"Govt. Is Entitled To Reasonable Return On Land": Bombay HC Upholds Maharashtra Govt. Decision To Hike Lease Rentals In Bandra

The Bombay High Court has observed that the State Government's decision to calculate lease rent based on the land values provided in the 'Ready Reckoner' was not exorbitant, extortionate and/or manifestly arbitrary.

In that context, the Bench of Justice Somasekhar Sundaresan and Justice BP Colabawalla observed that, "To our mind, and especially an individual who is holding such a large parcel of land in a prime locality in Mumbai from 1951 onwards at a measly rate of Rs.1,580/- per year (which is virtually free), can hardly be heard to say that the increase in lease rent is either exorbitant, extortionate and/or manifestly arbitrary. If individuals want to hold large parcels of land in a prime locality and want to enjoy this luxury, it is only fair that they would have to pay for it a reasonable sum that is now the revised amount. When the law mandates that the Government has to be fair and reasonable in dealing with its citizens, it does not mean that the Government has to do charity. It also does not mean that the annual lease rent should be so structured that in the perception of the lessee the same is affordable to him irrespective of the fact that such low rent may not even subsume the inflation cost, cost of administration and the escalation impact. Though it is indeed true that the Government should not act as a private landlord where profit would be the prime motive, it is still entitled to a reasonable return on its land."

The High Court reviewed petitions challenging the constitutional validity of three Government Resolutions (GR) issued by the Maharashtra State Government in 2006, 2012, and 2018. These GRs involved long-term leases of government land in Bandra, Mumbai.

The 2006 GR used the 'Annual Statement of Rates' ('Ready Reckoner') to determine the value of leased government lands. The Ready Reckoner, prepared annually by the State government, shows the average rates of land and buildings (residential or commercial) in various parts of the State, thus establishing the market value of property in a specific area.

The 2012 and 2018 GRs provided methods to calculate the lease rent for renewing expired leases.

The petitioners argued that determining lease rent based on the Ready Reckoner's land values significantly increased their rent, making the hike arbitrary and unreasonable.

The High Court addressed three key issues:

1) Whether the Government could fix lease rent based on the Ready Reckoner?

2) Whether the lease rent increases in the 2006, 2012, and 2018 GRs were exorbitant or arbitrary?

3) Whether the Government could revise the lease rent every 5 years based on the land value at the time of revision?

The Court came to the following conclusions:

(a) The decision of this Court in Ratti Palonji Kapadia (supra) does not lay down any immutable, inviolable and absolute proposition that the State cannot take into account the value of the land [as per the Ready Reckoner] when revising lease rentals. The only test is whether the Government has acted in a fair and reasonable manner and whether the increase in lease rent can be regarded as exorbitant, extortionate or manifestly arbitrary.

(b) We do not find that the Government, by taking the Ready Reckoner value into account (for determining the value of the land) is treating unequals, as equal. The Government is applying the Ready Reckoner to all the lands of the Petitioners which is a fair and transparent method adopted by the Government for valuation of the lands owned by it. Without bringing on record any valuation that any land of the Petitioners covered by any of the leases is valued lower than the Ready Reckoner value, the Petitioners cannot, either assail the Ready Reckoner value, or contend that unequals are being treated equally.

(c) The increase in lease rent and/or the revised lease rent calculated as per the 2012 GR read with the 2018 GR, for the reasons stated in this judgment, cannot be termed as exorbitant, extortionate and/or manifestly arbitrary. For the reasons stated earlier, the revised lease rent is fair and reasonable and keeping with the times, taking care to discount the value of the land and applying a small reasonable percentage rate of such discounted value as the lease rent payable. We do not find that by this revision, the Government is indulging in either rack renting, profiteering and/or indulging in unreasonable or whimsical evictions or bargains.

(d) For the reasons stated herein, Clause B(1)(d) of the 2012 GR [that seeks to reset/revise the lease rent every 5 years], is unsustainable as the same is contrary to the bargain struck between the parties when they entered into the original Lease Deed, and even when the leases of the Petitioners were renewed from 1951 to 1981. Hence, Clause B(1)(d) of the 2012 GR is hereby quashed and set aside. The effect of setting aside this element sought to be introduced by the State, is that the revisions in the lease rentals would be linked to the value as per the Ready Reckoner as of 1st January 2012, and this approach could never be assailed as being arbitrary, unreasonable and much less, extortionate.

(e) In the light of the subsequent developments, nothing survives in the challenge to the Notice dated 30th March 2013. 

Cause Title: Vrindavan CHSL vs State of Maharashtra & Anr. (Neutral Citation: 2024:BHC-OS:10107-DB)

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