Court’s Decision
The Delhi High Court upheld the lower court’s judgment partly decreeing mesne profits against the appellant for unauthorised occupation of commercial premises after the expiry of a registered lease. The Court rejected the claim that the lease was validly renewed and held that the tenant continued as a tenant at sufferance and must pay mesne profits at market rate. The High Court upheld mesne profits at ₹145 per sq. ft. per month from 1 April 2007 to 15 June 2008, with interest at 9% per annum till decree and 6% per annum thereafter. The prayer for increasing mesne profits to ₹250 per sq. ft. and for enhancing interest to 18% was rejected.
Facts
A lease was executed in April 2004 for 4400 sq. ft. on the first floor of Himalaya House, Connaught Place, for three years till 31 March 2007 at ₹2,82,480 per month. The lease provided an option for two renewals of three years each with a 20% rent escalation if exercised by giving three months’ prior notice by registered post acknowledgment due (AD). The tenant claimed to have exercised renewal by sending notices via UPC and by hand delivery. The landlord denied receiving valid notice and sent a legal notice to vacate. The tenant vacated only on 15 June 2008 but paid enhanced rent at ₹77 per sq. ft. during the extended period.
Issues
- Whether the tenant validly exercised the renewal option under the lease.
- Whether the landlord was entitled to mesne profits and at what rate.
- What interest rate should be applied on the decreed amount.
Petitioner’s Arguments
The tenant argued it had validly exercised the renewal option by sending timely notices via UPC and by hand delivery. It claimed that Clause VI of the lease (mandating Registered AD) should not override actual notice served by other acceptable modes. The tenant argued that since the lease was renewed, it owed only the escalated rent at ₹77 per sq. ft. and not mesne profits. It also claimed the trial court wrongly determined the market rent at ₹145 per sq. ft., citing comparable leases in the same building showing lower rents between ₹87 and ₹120 per sq. ft.
Respondent’s Arguments
The landlord argued the tenant did not comply with the strict mode prescribed for renewal notices — Registered AD. Notices by UPC and hand delivery did not meet the contractual requirement, nor did the tenant prove service. No fresh lease deed was executed, so the lease ended by efflux of time. The landlord argued that the trial court erred by not fixing the mesne profits at ₹250 per sq. ft., citing lease deeds in the same or nearby buildings showing rents between ₹150 and ₹200 per sq. ft. It further argued that the interest rate should be 18% per annum under Section 80 of the Negotiable Instruments Act, 1881, citing commercial rates of the time.
Analysis of the Law
The Court emphasised the settled principle that lease conditions, especially renewal and notice clauses, must be strictly complied with. Relying on Nazir Ahmad v. King-Emperor, the Court held that when a statute or contract prescribes a manner for doing an act, it must be done in that manner only. Since the renewal was not exercised by Registered AD and no fresh lease was executed, the renewal was invalid.
As per Bijay Kumar Manish Kumar (HUF) v. Ashwin Bhanulal Desai and Indian Oil Corporation Ltd. v. Sudera Realty (P) Ltd., a tenant continuing after lease expiry is a tenant at sufferance and is liable to pay mesne profits at market rent for unauthorised occupation.
The Court applied Atma Ram Properties (P) Ltd. v. Federal Motors (P) Ltd. to hold that mesne profits must reflect the rent the landlord could have earned. The Court agreed with the trial court’s reliance on comparable leases within the same building, which justified the ₹145 per sq. ft. rate rather than the ₹250 claimed by the landlord or the lower rates cited by the tenant.
Precedent Analysis
- Nazir Ahmad v. King-Emperor – A procedure prescribed must be strictly followed.
- Bijay Kumar Manish Kumar (HUF) v. Ashwin Bhanulal Desai – Tenant at sufferance must pay mesne profits after lease ends.
- Indian Oil Corporation Ltd. v. Sudera Realty (P) Ltd. – Tenant continuing post expiry is liable for mesne profits.
- Atma Ram Properties (P) Ltd. v. Federal Motors (P) Ltd. – Mesne profits equal to market rent.
- Orient Abrasives Ltd. v. Hariganga Alloys and Steels Ltd. – Section 80 of NI Act can justify 18% interest but only where applicable.
- The Court distinguished these precedents to hold that while the relationship was commercial, the suit proceeded as a civil suit and the interest awarded was reasonable.
Court’s Reasoning
The Court found that the tenant failed to prove service of notice in the mode required. It noted discrepancies and lack of credible evidence about the UPC dispatch. The Court accepted the valuation report and comparable leases indicating market rent of ₹145 per sq. ft., rejecting the higher and lower comparables as less relevant due to differences in size and floor. It found the trial court’s interest rate appropriate given the nature of the suit and the fact that Section 80 of the NI Act did not mandatorily apply to mesne profits from wrongful occupation.
Conclusion
Both appeals were dismissed. The trial court’s decree for mesne profits at ₹145 per sq. ft. per month with 9% pendente lite interest and 6% future interest was upheld. The tenant’s argument of valid renewal and the landlord’s claim for higher mesne profits and higher interest were rejected.
Implications
- Reinforces strict compliance with lease notice clauses.
- Clarifies that mere payment of enhanced rent does not amount to valid renewal if contractual procedure is not followed.
- Affirms that mesne profits must be determined on credible comparable market evidence.
- Sets a precedent that commercial rate interest under Section 80 of the NI Act is not automatic in such civil suits.
FAQs
1. Does sending notice by UPC satisfy a lease’s Registered AD clause?
No. The Delhi High Court reaffirmed that where a contract mandates Registered AD for notices, sending by UPC or hand delivery does not comply.
2. Can a tenant paying enhanced rent claim valid renewal without a fresh lease?
No. Without execution and registration of a fresh lease deed as per the lease terms, paying enhanced rent alone does not extend the lease.
3. How is mesne profit calculated for unauthorised occupation?
It must reflect the market rent the landlord could have earned, based on credible comparables and expert valuation.