Saturday, 11 January 2020

Whether lessor can adjust money paid by lessee contrary to terms of lease deed?

 So far as the payment made by Petitioner towards lease premium and interest and adjustment thereof by Respondent No. 1 is concerned, Mr. Samdani relied upon the decision of the Apex Court in Industrial Credit Development Syndicate v. Smithaben H. Patel (MANU/SC/0092/1999 : (1999) 3 SCC 80 : (AIR 1999 SC 1036)) to contend that Respondent No. 1 was right in adjusting the amount paid by the Petitioner firstly towards the penal interest, then towards the interest and lastly towards the principle. Having gone through said decision, we are unable to buy the submission of Mr. Samdani. The Apex Court in this case was considering the question as to how the adjustment is to be made by the decree-holder under various heads comprising of principle, cost and interest. The Apex Court held that the payment has to be adjusted strictly in accordance with the direction of the Court, if any and in the absence of such direction the adjustment has to be made subject to an agreement to the contrary between the parties, firstly towards the interest and cost and thereafter towards the principle amount. The Apex Court was dealing with a situation about the adjustment of principle, cost and interest in pursuance of the decree of civil Court. So far as the present case is concerned, the liability of the parties has arisen in out of purely contractual obligation to pay interest, penal interest and premium as specified by clause 2(a) of the said supplementary lease deed. This clause does not stipulate that the payment by Petitioner is to be adjusted firstly towards the penal interest, then towards the interest and lastly towards the lease premium. The said clause simpliciter puts obligation on the part of the petitioner to pay lease premium in 4 annual equal installments with simple interest @ 10% per annum and in the event of delay in payment of installment, to pay penal interest at the prevailing prime lending rate decided by the RBI. Be that as it may, the Petitioner has annexed at Exhibit-D various receipts issued by Respondent No. 1 acknowledging the payment thereof. These receipts acknowledge the Petitioner's payment either to the lease premium or towards the interest or towards the penal interest. In short, whatever payment made by the Petitioner is specifically accepted by Respondent No. 1 either towards the lease premium or interest or penal interest. Now, therefore, it is not permissible for Respondent No. 1 to take a contrary stand. In our view, Respondent No. 1 cannot be permitted to act arbitrarily and therefore Respondent No. 1 shall adjust the said amount paid by the Petitioner as per the acknowledging receipts given by them.

9. As far as payment of penal interest is concerned, the issue is whether Respondent No. 1 can unilaterally seek to charge 4% additional interest over and above the agreed RBI prime lending rate. In our prima facie opinion, the Respondents are bound by the terms of mutually agreed and as recorded in the supplementary lease deed dated 29th October, 2013. The mutually agreed rate of penal interest is as per the RBI prime lending rate. Respondent No. 1 however by issuing the impugned circular dated 19th August, 2018 decided to charge penal interest at 4% over and above the prime lending rate. In this circular itself the prime lending rate is prescribed by Respondent No. 1 at 9.55% from 1st July, 2018. When there is mutual contract between the parties, the terms of this contract cannot be unilaterally changed. In our prima facie opinion, therefore, the Respondents are not entitled to charge 4% penal interest over and above the prime lending rate.

IN THE HIGH COURT OF BOMBAY

Writ Petition Ld. No. 212 of 2019

Decided On: 20.02.2019

Raghuleela Builders Private Limited Vs. Mumbai Metropolitan Region Development Authority and Ors.

Hon'ble Judges/Coram:
R.V. More and Bharati H. Dangre, JJ.

Citation: AIR 2019(NOC) 827 Bom


1. The Petitioner by filing this writ petition under Article 226 of the Constitution of India is challenging the validity of section 4(2) of the Interest Act, 1978 on the ground that the same is ultra vires to the provision of Articles 14 and 19 of the Constitution of India. The Petitioner is also challenging the Circular dated 19th October, 2018 and Resolution bearing No. 1423 dated 13th July 2017 passed by Respondent No. 1 leading to the issuance of instructions on 19th September, 2017 insofar as they provide for demand of penal interest amount on the agreed contractual rate of interest under clause 2(a) of the supplementary lease deed dated 29th October, 2013. The Petitioner is further seeking direction to Respondent No. 2 to compute the interest and penal interest strictly as per the supplementary lease deed dated 29th October, 2013. By way of interim relief, the Petitioner seeks direction to Respondent No. 1 to issue requisite NOCs/OCs subject to payment by the Petitioner of the balance short fall in payment of each installment of lease premium, which covers interest @ 10% till agreed due dates, and penal interest on delayed payment of each installment amount at the prevailing Reserve Bank of India [for short, "RBI"] prime lending rate.

2. On 1st November, 2007 Respondent No. 1 invited bids for disposal of land on lease admeasuring 10183.18 sq.mtrs. bearing Plot No. C-66, situated at G-block, Bandra Kurla complex. The purpose of grant of lease was construction of a commercial building with car parking. One M/s. Reliance Industries Limited was declared as the successful bidder and letter of allotment was issued to them on 28th December, 2007. On 15th July, 2008, a registered lease deed was executed between Respondent No. 1 and said Reliance Industries Limited. By February 2013, the basic built up area from ground floor to 9th Floors was constructed. In the year 2013 additional FSI/built up area of 67,000 sq.mtrs. was proposed by Respondent No. 1 for use in the same building as one composite structure of 20 floors with various other services to be located on the top of such building. On 29th October, 2013, a supplementary lease deed was executed for construction of 10 to 20 floors by utilising additional built up area. Clause 2(a) of the supplementary lease deed deals with contractual obligation about payment of lease premium for additional built up area in installments, simple interest @ 10% upto due dates mentioned therein, and penal interest. On 23rd December, 2013, Respondent No. 1 approved the assignment of the lease hold interest in respect of the said plot together with the entire development potential by M/s. Reliance Industries Limited in favour of the Petitioner and also gave its consent for assigning the additional built up area of 67,000 sq.mtrs to the Petitioner. Thus, the Petitioner stepped into the shoes of M/s. Reliance Industries Limited and is bound to fulfill the terms of the supplementary lease deed. Various disputes arose, leading to issuance of notices dated 11th February 2014, 23rd December, 2014 and 12th September, 2017 by Respondent No. 1. The Petitioner has already challenged these notices and those are subject-matter of Writ Petition No. 586 of 2018 wherein Respondent No. 1 is restrained from taking any coercive steps against the Petitioner. On 17th December, 2018, the Petitioner made an application to Respondent No. 1 to issue NOC for transfer of 40, 266 sq.mtrs in favour of One BKC Realtors Private Limited. On the very same day, M/s. Space Age Consultants, the liasoning Architect of the Petitioner applied for Occupation Certificate for 7 units aggregating to 2788 sq.mtrs. On 19th December, 2018, Reliance Industries jointly with the Petitioner made an application to Respondent No. 1 for NoC for formation of condominium in respect of project One BKC. On 31st December, 2018, the Petitioner issued 5 post dated cheques to Respondent No. 1 towards remittance of additional built up area lease premium and interest and requested for NoC for transferring the 40,266 sq.mtrs to One BKC Realtors Private Limited. [Later on this figure was corrected of 40,836 sq. mtrs.] On 4th January 2019, Respondent No. 1 issued in principle NoC for transfer of 40,386 sq. mtrs. subject to terms and conditions mentioned therein. On 15th January, 2019, the Petitioner requested Respondent No. 1 to re-compute the interest upto due dated and penal interest on the basis of clause 2(a) of the supplementary lease deed. These requests are given no heed, therefore the Petitioner is constrained to approach this Court with the reliefs mentioned hereinabove.

3. The controversy raised in this petition revolves around the interpretation of clause 2(a) of the supplementary lease deed dated 29th October, 2013 which reads thus:

"2. It is hereby agreed and declared by and between the parties hereto that--

(a) The Lessee shall pay 20% of the lease premium for the additional built up area being the first installment before the execution of the Supplementary lease deed and the balance amount of lease premium shall be paid in 4 annual equal installments with simple interest at the rate of 10% p.a. and delay in payment of installments shall attract penal interest at the prevailing Prime Lending Rate (PLR) decided by the Reserve Bank of India on the total amount due. Lessee has accordingly paid the first installment of Rs. 196,98,00,000/- (Rupees One Hundred Ninety Six crores, Ninety eight Lakh only) for the said additional built up area before execution of this Supplementary lease deed and agreed to pay the balance four installments as follows:



4. Mr. Nankani, the learned senior counsel for the Petitioner submitted that towards the lease premium, the Petitioner has paid to Respondent No. 1 total amount of Rs. 810 crore. Out of this amount, approximately Rs. 700 crore is paid towards the principle amount and Rs. 110 crore is paid towards the interest. Mr. Nankani submitted that the MMRDA accordingly has issued separate receipts acknowledging the payment towards the principle amount as well as interest. He submitted that now it is not permissible to Respondent No. 1 to adjust the said amount firstly towards the penal interest, then towards the interest and lastly towards the principle amount. Mr. Nankani would further contend that in terms of clause 2(a) referred hereinabove, lease premium is to be paid by the Petitioner to Respondent No. 1 in 4 annual equal installments with simple interest at the rate of 10% per annum and in the event of delay, the Petitioner was liable to pay penal interest at the prevailing prime lending rate decided by the RBI on the total amount due. He would further submit that despite this contractual obligation between the parties, Respondent No. 1 is charging 4% more penal interest over and above the prime lending rare by virtue of the circular impugned in the petition. According to Mr. Nankani, action of Respondent No. 1 in charging 4% additional penal interest is arbitrary and required to be quashed and set aside. Mr. Nankani lastly submitted that the Petitioner was always ready and willing to pay the lease premium in 4 annual equal installments with simple interest @ 10% per annum and penal interest on delayed payment of installment at prevailing prime lending rate decided by the RBI. He submitted that the prime lending rate as fixed by Respondent No. 1 in the impugned circular is 9.55% and therefore action of Respondent No. 1 in charging 4% interest over and above 9.55% is illegal.

5. Mr. Samdani, the learned senior counsel for the Respondents, on the contrary, would submit that the Petitioner is seeking to enforce contractual obligations through this writ petition with respect to its monetary liability. He submitted that petition involves disputed questions of fact which cannot be adjudicated by this Court in exercise of writ jurisdiction under Article 226 of the Constitution of India. He also submitted that already petition filed by the Petitioner bearing No. 586 of 2018 is pending in this regard, the subject-matter of which is the payment made by Respondent No. 1 on account of delay in construction beyond the period stipulated in the said lease agreement. Mr. Samdani would further invite our attention to the minutes of 125th, 126th and 129th meeting respectively held on 3rd August, 2009, 9th February, 2010 and 8th September, 2011 and submitted that the condition for charging penal interest on the amount due was amended to prime lending rate of State Bank of India [for short "SBI"]. He submitted that RBI does not fix the prime lending rate, and what is fixed by the RBI is repo rate and base rate only. In the submission of Mr. Samdani, both the parties to the contract understood that the penal interest rate as prime lending rate declared by the SBI and not by the RBI. He lastly submitted that therefore, amended circular would be binding on the Petitioner and they are obliged to pay the penal interest as per the said circular. Regarding the adjustment of amount paid by Petitioner, Mr. Samdani submitted that Respondent No. 1 is entitled to adjust the amount firstly to penal interest, secondly to interest and finally towards the principle amount. He lastly submitted that the petition is without any substance and the same deserves to be dismissed in limine.

6. At the outset, we will deal with the contention of Mr. Samdani regarding the maintainability of petition on account of disputed questions of fact. The main issue raised in the petition is about the interpretation of clause 2(a) of the said supplementary lease deed. We are called upon to decide two issues, namely, whether Respondent No. 1 can charge 4% additional penal interest over and above the prime lending rate and the adjustment of amount paid by the Petitioner to Respondent No. 1 when there is no dispute regarding the actual amount paid by the Petitioner. In the light of this, in our opinion, really no disputed questions of fact are raised. Even otherwise, it is settled by several decisions of the Apex Court that even within the contractual sphere, the State, as defined under Article 12 of the Constitution of India, cannot be arbitrary. We are, therefore, not inclined to accept the first Respondent's challenge to the maintainability of petition on this count.

7. The next issue is whether section 4(2) of the Interest Act, 1978 is ultra vires on the vice of Article 14 of the Constitution of India insofar as the said clause does not contain such restriction as contained in Section 3(1) of the said at and thereby enables allowing the payment of interest at the rate other than the contractual rate and further allows the payment of interest on interest is concerned, we are of the opinion that the same deserves consideration in the light of terms of the contract especially clause 2(a) of the said lease deed which does not make provision about the interest on interest. This issues requires consideration. Therefore, we grant Rule. We also issue notice to the Additional Solicitor General of India. The Petitioner is directed to implead the Union of India as party respondent in this writ petition.

8. So far as the payment made by Petitioner towards lease premium and interest and adjustment thereof by Respondent No. 1 is concerned, Mr. Samdani relied upon the decision of the Apex Court in Industrial Credit Development Syndicate v. Smithaben H. Patel (MANU/SC/0092/1999 : (1999) 3 SCC 80 : (AIR 1999 SC 1036)) to contend that Respondent No. 1 was right in adjusting the amount paid by the Petitioner firstly towards the penal interest, then towards the interest and lastly towards the principle. Having gone through said decision, we are unable to buy the submission of Mr. Samdani. The Apex Court in this case was considering the question as to how the adjustment is to be made by the decree-holder under various heads comprising of principle, cost and interest. The Apex Court held that the payment has to be adjusted strictly in accordance with the direction of the Court, if any and in the absence of such direction the adjustment has to be made subject to an agreement to the contrary between the parties, firstly towards the interest and cost and thereafter towards the principle amount. The Apex Court was dealing with a situation about the adjustment of principle, cost and interest in pursuance of the decree of civil Court. So far as the present case is concerned, the liability of the parties has arisen in out of purely contractual obligation to pay interest, penal interest and premium as specified by clause 2(a) of the said supplementary lease deed. This clause does not stipulate that the payment by Petitioner is to be adjusted firstly towards the penal interest, then towards the interest and lastly towards the lease premium. The said clause simpliciter puts obligation on the part of the petitioner to pay lease premium in 4 annual equal installments with simple interest @ 10% per annum and in the event of delay in payment of installment, to pay penal interest at the prevailing prime lending rate decided by the RBI. Be that as it may, the Petitioner has annexed at Exhibit-D various receipts issued by Respondent No. 1 acknowledging the payment thereof. These receipts acknowledge the Petitioner's payment either to the lease premium or towards the interest or towards the penal interest. In short, whatever payment made by the Petitioner is specifically accepted by Respondent No. 1 either towards the lease premium or interest or penal interest. Now, therefore, it is not permissible for Respondent No. 1 to take a contrary stand. In our view, Respondent No. 1 cannot be permitted to act arbitrarily and therefore Respondent No. 1 shall adjust the said amount paid by the Petitioner as per the acknowledging receipts given by them.

9. As far as payment of penal interest is concerned, the issue is whether Respondent No. 1 can unilaterally seek to charge 4% additional interest over and above the agreed RBI prime lending rate. In our prima facie opinion, the Respondents are bound by the terms of mutually agreed and as recorded in the supplementary lease deed dated 29th October, 2013. The mutually agreed rate of penal interest is as per the RBI prime lending rate. Respondent No. 1 however by issuing the impugned circular dated 19th August, 2018 decided to charge penal interest at 4% over and above the prime lending rate. In this circular itself the prime lending rate is prescribed by Respondent No. 1 at 9.55% from 1st July, 2018. When there is mutual contract between the parties, the terms of this contract cannot be unilaterally changed. In our prima facie opinion, therefore, the Respondents are not entitled to charge 4% penal interest over and above the prime lending rate. In this regard, the Petitioner has placed on record RBI's prime lending rates, termed as Repo Rate and Base Rate as on 1st July of relevant years. The said base rate of the RBI was 9.45% as on 1st July, 2018, 9.60% as on 1st July, 2017, 9.70% as on 1st July, 2016, 10.00% as on 1st July, 2015 and 10.25% as on 1st July, 2014 which is the same as taken in the impugned circular/resolution as on the said dates. Prima facie, therefore, we are of the opinion that the RBI's prime lending rate is correctly stated in the Circular/Resolution of the Respondents. The Petitioner is not liable to pay additional 4% penal interest over and above the agreed RBI prime lending rate. The Petitioner is liable to pay the penal interest rate as per the agreed base rate, i.e., prime lending rate.

10. This takes us to consider to what interim relief the Petitioner would be entitled and whether Respondent No. 1 can be permitted to withhold the grant of NOC and OC. Writ petition No. 586 of 2018 is pending before this Court. There is already ad interim order passed by this Court in said writ petition restraining Respondent No. 1 from taking any coercive action against the Petitioner. By the communication dated 4th January, 2019 [Exhibit-R to the petition], Respondent No. 1 itself has in principle approved NOC for assignment of built up area subject to various conditions. The said communication further states that the judgment in Writ Petition No. 586 of 2018 before this Court will be binding on all parties.

11. In the light of above, we pass following interim order:

[1] The Respondents are directed to provide within 10 days a computation of following:

[A](i) the total amount paid towards the lease premium as per the acknowledgements signed by the Respondents.

(ii) balance amount to be paid by the Petitioner towards the lease premium.

[B](i) the total amount paid towards the simple interest as per the acknowledgements signed by the Respondents.

(ii) balance amount to be paid by the Petitioner towards the simple interest as per the lease deed.

[C](i) the total amount paid towards the penal interest as per the acknowledgements/receipts signed by the Respondents.

(ii) balance amount to be paid by the Petitioner towards the penal interest as per the RBI prime lending rate (Base rate) on 1st July, of each year without charging penal interest on interest.

(iii) additional amount if penal interest is also charged on unpaid interest.

[2] The Petitioners are directed to deposit within three months thereafter the entire balance amount so communicated by the Respondents towards the lease premium (Clause (1)(A)(ii)), simple interest (Clause (1)(B)(ii)) and penal interest (Clause (1)(C)(ii)). This deposit however would be subject to final outcome of the petition.

[3] The Petitioner is directed to furnish an undertaking to bind to deposit the additional amount that may be computed by the Respondents under para (Clause (1)(C)(iii)), i.e., penal interest is charged on the unpaid interest. This undertaking would be subject to the final outcome of this writ petition.

[4] The Respondents are directed to issue NoC for assignment of the balance area immediately without insisting for any payment.

[5] The Respondents are further directed to process the OC of proportionate area, corresponding to the above payment within a week from the receipt of payment of the above said amount computed by them and upon submission of undertaking as above.


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