessees on the land belonging to the Government, and if the said land was to be acquired and/or sold, the Government would be entitled to only 25% of the compensation. Hence, we find that there is a proper rationale for the decision taken in the 2012 and 2018 GRs” it stated.

Examining the determination of the value of land, the Court referred to the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995 which provide for preparation of Annual Statement of Rates/Ready Reckoner. The Court observed that an expert body of persons fix the average rate of lands and buildings and that the Ready Reckoner is prepared with great deal of detailing, with rated even being fixed street wise. It stated that “there is nothing wrong in the Government looking to the Ready Reckoner rate as a reasonable benchmark of value for the purposes of calculating the revised lease rent.”

The Court therefore held that the government could fix lease rent by taking into account the value of the land as per the Ready Reckoner.

Increase in lease rent through GRs

The petitioners contended that lease rent increased through the GRs was manifestly arbitrary as it sought to increase it by 400 to 1900 times.

The Court referenced a chart provided by the petitioners showing the increase in lease rent. It observed that each member's liability towards the revised lease rent is a maximum of Rs.6,000 per month, and in some cases, even less than Rs.2,000 per month. In view of this, the Court stated that the increase in lease rent was not exorbitant.

It remarked “When one takes these figures into consideration and especially the fact that the properties of the Petitioners are located at Bandra Bandstand (a very sought after, and high-end real estate area in Mumbai), one can hardly call this increase exorbitant, extortionate and/or manifestly arbitrary.” It further stated that considering the value of money and inflation “…it becomes obvious that these lessees have enjoyed and used all these properties virtually for free for 30 years even after their leases expired in 1981.”

The Court asserted that if petitioners wish to hold large parcels of land in a prime locality and enjoy luxury, they must pay a reasonable amount as lease rent. It noted “When the law mandates that the Government has to be fair and reasonable in dealing with its citizens, it does not mean that the Government has to do charity.” The government is entitled to a reasonable return on its land, it stated.

Noting that land id a finite resource, which is in short supply in a city like Mumbai “…any policy decision on revising lease rentals on a reasonable basis, must factor in the costs imposed by such land holding on the rest of the State.”

The Court therefore held that the revised lease rent as per the 2012 and 2018 GRs were not manifestly arbitrary.

Revision of lease rent every 5 years

Clause B(1)(d) of the 2012 GR provided that the lease rent would be revised every 5 years on the basis of the value of the land on the date of revision.

The Court referred to the original lease deed between the government and petitioners. It noted that as per Clause 2(a) of the deed, the lessee had the option to pay the annual rent as a lump sum. The Court observed that if the government is allowed to revise the lease rent every five years, it would conflict with Clause 2(a) of the deed because it prevents the lessee from choosing the lump sum option. It remarked “We say this because neither the lessee nor the Government would know what the lease rent would be in the future as the same is dependent on the value of the land [as per the Ready Reckoner] on the date of the revision.”

In view of this, the Court observed that a contract that guarantees a fixed lease rent for the entire term cannot be changed through a Government Resolution. It remarked that a Government Resolution “…is not legislation passed by the State Legislature but is an expression of a decision by the State Government, which cannot be the means of simply re-writing a contract executed by the Government with private citizens.”

The Court further noted that clause 6 of the lease deed provided that the lessee would be entitled to renew the lease with the same terms and conditions, including rent. However, the lease deed did not have any provisions for change or increase of rent during the lease term. The Court opined that this indicates that the parties did not contemplate the lease rent to be revised intermittently.

“If the Government were permitted to revise the lease rent every 5 years, the same would be contrary to the bargain struck between the State and the lessees. Just as the lessees cannot, under the guise of calling upon the State to act fairly, unilaterally seek a modification in the contract, so also the State cannot unilaterally modify the contract entered into with the lessees” it stated.

The Court therefore struck down clause B(1)(d) of the 2012 GR.

In conclusion, the court upheld the validity of government's lease rent fixation as per Ready Reckoner and the increase in lease rent of petitioners' as reasonable. However, it struck down the provision for revision of lease rent every 5 years.

Case title: Vrindavan CHSL & Ors., State of Maharashtra & Anr. (WP no. 923 of 2014)

Citation: Citation: 2024 LiveLaw (Bom) 344

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