Appellate Court Can Direct Licensee To Pay Compensation Higher Than Contractual Rent During Pendency Of Appeal: Bombay High Court

A single judge bench of Justice Sandeep V. Marne further observed that the Appellate Court is empowered to direct the licensee to deposit such compensation or fair market rent determined by it as a precondition for grant of stay of eviction under Order 41 Rule 5 of CPC.

Background

The petitioner/defendant and respondents/plaintiffs executed a 'Leave and License Agreement', under which the respondents granted a license to the petitioner for a period of 60 months from 25 September 2006 to 24 September 2011 on payment of license fees of Rs.3 lakhs per month. Clause 28 of the License Agreement provided for payment of damages at double the rate of license fees in the event of failure on the part of the licensee to hand back possession of the premises as provided for in the agreement.

When a dispute arose about payment of fees in 2009, the respondents sought to terminate the license agreement and filed a suit before the Small Causes Court. The Small Causes Court directed the petitioner to hand over possession of suit premises to the respondents and pay compensation of Rs.6 lakh per month (due to clause 28 of License Agreement) from 1 May 2009 till vacation of the suit premises.

In an appeal filed by the petitioner, the Appellate Bench of Small Causes Court stayed the execution of the eviction decree on the condition that the petitioner deposited the entire decreetal amount of Rs.6 lakh per month from the date of termination of the licence till the date of the decree. Further, with respect to the period after decree, the Appellate Court undertook the exercise of determining the 'market rent' of the suit premises and directed the petitioner to of Rs.17.95 lakh per month from the date of decree till the decision of the appeal.

The petitioner contended that the Appellate Court could not have directed it to deposit the interim compensation during the pendency of appeal as the licence fees and damages were contractually agreed between the parties. It was contended that it is impermissible to fix market rent as interim compensation as a precondition for a stay of eviction decree in respect of a license.

Deposit of decreetal amount as pre-condition to stay on eviction

The High Court referred to Order 41 Rule 5 of CPC, which states that filing an appeal shall not operate as a stay of decree or order.

Here, the Court noted that in addition to the direction of eviction, the Trial Court also passed a 'money decree' against the petitioner, under which it was required to pay monthly amount of Rs. 6 lakh to the respondent.

The Court stated that in view of Order 41 Rule 5 of CPC, the Appellate Court was justified in directing a deposit of decreetal amount as a pre-condition for the grant of stay under this provision.

“This is a case where the Appellate Court had exercised power under Order 41 Rule 5 by directing deposit of decreetal amount of Rs. 6,00,000/- per month from 1 May 2009 to 17 December 2022. Once, there is a decree by the Trial Court determining monetary liability of the Defendant upto the date of decree, the Appellate Court cannot vary the same during pendency of the Appeal by way of interim order” the Court said.

Deposit of amount higher than contractual rent during pendency of appeal

The Court noted that the principle laid down by the Supreme Court in case of Atma Ram Properties (P) Ltd. vs. Federal Motors (P) Ltd. (2005), needs to be applied in the present case with full force. In this case, the Supreme Court had observed that once a tenant/lesse's possession becomes wrongful, the tenant/lessee is liable to pay damages for continued use and occupation of the property for any period thereafter, at the rate the landlord could have let out the premises if there had been no tenant.

Even though Atma Ram was governed by a Rent Control Legislation, the High Court remarked that the principle could be applied a license agreement as well. This would ensure a reasonable compensation is provided to the licensor and that the licensee does not misuse the time required to decide the appeal, by occupying the premises at less than the market rate.

The High Court further referred to another Supreme Court judgment in State of Maharashtra & anr. vs. Supermax International Private Limited, where it was observed that an Appellate Court could direct payment of monthly rent at the rate higher than the contractual rent during pendency of an appeal.

The Court thus rejected the petitioner's contention that only a contractual amount of damages can be ordered to be deposited during pendency of the appeal.

Additionally, taking note that the suit premises was located in Mumbai, the Court remarked: “Judicial notice is required to be taken of the fact that the average rent in Mumbai City has exponentially gone up after the year 2011 when the original license period was to come to an end.” The Court noted that the plaintiff cannot be put to further loss by directing deposit of amount which the parties agreed in 2006 as there was a vast difference between the contractual amount of damages and the market rent determined by the Court.

It stated “In the present case, since the market rent appears to be substantially higher than the amount of damages representing double the amount of license fees, denial of market rent during pendency of Appeal would put the licensor at a disadvantageous position.”

The Court thus upheld the Appellate Court's order. However, it modified the amount of interim compensation from Rs. 17.95 lakh to Rs. 11.51 lakh, which has to be deposited by the petitioner from the date of the decree till the disposal of the appeal.