Monday, 21 September 2015

TRANSFER CLAUSE IN THE AGREEMENT MAY AMOUNT TO LEASE

1.        Note on the   judgment passed by Supreme Court of India in the matter of Associated Hotels Of India Ltd vs R. N. Kapoor on 19 May, 1959  Equivalent citations: 1959 AIR 1262, 1960 SCR (1) 368.( http://indiankanoon.org/doc/1719430/
2.       
In the above  case licensed agreement was only for one year with a clause to extend the agreement for a further period of one year at  the option of the Licensor. The agreement was considered to be a lease on the ground that it has a clause granting right to the licensee to transfer to any person with consent and approval of the licensor under some specific circumstances. The cause was as follows:

“That in case the licensee for reasons beyond their control are forced to close their business in Delhi, the licensor agrees that during the remaining period the license shall be transferred to any person with the consent and approval of the licensor subject to charges so obtained not exceeding the monthly charge of Rs. 800.”
3.       Supreme Court held that the document was that of lease and not a license and made the following observations :
The right of the respondent to transfer his interest under the document, although with the consent of the appellants, is destructive of any theory of licence. The solitary circumstance that the rooms let out in the present case are situated in a building wherein a hotel is run cannot make any difference in the character of the holding. The intention of the parties is clearly manifest, and the clever phraseology used or the ingenuity of the document- writer hardly conceals the real intent. I, therefore, hold that under the document there was transfer of a right to enjoy the two rooms, and, therefore, it created a tenancy in favour of the respondent.
4.       In our license agreement, we are conceding to allow our licensee to sub-let the premises or part of the premises  to their subsidiary companies in certain circumstances. We should try to dilute this clause by deleting the word “sub-let” if any in the relevant  paragraph.  Draft paragraph is given below:


‘It is clarified and agreed that the licensee will have no right in any circumstances to sublet the premises or any portion thereof to any third party. However, the Licensor agrees  that in the event license due to any reason does not require the  premises or any part thereof  and request the licensor to permit any of its subsidiary company having paid up capital of one crore or more, then the Licensor will permit to the said subsidiary company on the same terms and conditions on execution of fresh License Agreement  with the said subsidiary company.

Note on Leave & License Agreement

5 Sept 2015
Note on Leave & License Agreement    
OUR COMPANY is in reality business and it is letting out premises to prospective licensee for different purpose in order to earn revenue. We are giving our premises to IT/ITes industry which is not a commercial activity but an industrial activity.
Similarly we are letting out various halls for short term period for holding exhibitions and to others for providing  various facilities to support the exhibition activities. These all are covered under industrial activities.
Thus, letting out premises/space let out by OUR COMPANY is of two kind :
I.             Leave & License basis
II.           Permissive right to operate or conduct business not amounting to license. 
 In case of any dispute, the jurisdiction of the court depends on what is the nature of contract between the parties. If the contract is based on leave & license, only the   Small Causes Court has the jurisdiction under the various applicable Acts. We are not putting any arbitration clause in view of section 41 of Small Causes Court Act which provides exclusive jurisdiction to Small causes court in case of any dispute between the Landlord/Licensor and Tenant/Licensee. 
In case the contract is only for permissive right to operate or conduct a business which is not a license, the small cause court will not have the jurisdiction and hence we are putting an arbitration clause to exclusion of all the courts in India. For example in our agreement for allowing to operate counter in canteen area or for allowing to hold exhibitions in our exhibition halls we are only granting permissive right to operate which is not even license under section 52 of Indian Easement Act. 
1.   Whether a fully owned subsidiary of a foreign company is exempted under section 3 of Maharashtra Rent Control Act?
Under section 3 of  Maharashtra Rent Control Act, 1999, premises let or sub-let to certain category of entities  is exempted from the application of the Act. It reads as follows:
“3. Exemption. (1) This Act shall not apply ----
(b) to any premises let or sub-let to banks, or any Public Sector Undertakings or any Corporation established by or under any Central or State Act, or foreign missions, international agencies, multinational companies, and private limited companies and public limited companies having a paid up share capital of more than rupee one crore or more.”
In the agreement there should be a clause ensuring that the Licensee will not reduce its paid up share capital from one crore and that in case it reduces its paid up share capital from one crore, the license agreement will stand terminated. As per supreme Court Judgment jurisdictional fact must exist before the court proceeds to decide other issue. The court observed “In the instant case, in our opinion, the courts below were right in holding that the date on which tenancy was determined, the right in favour of the landlord got accrued. Such right could not have been set at naught by the tenant by unilateral act by passing a resolution to reduce 'paid up share capital' of the Company.” http://www.lawyersclubindia.com/judiciary/Maharashtra-Rent-Control-Act-1999-8211-Section-3-1-b--54.asp#.Ve0BtdKqqko
 Note :  Maharashtra government has decided to amend the Maharashtra Rent Control Act (1999), which would exclude all commercial establishments occupying more than 500 square feet from the protection under the Maharashtra Rent Control Act that prohibits landlords from levying market rents. Now, all those who have taken such commercial establishments on rent and also those living as tenants in residential homes that are bigger than 862 sq ft will not be protected under the Rent Control Act. http://articles.economictimes.indiatimes.com/2015-05-01/news/61723824_1_maharashtra-rent-control-act-market-rates-new-amendment If such amendment is notified, OUR COMPANY may be in a better position in evicting Bycula Properties given on Lease.
International agencies & Multinational Companies  have not been defined under the Act. Generally, foreign company do their business activities in India through their agencies or subsidiary companies. But it is difficult to say that  subsidiary company which is 100 % owned by a foreign company will be deemed as “multinational company” and will  be exempted under section 3(1)(b) of Maharashtra Rent Control Act,1999. There is no any such judicial precedent on this issue.  
An Indian subsidiary of a foreign company may remain private by its own choice as far as its internal matters are concerned such as not inviting public to subscribe in shares. But in the eyes of law, it will be public company. An Indian subsidiary of an Indian company may be as private company or public company depending upon whether it invites public to subscribe in shares. Thus a subsidiary company will be either private or public company having a separate entity from the parent company of which it is a subsidiary and hence to  be exempted from section 3(1)(b) of M.R. Control Act,1999, it must have paid up share capital of more than rupee one crore or more.  
Hence, it is better to consider a subsidiary company of a both foreign Indian  company not covered under section 3(1)(b) of the Rent Act. It should be covered under section 3(1)(b) only if its  paid up share capital is more than rupee one crore. It makes no difference if it is a subsidiary of Indian or foreign  company which is having paid up share capital of more than one crore.
2.   Other grounds for eviction if premises let out to company having paid up share capital of less than one crore.
If we are giving the premises on leave & license, then on expiry or on termination of the license agreement, the licensee is required to vacate the premises. If the licensee do not vacate, the remedy available with us is to file eviction suit under section 41 of Small Causes Act.
In our dispute with City Group now TCS-eServe, at the advise of our advocate Ms. Priti Ramani and confirmed by  Sr. advocate Mr. Mulraj Shah OUR COMPANY had chosen to file eviction suit on the ground of expiry of Leave & License Agreement and not on the ground that TCS is having more than one crore of paid up share capital.
Two cases filed against us by Princes Estates and Mewar on the ground that our company is having more than one crore of paid up share capital is still pending and no final success has been achieved by the respective landlords even after passing of 14 years.
Section 3(1)(b) M. Rent Act, 1999 seems to be only an effective ground in case there is a tenancy agreement or lease agreement  and the premises let out to the Company is having more than one crore of paid up capital.
But if the company is having more than one crore paid up share capital then we will have an additional ground for filing eviction suit.
Hence, in case a company having less than one crore paid up share capital approaches us, we can concede to give them the premises on the basis  Leave & License Agreement , provided they also agree to pay some premium charge. We can make a point for negotiation for obtaining a little higher license fee than what they agreeable to pay to us.
3.   Legal implication if  Agreement of License if it exceeds the period of  60 months  
 It is general practice that Leave & License Agreement now a day is executed only for 60 months. It is a common apprehension that if Leave & License Agreement exceeds for more than 60 months, it will amount to Lease. As our policy is not to give any premises on lease, we should have a better understanding of the term License, Lease and Tenancy agreement from these perspectives.

Under Section 52 of the Easement Act, the term "License" is defined as follows: -
52. "License" defined. - Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a license.
Thus License is not defined in terms of period for which it is letting out. However, it must be for a fixed period otherwise it will amount to perpetual license.     
Under Section 105 of the Transfer of Property Act the term Lease is define as follows: -
105. Lease defined. - A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.
Definition of Tenant - A tenant is defined in section 7(13) of the Maharashtra Rent Control Act, 1999, and means any person by whom or on whose account rent is payable for any premises. 
Difference between License & Lease
Supreme Court Judgment - In Khalil Ahmed Bashir Ahmed v. Tufelhussain Samasbhai, AIR 1988 SC 185, Honble Supreme Court of India laid down the following propositions as well established:

(a) to ascertain whether document creates a license or lease, the substance of the document must be preferred to the form; It means that even if the title of the agreement is Leave & License, the agreement may amount to lease if it can be concluded from the body of the agreement.
(b) the real test is the intention of the parties whether they intended to create a lease or a license; it is therefore it is necessary to make such statement/averment in the agreement clarifying the intention of the parties.
(c) if the document creates an interest in the property, it is lease; but, if it only permits another to make use of the property of which the legal possession continues with the owner, it is a license; 
(d) if under the document a party gets exclusive possession of the property, prima facie he is considered to be a lessee.
 7. Other distinguishing Features - Apart from this there are following other differences: 
i) A lease is assignable, but a license is generally non-transferable. Section 56 of the Indian Easement Act describes the circumstances only in which the License is transferable. 
ii) A lease unlike a license is not revocable. Section 60 of the Easement Act mentions that the License is generally terminable at the option of the Licensor except in the case of the two exceptions carved out therein. One very important is the case where Licensor  allow the licensee to make structural changes/addition/alteration amounting to permanent nature in the premises. In our dispute with TCS-eserve, they had claimed that the nature of agreement with OUR COMPANY was that of Lease as OUR COMPANY had allowed them to construct mezzanine floor at their own cost. 
Licensee has the only right to  demand damages in case of  premature revocation of license by the Licensor. Sections 63 and 64 of Easement Act prescribes the rights of the licensee upon revocation and/or premature high handed eviction by the Licensor.
iii) A leasehold creates a heritable right but not the license
iv) A license is determined by the death of the grantor, while a lease is not. 
v) If the landlord allow the licensee to make structural changes/addition/alteration amounting to permanent nature in the premises then it is construed as lease.
vi) In a lease right to enjoyment of the property is assigned whereas in license only right to permissive use of the property is allowed. 
vii) Sections 63 and 64 of Easement Act prescribes the rights of the licensee upon revocation and/or premature high handed eviction by the Licensor.
viii) Different Stamp Duty on Lease and Leave & License Agreement : As per  Maharashtra Stamp Act 1958 Stamp duty on leave and license agreement as per Article 36A (a) of the Schedule I of the Bombay Stamp Act, 1958.
W.E.F. 01/05/2013 Stamp Duty payable on the License agreement for a period upto 60 months, including renewal period, if any is at the rate of 0.25% on the Total Sum. Total Sum means the total of all license fees or rent payable for full duration of license period plus amount of non-refundable deposit or advance or premium; plus interest calculated @ 10% per annum on refundable security deposit. There is no distinction between residential or commercial property.
In case of the period of a Leave and License Agreement exceeds sixty months, it has to be stamped at the rate applicable to a ‘Lease Agreement’ under Article 36 of Bombay Stamp  Act as follows

For the period more than five years but less than 10 years
As per conveyance (5%) on 25% of the market value of the property
Eg. If market value is Rs. 1 lacs  than 25% of 1lacs is rs.25,000/- and 5% on 25000/- will be 1250/-
Thus if the Leave & License Agreement is for a fixed period of more than 60 months it will be treated as Lease only from the point of view of  Maharashtra Stamp Act, 1958 and not from the point of view of Indian Easement Act or Transfer of Property Act. If the intention of the parties is to create a license, the agreement will not amount to lease merely on the ground that it is for a fixed period of more than 6 moths.
While drafting a Leave & License Agreement, we need to ensure that    clear statement is regarding the intention of the parties, specific statement that the agreement does not create any interest; does not assign right to enjoyment; does not give exclusive possession;  does not allow licensee to make structural changes/addition/alteration amounting to permanent nature; the period of license should be for a fixed period preferably for not more than 5 years with our without renewal clause.
In case the Licensee insists for more than 5 years, we can give side letter for renewal of the agreement for other terms of 5 years. Even if licensee insists for agreement for period more than 5 years in a single document, we may concede only up to 9 years with or without renewal clause provided Licensee is ready to give premium charge and there paid up share capital is more than one crore. 
 
4. Termination Clause - Trespasser & Damages  
Whether after the expiry of the Leave & License agreement, the status of the Licensee   will be  that of a trespasser?
In case of Akapati Bhaskar Patro vs Trinath Sahu And Anr  decided on  17/1/2002  the court  differentiated between a statutory tenant, lessee on the one hand and licensee on the other hand after the expiry of the agreement and held that section 441 (offence of trespass) will be applicable in case of not handing over the possession of the premises by licensee after expiry of the License agreement. The relevant paragraph is as follows:
“5. On the basis of the discussions made in the preceding paragraphs, we are of the opinion that the rigors of Section 441, I.P.C. (i.e. offence of trespasser) as amended by the Orissa Act 22 of 1986 shall not be applicable to the following cases:
(i) Statutory tenants whose tenancy is governed by any statute.
(They are protected by tenancy laws like, Public Premises Eviction Act, etc.)
(ii) Tenant who has entered into possession by virtue of a lease.
Rights of such tenant are governed under the provisions of the Transfer of Property Act and the Specific Relief Act and he acquires a right of possession. After determination of tenancy by notice, he would become 'Tenant holding over", 'Tenant on sufferance" or Tenant at will" as the case may be. His possession being Juridical, is protected. He can be evicted only in due process of law. The possession of such tenant cannot be equated with that of trespassers.)
(iii) Person who has entered into possession by virtue of some covenant like, agreement to sell, will etc. and/or put forth a genuine right over the property possessed.
If a person claims a right of title coupled with possession, till the dispute is adjudicated, his possession cannot be conclusively said to be that of a trespasser and his right to possess would be subject to the result of the suit or legal proceeding.)
However, the said section shall be applicable to the following category of persons:
(i) Person who was permitted to possess a property for a particular period and after lapse of the said period, he was called upon to handover possession by issuance of quit notice.
ii) Person, who was put in possession by means of a 'licence' and who fails to handover possession after expiry of the term of licence and/or after receiving quit notice from the landlord.
(iii) Person who was in "permissive possession" and who fails to handover possession even after receiving a notice to quit.”
As per section 441 of IPC as applicable in Maharashtra, even notice to quiet  is not required to be given.
In Karnataka State Road Transport Corporation vs Nagaraj Hatwar the court in its order passed on 6/3/2000 while referring the Supreme Court Judgment clarified that a Licensor has every right to prevent the licensee from entering into premises  after the expiry of the agreement if they do not vacate. The relevant paragraph is as follows:
“5. ……………... In fact, the Supreme Court has clarified that in respect of a licensee, the lawful way of taking possession is just to walk into the premises and take possession, as is always the case of a licensee, that possession and control of possession is kept with the licensor. A licensee is after all occupying the premises under the permission and control of the licensor. So the due process of law has also been interpreted as to mean that on the expiration of the licence, the licensor is entitled to occupy the premises and prevent the licensee from entering into the premises.”
However, the above judgment is in contradiction of the settled law by the Supreme Court that even a trespasser can not be evicted without following the process of law and hence it is not advisable to take such recourse by taking law in hand as it may give an opportunity to file criminal proceeding under section (wrongful restraint) 339 & 341 of IPC as it happened in the case of Schlumberger matter. In place of taking such recourse we may consider of filing criminal proceeding against the Licensee if after expiry of the License agreement they do not vacate.
Hence, even if there is no specific clause that after the expiry of the license agreement, the status of the licensee will be that of trespasser and will an offence under section 441 of IPC, Licensee can be booked for criminal trespassing in case they do not vacate the premises after expiry of license period. 
Mesne profit, Damages & Penalty-  
(a) Summary ejection of Licensee on expiry of Agreement under  Section 24 of the Maharashtra Rent Control Act, 1999. However, this  provision  facilitating  speedy disposal and relief to the aggrieved party   only if the premises is let out for residential purpose and not for non-residential purpose. Also provision relating to  damages at double the rate of the licence fee or charge fixed under the agreement of the license from the day of default till the date of disposition  is not applicable in case the agreement is for non-residential purpose.

(b) L.D./compensation cannot be granted as per clause of the Agreement but reasonable  compensation which will be around market rate as per section 73 and 74 of Indian Contract Act.

Tuesday, 15 September 2015

Brief note – Status on the regulatory environment as regards ‘changeover’ / ‘switchover’ of distribution licensee by a consumer

Brief note – Status on the regulatory environment as regards ‘changeover’ / ‘switchover’ of distribution licensee by a consumer


1.    State Commission in  case No.151 of 2011  vide  order dated 22.8.2012  while   granted relief to RInfra had imposed  following restrictions on Tata Power:

(i) From the date of the order changeover will be allowed from RInfra to Tata Power only for the residential consumers having an average consumption less than 300 units per month for next 12 months and after that the   Commission will review the position and decide for future.

2.  Aggrieved by the  order dated 22.8.2012, both Tata Power and RInfra had filed Appeal No. 246 of 2012 and 229 of 2012 respectively. Appellate Tribunal passed the order dated 28 November 2014.

3.    Para 73 and 79 deals with the matter of Mumbai International Airport (MIAL) and the Tribunal has observed as follows: 
“Para 73 – “In fact, such a restriction has denied other consumers from exercising their choice of supplier guaranteed by the Act. One of such consumer viz., Mumbai International Airport Limited (MIAL) has filed I.A. No. 395 and 396 of 2014 seeking impleadment and directions in the present Appeal and has submitted that the directions given by the State Commission takes away the choice given to MIAL as a consumer under Section 43 of the Electricity Act to take supply from either of the licensees.”
Para 79 – “As regards IA 395 and 396 of 2014 filed by Mumbai International Airport, we do not want to give any specific finding and we direct Mumbai International Airport to file a petition before the State Commission and the State Commission will decide the Appeal No. 246 of 2012 & IA Nos. 401 & 402 of 2012 and 71, 245, 439 & 442 of 2013 & IA No. 139 of 2014 AND Appeal no. 229 of 2012 & IA No. 368 of 2012 issue as per law, keeping in view the findings given in this order.”

Present note is based on order passed in Appeal No. 246 of 2012 and 229 of 2012 on  28 November 2014.

1907   Tata Power allowed supply to Other licensees and bulk consumers of Factories and Railways whose annual consumption was not less than 500,000 units (which were generally HT consumers), and also supply to such consumers for lighting provided the lighting consumption did not exceed 20% of the total annual consumption only by agreement with existing licensees.
1930   BSES was given distribution license for suburban areas. The company was subsequently acquired by Reliance Energy Limited and is now known as Reliance Infrastructure Limited (RIL). 
1934   Licenses were amended to incorporate further restriction that Tata's cannot supply energy to any consumer other than the licensees within their respective areas except with the written consent of Government which is to be given after consulting the existing licensees. 
1964   Restrictions imposed on Tata Power were removed and were allowed to supply power to high end consumers only (more than 1000 kva in Mumbai suburban area) and to other licensees in bulk and the other distribution licensees were obliged to supply in retail.
2002   RIL filed petition (No.14 of 2002) before the State Commission under Section 22 of the Electricity Regulatory Commission's Act 1998 for restraining Tata Power from supplying electricity to the consumers having contracted demand less than 1000 kVA in the area of supply of RIL.
2003   State Commission passed Order dt 03.07.2003 and observed that Tata Power is entitled to supply energy "for all purposes including supply to other licensees for their own purposes and in bulk". However, in its order the State Commission restrained Tata Power from offering new connection to any consumers with energy requirement below 1000 kVA.
2005   Both parties filed separate Appeals before Appellate Tribunal (RIL - No.31 of 2005 and Tata Power - No.43 of 2005).
2006   The Tribunal by the judgment dated 22.5.2006 disposed of both Appeals by setting aside the order of the State  Commission dated 3.7.2003 holding that the Tata Power under its license was entitled to supply energy only in bulk to other licensees and it was not entitled to supply in retail to the consumers irrespective of their demand.
Against this judgment of the Tribunal, the Appeals were filed by Tata Power and others before the Hon'ble Supreme Court.
2008   Hon'ble Supreme Court held that there is nothing in the erstwhile TPC licenses which restricts the supply of electricity to consumers whose maximum demand is less   than 1000 KVA and Tata Power is entitled to supply electricity directly to consumers whose maximum demand is less than 1000 KVA apart from its entitlement of supplying electricity to other licensees for their own purpose and in bulk.
Subsequently, as per the Hon'ble Supreme Court's judgment as well as the Capital Investment approval guidelines, 2005 laid down by the Maharashtra Commission, Tata Power submitted a Network Rollout Plan of Rs. 1,062 Crores to the State Commission, in which it proposed a network roll out for the period FY 2009-10 to FY 2011-12 based on the load growth in the ward, land availability, spare capacity and outlet availability from   corresponding 220 kV Receiving Sub Stations
2009   The State Commission in its Order dated 15.06.2009 in Case No. 113 of 2008 rejected Tata Power’s proposal of network rollout investment plan and directed "exploring" the use of the wires of other distribution licensees.
In pursuance of this order, Tata Power made a request to RIL seeking permission for use of its network to supply power to consumers who sought power from Tata Power.
RIL through its letter dated 30.7.2009 offered no objection to the Tata Power for use of its distribution system to supply electricity to the consumers in the common license area.
Tata Power further filed a Petition (no. 50 of 2009) before the State Commission requesting it to lay down the operating procedure for the consumers who wanted to receive supply from the Tata Power while being connected to the distribution network of the RIL.
By an interim order dated 15.10.2009, State Commission held that the changeover consumers shall be consumers of the Tata Power and would be liable to pay wheeling charges for RIL network as determined by the Commission.
2011   RIL filed petition before State Commission (No.151 of 2011). State Commission by its order dated 22.8.2012 imposed following restrictions on Tata Power:
i.     From the date of the order, changeover will be allowed from RIL to Tata Power only for the residential consumers having an average consumption less than 300 units per month for next 12 months and after that the   Commission will review the position and decide for future.

ii.   Tata Power can switchover existing changeover consumers and only residential consumers having an average consumption less than 300 months, in the identified 11 clusters.
2012   Both, Tata Power and RIL have filed Appeal (No. 246 of 2012 and 229 of 2012 respectively) against the State Commission order dated 22.8.2012.

Tata Power and RIL appeal filed with the Appelate Tribunal (No. 246 of 2012 and 229 of 2012 respectively)
Appellate Tribunal passed the order dated 28 November 2014 allowing Appeal No. 246 of 2012 with certain directions and disposing of Appeal No. 229 of 2012 with certain directions to the State Commission for formation of procedure for changeover of consumers. The finding of the Appellate tribunal is as follows:
“80. Summary of our findings
i.      It is not established conclusively that Tata Power was intentionally trying to create a road block to avert changeover of certain categories of consumers and indulging in cherry picking of changeover consumers. If the State Commission had received complaints about refusal of Tata Power to changeover from low end consumers, it should have conducted an investigation under Section 128 of the Act and upon receipt of the investigation report, it could have taken corrective action or action against Tata Power after following the procedure laid down under Section 128. Tata Power has since revised its application form for   changeover/new connection. Tata Power is directed to keep record of the category wise applications received for changeover (0-300 Units residential may be a separate category) applications rejected with reason for rejection (category-wise), category wise changeover allowed and post the same on its website quarterly. Tata Power is also directed to give a public notice regarding documents required for changeover application clearly indicating that PAN is not mandatory

ii.     It is correct that the Tata Power has not laid down LT network to switch over the residential consumers who were availing supply from Tata Power on the network of RIL and who were in the vicinity of the network laid down by Tata Power. This in our opinion cannot be cherry picking as it has been done in the interest of the consumers and is also in line with the decision of the State Commission in its order dated 15.6.2009 in case No. 113 of 2008. Therefore, it is in the interest of consumers of Tata Power and RIL that the changeover consumers of Tata Power continue to get supply from Tata Power on the RIL, even if a 33/22 kV sub-station of Tata Power is available in the vicinity. It will also be convenient and economical for the consumer to changeover back to RIL in case RIL's tariff becomes more attractive in future.

iii.    In view of the practical difficulties in laying down parallel network in Mumbai as pointed out by Tata Power we have given some directions under paragraphs 58 to 61 regarding restricting the Roll out Plan of the Tata Power only to the areas where laying down of parallel network will improve the reliability of supply and benefit the consumers and directions for continuation of changeover arrangement irrespective of category or consumption of consumers, commissioning of network where a substantial expenditure has been incurred by Tata Power in laying down new network on the directions of the State Commission, consumers who had already switched over to Tata Power, laying down network for providing new connection, changeover and switch over protocol, change in license conditions of the licensees, etc. However, there shall be no restriction on any licensee to lay network for supply to new connections. The State Commission   is also directed to decide the detailed protocol for switchover and changeover after hearing all concerned.

iv.   The State Commission has powers to give directions if it comes to its notice that a licensee is laying down network selectively to connect the high end consumers ignoring the low end consumers and violating the terms and conditions of the license. However, such directions have to be given after following the procedures as per law.

v.    Directions given to Tata Power by the State Commission in the impugned order are set aside.

vi.   It is perfectly legal for the consumers to changeover from one licensee to another using the network of one of the licensees and, therefore, there is no illegality in continuation of the directions of the State Commission in the order dated 15.9.2009 regarding changeover to Tata Power using RIL's network. However, RIL is entitled to charge from changeover consumers wheeling charges and other compensatory charges including the cross subsidy charges as decided by the State Commission from time to time as per law. The State Commission is also directed to lay down a detailed changeover protocol after hearing the concerned parties.

vii.  We have given the above findings in view of the circumstances of the case where difficulties are being experienced in laying distribution network by the parallel licensee namely, Tata Power to provide connectivity to all consumers in  the licensed area common to RIL and in the ultimate interest of the consumers.

viii. Para 73 and 79 deals with the matter of Mumbai International Airport (MIAL) and the Tribunal has observed as follows: 
Para 73 - In fact, such a restriction has denied other consumers from exercising their choice of supplier guaranteed by the Act. One of such consumer viz., Mumbai International Airport Limited (MIAL) has filed I.A. No. 395 and 396 of 2014 seeking impleadment and directions in the present Appeal and has submitted that the directions given by the State Commission takes away the choice given to MIAL as a consumer under Section 43 of the Electricity Act to take supply from either of the licensees.
Para 79 - As regards IA 395 and 396 of 2014 filed by Mumbai International Airport, we do not want to give any specific finding and we direct Mumbai International Airport to file a petition before the State Commission and the State Commission will decide the Appeal No. 246 of 2012 & IA Nos. 401 & 402 of 2012 and 71, 245, 439 & 442 of 2013 & IA No. 139 of 2014 AND Appeal no. 229 of 2012 & IA No. 368 of 2012 issue as per law, keeping in view the findings given in this order.”
Link of the full order passed by Appellate Tribunal is as follows: 




Monday, 8 April 2013

Registration (Maharashtra Amendment) Act, 2010

President had given  consent in May 2012  to Registration (Maharashtra Amendment) Act, 2010. Now, it has been notified by Government of Maharashtra that it will take effect from 1 April 2013.  Salient features are as follows:

1)    Under the Registration ( Maharashtra Amendment) Act, 2010, which amends the Indian Registration Act, 1908, it will now be mandatory to inform the state registration office of mortgage details within 30 days of a mortgage being executed. Failure to do so can attract a jail term of one to three years and also a fine.

2)    In addition to above, three types of documents must now be compulsorily registered within 30 days of the deals being executed. They are (1) a power-of-attorney (POA) when it is used to execute a sale or any other transfer of property; (except in case of close relatives)  (2) agreements that involve a title deed being deposited as security for the repayment of a loan or any other existing or future debt; and (3) a sale certificate when a property is acquired under any recovery law. Properties recovered under recovery laws usually involve those where the previous owner has defaulted on loans or mortgages.

3)     If mortgaged properties are sold when the registration office hasn't been informed of the mortgage within 30 days, the deal will be declared invalid and the seller has to refund the amount paid by the buyer with 12% interest.

4)    Other new rules involve informing the registrar's office within 30 days of demand notices and court orders that relate to the attachment of any property, or the creation, transfer or cancellation of any right over a property. This is aimed at ensuring banks as well as buyers and sellers to inform the registration office of all business conducted.

Friday, 5 April 2013

Whether rent include maintenance charges agreed to be paid by the tenant to the landlord- Case of Sewa International Faishon (Supra)

The central issue in the recent judgment passed by Supreme Court in case of Sewa International Supra was whether payment agreed to be paid by the tenant to the maintenance society towards maintenance charges could be included within the ambit of the expression 'rent'. To substantiate that maintenance charges could not be included within the ambit of the expression 'rent' arguments were made basing on the terms of the lease agreement executed between the Landlord and the tenant and interpreting the expression ‘rent’ as defined under section 105 of Transfer of Property Act and the various judgments. In the Lease Agreement , the tenant had option to pay rent either to Landlord or to the maintenance society. It was argued that maintenance charges paid to the maintenance society can be included within the ambit of expression rent. Relying on the definition of rent under section 105 of Transfer of Property Act it was argued that in order to be construed as rent, the payment must necessarily be made to the landlord and not to a third party, whereas in the instant case, the payment in respect of the maintenance services had been made to an external independent contractor, a maintenance society. However, neither before High Court nor before Supreme Court, the word ‘rent’ and ‘maintenance charges’ were interpreted from the scheme of Delhi Rent Control Act. Deemed Rent as defined under Delhi Rent control Act is nothing but standard rent with its revision as per Section 9 of the Act. The maintenance charges are specifically covered under Section 8 of the Act to fall under ‘other charges’ payable by the tenant to the landlord besides the rent. The relevant section is as follows: “8. Other charges payable- 1) A tenant shall be liable to pay to the landlord, besides the rent, the following charges, namely:- a) b) maintenance charges at the rate of ten per cent of the rent:” Since rent has been specifically defined and maintenance charges are covered under section 8 of Delhi Rent Control Act, reasoning may also be extended to contend that a tenant cannot be evicted from the tenanted premises on the ground of non-payment of rent if he has failed to pay the maintenance charge. The ground for eviction in that case can only be breach of tenancy agreement but not non-payment of “rent”. A harmonious reading of Section 3(c), 7 & 8 of Delhi Rent Control Act would lead to the inevitable conclusion that ‘other charges’ (including maintenance charges) are completely different and distinct from ‘deemed rent’. Therefore, ‘other charges’ including maintenance charges cannot be merged with ‘rent’ to become ‘deemed rent’ for the purposes of applicability of the Delhi Rent Control Act. In the various judgments referred by both the parties, the Courts have not particularly dealt with the aforesaid contentions based on the scheme of the Delhi Rent Control Act. Even in case of Sewa International, the Delhi High Court wrongly assumed that the expression “rent” is not defined under the Delhi Rent Control Act and only on the basis of definition of rent as defined under section 105 of the Transfer of Property Act, the court concluded as to what will constitute the rent. The relevant paragraph is as follows: “The expression 'rent' is not defined under the Delhi Rent Control Act. However, as to what constitutes rent could be found out from the provisions of Section 105 of the Transfer of Property Act wherein the word 'rent' is defined.” The court further observed that in Karnani Properties Ltd. (supra), the Supreme Court held that the term 'rent' is comprehensive enough to include all payments agreed by the tenant to be paid to his landlord for the use and occupation of its appurtenances but also of furnishing, electric installations and other amenities agreed between the parties to be provided by and at the cost of the land-lord. Tenant in Sewa International accepting the aforesaid concept of rent based on section 105 of T.P. Act, tried to differentiate their case before High Court as maintenance charges were not paid to the landlord but to the maintenance society. The Delhi High Court refused to accept the aforesaid arguments. The decision of the Delhi High Court in Sewa International (supra) was further challenged by way of Special lave Petition before the Hon’ble Supreme Court being Civil Appeal No.4414/2000 wherein the Apex Court held that “… we are in agreement with the High Court that keeping in view the terms of the lease deed, between the parties, the maintenance charges would form part of the rent of the premises. These maintenance charges were payable by the tenant either to the Maintenance Society or to the lessor and were in addition to the other amount specified in the agreement …”. Since a number of SLPs are pending in Supreme Court on the above issues, it is necessary to interpret the issue of inclusion or non-inclusion of maintenance charges within the ambit of rent interpreted from the scheme of Delhi Rent Control Act

Sunday, 4 December 2011

Repeal of Urban Land Ceiling & Regulation Act (ULCRA)

1. The ULCRA came into force in 1976 in 64 urban agglomerations spread over 17 states and three union territories (UTs) and covered towns with a population of more than two lakhs as per 1971 census.

2. The Government of India decided to repeal the act with the passing of the Urban Land (Ceiling and Regulation) Repeal Act, 1999. Various states subsequently repealed the act. The only states yet to repeal ULCRA are Andhra Pradesh, Assam, Bihar and West Bengal.

3. On 29 November 2007, Government of Maharashtra passed a resolution in the State assembly and voted for the repeal of the said Act in Maharashtra.

4. Impact of Repeal of Act – The ULCRA, 1976 was repealed with the following saving clauses :
“3. (1) The repeal of the principal Act shall not affect-
(a) the vesting of any vacant land under sub-section (3) of section 10, possession of which has been taken over by the State Government or any person duly authorised by the State Government in this behalf or by the competent authority;
(b) the validity of any order granting exemption under sub-section (1) of section 20 or any action taken thereunder, notwithstanding any judgment of any court to the contrary;”
After repeal of ULCR Act, a number of cases were filed in Bombay High Court as State Government resorted to complete the proceedings under various sections of the Repealed Act to take possession of lands which were declared surplus and with respect to which proceeding under section 10 of ULCR Act were initiated for taking possession of the land.

Secondly, the lands with respect to which exemption under section 20 of ULCR Act was granted and the state government has withdrawn the exemption order on violation of terms and conditions of ULC order, State Government resorted to take possession of lands without or after following the procedure laid down in section 10 of ULCR Act.

Thirdly, lands, possession of which were taken by State Government by following due process of law under section 10 of ULCR Act, were not to be affected by the Repealed ULCR Act.

Therefore in almost all the cases filed before Mumbai High Court, mainly three issues were dealt with by the court which are as follows:
i) Whether the State Government is entitled to take possession of lands declared as surplus under the provisions of ULCR Act and initiate proceedings under section 10 of ULC Act for taking possession after repeal of the ULCR Act on 29 November 2007 ?
ii) Whether exemption granted by the Government was in the nature of contract between the State Government and the landlord, the violation of which would entitled State Government to take possession of the land from the Land owners after canceling the exemption order even after repeal of the ULCR Act on 29 November 2007?
iii) Whether lands possession of which were taken by the state government under section 10 of ULC Act prior to coming into force of Repealed ULCR Act, will be affected or not?

In a number of judgments, High Court held that after the repeal of ULC Act on 29 November 2007, State Government can not take possession of land even if it has initiated proceeding under section 10 of ULCR Act for taking possession.


5. Some judgments are as follows:

i) Vithabai Bama Bhandari vs State Of Maharashtra (Bombay High Court order passed on 16 April, 2009.

Brief facts of the case :
On 3 October 1983, landlord’s land was declared as surplus land. On 10 July 1989, the Landlord filed application for grant of exemption under section 20 of ULCR Act which was allowed on the condition that 31 tenements of 40 sq.mtrs each to be sold to Government nominees at fixed rate vide order dated 31 July 1989. Landlord filed appeal which was allowed holding that Landlord has only 2008 sq.mtrs surplus land. Landlord was directed to handover only 7 tenements of 40 sq.mtrs each. Landlord started the construction work and on 5 January requested the authority to take possession of flat alongwith land to be handed over to the authority as per the order. Landlord was informed that there were exchange of certain correspondence with his power of attorney holder and after serving show cause notice, vide order dated 25 April 2005, exemption granted has been withdrawn due to non-compliance of condition for exemption under section 20 of ULCR act. Landlord was again served notice dated 28 June 2007 to handover the possession of the surplus vacant land. Landlord filed writ petition in High Court challenging the said notice.

In the above case, exemption order was withdrawn due to violation of terms and conditions of exemption order passed under ULC Act and notice was served to hand over the possession of the land; proceeding under section 10 of ULCR Act was initiated but no possession of land was taken before the Repealed ULCR Act came into force in Maharashtra in November 2007.

Mr.Sonpal submited that the above order dated 31st July, 1989 in general and conditions mentioned therein were in the nature of contract between the State Government and the Landlord. The violation of conditions of exemption order constituted breach of contract. In his submission reference to provisions of Chapter-III with regard to the procedure for taking possession constituted integral part of contract (not integral part of the statute) as such he submitted that the provisions of the Repealing Act would not be applicable so far the subject land is concerned. He submitted that the revocation of exemption as well as action for taking possession of the land as per Clause 17 of the exemption order dated 31st July, 1989 was saved and was not at all affected by Repeal Act.
However, High Court held that once exemption order was revoked, section 10 of ULCR Act for taking possession would be attracted. Section 20(2) of ULC Act did not provide that possession of surplus land would automatically deemed to have been taken by the Competent Authority. Since, ULCR Act was already repealed, proceeding under section 10 of ULCR Act could not be initiated for taking possession or if initiated, it could not be proceeded further as the same would stand abated. High Court also rejected the submission of Mr. Sonpal that by virtue of exemption under Section 20(1) and withdrawal thereof under Section 20(2), the requirement of section 10 partook the nature of the terms of the contract. High Court held as under:
“It is held and declared that as a consequence of the Repeal Act, further proceedings pursuant to the order made by the State Government dated 28th June, 2007 withdrawing exemption and all further actions taken under Section 10(3) shall stand abated and can no longer be proceeded further….”
ii) Similarly, in case of Abdul Aziz Alisaheb Bharmar vs The State Of Maharashtra, Bombay High Court in it’s order passed on 17 August, 2010, held as follows :
“23………….. In view of the law declared by the Division Bench of this Court, even in case of breach of the conditions by the holder of the land in whose favour the exemption is granted under section 20(1) and if such exemption is withdrawn by the State Government by exercising the power under section 20(2) on account of breach of condition, even then the question of saving under sub-clause (b) of section 3 of the Repealed Act does not arise.”
Section 3(b) of Repeal ULCR Act is as follows:
“3. The Repeal of the Principal Act shall not affect:
a) ……
b) the validity of any order granting exemption under sub-section (i) of Section 20 or any action taken thereunder, notwithstanding any judgment of any court to the contrary:”
Thus, it is crystal clear that State Government can not take advantage of Section 3(b) of Repeal ULCR Act to take possession of land from landowners after 29 November 2011. Action for taking possession must have been completed before 29 November 2011, then only it is saved by Section 3(b) and not thereafter.
The High Court further clarified as follows:
“24. It is also well-settled by the Division Bench of this Court in the case of Voltas Ltd. & anr. v. Additional Collector and Competent Authority, Thane & Ors., reported in 2008 (5) All M.R. 537 that lands which are owned by the person in relation to such notification under sub- section (3) of section 10 of the principal Act was issued and the order under sub-section (5) of section 10 of the principal Act, however, such vacant land shall not vest in the State Government under sub-section (3) of section 10 of the principal Act, if possession of the said land has not been taken over by the Competent Authority and these notifications shall stand abated. “

6. As regard third issue, the High Court held that as per section 4 of the Repeal Act, all proceedings filed under this act would stand abated if the said proceedings were not related to sections 11,12, & 13 of the Principal Act and if the possession of land had been taken over by the State Government. Section 4 of the Repeal Act is as follows:
“4. All proceedings relating to any order made or purported to be made under the principal Act pending immediately before the commencement of this Act, before any court, tribunal or other authority shall abate:
Provided that this section shall not apply to the proceedings relating to sections 11, 12, 13 and 14 of the principal Act in so far as such proceedings are relatable to the land, possession of which has been taken over by the State Government or any person duly authorised by the State Government in this behalf or by the competent authority.”
Brief facts of the case of SULOCHANA CHANDRAKANT GALANDE v. PUNE MUNICIPAL TRANSPORT & ORS. [2010] INSC 581 (3 August 2010) (Supreme Court)

In the above case the land was acquired by the Government under the ULC Act, possession was taken and handed over to Pune Municipal Transport in the year 1978-79. The land owner challenged the declaration of land as surplus on the ground that in 1976 when ULCR Act came into force, the land was not within the limit of urban area but only due to subsequent change in the master plan, it came within the limit of urban area. Landowner contented that categorization of the land in the Master Plan in existence at the time of commencement of ULC Act into force was a relevant factor and subsequent change in the Master Plan can not be taken into consideration. The application of landlord was allowed Hon’ble Minister on 29.09.1998.

PMT filed writ petition against the order dated 29.09.1998 which was allowed by High Court vide its order dated 20.02.2006.

Landlord approached to Supreme Court by way of filing appeal which was dismissed on 3 August 2011 holding as follows:
“31. Undoubtedly, the Act, 1976, stood repealed by the Act 1999. However, it has no bearing on this case for the reason that proceeding pending in any Court relating to the Act, 1976, stood abated, provided the possession of the land had not been taken from the owner. Therefore, in a case, where the possession has been taken, the repeal of the Act would not confer any benefit on the owner of the land.”

7. Apart from above issues decided by the court, some practical problems were also faced while obtaining permission from the land ceiling authorities for development of land and constructing building.
With the Act repealed in November, builders and developers were no longer required to get permission from the land ceiling authorities in the government, a process that involves considerable time and a significant fee.
However, in the absence of the no-objection certificate, BMC has to figure out a way to ensure the land belongs to the builder. Since November, when Ulcra was repealed, the urban land ceiling department has maintained that the previously mandatory no-objection certificate for projects on land measuring at least 500 sq. m is no longer needed. However, the building proposals department of Brihanmumbai Municipal Corporation (BMC) says it cannot approve these projects because it isn’t clear whether they are on land that has previously been acquired by the government under the provisions of Ulcra.
Thereafter, S.R. Jhondale, additional collector of the urban land ceiling department, made a statement that the state government had intervened and passed an order to bring out a list of “clear” land that had not been acquired under Ulcra. List was to be given to BMC to end the confusion and to enable the BMC authority to verify whether the new projects are on land that has previously been acquired by the government under the provisions of Ulcra.

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