Holding

The landlord must adjust the tenant's security deposit against rent, light bills and municipal taxes without a specific request, and the unpaid municipal tax does not constitute wilful default justifying eviction.

Summary

The tenants, Kranti Swaroop Machine Tools Pvt. Ltd. and another, challenged eviction orders issued by the landladies, Smt. Kanta Bai Asawa and others, on the ground that they had not committed wilful default in rent or municipal taxes. The High Court had held that non‑payment of a small municipal tax amount constituted wilful default, justifying eviction, despite the tenants' Rs 10,000 security deposit. The Supreme Court examined Section 7(2)(a) of the Andhra Pradesh Buildings (Lease, Rent & Eviction) Control Act, 1960 and held that the landlord is obliged to adjust the deposit against rent, light bills and municipal taxes without a specific request from the tenant. It further ruled that the unpaid municipal tax of Rs 18 per month did not amount to wilful default and that the deposit clause, though not expressly permitting adjustment during tenancy, creates an implied obligation to do so. Consequently, the eviction order was set aside and the appeals were allowed.

Issues considered

Whether non‑payment of a small municipal tax amount constitutes wilful default in rent under the Andhra Pradesh Buildings (Lease, Rent & Eviction) Control Act, 1960.
Whether the landlord is required to adjust the tenant's security deposit against rent, light bills and municipal taxes without a specific request, in accordance with Section 7(2)(a) of the Act.
Whether clause 3 of the rent deed, which bars adjustment during tenancy, overrides the statutory duty under the Act.
Whether the doctrine of in pari delicto applies to the tenant's alleged default.
Whether the landlord’s failure to intimate the municipal tax demand negates wilful default.

Legislation cited

Andhra Pradesh Buildings (Lease, Rent & Eviction) Control Act, 1960s. 7(2)(a)

Subjects

evictionwilful defaultsecurity deposit adjustmentmunicipal taxeslandlord-tenantSection 7(2)(a)in pari delicto

Judgment

KRANTI SWAROOP MACHINE TOOLS PVT. LTD. AND ANR. A
v.
SMT. KANTA BAI ASAWA AND ORS.

JANUARY 27, 1994

[S. MOHAN AND M.K. MUKHERJEE, JJ.] B

Andhra Pradesh Buildings (Lease, Rent & Eviction) Control Act, 1960:
Section 7(2)(a}-Landlor~Tenant-Rent dee~Advance deposit by tenant
for adjustment of rent, light bills and damages due at the tennination of
+ tenancy-Default in payment of rent by tenant-Eviction order-Legality C
of-Held there was obligation on the landlord to adjust rent without specific
request from tenant.

The respondents-landladies filed eviction petitions against the ap-
pellants-tenants alleging that they had committed wilful default in pay-
ment of Rent as well as municipal taxes in respect of the demised premises. D

-
The Trial Court allowed the petitions and passed the eviction order against
the appellant. On appeal, the appellate court reversed the Trial Court's
order. On revision, the High Court held that the tenants had not com-
: mitted default in payment of rents but had committed default in respect
1
of municipal taxes which amounted to wilful default in payment of rent E
and accordingly ordered tenants eviction.

The tenants challenged the judgment of the High Court in this Court
contending that (a) merely because a small sum by way of municipal taxes
has not been paid, it does not mean that tenant was liable to be evicted
and (b) pursuant to clause (3) of the rent agreement they had deposited F
Rs. 10,000, to be adjusted at the termination of tenancy, towards rent, light
bills and damages due, with the landladies and. it was obligatory on their
part to adjust the dues out of the advance amount without any specific
request from the tenant.
G
Allowing the appeals and setting aside the judgment of the High
Court, this Court

HELD: 1. Having regard to the fact that the municipal taxes per
month are Rs. 18 for each premises, the tenant could not be evicted when
contrary to Section 7(2)(a) of the Andhra Pradesh Buildings (Lease, Rent H
377
378 SUPREME COURT REPORTS [1994) 1 S.C.R. ~

A & Eviction) Control Act, 1960, the landlady has a deposit. This ought to
have been adjusted from that deposit even without a specific request by
the tenent in this behalf. [385-G-H] +
2. Though, clause 3 of the Rent deed did not permit adjustment, yet
there is an obligation to adjust from out of it, otherwise the very purpose
B of keeping a deposit is rendered nugatory. It is not necessary on the part
of the tenant to make a specific request in this behalf. [382-C]

Modem Hotel, Gudur represented by M.N. Narayanan v. K. Radhak-
rishnaiah & Ors., [1989] 2 S.C.R. 725; Mohd. Salimuddin v. Misri Lal & Anr.,
C [1986] 1 S.C.R. 622 and M/s. Sarwan Kumar Onkar Nath v. Subhas Kumar +
Agarwal, [1988] 1 S.C.R. 414, relied on.

Bhoja alias Bhoja Ram Gupta v. Rameshwar Agarwala and others,
[1993] 2 S.C.C. 443 and Guiab Chand Prasad v. Budhwanti, A.I.R. 1985 Pat.
327 referred to.
D
Budhwanti v. Guiab Chand Prasad, [1987] 2 S.C.C. 1531, explained
and distinguished.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 5252-
5255 of 1993.
E
From the Judgment and Order dated 29.6.1993 of the Andhra
Pradesh High Court in C.R.P. Nos. 2658, 2941, 3122 and 3129 of 1990.

A. Subba Rao and A.D.N. Rao for the Appellants.

F S.K. Mehta, Druv Mehta and Bal Chand for the Respondents.

The J~dgment of the Court was delivered by

MOHAN, J. 1. All these appeals can be dealt with under a common
judgment since they they arise out of one and the same order in all the
G Courts. The 1st respondent landlady, Smt. Kanta Bai Asawa and her
mother Smt. Godavari Bai Rathi are the owners of mulgies bearing
Municipal Nos. 3.2.840/6 and 3.2.840/7, situated at Veer Sawarkar Road,
Kacheguda, Hyderabad. These two mulgies were let out to appellants
tenants under separate lease-deeds marked as Pl and P2 respectively
I
in
H the trial court executed on 23.9.1978. Ex. Pl is in respect of mulgi bearing
SWAROOP MACHINE TOOLS LTD. v. KANTA BAI [MOHAN, J.] 379

No .. 3.2.840/6 and Ex. P2 is in respect of mulgi bearing No. 3.2.840/7. A
Alleging that the tenants had committed wilful default in payment of rent
as well as the taxes due to the Municipal Corporation in respect of the
demise premises, the landladies filed four eviction petitions bearing R.C.
Nos. 291/84, 292/84, 1972/86 and 1973/86 on the file of the First Additional
Rent Controller at Hyderabad. The tenants contended that they did not B
commit wilful default either with regard to payment of rent or municipal
taxes.

2. All the petitions were clubbed together. Common evidence was
+ adduced in R.C. No. 291/84. The Rent Controller came to the conclusion
that the tenants had committed wilful default in payment of rent as well as C
the municipal taxes. Accordingly, all the four eviction petitions were al-
lowed. The tenants were directed to vacate the premises within a period
of two months.

3. Aggrieved by the order of eviction, appeals were preferred in RA. D
Nos. 387-390/89 to the learned Chief Judge, City Small Causes Court,
Hyderabad. The appellate court held that there was no basis for the trial
court to conclude that the tenants had committed wilful default. For these
reasons, the appeals were allowed.

4. Thereupon, revisions were preferred in Civil Revision Petition E
Nos. 2658, 2941, 3122 and 3129/1990 to the High Court. The learned Single
Judge came to the conclusion that the lower appellate court was right in
reversing the order of eviction on the ground of wilful default in payment
of rent.
F
5. Concerning the municipal taxes, he was of the view that it could
not be said that the tenants had not committed any wilful default in
payment of municipal taxes. It was found that the default had been com-
mitted by the tenant in respect of tax and the same amounts to wilful
default in payment of rent which would entitle the landladies to evict the
tenants. The revision petitions were allowed. The tenants were directed to G
vacate the premises and handover vacant possession of the same to the
landladies within three months from the date of the otder. Thus, the
present civil appeals.

6. It is urged on behalf of the appellants that the High Court had H
380 SUPREME COURT REPORTS [1994) 1 S.C.R.

A gone wrong in its condusion that the tenants had committed wilful default.
The parties are governed by a contract which has been embodied in the
rent deed dated 23.9.1978. That rent deed contains several clauses which
are beneficial to the tenants. Ignoring those clauses, the High Court had
come to an incorrect conclusion on both of question of law and facts.
B Under clause 3 of the agreement, the tenant had deposited with the
landladies a sum of Rs. 10,000. That deposit was not to carry any interest.
It could be adjusted at the termination of tenancy towards the rent, light
bills and damages which may be found due. This deposit was to be returned
to the tenants only at the time of tenants vacating the premises. Under
clause 5, it was stipulated that the non-payment of two months deposit as
c agreed will entitle the landladies to eject the tenants as wilful defaulter. -+
The same is reiterated in Clause 14.

7. Under Clause 22, it had been agreed that when the tenants vacate
the shop, they could remove the changes made by them and without
D permission of the landladies and restore to original condition at their cost.
Under Clause 24, the details of re-construction through the landladies to
be made at tenants cost were detailed out. As regards municipal taxes, the
obligation to pay the same would arise within one month from the date of
intimation by the landladies as clearly stipulated in clause 2. In this case,
E admittedly, the tenants had not been intimated about the demand in
relation to the municipal taxes. Therefore, the High Court is not correct
wrong in concluding that there was a wilful default. It is not merely a
question of default that will be material but such a default must be wilful.

8. If rent includes municipal taxes as agreed to between the parties,
F the High Court ought to have examined the object of the tenants depositing
a huge sum of Rs. 10,000 with the landladies. The deposit was to be
adjusted towards the rent also, in addition to the electricity charges or
damages. Under Section 7(2)(a) of Andhra Pradesh Buildings (lease, rent
& eviction) Control Act, 1960 (hereinafter referred to as 'the Act'), the
G landlady is forbidden to receive any pemium or other like sums in excess
of the agreed rent. Even if the tenants fails to ask the landladies to make
adjustment of a advanced amount, eviction on the ground of wilful default
cannot be ordered. Bhoja alias Bhoja Ram Gupta v. Rameshwar Agarwala
and others, [1993) 2 S.C.C. 443 did not go into the question of wilful default.
H Again in Mohd. Salimuddin v. Misri Lal, [1986) 1 S.C.R. 622, it was
......__, SWAROOP MACHINE TOOLS LTD. v. KANTA BAI [MOHAN, J.) 381

observed that the tenant could not evicted on the ground of default in A
payment of rent for two months, even if the tenant fails to ask the landlord
to make adjustment of advanced amount. In view of all these, merely
because a small sum by way of municipal taxes has not been paid, it does
not mean that tenant is liable to be evicted. The judgment of the High
Court requires to be reversed. B
9. In opposition to this, learned counsel for the respondents would
submit that no doubt there is deposit of Rs. 10,000 with the landladies but
that does not mean without a specific request by the tenants, it is bound
to be adjusted. Even otherwise, as per Clause 3 of the rent deed, no
+ adjustment is permissible during the tenancy. The agreement contained in C
this clause requiring to defray the rent, electricity bills and other damages
at the time of vacating the premises is not covered by Section 7(2)(a) of
the Act. The respondents relies upon the judgment in Bhoja's case (supra)
particularly paragraph 21 of the judgment. Besides, the appellant is in
default as he had not complied with the order dated 1.10.1993 of this Court D
directing to pay the arrears of rent and taxes.

10. In view of above arguments, the only question that arises for our
determination is whether the appellants tenants could be deemed to have
committed wilful default. The findings rendered by the High Court to E
which we have made a reference already, are:

(i) There is no wilful default in payment of rent.

(ii) Wilful default in payment of municipal taxes;
F
(iii) The plea of appellants tenants is that they were not informed
of the demand, could not be accepted.

11. In this connection, we may note that clause 2 of the rent deed
dated 23.9.1978 requires the payment of municipal taxes. However, what is
stated is "municipal taxes shall be paid by the tenants within one month G
from the date of intimation by landladies." We will proceed on the
assumption that the tenants' contention in this regard is not correct.

12. But, here is a case where a sum of Rs. 10,000 is in deposit with
the landladies. Clause 3 of the said rent deed reads as under: H
382 SUPREME COURT REPORTS [1994] 1 S.C.R.

A "The tenants would keep in deposit with the landladies a sum of
Rs. 10,000 (rupees ten thousand only). This deposit would not carry
any interest and would be adjusted at the termination of the
tenancy towards the rent, light bills and damages which may be
found due. The tenants has no right to ask for any adjustment to
B the deposit. But the deposit amount will be returned to the tenants
only at the time when the tenants vacate the premises and after
deducting all kinds of dues."

13. Though, it is argued that this clause did not permit adjustment,
C yet we find that there is an obligation to adjust from out of it, otherwise +
the very purpose of keeping a deposit of Rs. 10,000 for each shop is
rendered nugatory. ls it necessary on the part of the tenants to require the
landladies to adjust or to be precise, make a specific request in this behalf?
Our answer should be in the negative.

D
14. In Modem Hote~ Gudur Represented by M.N. Narayanan v. K
Radhakrishnaiah & Ors., [1989] 2 S.C.R. 725, this Court had occasion to
deal with Section 7(2) of the Act. In that case, reference was made to
Mohd. Salimuddin's case (supra). It was observed at page 729 as under:

E "This Court in Mohd. Salimuddin v. Misri Lal & Anr., [1986] 1
S.C.R. 622, had occasion to deal with a more or less similar
situation arising under the Bihar Buildings (lease, rent & Eviction)
Control Act, 1947. There, a sum of Rs. 2,000 had been advanced
by the tenant to the landlord stipulating adjustment of the loan
F amount against the rent which accrued subsequently. The landlord
asked for eviction on th.e ground of arrears of rent by filling a suit.
The trial court had decreed the suit but the lower appellate court
reversed the decree by holding that the tenant was not in arrears
of rent since the amount advanced by the tenant was sufficient to
G cover the landlord's claim of arrears. The High Court, however,
vacated the appellate judgment and restored that of the -trial court
holding that the loan amount by the tenant was in violation of the
prohibition contained in Section 3 of the Bihar Act and the tenant
was in arrears of rent and liable to be evicted. This Court set aside
H the judgment of the High Court by saying:
,,...,__, SWAROOPMACHINETOOLSLTD. v. KANTABAI[MOHAN,J.] 383

"The view taken by the High Court Court is unsustainable A
inasmuch as the High Court has lost sight of the fact that the
parties to the contract were unequal. The tenant was acting
under compulsion of circumstances and was obliged to suc-
cumb to the will of the landlord, who was in a dominating
position. If the tenant had not agreed to advance the loan he B
would not have been able to secure the tenancy."

The Court referred to the doctrine of paridelicto and held that the
same was not applicable against the tenant.

+ In Mis Sarwan Kumar Onkar Nath v. Subhas Kumar Agarwal/a, C
[1987) 4 S.C.C. 546, Salimuddin's case came for consideration. This
was also a dispute under the Bihar Act were two months rent had
been paid in advance by the tenant to the landlord on the stipula-
tion that the advance amount would be liable to be adjusted
towards arrears of rent, whenever necessary or required. The Court D
held that the tenant could not be evicted on the ground of default in
_..__ the payment of rent for two months even if the tenant failed to ask
the landlord to make adjustment of the advance amount in the
absence of any agreement requiring the tenanHo infonn the landlord
as to when such adjustment is to be made. This Court said that E
when the Rent Act prohibited the landlord to claim such advance
payment, the tenant could not be considered to be a defaulter and
the doctrine of pari-delicto was not attracted to such a fact-situa-
tion." (emphasis supplied)

These decisions squarely apply to the facts of the case. Yet, what is
F
relied on by the learned counsel for the respondent in Bhoja's case (supra),
paragraph 21, it is observed at page 451- 453 as under:

"On the other hand, the opinion expressed by the full bench of the
Patna High Court in Guiab Chand Prasad v. Budhwanti, A.I.R. G
1985 Pat. 327 which has received the seal of approval of this Court
in Budhwanti v. Guiab Chand Prasad, [1987) 2 S.C.C. 153, fully
supports the case of theJandlord.

We are in broad agreement with the view of the full bench of the H
384 SUPREME COURT REPORTS [1994] 1 S.C.R.

A Patna High Court and the Madras High Court on the question of
'automatic adjustment' and hold that a tenant cannot save rumself
from the consequences of eviction under the Act on the pound
of default in the payment of rent by claiming automatic adjustment
of any excess rent paid consequent upon mutual enhancement of
B rent, even if illegal unless there-is an agreement between the parties
for such an adjustment. The tenant may also in a given case seek
adjustment of the excess rent in the hands of the landlord against
the auears by specifically asking the landlord for such an adjust-.
ment before filing of the suit or in response to the notice to quit
C and even in the written statement by way of set-off within the
period of limitation and by following the resisting the claim for
eviction on the ground of default in payment of arrears of rent but
he cannot claim 'automatic adjustment'."

Therefore, it is necessary on our part to ·refer to Budhwanti's case
D (supra). At page 538, it was held as under:

"In the view we propose taking of the matter we do not think it
necessary to go into the question whether the appellants had
committed default in payment of rent and secondly even if they
E had committed default, they are entitled to adjust the excess rent
paid by them over a span of 30 years without reference to the rule
of "in pari de-licto."
..
Therefore, it is not correct to state that the ruling of the Patna High
Court in Guiab Chand case (supra) got the approval of this Court in
F
Budhwanti's case (supra). As a matter of fact in Mis. Sa1Wan Kumar Onkar
Nath v. Subhas Kumar Aga1Wal, [1988] 1 S.C.R. 414 at p~e 419, there are
observations to this effect which are apposite:

" The learned counsel for the respondent, however, relied upon a
G full bench decision of the High Court of Patna in Guiab Chand
Prasad v. Budhwanti and another, A.LR. Pat 327, in which it has
been held that any excess rent paid by a tenant to his landlord in
pursuance of a mutually agreed enhancement of rent which was
illegal did not get automatically adjusted against all the subsequent
H defaults in the payment in the monthly rent- under the Act. The
SWAROOPMACHINETOOLSLTD. v. KANTABAILMOHAN,J.] 385

decree for eviction passed by the High Court- of Patna in the above A
~
case has no doubt been affirmed by this Court in Budhwanti & Anr.
v. Guiab Chand Prasad, (1987) 1 Scale 501. But this court affirmed
the judgment of the High Court not on the ground that the tenant
in that case was a defaulter in payment of rent but on the ground
that the landlord required the premises for his bona fide use and . B
occupation. This Court in its judgment observed that "in the view
we propose to take ...........we do not think it necessary to go into
the question whether the appellants had committed default in
+ payment of rent and secondly even if they had committed default, .
they are entitled to adjust the excess rent paid by them over a spanc
of 30 years without reference to the rule of in pari delicto. The
reason for our refraining to go into these questions in because we
find the decree for eviction passed against the appellants can be ·
sustained on the second ground, viz. bona fide requireirent of the
shop for the business requirements of the members of the joint D
..... family." It is not now necessary for us to consider the correctness
of the observation made by the Full Bench of Patna High Court
on the question of default and the right of the tenant to claim
adjustment because what was claimed by way of adjustment in the
said case was a certain excess amount paid over a long period of E
30 years as enhanced rent under a mutual agreement though such
payment was contrary to law. But in the case before us the amount
of Rs. 140 had not been paid as enhanced rent under any such
agreement. It was, in fact, an amount which had been paid in
-..(.
advance which was liable to be adjusted whenever it was necessary F
or required."

In our considered view the ratio of this judgment will apply to the
facts of this case.
G
15. Having regard to the fact that the municipal taxes per month are
Rs. 18 for each premises, we do not think that tenant could be evicted when
contrary to Section 7(2)(a) of the Act, the landlady has a deposit of Rs.
10,000. This ought to have been adjusted from that deposit even without a
specific request by the tenant in this behalf. H
386 SUPREME COURT REPORTS [1994] 1 S.C.R.

A 16. In the result, we set aside the judgment of the High Court. The
petition for eviction will stand dismissed. The civil appeals are alfowed.
There shall be no order as to costs.

17. If there are any other proceedings in relation to some other
arrears, whatever we have observed here, will have no bearing.

T.N.A. Appeals allowed.

+·

_._.