Holding

Sections 3 and 22 of the Capital of Punjab (Development and Regulation) Act, 1952 obligate rule‑making but their non‑implementation does not invalidate existing leases, and rent enhancements made under the statutory power are not arbitrary; consequently, the Supreme Court upheld the rent increase, reduced the interest rate to 15%, and barred further enhancements pending rule‑making.

Summary

The appellants, shop‑keepers leasing commercial premises in Chandigarh, challenged a steep increase in rent from Rs.2,671 to Rs.14,000 per month, arguing that the Union Territory lacked jurisdiction because the Central Government had not framed rules under the Capital of Punjab (Development and Regulation) Act, 1952. The Supreme Court held that Sections 3 and 22 of the Act impose an obligation on the Central Government to make such rules, but the failure to do so does not render existing leases illegal or void. The Court found that the rent enhancement, applied uniformly and based on a fair procedure, was not arbitrary or discriminatory under Article 14. It upheld the High Court’s order, modified the interest on arrears from 18% to 15% per annum, and clarified that further rent increases cannot be made until the requisite rules are framed. For one appellant, the rent increase was deemed effective only from 9 April 1993, respecting the lease’s three‑year renewal clause.

Issues considered

The existence and effect of the obligation on the Central Government to frame rules under Sections 3 and 22 of the Capital of Punjab (Development and Regulation) Act, 1952.
Whether the absence of such rules renders the lease and rent enhancement illegal, void or inoperative.
Whether the rent increase is arbitrary, discriminatory or violative of Article 14 of the Constitution.
Whether the High Court was justified in directing interest on arrears at 18% per annum.
Interpretation of lease renewal clauses concerning rent determination by the Government.

Legislation cited

Capital of Punjab (Development and Regulation) Act, 1952s. 22, s. 3
Code of Civil Procedure, 1908s. Order 39 Rule 34
Constitution of Indias. 136, s. 14, s. 226

Subjects

rent enhancementlease renewaladministrative lawArticle 14arbitrarinessnatural justicejudicial reviewrule‑makinginterest on arrearsCapital of Punjab ActChandigarh

Judgment

MIS STYLE (DRESS LAND) ETC. ETC. A
v.
UNION TERRITORY, CHANDIGARH AND ANR.

AUGUST 18, 1999

[S. SAGHIR AHMAD AND R.P. SETHI, JJ.] B

Capital of Punjab (Development and Regulation) Act, 1952-Sections
3 and 22-Act enacted at a time when the construction of a new capital of
the then Punjab at Chandigarh was in progress-Power of Central
Government in respect of transfer of land and buildings in Chandigarh- C
Lease of commercial flats entered into with Government-Sharp increase in
rent from Rs. 2, 671 to 14000 per month-Increase of rent challenged in writ
petitions before High Court-Held, combined reading of Sections 3 and 22
indicate the existence of an obligation on the Central Govemment to make
rules regulating terms and conditions relating to transfer of property-but D
failure to frame rules will not render the transfer ofproperty made under the
terms of the lease as j//egal, void or inoperative-Thus High Court rightly
concluded that procedure adopted and made the basis for enhancing the

- rent, could not be termed arbitrary, discriminatory and unreasonable.

Constitution of India, 1950 : E
Article 14:

Discrimination & Arbitrariness-Central Government authorised to
make rules under Section 3 of the Capital of Punjab (Development and
Regulation) Act, 1952 relating to transfer of property and leasing it out-. F
No such rules framed by the Central Government-Held, though not legally
obliged to make the rules, it was obliged to take such steps for allaying
apprehensions of the citizens regarding discrimination and arbitrariness.
-
Exercise of such power in the absence of Rule-Held, is required to be
fair and reasonable and actuated by considerations which could be termed G

- as arbitrary or discriminatory-Rule of law-Administrative law-Absence
of rules.

Articles. 226 and 136-Judicial review-Government contract with
private individuals-Held, covered-Administrative law-Judicial review. H
591
592 SUPREME COURT REPORTS [1999] SUPP. I S.C.R.

A Administrative Law: .'
~

Administrative orders-Judicial Review-Scope of-Held, the Court
can look into the reasons given by the Government in support oj its action
but cannot substitute its own reasons-Further, the courts are more concerned
with the decision making process than the decision itself-Administrative
B order-Extraneous and irrelevant reasons-Such orders are required to be
struck down.

Principles ofNatural justice-Compliance of-In administrative action-
Administrative orders affecting the rights of the citizens to the property or
C attributes of property-Held, required to be taken in consonance with rules
of natural justice.

Interest-Payment of-On the arrears of rent-For the period of stay
order of a Court-Held, High Court was not wrong in directing the payment
of interest on the amount of arrears of rent for the period when the stay order
D was obta~ned till the time the writ petition was dismissed-However, I 8%
allowed by High Court reduced to Js<Yo-Civil Procedure Code, 1908, Order
39 S.34.
...
Appellants took on lease certain commercial premises in Chandigarh
from the Respondent-lessor in or about the years 1963-64 but the lease were
E executed between the Lessor and the Lessees in May 1968 on payment of
monthly rent of Rs. 525. The lease was initially for a period of five years
and was renewable only once for another term of five years with 20%
increase in the rent reserved under the deed. After the expiry of initial
period of 10 years, the rent of the leased premised was increased to Rs.
2,671/- per month w.e.f March 1983. The lessees challenged the increase in
F rent by filing a writ petition in the High Court but were not successful.
Respondents again issued notices to the appellants/Lessees that w.e.f M~rch
1992 the rent was being increased to Rs. 14,000 per month and called upon
the Lessees to renew fresh lease deed on these terms and conditions.
Appellants once again approached the High Court by filing a writ petition.
G However the writ petitions were dismissed by a Division Bench with a direction
that if the appellants convey their consent to the terms and conditions
incorporated in the impugned notices within three months, the respondents
were to renew the lease granted to such of the appellants subject to their
.
.-
paying arrears of rent within six months. For the period during which the
payment of the rent at the rates specified in the impugned notices remained
H stayed by the High Court, the appellants were directed to pay interest @
STYLE (DRESS LAND) v. UNION TERRITORY, CHANDIGARH 593

18% per anum. Appellants thereafter filed review petitions before the lligh A
Court and the same were also dismissed. Hence this appeal.

It was contended by the appellants that in the absence of rules framed
under the Capital of Punjab (Development & Regulation) Act, 1952, the
respondent had no jurisdiction to enhance the rent, that even if such power B
existed, the exercise of power had been unfair and arbitrary, that the discretion
of the respondents even if assumed was not unlimited and that lease were not
to withhold leases in its arbitrary discretion or at its sweet will; and that
High Court was not justified in awarding the interest for the period of stay
granted by it in the cases filed by the appellants.
c
Partly allowing the appeals, this Court

HELD: 1.1. A combined reading of Sections 3 and 22 of the Capital of
Punjab (Development and Regulation) Act, 1952 would indicate the existence
of an ob~igation on the Central Government to make rules for the purposes D
of regulating the terms and conditions relating to the transfer of property
including leasing it out. However, failure to make the rules would not render
the transfer of the property made under the terms of the lease as illegal, void
or inoperative. Appellants have also conceded the vesting of powers in the
respondent to sell, lease or otherwise transfer the property in the Union
Territory of Chandigarh subject to such conditions as it thought fit. The E
power to transfer the property including leasing it out is authorised by
Section 3 ·itself and its terms and conditions left to the satisfaction of the
Central Government. Though, not legally obliged to make the rules, the
Central Governme.nt was obliged to take steps in making rules regulating
the transfer of properties contemplating transfer of properties by the modes F
envisaged under the Section, for allaying apprehensions of the citizens
regarding discrimination and arbitrariness. It would have been in the interest
of the Central Government itself to frame the rules for infusing confidence
and rationality, reasonableness and fairness in its actions. It is hoped that
the Central Government would not lose any further time in making the rules G
as mandated by the Section and embark upon enhancement of rent, if deemed
necessary, only under such rules, as and when . made for the purposes . of
carrying on the objects of the Act to their logical conclusion.
(600-H; 601-A-B-C-D-E]

1.2. In the absence of rules, the action of the respondents regarding H
594 SUPREME COURT REPORTS (1999] SUPP. l S.C.R.

A imposition of terms and conditions of the lease including the enhancement
of rent required to be fair and reasonable and not actuated by considerations
which could be termed as arbitrary or discriminatory. The Government
cannot act like a private individual in imposing the conditions solely with the
object of extracting profits from their lessees. Government actions are
B required to be based on standards, which are not arbitrary or unauthorised.
[601-E-F)

Ramana Dayaram Shetty v. The International Airport Authority of
India and Ors., AIR (1979) SC 1629; [1979) 3 SCC 489, relied on.

C Erusian Equipment and Chemicals Ltd. v. State of West Bengal, (1975)
2 SCR 674: AIR (1975) SC 266, referred to.

V. Punnan Thomas v. State ofKera/a, AIR (1969) Ker 81 (FB), referred
. to.

D 2.1. Even administrative orders are required to be made in a manner
consonance with the rules of natural justice, when they affect the rights of
the citizens to the property or the attributes of the property. While exercising
the powers of judicial review court can look into the reasons given by the
Government in support of its action but cannot substitute its own reasons.·
Court can strike down an executive order, if it finds the reasons assigned
E were irrelevant and extraneous. (603-8, CJ

Kumari Srilekha Vidyarthi & Ors. v. State of U.P. & Ors., (1991) l SCC
212, relied on.

2.2. The High Court examined the matter in depth and rightly concluded
F that the procedure adopted and made the basis for enhancing the rent could
not be termed to be arbitrary, discriminatory or unreasonable. The conclusions
arrived at by the High Court are correct and there is no infirmity in the
action of the respondents in raising the rate of rent on the basis of the
grounds noticed. Such an action is stated to have been uniformly applied with
G respect to all the shopkeepers similarly situated and placed. Mere inaction
in respect of certain tenants could not be made the 'basis for setting aside
the action initiated against the appellants and others. The respondents assured
and the High Court rightly issued appropriate directions for initiating similar
actions against those who are left out. [607-F-G-H)

H Chandigarh Administration & Anr. v. ·Jagjit Singh and Anr., [1995) l ·
. .I . . t'
STYLE (DRESS I,.AND) v. UNION TERRITORY, CHANDIGARH 595
sec 745, relied on.
2.3. It is not the space of the appellants that the favour done to those

-
whose rent has not been enhanced is legal or valid. Such an ommission is
also not referable to any lawful action of the respondents. The question of
discrimination would arise only if it is found that the order in favour of the
left over was legal and valid and that the case of the writ petitioners was B
similar in material respects to the case of such persons. There is no basis
for the appellants to urge violation of Article 14 alleging discrimination
against them. [609-C-D]
3. Regarding awarding of interest by the High Court for the period of
stay, it is settled principle oflaw that as and when a party applies and obtains C
a stay from the Court of law, it is always at the risk and responsibility of
the party applying. Mere passing of an order of stay cannot be presumed to
be the conferment of any additional right upon the litigating party. The High
Court was, therefore, not wrong in directing the payment of interest on the
amount of arrears of rent for the period when the stay order was obtained
till the period the writ petitions were dismissed. However, awarding of interest D
@ 18% per annum from the aforesaid period was on the excessive side. The
respondent-authority could not be equated with private commercial institutions ·
and conferred with an amount of compensation in the form of interest which,
in the judicial parlance, may amount to penalty, despite the fact that the
persons found to have jeopardised the process of law were rightly held liable E
to compensate the respondent-authority by way of interest. 15% per annum
interest for the aforesaid period would have been just and proper. As rightly
found by the High Court the respondents are free to charge appropriate
interest on the amounts of arrears of rent between 1.3.11992 to the date when
the stay orders were passed by the High Court. In determining such rate of
interest the respondent-authority would act fairly and justly. F
(609-E-F; 610-B-D)

Shree Chamundi Mopeds Ltd. v. Church of South India Trust
Association, (1992).3 SCC 1; Kanoria Chemicals & Industries Ltd. & Ors.
v. U.P. State Electricity Board & Ors., [1997] S SCC 772 and Kashyap Zip G
Industries v. Union of India, (1993) 64 ELT 161, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4540of1999
Etc. Etc.

From the Judgment and Order dated 17.7 .98 of the Punjab & Haryana H
596 SUPREME COURT REPORTS [1999) SUPP. 1 S.C.R.
·-
A High Court in R.A. No. 132 of 1998 in C. W.P. No.11036 of 1994.

D.A. Dave, H.N. Salve, Ms. Minakshi Vij, Naresh Bakshi and Nidesh
Gupta for the Appellants.

K.N. Rawal, Additional Solicitor General, Sunil.Gupta, Ms. Kavita Wadia
B and Ms. Indu Malhotra for the Respondents.
The Judgment of the Court was delivered by

SETHI, J. Delay condoned in SLP(C)l2188/99 (CC 902/99).

C Leave granted.

Sector 17 is a commercial centre in Chandigarh, the beautiful city of
India which is also the capital of Punjab and Haryana, the two most prosperous
States of the country. Shopkeepers of this commercial centre are aggrieved
of the enhancement of the rent of their leased premises from Rs. 2,671 to Rs.
D 14,000 per month which, according to them, is irrational, unwarranted by law
and arbitrary being 600 per cent increase. The shpps under their .occupation ,
are stated to have been initially leased out to them at a paltry rent of lls. 525 ·
with effect from 10th May, 1968. Whereas the respondent Union Territory
have steadily enhanced the rent from time to time, the appellants herein have
E unsuccessfully put all types of hurdles conceivable under the present legal
system.

Almost admitted facts leading to the filing of the present appeals are
that the appellants were leased commercial premises in Sector 17 of Chandigarh
in or about the years 1963-64. However, formal lease deeds were executed
F between the Lessor and the Lessees in May, 1968 on payment of monthly rerit
of Rs. 525 per mensem in advance by the I 9th day of the month for. which
it fell due. The lease was initially for a period of five years from the date of
the grant which could be terminated by the Lessor by giving one month's
advance notice in writing to the Lessees. The lease was renewable only once
for another term of five years with 20% increase .in the rent reserved under
G the deed. In the event of non payment of the rent on the due date or breach
or non observance by the Lessee of any of the conditions of the lease deed,
it was lawful for the Lessor, notwithstanding the waiver of any previous cause
or right for re-entry, to terminate the lease and enter into and upon the
building or any part thereof and to re-possess, retain and enjoy the same and
H in that event the Lessee was not entitled to the refund of lease money.or any
STYLE (DRESS LAND) v. UNION TERRITORY, CHANDIGARH [SETHI, J.] 597

part thereof or to any compensation whatsoever on account of such resumption. A
After the expiry of the initial period of l 0 years, the rent of the leased premises
was increased to Rs.2,671 per month with effect from 1.3.1982. Being aggrieved
by the increase of rent, the Lessees filed writ petitions in the High Court of
Punjab & Haryana in which their plea was not accepted and a Division Bench
of the High Court vide its judgment dated 4th August, 1988 held that there B
was no evidence to show that the enhanced rent was, in any way, unreasonable
or arbitrary. The Court further observed, "in fact we had a feeling that this
is much lower than the fair payable rent in respect of such premises". However,
as by then the Lessees had agreed to pay the enhanced rent with effect from
1st March, 1982 till the end of February, 1991, the Court set aside the orders
of termination of their leases which had been passed on their failure to pay C
the enhanced rent. The petitions were disposed of holding:

"The result would be that he shall be deemed to continue to be lessee
under the Estate Administration. We shall now execute a lease deed
agreeing to pay rent as aforesaid. The rent shall be revisable for the
·period from March l, 1991 as per the existing rules of the Estate D
Administration. The arrears for the period of March I, 1982 till July
3 I, 1988, shall be paid on or before September 30, I 988 and the rent
for the month of August, I 988 shall be paid on or before the l 0th of
September, 1988 and for the month of September 1988, it shall be paid
on or before the I 0th October, 1988 and for every subsequent month
on or before the I 0th of each subsequent month."
E
After the expiry of the period prescribed by the High Court, the Lessees
were allowed to remain in possession but were slapped with a notice on I 9th
August, 1992 intimating them to renew the lease subject to enhancement of
rent from Rs.2,671/- to Rs.14,000 with effect from 1.3.1992 pending decision F
of the Chandigarh Administration for the intervening period i.e. 1.3. I 991 to
29.2.1992 for the increase of rent at enhanced rates which was intimated to
be binding upon the Lessees as and when increased. The Lessees were called
upon to renew fresh lease deeds in 'favour of the respondents containing the
terms and conditions detailed therein.
G
Feeling that the enhanced rent was illegal, unfair, arbitrary and uncalled
for, the Lessees of the shops in Sector I 7 filed various writ petitions in the
High Court of Punjab & Haryana at Chandigarh. One set of such petitions
Nos. 10520-21 of 1996 ~ntitled Dr. Sahib Singh & Sons v. Chandigarh
Administration were disposed of vide judgment Annexure P-4 upholding the
right of the Union Territory Chandigarh to enhance the rent with appropriate H
598 SUPREME COURT REPORTS [1999) SUPP. 1 S.C.R.

A directions needed in the peculiar facts· and circumstances of the casp.
Contending that their cases were different than Sahib Singh's matter, the
appellant herein insisted for a fresh hearing and a separate judgment. The
prayer was accepted and the Division Bench vide its detailed judgment dated·
19th December, 1997 dismissed the petitions but in the circumstances directed
that if the appellants convey their consent to the terms and conditions
B incorporated in the impugned notices within three months, the respondents
may renew the lease granted to such of the appellants subject to their paying
the arrears of rent within six months. The respondents were entitled to charge
appropriate interest on the amount of arrears of rent between 1.3 .1992 to the
date of the stay orders obtained by them from the High Court. For the period
C during which the payment of the rent at the rates specified in the impugned
notices remained stayed by the Court, the appellants were directed to pay
interest @ 18% per annum. The amount of interest was required to be paid
by the appellants within six months from the date of the judgment. Thus, all
such appellants who failed to give their consent in terms of the direction or
D failed to pay arrears along with interest within the time specified in the
judgment were to forfeit their right to remain in possession of the properties
leased out to them and the respondents in that event were declared to be
...
absolutely free to recover possession thereof in accordance with law. The
Court directed the respondents to take urgent steps to enhance the rent of
other similar properties situated in Sector 17 regarding which the complaints
E were made by the appellants on the plea of discrimination. It may be noticed
that by the time the High Court delivered the judgment in the case of the
appellants, this Court had dismissed the SLP (C) No.18466 of 1997 which was
filed against the judgment in Sahib Singh's case, by order dated 29th Septem~er,
1997. To protract the litigation further, the appellants filed Review Petitions
F before the High Court praying therein to reconsider the matter or atleast
absolve the appellants of their liability to pay the interest as awarded by the
main judgment. The Review Petitions were also dismissed on 17th July, 1998.
Immediately after the pronouncement of the orders in review petitions, the
counsel for the appellant made a statement that his clients were prepared to
pay the amount of interest for which he wanted some time. He requested for
G the grant ~f,six months time for the purpose but the Court allowed three
months time 'in. the interests of justice.

These appeals are directed against the main judgment of the High Court
dated 19th December, 1997 and the orders in Review Petitions dated 17th July,
H 1998.
STYLE (DRESS LAND) v. UNION TERRITORY, CHANDIGARH [SETHI, J.] 599

It is contenckd that the impugned judgment and order is against law, A
without jurisdiction and the result of arbitrary exercise of powers. Learned
counsel who appeared for the appellants have vehemently argued that
admittedly in the absence of the rules, required to be framed under the Capital
of Punjab (Development & Regulation) Act, 1952, the respondent
Administration had no jurisdiction to enhance the rent. Alternatively, conceding B
that such power existed, they have argued that the exercise of power has been
unfair and arbitrary. It is submitted that the respondent being the regulator
and dispenser of special services and provider of large number of benefits
including the granting of leases are required to act fairly and reasonably. The
discretion of the respondents even if assumed is not unlimited arid that the
respondents cannot give or withhold leases in its arbitrary discretion or at its C
sweet will. It is further submitted that the High Court was not justified in
awarding the interest for the period of stay granted by it in the cases filed
by the appellants.

There is no dispute that Capital of Punjab (Development & Regulation)
Act, 1952 (hereinafter referred to as 'the Act') being Punjab Act No.27 of D
1952, is applicable to the city of Chandigarh with effect from 1968. The Act
was enacted at a time when the construction of a new capital of the then
Punjab at Chandigarh was in progress. It was considered necessary to vest
the State Government with a legal authority to regulate the sale of building
sites and to promulgate building rules on the lines of municipal bye-laws so E
long as a properly constituted local body did not take over the administration
of the city. Section 3 of the Act provides:

3. "Power of Central Governme.nt in respect of transfer of land and
buildings in Chandigarh.- {l) Subject to the provisions of this
section, the Central Government may sell, lease or otherwise F
transfer, whether by auction, allotment or otherwise, any land or
building belonging to the Government in Chandigarh on such
terms and condition~ as it may, subject to any rules that may be
made under this Act, think fit to impose.

(2) The consideration money for any transfer under sub-section ( 1) G
shall be paid to the Central Government in such manner and in
such instalments and at such rate of interest as may be
prescribed.

(3) Notwithstanding anything contained in any other law for the
time being in force, until the entire consideration money together H
600 SUPREME COURT REPORTS (1999] SUPP. l S.C.R.

A . with interest ()r any other amount, if any; due to the Central
Government on account of the transfer of any site or building,
or both, under sub-section (I) is paid, such site or buildin'g, or.
both, as the case may be, shall continue to belong to the Central
Government."

B Su ti-Section (I) of Section 3 itself authorises the Central Government to sell,
lease or otherwise transfer any land or building belonging to it in Chandigarh
on such terms and conditions as it may think fit to impose. Conditions for
sale, lease and transfer can be regulated by rules which may be made under
.the· Act. Section 22 of the Act authorises the Central Government to make
C rules for carrying out the purposes of the Act which include:

"(a) the terms and conditions on which any land or building may be
transferred by the Central Government under this Act;

(b) .the manner in which consideration money for any transfer may
be paid;
D
(c) the rate of interest payable, and the procedure for payment of
instalments, interest, fees, rents or other dues payable under this
Act;
.-.....
(d) the terms and conditions under which the transfer of any right
E in any site or building may be permitted;

(e) erection of any building or the use of any site;

(f) levy of fees or taxes under section 7; .

(g) the terms and conditions for the breach of which any site or
F building may be resumed;

(h) the conditions with regard to the buildings to be erected on sites
transferred under this Act;

(i) the form of notice and the manner in which notices may be
served;
G
(j) the form and manner in which appeals and applications under
this Act may be filed and the court fees leviable on such appeals
and applications;
(k) the matters referred to in sub-section (2) of section 5;
H
.
(I) any other matter which has to be or may be prescribed."
STYLE(DRESS LAND)v. UNION TERRITORY, CHANDIGARH [SETHJ,J.] 601

The combined reading of Sections 3 and 22 of the Act would indicate the A
existence of an obligation on the Central Government to make rules for the
purposes of regulating the terms and conditions relating to the transfer of
property including leasing it out. However, failure to make the rules would not
render the transfer of the property made under the tenns of the lease as illegal,
void or inoperative. Learned counsel appearing for the appellants, after some
arguments, also conceded the vesting of powers in the respondents to sell, B
lease or otherwise transfer the property in the Union Territory of Chandigarh
subject to such conditions as it thought fit. They did not insist that the lease
could not be made or the terms including the enhancement of rent could not
be imposed without framing the rules. We are also of the opinion that power
to transfer the property ·including leasing it out is authorised by Section 3 C
itself and its tenns and conditions left to the satisfaction of the Central
Government. Though, not legally obliged to make the rules, the Central
Government was obliged to take steps in making the rules regulating the
transfer of properties contemplating transfer of properties by the modes
envisaged under the Section, for allaying apprehensions of the citizens
regarding discrimination and arbitrariness. It would have been in the interests D
of the Central Government itself to frame the rules for infusing confidence and
rationality, reasonableness and fairness in their actions. We trust and hope

.. that the Central Government would not loose any further time in making the
_,, rules as mandated by the Section and embark upon enhancement of rent, if
deemed necessary, only under such rules, as and when made for the purposes E
of carrying on the objects of the Act to their logical conclusions.

In the absence of the rules, the action of the respondents regarding
imposition of terms and conditions of the lease including the enhancement
of rent is required to be fair and reasonable and not actuat~d by considerations
which could be termed as arbitrary or discriminatory. The government cannot F
act like a private individual in imposing the conditions solely with the object
of extracting profits from their lessees. ,Governmental actions are required to
be based on standards which are not arbitrary or unauthorised. This Court
in Ramana Dayaram Shetty v. The lhternationa/Airport Authority of India
& Ors., AIR ( 1979) 1629= 1979 3 sec 489 while agreeing with the observations G
of Mathew, J. held:

"We agree with the observations of Mathew, J., in.V. Punnan Thomas
v. State of Kera/a, AIR (l 969) Ker 81 (FB) that: "The Government, is
not and should not be as ·free as an individual in selecting the
recipients for its largess. Whatever its activity, the Government is still H
602 SUPREME COURT REPORTS [1999) SUPP. l S.C.R.
., A the Government and will be subject to restraints, inherent in its position
in a democratic society. A democratic Government cannot lay down ,
arbitrary and capricious .standards for the choice of persons with
whom alone it will deal". The same point wa~ made by this Court in
Erusian Equipment and Chemicals Lt~ v. State of West Bengal,
·[1975] 2 SCR 674; AIR (1975) SC 266 where the question was whether
B black-listing of a person without giving him an opportunity to be
heard was bad? Ray, C.J., speaking on behalf of himself and his
colleagues On the Bench pointed out that black-listing of a person not
only affects his reputation which is in Poundian terms as interest both
of personality and substance, but also denies him equality in the
':"
c matter of entering into contract with the Government and it cannot,
therefore, be supported without fair hearing. It was argued for the

D
Government that no person has a right to enter into contractual
relationship with the Government and the Governme~t, like any other
private individual, has the absolute right to enter into contract with
any one it pleases. But the court, speaking through the learned Chief
Justice, responded that the Government is not like a private individual
who can pick and choose the person. with whom it will deal, but the
-
Government is still a Government when it enters into contract or when

E
it is administering largess and it cannot, without adequate reason;
exclude any person from dealing with it or take away largess arbitrarily.
The learned Chief Justice said that when the.Government is trading
with the public, "the democratic form of Government demands equality
-
and absence of arbitrariness .... The activittes of the Government have
a public element and, therefore, there should be fairness and equality.
The State need not enter into any contract with anyone, but if it does
so, it must do so fairly without discrimination and without unfair
F procedure." This proposition would hold good in all cases of dealing
by the Government with the public, where the interest sought to be
protected is a privilege. It must, therefore, be taken to be the law that
where the Government is dealing with the public, whether by way of
giving jobs or entering into contracts or issuing quotas or licences or
G granting other forms of largess, the Government cannot act arbitrarily
at its sweet will and, like a private individual, deal with any person ·it·
pleases, but its action must be in conformity with standard or norm
which is not arbitrary, irrational or irrelevant. The power or discretion
... of the Government in the matter o.f grant of largess including award
of jobs, contracts quotas, licences etc., must be confined and structured
H by rational, relevant and non-discriminatory standard or norm and if ~

....
STYLE (DRESS LAND) v. UNION TERRITORY, CHANDIGARH [SETHI, J.] 603

the government departs from such standard or norm in any particular A
case or cases, the action of the Government would be liable to be
struck down, unless it can be shown by the Government that the
departure was not arbitrary, but was based on some valid principle
which in itself was not irrational, unreasonable or discriminatory."

Even the administrative orders and not quasi judicial are required to be B
made in a manner consonance with the rules of natural justice, when they
affect the rights of the citizens to the property or the attributes of the
property. While exercising the powers of judicial review the Court can look
into the reasons given by the Government in support of its action but cannot
substitute its own reasons. The Court can strike down an execi.:tive order, if C
it finds the reasons assigned were irrelevant and extraneous. The courts are
more concerned with the decision making process than the decision itself.

This Court in Kumari Shrilekhs Vidyarthi & Ors. v. State of UP. & Ors.,
[1991] I SCC 212, held that every State action, in order to survive, must not
be susceptible to the vice of arbitrariness which is the crux of Article 14 and D
basic to the rules of law, the system which governs us, arbitrariness being
the negation of the rule of law. Non-arbitrariness, being a necessary
concomitant of the rule of law, it is imperative that all actions of every public
functionary in whatever sphere must be guided by reason and not humour,
whim, caprice or personal predilections of the persons entrusted with the task E
on behalf of the State and exercise of all powers must be for public good

- instead of being an abuse of the power. Action of renewability should be
gauged not on the nature of function but public nature of the body exercising
that function and such action shall be open to judicial review even if it
pertains to contractual field. The State action which is not informed by reason
can.not be protected as it would be easy for the citizens to question such an F
action being arbitrary.

In the instant case, the respondent Administration relied upon Memo
No. 3 l 7 dated 16.3.1992 of the Exec.utive Engineer CP Division No. 3
Chandigarh, Government of Punjab circular dated 15th May, 1996 and affidavit G
ofShri Krishanjeet Singh, Executive Engineer, CP Division No.5, Union Territory,
Chandigarh filed in Civil Writ No. 10521/96 to justify their action of enhancement
·of ~ent being fair and reasonable. Memo dated 16.3.1992 referred to earlier
Memo No.122 dated 3.2.87 and the meeting held in the office of the Chief
Engineer, U.T. Chandigarh on 4.3.1992. It was mentioned in the memo that the
rates of rent earlier recommended had become obsolete and that the H
604 SUPREME COURT REPORTS [1999] SUPP. l S.C.R.

A accommodation was not available to the Government on hire basis at those
rates keeping in view the plinth area which had been revised for the purposes
of calculating the rent of private buildings hired by the Government with
effect from 1.3.1992. It was further stated in the memo that:

"The land rates already conveyed in Memo No.122.dated 3.2.87 shall
B be applicable, but the rental value wiH be calculated @ 9% per annum.

S. Description Rates proposed Remarks
No. for adoption The plinth
area rates.
c I. Ground Floor Rs. 2450.00 Sqa.

2. First Floor Rs. 2250.00 P.So

~·
3. Second floor and so on Rs. 2250.00 P.So
D
4. Extra for terrace tiles/ Rs. 65.00
terrace flooring in rooms
verandha except. toilets

E
5. Extra for glazed/spartik or
equivalent tiles in flooring
Rs. 350.00 --
and dado in toilets and
kitchen

6. Extra for marble flooring Rs. 900.00

F Rs. 440.00 For door and
7. Extra for teek wood joinery
only .alongwith brass fittings window only.

8. Concrete paving beyond Rs. 100.00
plinth area of the building
G 9. Land scaping of grassed Rs.1000.00 Kanai of grassed
area.

Note:

l. The amount so evolved for the building portion may be reduced
H by 20% and thereafter rental volume may be calculated @ 9% <
Covered area ofSCO is 2066.62 sq.ft. which comes to 192.06 sq.meters.
The cost of construction per Sq.Meter at ground floor in the year 1992
was Rs. 2450 for such buildings. This figure of Rs. 2450 is based on G
actual cost of construction of similar other type of buildings in
Chandigarh. Thus, the total cost of construction of ground floor
comes to Rs. 4,70,547 (192.06 sq.mtrs. x 2450).

SCO 51 being an old construction, the total cost of construction was
reduced by 20%. After that 1% per annum depreciation was also H
606 SUPREME COURT REPORTS (1999] SUPP. I S.C.R.

A permitted for 29 years as per the norms. The details are given
hereunder:

Total cost of construction of ground floor Rs. 470547.00

2450 x 192.06 less 20% Rs. 94109.00
B Rs. 376438.00

Less l % depreciation per Annum for 29 years Rs. 109167.00

Rs. 267271.00
c
3. That for the determination of the annual rent value, 9% of net
cost of construction is to be taken which comes to Rs.24054 (9% of
Rs.267271/- = Rs.24054). This figure of Rs.24054 represents rental
value per annurn, on the total cost of construction which may be
marked as "A". For calculating the cost of land on which aforesaid
D SCO has been built which has an area of 2066 sq.ft. which is equal
to 229.62 sq.yards. As per letter Annexure R/A R:>.453 is the cost of
per sq.yard which amounts to total cost of land as Rs. I 04018. This
figure has been arrived at by multiplying 229.62 sq. yards by Rs.453
(229.62 sq.yards x Rs.453).- For determing the annual rental value again
we have to deduct 9% of cost of land i.e. Rs. I 04018 which is rental
---
E
value per annual as Rs.9362. This may be marked as "B". Thus the
annual rental value of the aforesaid SCO comes to Rs.33416 by adding
"A" and "B". For determining the rental value per month Rs.33416 is
to be divided by 12 and we would get the rent per month which is
equal to Rs.2785. The aforesaid SCO being commercial this is to be
F multiplied by 5 times which ~omes to Rs. l 3925 say Rs.14000." ·

In the written statement filed in the petitions of the appellants, the
respondent had stated:

G "13. That the admitted portion of the para 13 of the writ petition calls
for no comments. It is submitted that Competent Authority granted
approval vide Annexure R/2 for charging the rent w.e.f. i .3.1992 on the
basis of the reassessment of rent made by the Engineering Department,
Chandigarh Administration. During the year 1970 Govt. of India through
Finance Secretary Memo dated 25.5.1970 informed that the market rent
H or the rent calculated under FR 45 with Departmental charges,
.
·.
STYLE (DRESS LAND) v. UNION TERRITORY, CHANDIGARH [SETHI, J.] 607
_,.
' whichever is higher is recoverable in respect. of Govt. accommodation A '>.
used for commercial purpose. The Finance Secretary vide letter dated
12.6.1975 approved the charging of rent at the rate of Rs.1.10 per
sq.foot in respect of shops/booths in Sector 17-E. Accordingly the
lessees in Sector 17 were informecJ that from 1.3 .1982 rent of Rs.2671
per month for a shop and Rs. I 090 for a booth will be charged. Three
writ petitions as already submitted (CWP No.3581, 3582, 3583 of 1983) B
were filed. This Hon'ble High Court disposed of these writ petitions
vide judgment annexed with this writ petition as Annexure P/3. A
perusal of this judgment shows that the approval was granted for
charging of the rent in respect of SCO/Booths in Sector l 7-E,
Chandigarh w.e.f. 1.3.92 at the rate as contained in this letter. Thus, c
the figure ofRs.14000 per month is based on the re-assessment of rent
by the Engineering Department of Chandigarh Administration. The
~.
petitioner is, thus, liable to pay this market rent.

14. That in reply to the averments as contained in para 14 of the writ
petition it is submitted that the shops mentioned by the petitioner in D
this para are not rented out by the Chandigarh Administration to the
various parties. The said shops are owned by the private individuals
~.
and are further rented out to the parties mentioned in the para. But
the present shop in occupation of the petitioner is rented by the
Government. The market rent calculated @ Rs.14,000 per month in E
respect of ground floor of the SCO in question and in occupation of
the petitioner is based on the assessment made by the Engineering
Department of Chandigarh Admin.istration and the same is justified
reasonable, constitutional and as such deserves to be upheld."

The High Court examined the matter in depth and rightly concluded that the F
procedure adopted and made· the basis for enhancing the rent could not. be
termed to be either arbitrary, discriminatory or unreasonable. We agree with
the conclusions arrived at by the High Court and find no infirmity in the
action of the respondents in raising the rate of rent on the basis of the
grounds noticed by us hereinabove. Such an action is stated to have been
uniformly applied with respect to all the shopkeepers similarly situated and
G
placed. Mere inaction in respect of certain tenants could not be made the
basis for setting aside the action initiated against the appellants and others.
The respondents assured and the High Court rightly issued appropriate
directions for initiating similar actions against those who are left out. Dealing
with such a situation this Court in Chandigarh Administration and Anr. v. H
608 SUPREME COURT REPORTS [1999] SUPP. I S.C.R.

A Jagjit Singh and Anr. [1995] 1 SCC 745] has held:
"Generally speaking, the mere fact that the respondent-authority has
passed a particular order in the case of another person similarly
situated can never be the ground for issuing a writ in favour o.f the
petitioner on the plea of discrimination. The order in favour of the
B other person might be legal and valid or it might not be. That has to
be investigated first before it can be directed to be followed in the
case of the petitioner. If the order in favour of the other person is
found to be contrary to law or not warranted in the facts and
circumstances of his case, it is obvious that such illegal or unwarranted
c order cannot be made the basis of issuing a writ compelling the
respondent-authority to repeat the illegality or to pass another
unwarranted order. The extraordinary and discretionary power of the
High Court cannot be exercised for such a purpose. Merely because
the respondent-authority has passed one illegal/unwarranted order, it
does not entitle the High Court to compel the authority to repeat that <
D illegality over again and again. The illegal/ unwarranted action must
be corrected, if it can be done according to law - indeed, wherever- it
is possible, the Court should direct the appropriate authority to correct

.E
such wrong orders in accordance with law - but even if it cannot be
corrected, it is difficult to see how it can be made a basis for its
repetition. By refusing to direct the respondent-authority to repeat the
·-
illegality, the Court is not condoning the earlier illegal act/order nor
can such illegal order constitute the basis for a legitimate complaint
of discrimination. Giving effect to such pleas would be prejudicial to
the interests of law and will do incalculable mischief to public interest.
It will be a negation of law and the rule of law. Of course, if in case
F the order in favour of the other person is found to be a lawful and
justified one it can be followed and a similar relief can be given to the
petitioner if it is found that the petitioners' case is similar to the other
persons' case. But then why examine another person's case in his
absence rather than examining the case of the petitioner who is present
before the Court and seeking the relief. Is it not more appropriate and
G
convenient to examine the entitlement of the petitioner before the
Court to the relief asked for in the facts and circumstances of his case
than to enquire into the correctness of the order made or action taken
in another person's case, which other person is not before the case
nor is his case. In our considered opinion, such a course -barring
H exceptional situations - would neither by advisable nor desirable. In
STYLE (DRESS LAND) v. UNION TERRITORY, CHANDIGARH [SETHI, J.] 609

other words, the High Court cannot ignore the law and the well- A
. -.- accepted norms governing the writ jurisdiction and say that because
in one case a particular order has been passed or a particular action
has been taken, the same must be repeated irrespective of the fact
whether such an order or action is contrary to law or otherwise. Each
case must be decided on its own merits, factual and legal, in accordance
with relevant legal principles. The orders and actions of the authorities B
cannot be equated to the judgments of the Supreme Court and High
Courts nor can they be elevated to the level of the precedents, as
understood in the judicial world."

It is not the case of the appellants that the favour done to those whose rent C.
has not been enhanced is legal or valid. Such an omission is also not referable
to any lawful action of the respondents. The question of discrimination would
arise only if it is found that the order in favour of the left over was legal and
valid and that the case of the writ petitioners was similar in material respects
to the case of such persons. No such allegation has been made or arguments
addressed. There is, therefore, no basis for the appellants to urge the violation D
of Article 14 alleging discrimination against them.

Regarding awarding of the interest by the High Court for the period of
stay it is argued that as in Sahib Singh 's case no such direction was issued,
the appellants could not be burdened with the liability of paying the interest E
and that at the rate of 18% per annum was excessive and exorbitant. It is
settled principle of law that as and when a party applies and obtains a stay
from the Court of law, it is always at the risk and responsibility of the party
applying. Mere passing of an order of stay cannot be presumed to be the
conferment of any additional right upon the litigating party. This Court in
Shree Chamundi Mopeds ltd v. Church of South India Trust Assn., [ 1992] F
3 SCC I held that the said portion of order by the court mean only that such
order would not be operative from the date of its passing. The order would
not mean that the order stayed had been wiped out from existence. The order
of stay granted pending disposal of a case comes to an end with the dismissal
of substantive proceeding and it is the duty of the Court in such cases to G
put the parties in the same position they would have been but for the interim
orders of the Court. Again in Kanoria Chemicals and Industries ltd. and
Ors. v. U.P. State Electricity Board and Ors., [1997) 5 SCC 772 the Court held
that the grant of stay had not the effect of relieving the litigants of their
;. obligation to pay late payment with interest on the amount withheld by them
when the writ petition was dismissed ultimately. Holding otherwise would be H
610 SUPREME COURT REPORTS [1999] SUPP. I S.C.R.

A against public policy and the interests of justice. In case law Kashyap Zip
Industries v. Union of India, (1993) 64 ELT 161], interest was awarded to
Revenue for the duration of stay under coµrt's order, since the petitioners
therein were found to have the benefit of keeping back the payment of duty
under orders of the Court.

B The High Court was, therefore, not wrong in directing the payment of
interest on the amount of arrears of rent for the period when the stay order
was obtained till the period the writ petitions were djsmissed. We, however,
feel that awarding of interest @ 18% per annum from the aforesaid period was
on the excessive side. The respondent-authority could not be equated with
C private commercial institutions and conferred with an amount of compensation
in the form of interest which, in the judicial parlance, may amount to penalty,
despite the fact that the persons found to have jeopardised the process of
law were rightly held liable to compensate the respondent-authority by way
of interest. In our opinion 15% per annum interest for the aforesaid period
would have been just and proper. We, however, agree with the findings of the
D High Court that the respondents are free to charge appropriate interest on the '
amount of arrears of rent between 1.3 .1992 to the date when the stay orders
were passed by the High Court. We are sure that in determining such rate of
interest the respondent-authority would act fairly and justly.

In C.A. No. 4574-4575 of 1999 (@ SLP (C) Nos. 17894-95) filed by
E Mis.New Rajan Watch Company it was admitted that the lease in their case
was executed on 9th April, 1990 on a monthly rent of Rs. 1090 to be paid in
advance by 10th day of every month for which it fell due. One of the terms
of the lease deed was:

"The lease shall be for period of three years from the date of the grant
F of the lease and shall be terminable at any time by the lessor by giving
one month advance notice in writing to the lessee and it shall be
terminable immediately without notice by the lessor under clause 9
hereof. The lease hereby granted shall be renewable once for another
term of three years on the rent as determined by the government."
G
The appellants in these appeals have urged that the respondents had
no jurisdiction to enhance the rent during the subsistence of the lease deed
for a period of three years from the date of its execution. There appears to
be substance in the submission which has not been taken note of by the High
Court. These appellants, however, not justified to urge that even for the
H period of next three years they were entitled to the renewal of lease deed on
STYLE(DRESS LAND) v. UNION TERRITORY, CHANDIGARH [SETHI, J.] 611

the same rent or the rent enhanced at the rate of 20% at the most. Condition A
]'fo.4 reproduced hereinabove clearly and unambiguously authorised the
respondent-authority to renew the lease for another term of three years on
the rent as may be determined by the Government. It is, therefore, evident that
for the first period of three years commencing from 9th April, 1990 the
respondent-authority was not justified in enhancing the rent of the shop B
leased out to Mis. New Rajan Watch Company. The enhancement of rent
shall, however, deemed to be legal, proper and valid with effect from 9th April,
1993.

In the circumstances, the appeals are disposed of by upholding the
judgments and orders impugned except to the extent indicated hereinabove. C
The impugned judgments and orders shall stand modified to the extent that
instead of paying 18% interest for the period of stay the appellants shall be
liable to pay the interest at the rate of 15% per annum. In case of Mis.New
Rajan Watch Company the enhanced rent shall be deemed to be effective with
effect from 9th April, 1993 and the appellants in those cases be held entitled
to the payment of contractual rate of rent only for the period of three years. D
It is made clear that the rent of the appellants and other lessees similarly
situated and placed shall not be further enhanced without the framing of rules
as mandated by Section 3 read with Section 22 of the Act.

Costs made easy.
E
RKS. Appeals partly allowed.