Landlords can evict shop tenants, says Supreme Court
Times of India, New Delhi, April 18, 2008
For 50 years, tenants in shops and commercial premises in many prime areas of Delhi have had the upper hand over landlords. They lived without fear of eviction and paid a paltry rent as they were protected by laws that froze the amount negotiated decades ago.
This special protection was because the law said that a tenant could be asked to vacate only residential premises, and not commercial property even if the premises were required for personal use. But all this has changed.
The Supreme Court has given a judgment that would help landlords evict tenants in prime commercial zones like Connaught Place, Karol Bagh, South Extension and Walled City who, in most cases, have been paying a few hundred rupees as rent for decades.
The rent law - Delhi Rent Control Act, 1958 - was a handicap for the landlord as he could seek eviction of the tenant only from residential premises, that too provided he proved this was required for his personal need.
The attempts to evict the tenants from the shops had been frustrated for nearly 30 years as the rent law did not permit recovery of the premises let out for shops even on the ground of bonafide personal need.
The court said the restriction on eviction of tenants from commercial premises was inserted in the law 50 years ago mainly because of the limited commercial space available in the city at that time. But that was a long time back.
Now the scenario has undergone a sea change and a fairly large number of buildings and premises were now available on rent for non-residential and commercial purposes. Restricting landlords from seeking eviction of tenants from shops was no longer justified, the Bench said.
The 1995 Delhi Rent Control Act, which had a similar provision in favour of landlords, could not be notified despite receiving presidential assent as the government was pressured by the powerful traders lobby.
Section 14(1)(e) of the 1958 Act allowed a landlord to make an application for recovery of possession of a residential premises on the ground that "the premises let out for residential purposes are required by the landlord for occupation as a residence for himself or any other member of his family dependant on him... and that the landlord has no other reasonably suitable residential accommodation".
The new law would now read: "That the premises are required bonafide by the landlord for himself or for any member of his family dependant on him... and that the landlord has no other reasonably suitable accommodation".
Crucially, the apex court has deleted the word 'residential'. This makes the tenant eviction process apply with same rigour to rented premises - both residential and commercial.
Though the court removed the word 'residential' from Section 14(1)(e) of the Delhi Rent Control Act, it tried to strike a balance by laying down that recovery of rented premises still needed the landlord to prove that he needed it for his use and lacked alternate suitable accommodation.
Reversing a full Bench judgment of the Delhi High Court which had refused to alter the law in favour of the landlords on the ground that it had been in force for more than 45 years, the apex court said the HC failed to see that the provision in the 1958 Act has outlived its utility.
Writing the 64-page judgment for the Bench, Justice Singhvi said the high court failed to notice the differential treatment in law for residential and commercial premises, even though the rationale for it had long ceased to exist.
Removing this anomaly and striking down the differential approach in law, a Supreme Court bench comprising Justices B N Agrawal and G S Singhvi said landlords could now seek eviction of tenants from residential as well as commercial premises on the ground of proven personal need.
Through the judgment, the court came to the rescue of the family of a landlady who wanted to demolish the premises, part of which was let out for shops. She wanted to build a new structure to accommodate a family growing in size over the years.
Landlords: Most of them have rented out their property for over 50 years. The figures they quote when asked what rent they receive sound laughable. While most would welcome a change, landlords in commercial areas of the Walled City and its neighbouring areas doubt whether the Supreme Court's recent judgement will provide them any relief. The order says that landlords who have rented out properties for commercial purpose can also evict tenants on the ground that they need the property for personal use.
Shahid Ahmed's family, who have owned Packard Watches Co in Chandni Chowk for over 90 years, have around 25 properties that have been rented out to traders for about 70 years. "The rent we get varies from Rs 45 to Rs 100," Ahmed says. "Some tenants don't even pay. Because of the Delhi Rent Control Act, the rent received from such properties are not on a par with newer colonies or market complexes in the city. Under the law, landlords were allowed to increase the rent by only 10% every three years. Moreover, several tenants who might pay around Rs 100 as rent sub-let the property for about Rs 25,000."
Riaz Umar, who has several properties rented out in CP since the early 1950s, says the rent was initially Rs 70 and then increased to a princely Rs 90. "In one place in CP, there are two properties, side by side, and of the same size. While one commands a rent of Rs 33,000, the other has a rent of only Rs 110. Landlords are helpless in such cases," says Umar.
Deep Anand owns a confectionery shop in Karol Bagh and has rented out a property for almost 40 years. He would like to expand his business and could have utilised the property he had rented out as a shop but was unable to do so because of the law. "The past 20 years or so have seen a sharp price rise. House tax has also risen. However, the rent we receive is the same," complains Anand.
The SC order is being seen with scepticism by almost all landlords. Rajender Prasad, a landlord in Chandni Chowk, dismisses the ruling. "Petitions will pile up, cases will be pending and eventually, the government will cave in so as to protect its votebank. Moreover, in Chandni Chowk, about 80% shops have been sold by the landlords to the shopkeepers."
"There is a strong likelihood of the new law being misused," says Ahmed. "There are very few genuine cases of landlords actually needing the property they have rented out. Many landlords, who are part of the mafia here, could use muscle power to get their tenants evicted. Moreover, the landlord has to prove that he genuinely needs the property, and even then, the processes of law are such that it could take up to 30 years before anything is resolved."
Ironically, Ahmed is also a tenant. Packard Watches Co, which was called Great British Watch Co before 1947, has occupied the same leased plot of land for the past 90 years. "This new law will create widespread fear and panic among traders," says Ahmed.
In 1937, 85-year-old Ram Kanwar Gupta's father constructed a two-storeyed house in Connaught Place to ensure a stable income for his family. Now, 71 years later, all Gupta gets from renting out four shops on the ground floor is Rs 100 to Rs 150 from each shop despite the prime location of the property. The meagre income of around Rs 600 per month is not even enough to meet the maintenance costs of the building.
Gupta, who deals in stocks, is one of the few people who have made CP their home. He lives on the first floor while he has a tenant on the second floor who pays him around Rs 150 approximately. Gupta has four sons and the Supreme Court order comes as a ray of hope for the family as they can finally ask for their building to be vacated so that Gupta's sons can use it for their businesses.
"I was a small boy when my father used to bring me here to show the under construction building which is spread over 500 square yards," recalls Gupta. "In 1970, most of the shops were rented out at Rs 30 per month; today I manage to earn only Rs 100 from them even as the price index has risen tremendously over the years. I am lucky that I have four sons to show bonafide personal needs. For many landlords, this option is not there. They continue to live on a meagre amount even as the tenants prosper."
According to Gupta, while the average rent for old tenancy in the Outer Circle is Rs 100 to Rs 200, in the Inner Circle it is around Rs 500.
"I have seen CP become the commercial hub that it is today," he says. "My father built this property with the intention of renting it out for residential purpose. However, we hardly got any tenants then. What I don't understand is that when the tenants can pay for everything else in accordance with today's price index, why can't they pay more rent? Why this hue and cry? While the court's decision has provided some basis to reclaim our properties, it is still a long battle as there will be litigation," he observes.
One of Gupta's tenants admits to paying Rs 100 as rent and is now reconciled to vacating the shop and moving on. But he says it would be impossible to find another property where they would be charged Rs 100 as rent.
Sanjeev Gupta has also rented our four shops in M-block for amounts varying from Rs 75 to Rs 100: "My tenants pay more for parking than they do as rent to me. The only reason they are still functioning from my premises is due to the unfortunate protection under the Delhi Rent Control Act 1958 even as I don't have a shop to carry out my business."
The case is more or less similar for other landlords.
Shobha Aggarwal and four other female members of her family have formed a committee for the repeal of Delhi Rent Control Act. Said Shobha: "My grandfather used to sell utensils home-to-home before he could afford to construct a house at Asaf Ali Road. He did so to secure his children's future. The property was left to the women of the family by my grandmother. But all we earn from it is rent varying from Rs 440 to Rs 700. My tenants own property and cars while the meagre rent they pay me cannot even take care of the house tax and the general maintenance of the building." The house is spread over 400 square yards.
She added: "We want the Delhi Rent Control Act to be repealed. The SC verdict gives us some hope. I would like to return and live in my ancestral home one day."
The Supreme Court empowered landlords to evict tenants from shops for personal need relying mainly on Parliament's intent to confer this right on them in the 1995 Delhi Rent Control Act, which could not be enforced despite receiving Presidential assent because of the strong traders' lobby.
A Bench, comprising Justices B N Agrawal and G S Singhvi, said though the 1995 Act had not been enforced, "we can take judicial notice of the fact that the legislature has, after taking note of the developments which havetaken place in the past 37 years, that is substantial increase in the availability of the commercial and non-residential premises or the premises which can be let for commercial and non-residential purposes...removed the implicit embargo on the landlord's right to recover possession of the premises if the same are bona fide required by him/her."
Tracing the history of rent control laws applicable to the Capital prior to independence, the Bench noticed that till 1947, there was no tangible distinction between the premises let out for residential and non-residential purposes.
Why was the differentiation made in the later laws, depriving the landlord the right to evict a tenant from shops and commercial establishments? Justice Singhvi, writing the judgment for the Bench, said at the time of enactment of the law, a large number of partition-affected refugees had descended on the Capital leaving everything behind and looking at an uncertain future.
To protect them from harassment at the hands of landlords and allow them to carry on with their business unhindered by threat of eviction, the government had restricted the right of the owners to recover possession of only those premises rented out for residential purposes, the Bench said.
There had been a sea change in the scenario, 50 years after the enactment of law, it said. The availability of buildings and premises which could be let out for non-residential or commercial purposes had substantially increased, it said.
Talking about the refugees who came to Delhi after partition, Justice Singhvi said: "Those who came from West Pakistan as refugees and even their next generations have settled down in different parts of the country, more particularly in Punjab, Haryana, Delhi and surrounding areas."
"They are occupying prime positions in the political and bureaucratic set-up of the government and have earned huge wealth in different trades, occupations, business and similar ventures," he said.
Hence, the reason for differentiating the rights of a landlord with regard to residential premises and commercial set-up or shop, mainly to protect the refugee tenants from eviction, no longer exists, the Bench inferred. It said that landlords should be given equal right in seeking vacation of residential and commercial premises, if it was required for their bona fide personal need.
Tenants: There are over two lakh traders in the city who operate from rented properties in commercial areas. Most of them pay less than Rs 3,000 a month as rent for shops in prime locations. The Supreme Court order could lead to their eviction.
The market areas where a large number of such shops are located include Connaught Place, Karol Bagh, Walled City, Chawri Bazar, Kashmere Gate, Paharganj, Daryaganj, Ajmeri Gate, Asaf Ali Road, South Extension and Kalkaji. There are about one lakh such properties in the city.
The shopkeepers functioning from these rented properties, however, are not willing to go without putting up a fight. Said Praveen Khandelwal, president of the Confederation of All India Traders: "This decision affects 45% of the shopkeepers in the city, and just like in the case of sealing, the judgment pertaining to one case has been extended to the entire city. In the past three years, traders have been affected negatively by various decisions taken by the government and courts but not once has anyone spoken of rehabilitation for us. There are still 6,000 to 7,000 traders who have been unemployed for a year now due to sealing."
He said traders would ask the government to intervene and, if need be, even approach the Supreme Court. "To save the livelihoods of lakhs of traders, we may take to the streets once again," he said.
The traders say the Supreme Court's argument that more commercial space is available now ignores the fact that the rentals at such places are too high for most traders. They say they are paying low rents now as they had paid a security deposit at the time of renting the shop.
Said Muri Mani, president of Karol Bagh traders association: "The new Delhi Rent Act, which had got the approval of Parliament and the President in 1995 was opposed by us and was not notified. It favoured the landlords, which will be the case even now. This will have a very negative effect on trade in the city, especially wholesale trade, and will be a hindrance to development of the city."
Shopkeepers say they have spent the better part of their lives establishing goodwill in a particular market area which will all get jeopardised now.
Said Atul Bharghav, who has a shop in CP: "This decision is likely to lead to chaos. We have been functioning from CP for the past 71 years and have been paying a subsidised rent as my father had paid security money at the time of acquiring the shop. If my landlord now demands a rent equivalent to today's market rates, I will not be able to afford it. And how will one decide that the eviction is on the ground of bonafide personal need? Landlords will definitely take advantage of the situation." Around 75% of the properties in CP are rented out and the rent is very low, from Rs 1,000 to Rs 3,000.
In areas like South Extension, around 35% of shops are on rent. Said Vijay Kumar, who owns a footwear shop in South Extension: "I have spent around 40 years of my life establishing the brand name. If I am asked to vacate my shop, it will be disastrous for my business. It is not a matter of more commercial space being avialalbe in the city, it's many years of hard work that will go waste. I pay Rs 17,000 in rent per month and will have to pay more in other areas."
The shopkeepers likely to be most affected are in Walled City and its extensions. Said Kulbhushan Ahuja from Karol Bagh: "I have been functioning from Ajmal Khan Road for years now and pay Rs 175 as rent. Earlier sealings and demolitions had shaken the trader community and this has acted as an additional setback for us." Around 70% of shopkeepers in this area have rented shops.
Added Satender Jain from Chawri Bazaar: "I have been functioning here since 1939. Around 60% of the traders here have rented shops and have done a lot to develop the market here. It will all get ruined if we are asked to go. Every market area has its own character which will be lost." Traders here pay around Rs 200 per month as rent.
Around 45% of the shopkeepers in the city are functioning from rented properties, according to one estimate.