P L D 1980 Supreme Court 298 (PLP)

DORAB PATEL, ACTG. C. J.-The respondent's father had leased a plot of land in Karachi to the appellant by a written agreement executed on the loth of January 1964. The lease was for a period of six months and contained a clause for its automatic renewal "or the same terms and conditions" for another period of six months, unless it was terminated by either party. The rent was Rs. 200 per month and was to be paid "on or before the 18th of each month- according to the English calendar in advance . . . " and the appellant had to deposit a sum of Rs. 1000 "as security deposit to the lessor, which shall be confiscated by the lessor/landlord in case the lessee does not pay rent for consecutive three months and/or does not give vacant possession to the lessor/landlord at the termination of the tenancy." As the appellant paid the security deposit of Rs. 1,000 to the respondent's father, be was put in possession of this plot, and on that expiry of the lease period of six months, as neither party exercised its option to terminate the lease, the lease was automatically renewed for another six months up to the 10th of January 1965, because of the express provisions of clause 1(d). Thereafter neither party made any attempt to renew the lease. But, the respondent's father was debarred from evicting the appellant under the provisions of the West Pakistan Urban Rent Restriction Ordinance, _1959 (hereinafter called the said Ordinance), as long as the appellant continued to pay the monthly rent of Rs.

200. The appellant continued to pay the monthly rent to the respondent's father in his life time and on his death, he paid rent to the respondent for some years. However, he stopped paying rent after November 1969; therefore, on the 9th of May 1970, the respondent filed an eviction application against him in the Court of the Rent Controller on the ground that he had committed default in the payment of rent for six months, because, according to the respondent, the monthly rent had to be paid in advance. The appellant contested the eviction and, as according to him, rent for five months only was due from him, he sent a cheque of Rs. 1,000 to the respondent and denied that he was in default in the payment of rent. However, this cheque was received by the respondent after he had filed his eviction application, and the concurrent finding of the three Courts below is that the appellant had committed default in the payment of rent after November 1969. Therefore, this appeal turns on the alternative plea advanced by the appellant in his written statement that his security deposit of Rs. 1,000 was lying with the respondent, and as this deposit was adjustable against the rent due from him, the respondent should have adjusted it accordingly, and, therefore, no rent whatever was due from him at the date of the eviction application. As the Rent Controller did not accept the appellant's explanation for his admitted delay in the payment of rent, the question before the Court was whether the sum of Rs. 1,000 deposited by the appellant at the time of the execution of the first lease agreement was adjustable towards his arrears of rent, and the Rent Controller held that this deposit was not adjustable, because according to him, the lease agreement stated that "the said security deposit was to be returned (to the appellant) after deducting the electrical charges if any paid by the opponent at the time of handing over vacant possession of the premises, therefore, the opponent cannot go back from the said term." Accordingly, as the Rent Controller allowed the respondent's eviction application by his order dated 18-12-1972, the respondent filed an appeal in the District Court, Karachi. The appeal was contested only on the ground that the appellant was not in default because his security deposit was adjustable against the arrears of rent due from him. But, the Additional District Judge, who heard this appeal, agreed with the construction placed by the Rent Controller on the lease agreement that the security deposit could not be adjusted "towards the running and current rent". Accordingly, as the Additional District Judge dismissed the appellant's appeal by his order dated 21-4-1973, the appellant filed a second appeal in the Sind High Court, but as the learned Judge, who heard the appeal, agreed with the construction placed by the lower Courts on the clause in the lease agreement for the security deposit, he dismissed the appellant's second appeal by his order dated 1-12-1977. Muhammad Ashraf v. Muhammad Sharif P L D 1971 Lah. 610 dissented from by majority opinion, Nasim Hasau Shah, d. disagreeing. (h) West Pakistan Urban Rent Restriction Ordinance (VI of 1959)- -- S. 13(2)(i)-Eviction of tenant-Default in payment of rent-Rights and liabilities of appellant (lessee) being exclusively governed by Ordinance VI of 1959 question of amount of rent due to be determined in accordance with provisions of S. 13(2) (f) placing tenants under obligation to pay rent due within 15 days of expiry of time fixed in agreement of tenancy, or in absence of such agreement, within 60 days from period for which rent remained payable-Words "agreement of tenancy"--Mean agreement in force and not an agreement expired or dead-Respondent (lessor) filing eviction application on 9-5-1970, appellant in default in payment of rent for December 1969, January and February 1970 and rent thus due amounting to RS 600-- Respondent, however, failing to return to appellant "security deposit" of Rs. 1,000 despite expiry of lease agreement-Amount. lying with respondent thus far exceeding rent due, even after deducting electricity charges, appellant in circumstances not in default of payment of rent due so as to be liable to be evicted.-[Words and phrases]. [p. 306]I (i) West Pakistan Urban R eat Restriction Ordinance (VI of 19591-- S. 13(2) (i)-Eviction of tenant-Default in payment of rent- Lessor "under agreement of lease liable to return security deposit to lessee on expiry of period of lease but not returning nor lessee demanding same-Plea that it was for lessee to find creditor and lessee should have informed lessor to adjust arrears of rent against his deposit, held, not available, default being very technical and reducing law to a farce if lessee could be evicted for being in debt to lessor when in fact lessor stood indebted to lessee-No more appropriate case for exercise of Court's discretion in tenant's favour, held further, could be envisaged. [p. 306].7 G. H. JValik, Advocate and A. Aziz .Khan, Advocate-on-Record .for Appellant. Rahimtoala, Advocate and A. Aziz Dastagir, Advocate-on-Record for Respondent. Dates of hearing : 18th, 19th and 24th May, 1980. JUDGMENT DORAB PATEL, ACTG. C. J.-The respondent's father had leased a plot of land in Karachi to the appellant by a written agreement executed on the 10th of January 1964. The lease was for a period of six months and contained a clause for its automatic renewal "or the same terms and conditions" for another period of six months, unless it was terminated by either party. The rent was Rs. 200 per month and was to be paid "on or before the 18th of each month according to the English calendar in advance . . - " and the appellant had to deposit a sum of Rs. 1000 "as security deposit to the lessor, which shall be confiscated by the lessor/landlord in case the lessee does not pay rent for consecutive three months and/or does not give vacant possession to the lessor/landlord at the termination of the tenancy." As the appellant paid the security deposit of Rs. 1,000 to the respondent's father, be was put in -possession of this plot, and on the expiry of the lease period of six months, as neither party exercised its option to terminate the lease, the lease was automatically renewed for another six months up to the 10th of January 1965, because of the express provisions of clause 1(d). Thereafter neither party made any attempt to renew the lease. But, the respondent's father was debarred from evicting the appellant under the provisions of the West Pakistan Urban Rent Restriction Ordinance, _1959 (hereinafter called the said Ordinance), as long as the appellant continued to pay the monthly rent of Rs.

200. The appellant continued to pay the monthly rent to the respondent's father in his life time and on his death, he paid rent to the respondent for some years. However, he stopped paying rent after November 1969; therefore, on the 9th of May 1970, the respondent filed an eviction application against him in the Court of the Rent Controller on the ground that he had committed default in the payment of rent for six months, because, according to the respondent, the monthly rent had to be paid in advance. The appellant contested the eviction and, as according to him, rent for five months only was due from him, he sent a cheque of Rs. 1,000 to the respondent and denied that he was in default in the payment of rent. However, this cheque was received by the respondent after he had filed his eviction application, and the concurrent finding of the three Courts below is that the appellant had committed default in the payment of rent after November 1969. Therefore, this appeal turns on the alternative plea advanced by the appellant in his written statement that his security deposit of Rs. 1,000 was lying with the respondent, and as this deposit was adjustable against the rent due from him, the respondent should have adjusted it accordingly, and, therefore, no rent whatever was due from him at the date of the eviction application. As the Rent Controller did not accept the appellant's explanation for his admitted delay in the payment of rent, the question before the Court was whether the sum of Rs. 1,000 deposited by the appellant at the time of the execution of the first lease agreement was adjustable towards his arrears of rent, and the Rent Controller held that this deposit was not adjustable, because according to him, the lease agreement stated that "the said security deposit was to be returned (to the appellant) after deducting the electrical charges if any paid by the opponent at the time of handing over vacant possession of the premises, therefore, the opponent cannot go back from the said term." Accordingly, as the Rent Controller allowed the respondent's eviction application by his order dated 18-12-1972, the respondent filed an appeal in the District Court, Karachi. The appeal was contested only on the ground that the appellant was not in default because his security deposit was adjustable against the arrears of rent due from him. But, the Additional District Judge, who heard this appeal, agreed with the construction placed by the Rent Controller on the lease agreement that the security deposit could not be adjusted "towards the running and current rent". Accordingly, as the Additional District Judge dismissed the appellant's appeal by his order dated 21-4-1973, the appellant filed a second appeal in the Sind High Court, but as the learned Judge, who heard the appeal, agreed with the construction placed by the lower Courts on the clause in the lease agree ment for the security deposit, he dismissed the appellant's second appeal by his order dated 1-12-1977. The appellant then filed a petition for leave in this Court and repeated before us his plea that his security deposit with the respondent was adjustable against the rent due from him, and leave was granted to examine this question. The provision for a security deposit was contained in clause 2(d) of the lease agreement of 10-1-1964, and it stated in terms that the deposit of Rs. 1,000 "will be confiscated by lessor. . . in case the lessor does not pay rent for consecutive three months. . ." As it is nobody's case that the appellant had caused any damage to the demised premises at the time of the expiry of the lease in 1965, this provision for compensation is hit by section 74 of the Contract Act. Mr. Rahimtoola, however, relied on a judgment of a learned Single Judge of the Sind Baluchistan High Court reported in Syed Shafiuddin v. Abdul.Hakim Khan (1); but, with due respeci to the learned Judge, his view is inconsistent with the ratio of the leading case of his own Court in The Trustees of the Port of Karachi v. Ghulam ali Habib Rawjee (2), and with the ratio of this Court's judgment in Province of West Pakistan v. Messrs Mistri Patel & Co. and another (3): Therefore, the appellant's deposit should have been adjusted against the rent due from him, but, according to Mr. Rahimtoola, even if this amount had. been adjusted, the appellant would still have been in default, because the deposit was the equivalent of five months' rent, whilst the rent due from the appellant was for a period of six months. Mr. Malik vehemently submitted that rent for only five months was due from the appellant at the date of the respondent's eviction application, and this dispute between the learned counsel about the quantum of the arrears of rent turns on the question whether the rights and liabilities of the parties were governed by the lease agreement which had not been renewed after January 1965, or whether they were governed by the said Ordinance. According to Mr. Malik, they were governed exclusively by the said Ordinance, whilst according to Mr. Rahimtoola, they were governed by the lease agreement, even though it had not been renewed after its expiry. Now, on the footing that the lease agreement was in force, the appellant was liable to pay rent in advance. Hence Mr. Rahimtoola's submission that the appellant was in default in the payment of six months' rent at the date of the eviction application, which was filed in May 1970. And, Mr. Rahimtoola relied upon the lease agreement, because the said Ordinance does not contain any provision about the terms on which a tenant is entitled to remain in possession of the demised premises after the determination of the lease in his favour. Now, although the said Ordinance does not contain any provision about the effect of the expiry of a lease, the statutory protection which it confers on a tenant is inconsistent with many, if not most of the usual covenants accepted by lessees in lease agreements, Thus, for example, in the instant case, clause 2(d) of the lease entitled the respondent to confiscate the security deposit if he did not pay rent for three consecutive months or if he did not give vacant possession to the respondent "at the time of the termination of the tenancy." Both these provisions are illegal, because the said Ordinance expressly prohibits the landlord from recovering "anything in excess of the fair rent" from his tenant, and because the said Ordinance specifies the grounds on which t tenant can be evicted, but as the expiry of a lease is not a ground or which a tenant can be evicted, it is clear that the covenant accepted by the appellant to hand over vacant possession "at the time of the determination of the lease" was illegal and could not have been enforced. (1) P L D 1978 Kar. 149 (2) P L D 1961 Kar. 623. (3) P L D 1969 S C 80 Mr. Malik then referred us to other clauses in the lease agreement which were illegal, because they were inconsistent with the express provisions of the said Ordinance. Thus, for example, under clause 3, the appellant had agreed to be liable for penal interest "in* case the rent is not paid on or before the date fixed for payment aforementioned." This clause is illegal, because the said Ordinance expressly prohibits the landlord from recovering "anything in excess of the fair rent." Similarly, as submitted by Mr. Malik, the undertaking accepted by the appellant under clause 5 of the lease that "he shall not approach any authority for the fixation of fair rent" is contrary to the provisions of section 4 of the said Ordinance, whilst the appellant's undertaking that he could be liable to pay damages if he approached "any authority for the fixation of fair rent," is illegal, because it is contrary both to the provisions and objects of the said Ordinance. Clause 6 of the lease agreement is illegal to the extent to which it isi inconsistent with the statutory liability imposed for repairs on the respondent under section 12 of the said Ordinance. Finally, clause 16 of the lease is illegal to the extent to which it is inconsistent. with the provisions of section 131 of the said Ordinance. Mr. Rahimtoola, however, relied on the fact that the appellant had, after the expiry of the lease, continued to pay rent at the rate of Rs. 200 per month, which was the rent fixed in the lease agreement. Now, although the rent thus paid was the agreed rent, in the events that happened, the agreed rent had become the fair rent under the said Ordinance, therefore, as long as the appellant wanted to remain in possession of the plot, he was under a statutory obligation to . pay this agreed rent under section 4 read with section 13 of the said Ordinance. But, because he continued to pay this rent, which the respondent accepted, the Courts below appear to have assumed that the lease agreement had remained in force. Mr. Malik vehemently submitted that this assumption was not correct, and this is the real point for determination in the appeal. Therefore, we would observe that an agreement can only be made by the consent of the parties, and if an agreement is for a fixed period, it comes to an end on the expiry of the agreed period, unless it is renewed by both the parties. Now, in the instant case, on the plain language of clause 1(d) of the lease agreement, the lease had come to an end on 10-1-1965, therefore, it could have remained in force only if the appellant and the respondent had entered into a fresh agreement to keep the lease in force. There is, however, absolutely no evidence of any such agreement, nor has the plea been taken by the respondent in his eviction application that the lease agreement had been extended by mutual consent. But as, an agreement can also be implied from the conduct of the parties, in the instant case, can an agreement to renew the lease be spelt out from the mere fact that the appellant had continued to pay rent to the respondent at the rate of Rs. 200 per month despite the expiry of the agreement between them ? As the said Ordinance does not contain any provision about the effect of the determination of a lease, Mr. Malik very fairly drew our attention to section 116 of the Transfer of Property Act, because the said Ordinance does not in terms exclude the provisions of this Act. And, he submitted that whilst section 116 was the only provision in this Act which was relevant to the effect of the determination of a lease, the provisions of this section were inconsistent with those of the said Ordinance. Now, according to this section, if a lessee remains in possession of the demised premises "after the determination of the lease . . . . . and the lessor . . . . . accepts rent from the lessee . . . . . the lease is in the absence of an agreement to the contrary renewed from year to year or from month to month, according to the purpose for which the property is leased, as specified in section 106". As a lessee can be evicted under the Transfer of Property Act, on the expiry of his lease, the only reasonable inference from the acceptance of rent by the lessor from the lessee, after the expiry of the lease, is that the lessor has elected not to exercise his right to evict the lessee and has accepted the lessor's offer to continue the lease, an offer which is implied in the tender of rent by the lease after the determination of the lease. But, because this inference is based on the premise that the lessor is free' to evict the lessee on the determination of the lease, such an inference does not necessarily follow if the lessor cannot evict the lessee on the termination of his lease. And, the effect of the said Ordinance is that the lessor cannot evict the lessee on the determination of the lease, if the lessee complies with his statutory obligation to pay the rent prescribed under the said Ordinance. Additionally, as the lessee is entitled under the said Ordinance to remain in possession of the demised premises,- after the expiry of the lease on the payment of the statutory rent, prima facie, the tender of rent by him to the lessor after the expiry of the lease is in the discharge of his statutory obligation to pay rent under the said Ordinance. Similarly, as the lessor has been deprived by the said Ordinance of his right to evict the lessee on , the determination of the lease, his acceptance of the rent tendered by the lessee after the determination of the lease usually reflect his inability to evict the lessee and will not amount, prima facie, to an acceptance of any implied offer by the lessee to continue the lease. As observed by Scott, L. J., in Morrison v. Jacobs (1) at p. 581 "The true view is that the landlord takes the rent, knowing that the tenant is granted a statutory tenancy by the Rent Restriction Acts and that his right to gain possession of his dwelling house depends entirely on his establishing that he brings himself within the conditions laid down by the Acts. 1n this case at the expiration of the lease on June 11, 1943, the landlord did not want the dwelling house for his own occupation as a residence. Early in 1945, he did want it for his own occupation and for that reason, on March 29, 1945, he served on the tenant a week's notice to quit the premises. The contractual tenancy having expired, it was not necessary for the landlord to serve the tenant with any notice to quit : all that was necessary was that he should come to Court and satisfy the judge that he reasonably required possession of the dwelling house for his own occupation as a residence: that entitles him to an order unless the, Court is satisfied that having regard to all the circumstances of the case, including the question whether other accommodation is available for the landlord or the tenant, greater hardship would be caused by granting the order than by refusing to grant it." These observations had reference to the Rent and Mortgage Interest Restrictions Act, 1920 of England, but their ratio is fully applicable to the instant case, because like the English statute, the said Ordinance has taken away the lessor's right to evict the lessee, because of the termination of the lease in favour of the lessee. (1) (1945)1 K B 577 Morrison's case was, therefore, followed by the Indian Federal Court iz Kai Khushroo Benzonjee Capadia v. Bai Jerbai Hirjibhoy Warden and another (1) and we would follow it for the further reason that the renewal of a lease on its expiry by holding over can arise very seldom as long as rent laws, in the form in which we have known them for the last forty years or so, remain in force. As we explained, this is because the said Ordinance renders illegal many of the usual covenants accepted by lessees in lease agreements. Thus, for example, in the instant case, there could be no question of the renewal of the lease agreement of 10-1-1964, because of the many clauses in this agreement which were illegal, therefore, what Mr. Rahimtoola really meant by the renewal of the lease was the renewal of those terms only of the lease which were not hit by the provisions of the said Ordinance. But, if we were to accept this submission m the absence of an express provision in that behalf in the lease agreement, it would mean foisting upon the appellant an agreement to which he had never consented. It is true that the terms of the lease, which were not hit by the said Ordinance, could have been enforced during the pendency of the lease, and, similarly these terms could have been enforced when the lease was renewed for a period of six months in June 1964, under the express provisions of clause 1(d). But the express provision of an automatic renewal of the lease was confined to one period of six months only,, therefore, the payment of rent after 10-6-1965 could not amount to an offer by the appellant to renew the lease on the basis of those terms of the lease which were not inconsistent with the said Ordinance. No doubt the parties could have entered into such an agreement, but an agreement to renew only some of the terms of a written agreement is not to be lightly inferred, and in any case, it cannot be inferred from the mere tender of rent by the appellant and its acceptance by the respondent, because the parties were bound by the overriding provisions of the said Ordinance. The respondent's case however is supported by a judgment of the Lahore High Court in Muhammad Ashraf v. Muhammad Sharif (2), and Mr. Rahimtoola relied on it, because the view taken by the Court was that a tenant's liability to pay rent continues to be governed by the terms of the lease agreement even after the expiry of the lease. And in dismissing the tenant's appeal, on facts almost identical to those in the instant case, the Court observed (at page 614) that the said Ordinance :- "itself does not specify the terms and conditions on which such a tenant shall continue in possession; and, therefore, we must of necessity presume that the intention of the law is that he shall continue on the old terms and conditions . . . . By according statutory recognition to the positions of a tenant who continue in possession of the demised property after termination of the lease, the statute does not seek to introduce new terms and conditions of tenancy except continuing it beyond the stipulated period." We pointed out that the provisions of the said Ordinance are of an over riding nature, and they regulate in considerable detail the rights and liabilities of lessors and lessees. Therefore, in our humble opinion, the proposition that the said Ordinance "does not seek to introduce new terms and conditions of tenancy except continuing it beyond the stipulated period", is much too wide. There may be lease agreements which are not inconsistent with the provisions of the said Ordinance, but such cases) would be the exception rather than the rule. Therefore, with the utmost respect, for the reasons, which we have given; we are unable to agree with the view taken by the Lahore High Court in Muhammad Ashraf's case. (1) AIR 1949 F C 124 (2) P L D 1971 Lah.610 As, in our opinion, the rights and liabilities of the appellant, in the instant case, are governed exclusively by the said Ordinance, the question of the amount of rent due from him has to be determined in accordance with the provisions of clause (i) of subsection (2) of section 13 of the said Ordinance. Under this clause, a tenant has to pay the rent due from him "within fifteen days of the expiry of the time fixed in the agreement of tenancy with his landlord or in the absence of any such agreement within sixty days from the period for which the rent is payable;". The words "the agreement of tenancy" mean an agreement which is in force, and not an agreement which has expired and his dead. Therefore, in the instant case, when the respondent filed his eviction application on the 9th of May 1970, the appellant was in default in the payment of rent for the month of December 1969, and for the months of January and February 1970. The rent thus due from him was Rs.

600. But, as against this, the respondent had failed to return to the appellant the "security deposit" of Rs. 1,000 despite the expiry of -the lease agreement. The respondent was no doubt entitled to deduct the electricity charges before returning this amount, but even after deducting these charges, the amount lying with him far exceeded Rs.

600. It is true that the appellant had not demanded the return of his deposit on the expiry of his lease, and further as the debtor, it was for him to find the creditor, therefore, he should have informed the respondent to adjust the arrears of rent against his deposit with the respondent. This he did not do, but even on the footing that this resulted in a failure toI pay rent within the meaning of section 13 of the said Ordinance, it was a very, technical default and it would. reduce the law to a farce, if the respondent was evicted for being in debt to the respondent (on account of his failure to pay rent) when in fact the overall position was that the respondent was in debt to the appellant. Therefore, there could not be a more appropriate case for the exercise of the Court's discretion under section 13 of the said Ordinance in the tenant's favour. Accordingly, even on the footing that the appellant was in technical default in the payment of rent on the date of the eviction application filed against him, we have no hesitation in exercising our discretion in his favour. We, therefore, set aside the eviction order passed by the three Courts below and allow the appellant's appeal. However, as the appeal turned on a question of law which had not been decided by this Court, we leave the parties to bear their own costs. CIVIL APPEAL No. K-90 of 1978 NASIM HASAN SHAH, J.-I am in respectful agreement with . the final conclusion arrived at by my learned brother that the appeal be allowed, as I agree with him that the default by the appellant was only a technical one and the discretion ought to have been exercised in his favour. I would, however, not agree with him that the case entitled Muhammad Ashraf v. Muhammad Sharif (P LD 1971 Lah. 610), on which Mr. Rehimtoola, Advocate, for the respondent, relied, has been wrongly decided. However; as I am in agreement with my learned brother that the appeal ought to be allowed on the other ground, namely that in the circumstances which have been fully set out in his judgment, the discretion was liable to be exercised in favour of the appellant, it is not necessary for me to discuss the other aspects of the matter in further detail and would allow the appeal on this ground. S.A. H Appeal allowed.