PETITIONER: <NAME> & ORS. Vs. RESPONDENT: STATE OF MAHARASHTRA & ANR. DATE OF JUDGMENT: 19/12/1997 BENCH: B.N. KIRPAL, M. SRINAVASAN ACT: HEADNOTE: JUDGMENT:

WITH (WRIT PETITION (C) NOS. 17 AND 824 OF 1996) THE 19TH DAY OF DECEMBER, 1997 Present:

Hon'ble the Chief Justice Hon'ble Mr. Justice B.N. Kirpal Hon'ble Mr. Justice <NAME>, Sr. Adv., <NAME>, <NAME>, <NAME>, <NAME>, Ms. <NAME>, Ms. <NAME>, <NAME>, <NAME>, Advs. with him for the appellants.

<NAME>, Sr. Adv., <NAME>, <NAME>, Advs. with him for the Respondents.

<NAME>, Adv. for <NAME>, Adv. for Intervenor.

J U D G M E N T The following Judgment of the Court was delivered:

With WRIT Petition @ Nos. 17 and 824 of 1996 Kirpal, J.

Lex injusta non est lex', unjust laws are not laws, is what is being contended by the landlords in their challenge in these appeals, and the connected writ petitions, to the validity of the relevant provisions of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 (hereinafter referred to as 'the Bombay Rent Act') in so far as it provides that landlords cannot charge rent in excess of the standard rent.

The appellants are landlords or their representatives of different premises in Bombay which have been given on rent to various tenants. They had filed in <ORG> writ petitions challenging the constitutional validity of Section 5(10) (B), Section 11 (1) and Section 12(3) of the Bombay Rent Act, inter alia, on the ground that the said provisions pertaining to standard rent were ultra vires Articles 14, 19 and 21 of the Constitution anc consequently void. The main challenge to the said provisions was on the ground that the restriction on the right of the Landlords to increase rents, which ha been frozen as on 1st September, 1940 or at the time of the first letting, was no long a reasonable restriction and the said provisions had, with the passage of time, become arbitrary, discriminatory, unreasonable and consequently ultra vires Article 14 of the Constitution. By the impugned judgment <ORG> dismissed the writ petitions, inter alia, holding that the object of the Bombay Rent Act was not to provide to the landlord an adequate return on its investment and it was not open to him to claim an increase in the rent by taking into account the increase in the land privies etc. The <ORG> also observed that the writ petitions lacked particulars in order to satisfy the <ORG> that the relevant provisions of the Bombay Rent Act were unreasonable or arbitrary.

The Bombay Rent Act came into force on 13th February, 1938 This Act was meant to be a temporary measure. The original act was enacted only for two years, with a power to the <ORG> to extend the same by notification in this behalf. this Act has been extended from time to time a least on twenty occasions and the present extension remains in force upto 31st March, 1998. Sections 5(10) , 7 , 9(b) and 11(1)(a) which are being impugned in the present cases read as follows:

"5(10) "Standard rent" in relation to any premises means-

(a) Where the standard rent is fixed by the <ORG> and the Controller respectively under the Bombay Rent Restriction Act, 1939, or the Bombay Rents, Hotel Rates and Lodging House Rates (control) Act, 1944, such standard rent; or

(b) when the standard rent is not so fixed,-

subject to the provisions of section 11 ,-

(i) the rent at which the premises were let on the first day of September 1940,

(ii) where they were not let on the first day of September 1940, the rent at which they were last let before that day, or

(iii) where they were first let after the first day of September 1940, the rent at which they were first let or (iii-a) notwithstanding anything contained in paragraph (iii), the rent of the premises referred to in sub-section (1A) of section 4 shall, on expiry of the period of five years mentioned in that sub- section, not exceed the amount equivalent to the amount of net return of fifteen per cent, on the investment in the land and building and all the outgoing in respect of such premises: or]

(iv) on any of the cases specified in section 11 , the rent fixed by the <ORG>;

7. [(1)] Except where the rent is liable to periodical increment by virtue of an agreement entered into before the first day of September 1940, it shall not be lawful to claim or receive on account of rent for any premises any increase above the Standard rent, unless the landlord was, before the coming Standard rent, unless the landlord was, before the coming into operation of this Act, entitled to recover such increase under the provisions of the Bombay Rent Restriction Act, 1939, or the Bombay Rents, Hotel Rates and Lodging House Rates (Control) Act, 1944 or is entitled to recover such increase under the provisions of this Act [either before or after the commencement of the Bombay Rents, Hotel and Lodging House Rates Control (Amendment) Act, 1986].

(2) (a) No person shall claim or receive on account of any license fee or charge for any premises or any part thereof, anything in excess of the standard rent and permitted increase(or, as the case may be, a proportionate part thereto), for such premises if they had been let, and such additional sum as is reasonable consideration for any amenities or other services supplied with the premises.

(b) All the provisions of this Act in respect of the Standard rent and permitted increases in relation to any premises let, or if let, to a tenant, shall mutatis mutandis apply in respect of any license fee or charge and permitted increases and the additional sum mentioned above ].

9.(b) Before making any increase under clause (a), the landlord shall obtain a certificate from the local authority that he was required by it to make or to provide such additions, he was required by it to make or to provide such additions, alterations, improvements or amenities and has completed them in conformity with its requirements.

11.(1) [ Subject to the provisions of section 11A in any of the following cases the <ORG> may, upon an application made to it for that purpose, or in any suit or proceedings, fix the standard rent at such amount as, having regard to the provisions of this Act and circumstances of the case, the <ORG> deems just-

Where any premises are first let after the first day of September 1940 and the rent at which they are so let is in the opinion of the <ORG> excessive; or Where the <ORG> is satisfied that there is no sufficient evidence to ascertain the rent at which the premises were let in any one of the cases mentioned in [paragraphs (1) to (iii) of sub-clause (10) of Section 5 ; or Where by reason of the premises having been ; let at one item as a whole or imparts and at another time in parts or as a whole, or for any other reason, any difficulty arises in giving effect to this Part; or Where any premises have been or are let rent-free or at a nominal rent or for some consideration in addition to rent; or Without prejudice to the provisions of sub-section (1A) of section 4 and paragraph (iii-a) of sub-clause

(b) of clause (10) of Section 5 , where the Court is satisfied that the rent in respect of the premises referred to therein exceeds the limit of standard rent laid down in the said paragraph (iii-a); or Where there I any dispute between the landlord and the tenant regarding the amount of standard rent, Section 10 provides for an increase in rent where after the commencement of the Bombay Rents, Hotel and Lodging House Rates Control (Amendment) Act, 1986 a landlord is required to pay any fresh rate, cases, charges, tax land assessment, ground rent of land or any other levy on lands and buildings. Section 10 A enables the landlord to make an increase in the rent of the premises by a percentage specified therein in respect of those premises which were let on or before the first day of September 1940. Section 12 , inter alia, provides that ordinarily there shall be no ejectment of a tenant if he is ready to pay or is willing to pay the standard rent with permitted increase in the manner provided therein.

From the aforesaid provisions it is clear that in so far as the question of fixation of standard rent is concerned when the Act was enacted the premises fell into two categories; (a) those let on 1st September, 1940 and;

(b) those let for the first time after 1st September, 1940. According to Mr. <NAME> these provisions provide as under:

A. Premises let out before 1st September, 1940.

In respect of (a) i.e. premises let out on or before 1.9.1940. rent paid on that date is the standard rent.

i) and thus the ret is pegged at the rent paid as on 1.9.1940, subject to the increases mentioned below.

ii) Those increases are of three types:

a) those permitted U/s 10A In respect of premised let on or before 1.9.1940; increases are permitted to the extent of 5% to 7.5% over the standard rent for residential premises: And 7.5% - 12.5% in respect of non- residential premises- This is a one time permitted increase.

b) Increase on account of heavy repairs, additional amenities and repairs required to be carried out under requisition from local authorities; increase in monthly rent is permitted to the extend of 15% per year on the actual cost incurred without interest (Section

c) Increase in ground rent, in respect of leasehold premises paid to the government, local authority and statutory authority is allowed to be passed on to the tenant by a proportionate increase in monthly rent ( Section 10 )

d) increase in amount of property taxes after 13.2.1948 is allowed to be passed on to the tenant by a proportionate increase in monthly rent ( Section 10 ) The cost which have to be absorbed and borne by the landlord (without entitlement to pass on to tenants) therefore:

Entire cost of "tenantable" repairs U/s 23, which if the landlord does not carry out, and the tenant carries out the same, the tenant is permitted to deduct and recover the same from the landlord from year to year to the extent of 3 months rent in a year together with interest at the rate of 15% p.a.; under Section 23 as amended in 1987 by Maharashtra Act No. 18 of 1987. Landlord has had to bear the repair cases from 1.1.1970: first levied under the Bombay Building Repair and Reconstruction Board Act , 1969 replaced by Maharashtra Housing and Area Development Act, 1976 ( <ORG>)

- to the extent of 10% of the "ratable" value ( 8.5% of actual rent in a year), which in effect works out to one month's rent in a year.

50% of the total tax levied in lieu of the abolition of the Inami tenures ( w.e.f. 1.4.1971) under Bombay city (Inami & Special tenures) Abolition and Maharashtra Land Revenue Code (Amendment ) Act, 1969; Sections 7 , 8 , 10 . In case of leasehold land, the increase in ground rent paid by the landlord to private parties, i.e. parties other then <ORG>, total authority, statutory authority, etc. the entire increase is to Be borne by the landlord and no part of it can be passed on to tenant. ( This is the effect of Section 10 as amended by Maharashtra Act No. 18 of 1987.) B. Premises let out for the first time after 1.9.1940-such premises fall into 2 categories;

a) Where the landlord is himself the owner of the building in which flats are let to different tenants mostly from 1940-1950.

b) Where the landlord is himself a member of a co-operative housing society and holds the flat as owner member; but has let out the flat to a tenant - the rent will stand frozen at the amount paid on the date of the first letting; by reason of the definition of "standard rent" under Section 5 (10) (b)(iii) of the Act ("where they were first let after the first day of September, 1940 the rent at which they were first let"). These are "ownership flats" in "cooperative society buildings" constructed in the post -1950 period. Almost all constructions after 1950 are on this pattern.

c) In the decades of the fifties, sixties and seventies, the landlord member is invariably out of pocket as the ever increasing amounts of the outgoing and maintenance paid to the <ORG> are invariably more than the actual amount of rent received ( which had been frozen at first letting)/ In the decade of the eighties and the nineties however, the amount of the first letting being considerably higher, this incidence does not occur. Since increase in maintenance charges is absorbed in the amount of rent fixed. In both classes of cases i.e. the premises let on or before 1st September, 1940 and premises let on or after 1.9.1940, there are no statutory provisions which entitle the landlord to move the Count for an increase in standard rent. The Scheme of the Act negatives any such right (see Section 5 (10) read with Sec. 11(1)(a)).

Mr. <NAME>, learned senior counsel on behalf of the appellants submitted that a legislation which, when enacted, was justified on considerations of necessity and expediency may, with the passage of time, become arbitrary and unreasonable in changing circumstances. In view of the constant escalation in privies due to inflation and corresponding fall in the value of the rupee, ceiling on rentals, such as the one imposed by Section 5 (10)(a) and

(b) read with Section 7 and 11 of the Bombay RENT Act, is totally arbitrary and unrealistic and , therefore, unreasonable.

In reply it was submitted by Mr. <NAME>, learned senior counsel for the respondents that the writ petitions which were filed by the appellants did not give sufficient details as regards the rents which they were receiving from the tenanted premises. It was, therefore, contended that the claims made were hypothetical as there was no sufficient material to decide the truth of the assertions made by the appellants as regards negative returns from their rented properties. It was further submitted by the learned counsel that the respondent - <ORG> has become aware of the rising prices at least since 1986 and this had resulted in Maharashtra Act 18 of 1987 being passed whereby the Bombay Rent Act was amended. It was contended that an important concession which was made by the Amending Act was the introduction of Section 4 (1) A, which provided that the provisions relating to standard rent and permitted increases was not to apply for a period of five years to any premises the construction or reconstruction of which was completed on or after the appointed date, namely, 1.10.1987. This Amending Act also introduced Section 9 which; allowed to landlord to increase the rent for an improvement or structural alteration of the premises, excepting repairs under, Section 23 of the Bombay Rent Act. Furthermore, it was submitted that the amended Section 6 also entitled to landlord to increase the rent by addition of an amount not exceeding 15 per cent of the expenses incurred on account of special addition or special alterations or additional amenities, improvements or structural alterations. The landlord was further entitled to temporarily increase the rent at a rate not exceeding 18 per cent of the standard rent for special or heavy repairs. Reference was also made to Section 10 and 10A introduced by the Amending Act of 1986 whereby landlord could increase the rent in case he was required to pay fresh rates, charges etc. to the <ORG> or if he was required to cover the increase in water and electricity charges. The learned counsel reiterated that the <ORG> was aware and conscious about the problem of the landlords and was proceeding in the right direction to obviate their difficulties. In this connection the attention of the <ORG> was invited to the constitution of a committee headed by Mr. <NAME> in 1979 for the purpose of preparing a Unified Rent Control Act for the entire <ORG>. The <ORG> Law Commission had examined the recommendations of <ORG> and submitted its report. <ORG> had considered this report as well as the Model Rent Control Bill, forwarded to it by the Central <ORG>, and this had resulted in a new Rent Control Bill being introduced in the upper house of the <ORG> Legislature in July, 1993. This bill has been referred to <ORG> and it was accepted that the reading of the bill clause will be commenced in the <ORG> Legislature.

There is considerable judicial authority in support of the submission of learned counsel for the appellants that with the passage of time a legislation which was justified when enacted may become arbitrary and unreasonable with the change in circumstances in the State of Madhya Pradesh Vs. <ORG> [ (1964) 6 S.C.R. 846 ] dealing with a question whether geographical classification due to historical reasons would be valid this Court at page 853 observed as follows:

"Differential treatment arising out of the application of the laws so continued in different regions of the same reorganised State, did not therefore immediately attract the clause of the Constitution prohibiting discrimination. But by the passage of time, considerations of necessity and expediency would be obliterated, and the grounds which justified classification of geographical regions for historical reason may cease to be valid. A purely temporary provision which because of compelling forces justified differential treatment when the Reorganisation Act was enacted cannot obviously be permitted to assume permanency, so as to perpetuate that treatment without a rational basis to support is after the initial expediency and necessity have disappeared."

In <NAME> and <NAME>. Vs. Union of India and Anr. [(1964) 7 S.C.R. 55] the challenge was to the validity of Section 87 B of the Code of Civil Procedure which granted exemption to the rulers of former India State from being sued except with the consent of the <ORG>. Government, Dealing with this question it was observed at page 60 as follows:

" If under the Constitution all citizens are equal, it maybe desirable to confine the operation of s.87B to past transactions and not to perpetuate the anomaly of the distinction between the rest of the citizens and Rulers of former Indian States. With the passage of time, the validity of historical considerations on which s. 87B is founded will wear Civil Procedure may later be open to serious challenge."

In <NAME> of Shri Admar Mutt etc. Vs. The Commissioner, <ORG> and Ors. [ (1980) 1 S.C.R. 368] this Court was called upon to consider the validity of the continued application of the provisions of the Madras Hindu Religious Endowment Act, 1951 in the area which had formerly been part of State of Madras and which had latter become part of the new State Of Mysore ( now Karnataka ) as a result of the State Re- Organisation Act, 1956. In this connection at page 387-388 it was observed by this Court as follows:

An indefinite extension and application of unequal laws for all time to come will militate against their true character as temporary measures taken in order to serve a temporary purpose. Thereby, the very foundation of their constitutionality shall have been destroyed the foundation being that section 119 of the State Reorganisation Act serves the significant Purpose of giving reasonable time to the new units to consider the special circumstances obtaining in respect of diverse units. The decision to withdraw the application of unequal laws to equals cannot be delayed unreasonably because of the relevance of historical reasons which justify the application of unequal laws is bound to wear out with the passage of time. In <NAME>'s Legal; Maxim ( 1939 Edition, page 97) can be found a useful principle "Cessante Ratione legis Cessat Ipsa Lex", that is to say, "Reason is the sour of the law, and when the reason of any particular law ceases, so does the law itself".

This <ORG> in Motor General Traders and <ORG> Vs. State of Andhra Pradesh and <ORG> etc. ()1984) 1 S.C.R. 594] had to consider the validity of Section 32B of the Andhra Pradesh Building (Lease, Rent and Eviction) Control Act, 1960. This section provided that the Act would not apply to buildings constructed after 26th August, 1957. This exemption had continued for nearly a quarter of a century and it was argued that because of shortage of housing accommodation since the section had been valid from the commencement of the Act, therefore, it could not be struck down at any time after it came into force. While referring to earlier decisions in <NAME> Vs. State of Madhya Pradesh [(1962) Suppl. 2 S.C.R. 257] and <ORG> (supra) it was observed at page 606 as follows "what may be unobjectionable as a transitional or temporary measure at an initial stage can still become discriminatory and hence violative of Article 14 of the Constitution of it is persisted in over a long period without any justification." Dealing with the contention that the impugned provisions had been in existence for over 23 years and had once been held to be valid by <ORG> and therefore this <ORG> should not pronounce upon its validity at this late stage, it was observed at page 614 that "what was justifiable during a short period has turned out to be a case of hostile discrimination by lapse of nearly a quarter of century... We are constrained to pronounce upon the validity of the impugned provision at this late stage because of grab of constitutionality which it may have possessed earlier has become worn out and its unconstitutionality is now brought to a successful challenge".

In <NAME> and <NAME>. Vs. State of Tamil Nadu and Anr. [(1986) 3 SCC 385 ] this Court had to consider the validity of Section 30 (ii) of the Tamil Nadu Buildings (Lease and Rent ) Control Act , 1960 which provided that tenants of residential building being monthly rent exceeding Rs. 400 were exempted from the protection of the Act whereas no such restriction was imposed in respect of tenants of non- residential buildings under the said Act. Holding that the tenants of the residential buildings required greater protection and that there was no justification in picking out the class of tenants of residential buildings paying a rent of more than Rs. 400/- per month and to deny them the right conferred generally on all tenants of buildings, residential or non-residential, and for this reason holding Section 30 (ii) of the Said Act as being violative of Article 14 at page 389 and 390 it was observed as follows:

"It certainly cannot be pretended the provision is intended to benefit the weaker sections of the people only. We must also observe here that whatever justification there may have been in 1973 when Section 30 (ii) was amended by imposing a ceiling of Rs. 400 on rent payable by tenants of residential buildings to entitle them to seek the protection of the Act, the passage of time has made the ceiling utterly unreal. We are entitled to take judicial notice of the enormous multifold increase of rents throughout the country. Particularly in urban areas. it is common knowledge today that the accommodation which one could have possible got for Rs. 400 per month in 1973 will today cost at least five times more. In these days of universal, day to day escalation of rentals any ceiling such as that imposed by Section 30 (ii) in 1973 can only be considered to be totally artificial and irrelevant today. As held by this court in <CITATION> . a provision which was perfectly valid at the commencement of the Act could be challenged later on the ground of unconstitutionality and struck down on that basis. What was once a perfectly valid legislation, may in course of time, i become discriminatory and liable to challenge on the ground of its being violative of Article 14".

Lastly reference need be made to be made to <ORG> and <ORG> Vs. State Of U.P. and <ORG> [(1990) 1 SCC 109] where at pages 156-157 it was observed that "restriction valid under one circumstance may become invalid in changed circumstances". Reliance in support of this view was not only placed on some American decisions but also on the decision of this <ORG> in <ORG> case (supra).

Mr. <NAME> referred to the decision of this Court in <NAME> Vs. State of Punjab [(1988) 2 S.C.R. 107] and contended that the ratio of the said decision is clearly applicable to the present case. In <NAME> case a two Judge Bench of this Court was called upon to consider the validity of Section 4 of the East Punjab Urban Rent Restriction Act, 1949, which inter alia, provided that in determining the fair rent the rent controller shall fix the basic rent by taking into consideration the prevailing rates of rent in the locality for the same or similar accommodation in similar circumstances during a twelve months prior to 1st January, 1939. It was held in that case that the act in question had been passed in 1949 and it pegged the rent prevalent for similar houses in 1938 and as such it was not unreasonable per se. Even though there was an increase in the rents after the second world war and the partition of the country, it was held that fixing of the rents at the 1938 level could not be regarded as unreasonable when one of the objects of the act was to restrict the increase by providing for certain provisions as to fixation of a fair rent. In that case the main emphasis of the appellants was to assail Section 4 by comparing the said law with the legislation of different states. There was no argument raised or considered, as is being done in the present case, while relying on the decision of <ORG> in the cases of <NAME>, Motor General Traders and Synthetics and Chemicals (supra) that with the passage of time and with the consequent change of circumstances the continued operation of an act which was valid when enacted may become arbitrary and unreasonable.

The aforesaid decisions clearly recognise and establish that a statute which when enacted was justified may, with the passage of time, become arbitrary and unreasonable. It is, therefore, to be seen whether the aforesaid principle is applicable in the instant case. Can it be said that even though the provisions relating to the fixation of standard rent were valid when the Bombay Rent Act was passed in 1947 the said provision, as amended, can still be regarded as valid now?

Reports of different committees and resolutions of the minsters have been placed on record in an effort to show that these official agencies have, since over the last two decades, themselves felt that increase in rents was called for. The correctness or the authenticity of this material has not, in any way been doubted an therefore we see no reason as to why this cannot be taken into consideration in order to determine whether the submission of Mr. <NAME> merits acceptance. Reference may now be made to some of this material:-

1. A rent act inquiry committee of 1977 commonly known as <ORG>, was constituted by <ORG> which in its report submitted in the same year recognised that the pegging down of the rents to a date nearly thirty years back (at that time) had deprived the property owners of a reasonable return on their properties commensurate with the increase in the cost of living and the cost of building materials. It recognised that there were several small property owners all over the State who had invested the life time savings in building houses partly for the residence and partly for being let out in order to assure a steady income in old age. As a result of rent control act, the return they got is inadequate even for subsistence because of the step increase in the cost of living. In para 6 (10) it observed that " having regard to the general increase in the cost of living, the <ORG> is of the view that there is a case for some general increase although not to the extent claimed by the property owners as the period of twenty years has elapsed since the last increase was allowed.

2. <ORG> which submitted its report in the year 1977 recommended the increase in the rents in the following terms "the commission, feels that there is immediate need for reasonable increase in standard rent."

3. In the 12th report of <ORG> 1979 on the rent control legislation para 91 dealing with this aspect reads as follows:

" The <ORG> does not want the rents to be static for long. The inflationary trend reflected by the rising consumer price index numbers at all centers in the State makes it imperative to make an objective assessment of the situation at regular intervals so that the remedial action may be possible by periodical variation in rents according as the situation demanded. Suggestions for such periodical survey was also made to the <ORG> by various representatives in evidence. The <ORG> by various representatives in evidence. The <ORG> feels that such a periodical survey would be much helpful in maintaining the balance between the landlord and the tenant. The possibility of the inflationary the landlord and the tenant. The possibility of the inflationary trend receding in future - though such possibility is not easy to entertain - cannot be totally ruled out, in which case the rents could be brought down to as reasonable level. if on the other hand, the inflationary trend continues unabated, then a reasonable rent increase may have to be resorted to . it is true that the <ORG>. can always take stock of the situation and come up with an appropriate measure to meet the situation at any given time. But the <ORG> does not want to leave the matter to an action being thought of by the <ORG>. The <ORG> thinks that it would be proper to make a specific provision in the unified Act which would cast an obligation on the <ORG> to hold periodical reviews and to take effective actions for rent variations according as the circumstances may warrant."

The <ORG> further stated:

" In big cities like Bombay, a large number of slums have come into existence. if the rigorous of the Rent Act had not been there, new houses would have been constructed. At present 30 lakhs of people in the city of Bombay stay in slums and 11/2 lakh on pavement.

If new buildings had been constructed, people who stay in slums today might have been in a position to get some decent accommodation.

It was further stated "The increase in the standard rent must be considered from the point of view of the Consumer Price Index.

" It was pointed out to the <ORG> that 46 percent of the lands belong to low income group, 27 percent belong to middle income group, and only 25 per cent belong to the higher income group. These figures will indicate that 75 per cent of the so-called landlords are really people who depend upon the rent of the property for their livelihood. To designate them as 'landlords' itself is undesirable.

When one considers the financial position of the tenants, compared to the positions in 1940s, one clearly sees that the monthly income of these tenants has gone up from 100 to 400 at least. However, there has not been a proportionate increase in the rents."

4. A Report of Economic Administrative Reforms Commission on Rent Control (commonly known as <ORG>) was presented to <ORG> in September 1982. In paragraph 51 of the said report, it stated as follows:

" We now turn to the problem of existing tenancies. Many of these are very old and the rents were fixed a few decades ago. These old an frozen rents bear little relation to the present day maintenance costs, or to the current returns from alternative investments, or to the prevailing market rents in respect of new accommodation. In the case of new construction we have suggested that the periodical revision of rents should be based on a partial neutralisation of the effects of inflation. Applying the same principle to existing tenancies where rents have remained frozen for at least 5 years, what needs to be done is to update those rents by neutralising 50 per cent of the inflation which has taken place from the time of initial determination of those rent upto the present time."

The report further reads as under: "Similarly in the case of existing tenancies, all that needs to be done is to provide a formula for updating the old frozen rents, and thereafter periodically revising them."

5. On 21/22.5.1987 a conference of <ORG> was held to discuss various problems. Decisions taken at that Conference were recorded in the form of resolutions. With regard to Rent Control the unanimous resolution at the conference of Housing Ministers reads as under:

"RESOLUTION NO. IV RENT CONTROL 4.1. Realising the existing Rent Control Laws, have resulted in:

(i) disincentive to further investment in construction of houses for rental purposes;

(ii) neglect of timely repairs and maintenance of existing rental housing stock; and

(iii) debilitating the resources of municipal bodies by virtually freezing their income from property taxes which are based on rateable values.

4.2 This conference urges upon <ORG> to formulate and communicate to the State Governments for necessary action suitable guidelines as soon as possible during the current year for their consideration so as to provide for the expeditious amendment of Rent control Laws wit a view to providing for:

(a) a reasonable return on investment in housing which will be comparable to, if no more favourable then, the return from and other avenues of investment,

(b) periodical upward revision of rents to neutralise the crosion in the real value of rents

(c) enabling expeditious resumptions of possession of a dwelling units for self occupation by a landlord who is the owner of only one such dwelling unit;

(d) delinking of municipal property taxation from reteable values to the extent they are regulated by the Rent Control Laws,

(e) Leave and licence system,

(f) period tenancy,

(g) protection to tenants from arbitrary eviction,

(h) exemption from the provisions of the Act of new construction less than 5 years,

(i) obviating delays in ligation by laying down suitable expeditious procedures, only one appeal to a higher authority instead of multi- level appeals constitution of tribunals to deal with disputes arising under the Act and barring the jurisdiction of Civil Court Act. "

6. In the Letter dated 24.7.1987 from <ORG> while communicating President's assent to 1987 amendment to the Bombay Rent Act it was stated as follows:

"It is suggested that <ORG> may make subsequent amendments to the principal Act preferably within next 6 months by incorporating the following recommendation of the above conference ( Housing Ministers conference).

(a) Periodical upward revision of rents to neutralise the erosion in the real value of rents."

7. A conference of Chief Ministers of all states was held at New Delhi in 1992. One of the topics discussed pertained to static rents and the problems arising therefrom. A unanimous recommendation of this conference made on 9.3.1992 in this regard was as under:

" 4.3 The frozen rents have led to emergence of practices like key money. this apart from creating a block market in rental housing, the Act has reduced the accessibility of low income groups to rental housing, as they cannot afford to pay large deposits for rented premises."

4.4 The widening divergence between the interests of landlords and tenants has not only led to increased litigation under Rent Control Acts ( the rent control cases make for a majority of the cases in courts) but also to increased crimes.

A large number of criminal cases have their origin in disputes over rented properties."

The recommendation further reads:

" The important principle is that while the tenant will enjoy security of tenure is controlled premises, he should agree to pay a rent that provides adequate return on investment and provides for proper maintenance and taxes, so that he does not enjoy an unfair advantage over the landlord."

A perusal of the aforesaid extracts of reports and resolutions clearly demonstrates that since the last two decades the authorities themselves seem to be convinced that the pegging down of the rents to the pre war stage and even thereafter, is no longer reasonable. Unfortunately apart from lip service little of note has been done. Even the Rent control Bill introduced in 1993 has not yet become law.

It was submitted by Mr. <NAME> that even after the promulgation of the Rent Control act 1948 during the 1950s and 1960s there was not much escalation in the market rents. The rents which were determined during this period has become the standard rent by virtue of the definition in Section 5 (10) of the Bombay Rent Act. In the last few years, due to rapid inflation there has been step escalation of the expenses which the landlords have to incur without there being any corresponding increase in the rents. This has resulted, it was submitted, in the buildings not being repaired as the expenses involved made it uneconomical for the landlords to undertake this task.

As already noticed it had been contended by MR. <NAME> that realising the need being there for providing some relief to the landlords amendments amendments were made in the Bombay Rent Act in 1987. it was submitted that as a result of these amendments the landlords will be able to charge more rents and it cannot now be said that the Rent Control Act is not valid.

It is true that some amendments were made in 1987 which clearly indicate that <ORG> was conscious of the fact that there was a need to increase the standard rent. The question, however, is whether the exercise which was undertaken was merely cosmetic or did it bring about any tangible increase in the standard rent. section 4 (10)A was incorporated which provides that the provisions relating to standard rent would be inapplicable for a period of five years in respect of premises constructed or reconstructed after the appointed date, namely,. 1.10.1987. Once this 'holiday' comes to an end the tenant would be entitled to get the standard rent fixed. The amendment of 1987 does not do away with the principle of pegging down of the rent at a rate when the premises are first let out. Increase in the cost of maintenance or fall in the value of money or the rise in the cost of index does not entitle a landlord to any increase. There has been no other material change in the act in this behalf. What the Amending Act of 1987 has done is merely to consolidate and rearrange the sections of the earlier act. Provisions contained in the present Sections 9 , 10 and 10A were found earlier, prior to the amendment in 1987, in Sections 10 , 10A , 10AA , 10AAA , 10C , 10D , 10E , and 10G . The only change introduced in these sections was that the rate of return on the expenses incurred for additional amenities for heavy repairs has been increased. The following tabulated comparative statement of the relevant provisions before and after 1.10.1987 will bring out the effect of the alteration, if any.

Tabulated Cooperative Statement

After Amending Before Amending Act 1987 Act of 1987

------------------------------------------------------------ S.9 (1) increase in rent on Identical provision in S.9 account of structural which is there in the original alterations or improvement Act since 1948. made with Tenants' written consent.

S.9 (2) increase on account of Similar provision in S. 10D(1) special additions or additional which was introduced in 1953.

amenities.

S.9(3) increase on account of Similar provision in S. 10D(4) additions, improvements or which was introduced in 1953.

additional amenities.

f S.9 (3)(a)- Temporary increase Similar provision in S. 10E is rent in account of special introduced in 1964. or heavy repairs.

S.10- Increase in or fresh Similar provision in S.10 rate, cess, charge or tax (since inception of Act) S.10A paid to local authority. ( introduced in 1949), S.10AA ( introduced in 1953) S.10AAA (introduced in 1962).

S.10 increase in rent on S. 10G introduced in 1973 account of increase in ground permitted recovery of one rent paid to Govt. local third of increase. authority or statutory authority.

During the course of his arguments Mr. Mr. <NAME> filed a statement indicating the financial impact of the rent restriction provisions on the assumption that the monthly rent on 1.9.1940 was Rs. 100. This statement takes into account the permitted increases incorporated in the Act including that of 1987 from time to time. The submission was as follows:

Assumption: that monthly rent on 1.9.1940 was Rs. 100 (exclusive of Municipal taxes) This is an accurate approximate average of rents paid in September 1940 in respect of flats of large areas situated in good localities. 1(a) From September 1940 till 13.21948, when the Rent Act came into force, the landlord continued to retain Rs. 100/- since the burden of tenantable repairs was on the tenant under Section 108 (m) of the T.P. Act .

(b) After 13.2.1948 this burden has been transferred to the landlord ( section 23 ): From 1.10.1987 upto date, the tenant is permitted to carry out " tenantable repairs" and recover the entire cost with interest at 15% per annum by deducting an amount equivalent to 3 months rent in a year.

(c) Hence invariably the landlord gets 25 per cent less than Rs. 100/- (Rs. 1200/- per year reduced to Rs. 900/- per year) as "tenantable repairs" are necessarily recurring in old buildings, and the cost of tenantable repairs keeps rising.

2. From 1.1.1970 onward the landlord has had to bear continuously ten per cent of "rateable value" (equivalent to 8.5% of the yearly rent) as "repair cess" i.e. one month's rent in a year.

3. Thus in case of all buildings constructed prior to 1.1.1970- (date of levy of compulsory repair cess - they constitute majority of buildings in all urban areas the landlord retains only 8 months rent in hand every year as against 12 months rent he was getting in September 1940:-

(a)) this is without taking into consideration further inroads as a result of ground rent paid in respect of private leasehold lands where increase in ground rent is not permitted to be passed on effect of Section 10 )

(b) this is also without taking into 'account ever increasing outgoings and maintenance charges paid to co-operative Housing Societies by landlord members: not permitted to be passed on to tenants.

4. Meanwhile all this is further accentuated by the fall in the value of the rupee and rise in the wholesale price index which has totally eroded the amount receivable as rent in the hands of the landlord.

(A) taking base in 1940 at Rs. 100/- the value of the rupee in 1996 was only Rs. 1.5 in 1996 (B) in 1940 the wholesale price index was 13.2. This has risen to 876 by 1996 66 time (C) Value of one rupee silver coin of 1940, as on the 5th Dec. 1992 was Rs. 44/-

(D) Price of silver on 30.12.1939 was Rs. 52 per kg. It rose to Rs. 6945 per kg. On 31.12.1996, that is, by 130 times.

5. Thus if in 1940 the landlord was getting Rs. 1200/- per year as rent (exclusive of Municipal taxes in 1996 or 1997 he is getting Rs. 800 per year and in terms of value of rupee in 1940, this amount of Rs. 800 works out to only Rs. 12.12 (800/66)- against Rs. 1200 he was getting in 1940."

To put simply in a tabulated from the following is the comparative position of rent between 1940 and 1997 and the amount retained by the landlord Per Month

1940 1997

1) Rent per month inclusive of Municipal Taxes (Rs.) 100 170.09

2) Amount of Municipal Taxes to be paid by Owner (Rs.) 21.54 103.47

3) Amount of repair cess to be paid by Owner (Rs.) @ 10% of rateable value Nil 7.62

4) Amount retained by owner after payment of Municipal taxes & repair cess (Rs.) 78.46 64.00 N.B. No correction has been made for:-

1) The inflation/fall in purchasing value of the rupee which was about 66 times between 1940 & 1996 and the value of Rs. 100 in 1940 has come down to Rs. 1.5 in 1996.

2) Further in 1940 the tenants could not deduct any amount towards repairs but under Section 23 of the Rent Act in 1997 they can deduct 3 months Rent per year. The aforesaid illustration, which has not been seriously disputed, clearly brings out the arbitrariness of the standard rent provisions contained in the Bombay Rent Act. It is true that the aforesaid illustration has references to the monthly rent of Rs. 100 as on 1.9.1940 and does not relate to the premises which are let out after the Act had come in force. As far as Section 5 (10) is concerned the standard rent of the premises let out after 1.9.1940 is that rent at which the premises were fist let. Even so with the rapid increase in the expenses for repair and other outgoings and the decreasing net amount of rent which remains with the landlord, clearly shows that the non provision in the Act for reasonable increase in the rent, with the passage of time, is leading to arbitrary results. This is also demonstrated from the facts in the case of petitioner no.3 who owns Unit No. A-18 on the first floor admeasuring 808 sq. ft. in the property known as Shri Ram Industrial Estate situated at 13 J.D. Ambedkar Road, Mumbai. The said building belongs to a cooperative society and unit no.A-18 was given on lease and license basis b an agreement dated 23rd August, 1964 by the appellant to <ORG> on a monthly compensation of Rs. 686.80 per month. Liabilities of repairs is on the appellant and according to it this amount received in respect of the said unit by the appellant is Rs. 563 . 65 per month inclusive of all taxes. Out of this sum the appellant no. 3 has to pay Rs. 216.33 as municipal taxes leaving a balance of Rs. 320.22. From this amount the society outgoings is Rs. 250 per month, leaving a balance of only Rs. 70.20 per month with the said appellant. Another instance which has been given is that of appellant no.4 who owns a property known as Ram Mahal situated at 8, Dinshaw Vachha Road, Mumbai. The said building has 20 residential flats and the building was purchased by appellant no. 4 in the year 1955, although it had been constructed prior to 1940, Flat no. 15 on the 5th floor of the said building had been let out by the previous owners to <ORG> Bennet Coleman & Co. Ltd., who were the sitting tenants at the time when the property was purchased. The flat measures 1710 sq. ft. and monthly rent for the same is Rs. 460 per month inclusive of permitted increase and repairs. According to the appellant the income by way of rent has remained constant while the expenditure has been increased and the total gross rent of the building which he receives is Rs. 1,72,032 per annum while it incurs an annual expenses of Rs. 1,93,245 consisting of <ORG> taxes, repairs, ground rent, maintenance charges inclusive of small electricity bill and the insurance premium. He is, therefore, suffering a loss of Rs. 21,213 every year. It is not necessary to examine the correctness of these details except to note that what was reasonable on 1st September, 1940 or in 1950s or in 1960s can no longer be regarded as reasonable at this point of time.

That the tenants are, by and large, now getting an unwarranted benefit or windfall can also be illustrated by taking an example of hypothetical tenant, i.e., an Assistant in <ORG> posted at Bombay in the year 1948. At that time the pay scale of the Assistant was Rs. 160-10-300-15-450+20% H.R.A. + Rs. 15.50 C.C.A. On the basis that he was drawing the maximum of scale, his total monthly emoluments would be Rs. 485.50 and if he had in 1948 taken premises on rent at Rs. 100/- per month, he would be paying approximately 20% of his total emoluments by way of rent, without taking into consideration any deduction for repairs. That Assistant in 1997, after the report of 5th pay Commission, would get a maximum basic salary of Rs. 9000+ 30% H.R.A.+ Rs. 200 P.M. as CCA making the total emoluments of Rs. 11900/- P.M. After taking into consideration the 1987 increase in rent, he would be paying about Rs. 170 p.m. in respect of the same premises instead of Rs. 100/- which he was paying in 1948. This enhanced rent, would, however, represent only 0.9% of his salary. With the passage of time, the percentage of rent which would be paid by that hypothetical tenant would have gone down from 20% of his total salary to only 0.9% and this wold be the case of most of the tenants as we can take judicial notice of the fact that from 1948 till now, incomes have increased considerably, whereas the rent has increased only from Rs. 100/- p.m. to Rs. 170/- p.m. On the other hand, in the aforesaid example, the hardship to the landlord is that it was only in 1940 that he had agreed to accept rent of Rs. 100 p.m. That was the real income from rent which he had agreed to receive. Now with the increase in taxes etc., he gots only Rs. 54 p.m. whereas n 1940, he got Rs. 100 minus Rs. 21.54 (municipal tax ) i.e. Rs. 78.46. So not only is he getting lesser amount in hand but in terms of real value, after taking inflation into account, he is getting only a pittance. For Rs. 100 p.m. of gross rent which he was getting in 1940, he now in 1997 gets a gross rent of about Rs. 170 which in real money terms, after taking the inflation into account, will be only about Rs. 2/- P.M. of the 1940 value. Had the Rent Control Act not been in force the landlord today may have been able to get todays equivalent of Rs. 100 of 1940 as rent i.e. about Rs. 6650 p.m. It is true that one of the reasons for enacting the rent control legislation is to prevent exploitation of the tenants by the landlords. One of the protections which has been provided to the tenants in the rent legislation throughout the country is the concept of standard rent. Each State has definite laws with regard thereto. In some case, like in Delhi, the rent control act is not applicable if the rent is Rs. 3500/- or more while in the other states rent control act is not applicable to certain categories of persons. In the Bombay Rent Act, with which we are concerned, the standard rent as on 1st September, 190 or the first rent of the premises which was let out thereafter is the standard rent. The paging down of rent, coupled with the inability of the landlord to evict the tenants, has given rise to unlawful tendencies. In the statement of objects and reasons annexed to the L.A. Bill No. 79 of 1986 introduced in <ORG> providing for amendment to the Bombay Rent Control Act with regard to clause 3 it was, inter alia, stated as follows:

" The freezing of standard rent prevailing on the 1st September, 1940 has deprived the landlords of getting reasonable and adequate return to undertake maintenance and repairs to the old buildings. Despite the penal provisions in the Act for charging any premium from a tenant, such freezing of rent results in charging 'pugree" or deposit or similar illicit payment which are widely prevalent. The con-structio of new tenements on rental basis has considerably caused with the result that low and middle income groups are not getting premises on rent............... "

(emphasis added) Notwithstanding the fact that <ORG> was conscious of the illegal payments which are made because of the rent restriction law no effective steps have been taken so far to strike a balance between the interests of the landlords and the tenants.

It is true that whenever a special provision, like the rent control act, is made for a section of the <ORG> it may be at the cost of another section, but the making of such a provision or enactment may be necessary in the larger interest of the society as a whole but the benefit which is given initially if continued results in increasing injustice to one section of the society and an unwarranted largess or windfall to another, without appropriate corresponding relief, then the continuation of such a law which necessarily, or most likely, leads to increase in lawlessness and undermines the authority of the law can no longer be regarded as being reasonable. Its continuance becomes arbitrary.

The <ORG> itself, as already noticed hereinabove, has taken notice of the fact that puggrie system has become prevalent in Mumbai because of the rent restriction act. This Court was also asked to take judicial notice of the fact that in view of the unreasonably low rents which are being received by the landlords, recourse is being taken to other methods to seek redress. These methods, which are adopted are outside the fore corners of the Law and are slowly giving rise to a state of lawlessness where, it is feared, the courts may become irrelevant in deciding disputes between the landlords and tenants. This should be a cause of serious concern because if this extn judicial back- lash gathers momentum the main sufferers will be the tenants, for whose benefit the Rent Control Acts are framed.

In so far as social legislation, like the rent control act is concerned, the law must strike a balance between rival interests and it should try to be just to all. The law ought not to be unjust to one and give a disproportionate benefit or protection to another section of the society. When there is shortage of accommodation it is desirable, nay, necessary that some protection should be given to the tenants in order to ensure that they are no exploited. At the same item such a law has to be revised periodically so as to ensure that a disproportionately larger benefit them the one which was intended is not given to the tenants. It is not as if the government does not take remedial measures to try and offset the effects of inflation. In order to provide fair wage to the salaried employees the government provides for payment of dearness and other allowances from time to time. Surprisingly this principle is lost sight of while providing for increase in the standard rent-the increase made even in 1987 are not adequate, fair or just and the provisions continue to be arbitrary in todays context.

When enacting socially progressive legislation the need is greater to approach the problem from a holistic perspective and not to have a narrow or short sighted parochial approach. Giving a grater than due emphasis to a vocal section society results not marly in the miscarriage of justice but in the abdication of responsibility of the legislative authority. Social Legislation is treated with deference by the <ORG> not merely because the <ORG> represents the people but also because in representing them the entire spectrum of views is expected to be taken into account. The legislature is not shackled by the same constraints as the courts of law. But it's power is coupled with a responsibility. It is also the responsibility of the <ORG> to look at legislation from the alter of Article 14 of the Constitution. This article is intended, as is obvious from its words, to check this tendency; giving under performance some over others.

Taking all the facts and circumstances into consideration we have no doubt that the existing provisions of the Bombay Rent Act relating to the determination and fixation of the standard rent can no longer be considered to be reasonable. The said provisions would have been struck down as having now become unreasonable and arbitrary but we think it is not necessary to strike down the same in view of the fact that the present extended period of the Bombay Rent Act comes to an end on 31st march, 1998. The government's thinking reflected in various documents itself shows that the existing provisions have now become unreasonable and, therefore, require reconsideration. The new bill is under consideration and we leave it to the legislature to frame a just and fair law keeping in view the interests of all concerned and in particular the resolution of <ORG> of 1992 and the National Model law which has been circulated by <ORG> in 1992. We are not expressing any opinion on the provisions of the said Model law but as the same has been drafted and circulated amongst all the States after due deliberation and thought, there will, perhaps, have to be very good end compelling reasons in departing from the said Model Law. Mr. <NAME> assured us that this Model law will be taken into consideration in the framing of the proposed new Rent Control Act.

We, accordingly, dispose of these appeals without granting any immediate relief but we hold that the decision of <ORG> upholding validity of the impugned provisions relating to standard rent was not correct. We however refrain from striking down the said provision as the existing Act elapses on 31.31998 and we hope that new Rent Control Act will be enacted with effect from 1st April, 1998 keeping in view the observations made in this judgment in so far as fixation of standard rent is concerned. It is, however, made clear that any further extension of the existing provisions without bringing them in line with the views expressed in this judgment, would be invalid as being arbitrary and violative of Article 14 of the Constitution and therefore of no consequence. The respondents will pay the Costs.

In view of the aforesaid the writ petitions are disposed of


PETITIONER: <ORG> Vs. RESPONDENT: STATE OF KARNATAKA & ORS. DATE OF JUDGMENT15/12/1995 BENCH: <NAME>: MANOHAR SUJATA V. (J) VERMA, JAGDISH SARAN (J) RAMASWAMY, K. CITATION: 1996 AIR 911 JT 1995 (9) 449 1995 SCALE (7)262 ACT: HEADNOTE: JUDGMENT:

(With C.A. Nos. 4718-4727/89, W.P. (C) Nos. 666/90, 667/90, 693/90, 694/90, 910/90, 707/90, SLP(C) Nos. 13817-13828/93) J U D G M E N T Mrs. Sujata V. Manohar, J.

C.A. Nos. 4708-12, 4718-4727 of 1989 The Karnataka Excise Act, 1965 provides for the levy of duties on the manufacture, transport, purchase and sale, import and export of liquor and intoxicants. In exercise of the rule making power conferred on the State under the Karnataka Excise Act, 1965 various Rules have been framed by the State of Karnataka. We are concerned in these matters with the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968, the Karnataka Excise (Brewery) Rules, 1967, the Karnataka Excise (Distillery and Warehouse) Rules, 1967, and the Karnataka Excise (Manufacture of Wine from Grapes) Rules, 1968 as amended on 13-9-1989 by Notifications issued by the State of Karnataka.

By reason of the amendments carried out in these Rules, a distributor licence is prescribed for the first time under Rule 3(11) of the amended Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968. Under Rule 3(11) a distributor licence shall be granted by the Excise Commissioner for the whole of the State or any part thereof to deal in the products of all distilleries, breweries or wineries in the State or to import liquor from outside the State for the purpose of distribution or sale within the State or any part of it, as may be specified in the licence. The licensee is required to establish not less than one depot in each district within the State or within that part of the State where it proposes to distribute or sell such liquor. What is more important for our purpose, the rule provides that a distributor licence shall be issued only to such company owned or controlled by <ORG> as <ORG> may specify. The other rules mentioned above have also been correspondingly amended to provide that the licensees under those Rules shall sell the liquor only to a holder of a distributor licence under the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968, subject to certain exceptions specified in each of these Rules. In other words, as a result of these amendments, a licensee either for manufacture or sale of liquor is prohibited from selling liquor to anyone other than the holder of a distributor licence. And the holder of such a licence can only be a company owned or controlled by <ORG>, specified under the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968. <ORG> has specified <ORG> (hereinafter referred to as `<ORG>') as a company so specified and has granted it the distributor licence.

The appellants challenged the validity of these amendments on various grounds. The challenge was repelled by the Karnataka High court. Hence the present appeals and other matters have come before us. One of the main contentions raised by the appellants was : By compelling the appellants to sell liquor to <ORG> and prohibiting them from selling liquor to anyone else, <ORG> had violated their fundamental right under Article 19(1)(g) of the Constitution to carry on trade or business. They further contended that the restrictions placed by these amendments on their right to carry on trade were far from reasonable.

This issue relating to violation of the fundamental rights of the appellants under Article 19(1)(g) has already been negatived by this Court in the present cases in <CITATION> . (1995 (1) SCC 574). It has been held (paragraph 60) that the right to carry on any occupation, trade or business does not extend to carrying on trade or business in activities which are inherently pernicious or injurious to health, safety and welfare of the general public. This Court has further held that a citizen has no fundamental right to do trade or business in intoxicating liquor. Hence such trade or business in liquor can be completely prohibited. For the same reason, the <ORG> can create a monopoly either in itself or in the agency created by it, for the manufacture, possession, sale and distribution of liquor as a beverage and it can also sell licences to citizens for this purpose by charging fees. When the <ORG> permits trade or business in potable liquor with or without limitation, the citizen has the right to carry on trade or business only subject to the limitations so placed. After thus deciding the above question, the appeals, special leave petitions and writ petitions were directed to be placed before an appropriate Bench for decision of other questions arising in these matters.

Accordingly, these matters have been placed before us. The appellants contend that the Rules as amended in 1989 are ultra vires because they go beyond the scope of the delegated authority given to the <ORG> to formulate Rules. The appellants have contended that there is no legislative policy prescribed by the Karnataka Excise Act of 1965 for a distributor licence. Hence the Rules prescribing a distributor licence have travelled beyond the scope of the main Act and are beyond the ambit of the delegated authority.

In order to evaluate this contention, it is necessary to look at the scheme of the Karnataka Excise Act, 1965. The Preamble to the Karnataka Excise Act, 1965 states, "Whereas it is expedient to provide for a uniform law relating to the production, manufacture, possession, import, export, transport, purchase and sale of liquor and intoxicating drugs and the levy of duties of excise thereon in the State of Karnataka", the Karnataka Excise Act has been enacted. The Preamble has a clear reference to Entry 8, List II of the Seventh Schedule to the Constitution which empowers the States to legislate in connection with "intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors." Chapter IV of the Act deals with manufacture, possession and sale of intoxicating liquors. Section 13 which forms a part of Chapter IV prohibits manufacture, possession or sale of the excisable article in question except under a licence. It provides :

"13(1) : No person shall -

(a).......................

(b).......................

(c).......................

(d) construct or work a distillery or brewery; or

(e) bottle liquor for sale;

(f).........................., except under the authority and subject to the terms and conditions of a licence granted by the Deputy Commissioner in that behalf or under the provisions of Section 18."

Section 15(1) provides that no intoxicant shall be sold except under the authority and subject to the terms and conditions of a licence granted in that behalf. Both these sections, therefore, provide for issuing a licence for the manufacture, possession, purchase or sale of liquor. In fact such activity is prohibited without a licence. The terms and conditions of the licence may be such as may be prescribed. Section 17 deals with the power to grant a lease of the right to manufacture etc. Sub-section (1) of Section 17 provides as follows :

"17(1) : The State Government may lease to any person, on such conditions and for such period as it may think fit, the exclusive or other right -

(a) of manufacturing or supplying by wholesale or of both or,

(b) of selling by whole sale or by retail, or

(c) of manufacturing or supplying by wholesale, or of both and of selling by retail, any Indian liquor or intoxicating drug within any specified area." Section 71 provides as follows :

"71(1) : The State Government may, by notification and after previous publication, make Rules to carry out the purposes of this Act.

(2) In particular and without prejudice to the generality of the foregoing provision, the State Government may make Rules -

(a)...........

(b) omitted

(c)...........

(d) regulating the import, export, transport, manufacture, cultivation, collection, possession, supply or storage of any intoxicant............

(e) regulating the periods and localities in which, and the persons or classes of persons to whom, licences for the wholesale or retail sale of any intoxicant may be granted and regulating the number of such licences which may be granted in any local area ;

(f)...........

(g)...........

(h) prescribing the authority by which, the form in which and the terms and conditions on and subject to which any licence or permit shall be granted, and may, be such Rules, among other matters,

(i) fix the period for which any licence or permit shall continue in force;

(ii) to (vi)...................

(i) to (m).....................

(n) any other matter that may be prescribed under this Act.

Sub-section (3) of Section 71 provides that every rule made under this Act shall have effect as if enacted in this Act subject to such modifications as may be made under sub- section (4). Sub-section (4) requires every rule to be laid as soon as may be before <ORG> for total period of 30 days in the manner prescribed there. Section 71, therefore, clearly contemplates Rules being made prescribing different kinds of licences which may regulate the activity of manufacture and sale of intoxicants and the terms and conditions subject to which such licences may be issued. It also contemplates regulation of the number of such licences. The Act does not specify the kinds of licences which may be issued. This is left to the rule making authority. Thus different kinds of licences are specified under the Karnataka Excise (sale of Indian and Foreign Liquors) Rules, 1968. Rule 3 of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968 deals with licences for the vend of Indian liquor (other than <ORG>) or Foreign liquor or both. It deals with licences of all types. Sub-rule (1) deals with wholesale licences for vend of Indian liquor or Foreign liquor or both. Sub-rule (2) deals with retail of shop licence for vend of Indian liquor or Foreign liquor or both. Sub-rule (4) deals with licences to clubs. Sub-rule (5) deals with occasional licences. Sub- rule (5) deals with occasional licences. Sub-rule (6) deals with special licences. Sub-rule (7) deals with hotel and boarding house licences and so on. Sub-rule (11) which is introduced by the amendment deals with distributor licences. All kinds of licences, therefore, which regulate the activity of manufacture, distribution and sale of liquor are covered by Rule 3 of the Karnataka Excise (Sale of Indian and Foreign Liquors) Rules, 1968.

Is a distributor licence something different from or alien to the licences contemplated under the Act and prescribed under the above Rule 3? We do not think so. A distributor licence is basically no different from the licences so prescribed. In fact the licences cover the whole gamut of activities from manufacture to consumption of liquor. Clause (11) of the amended Rule 3 of the Karnataka <ORG> (Sale of Indian and Foreign Liquors) Rules, 1968 which prescribes a distributor licence refers to it as a licence to deal in the products of all distilleries or breweries or wineries in the State, or a licence to import liquor from outside the State for the purpose of distribution or sale within the State; or to export liquor outside the State. This is clearly a licence to deal in liquor in the above manner. The licence shall be in Form CL 11 and shall be subject to renewal each year at the discretion of the <ORG> Commissioner. The Form CL 11 prescribes the conditions of a distributor licence. Conditions 2, 3 and 6 are :

"(2) The licensee may purchase the liquor only from distilleries/breweries/wineries located within Karnataka or import from outside the State.

(3) The licensee shall sell the liquor only to a person who is holding CL 1 licence in the State or export liquor to a person outside the State, who is holding a valid licence to deal in liquor.

(6) The licensee shall sell only the approved brands of liquor."

A distributor licence, therefore, is only a licence to deal in liquor by sale and purchase of liquor. This activity is not something different from what is contemplated under the Act itself or in respect of which the rule-making authority has been delegated to the <ORG> under Section 71. The mere fact that a monopoly of distributor licence is sought to be created, does not take the licence outside the ambit of the Act. The Act itself provides that the number of licences can be regulated by the <ORG>. If the <ORG> chooses to regulate licences by providing that the licence shall be granted only to a company owned by the <ORG>, it cannot be said that such a licence is something which is outside the purview of the Act or the rule-making authority of the <ORG> under the Act.

The appellants also contend that the amended Rules are beyond the legislative competence of the <ORG>. This argument must be rejected. The Act is clearly within the legislative competence of the <ORG> Legislature. Nobody has challenged it. The amended Rules are within the scope of the delegated authority under Section 71. If the main Act is within the legislative competence of the <ORG> Legislature and the Rules have been framed under a validly delegated authority and are within the scope of that authority, we fail to see how the Rules can be challenged on the ground of lack of legislative competence. If the Act is valid, so are the Rules.

It is next submitted before us that the amended Rules are arbitrary, unreasonable and cause undue hardship and, therefore, violate Article 14 of the Constitution. Although the protection of Article 19(1)(9) may not be available to the appellants, the rules must, undoubtedly, satisfy the test of Article 14 , which is a guarantee against arbitrary action. However, one must bear in mind that what is being challenged here under Article 14 is not executive action but delegated legislation. The tests of arbitrary action which apply to executive actions do not necessarily apply to delegated legislation. In order that delegated legislation can be struck down, such legislation must be manifestly arbitrary; a law which could not be reasonably expected to emanate from an authority delegated with the law-making power. In the case of <CITATION> . (1985 (2) SCR 287 at p.243) this <ORG> said that a piece of subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute passed by a competent legislature. A subordinate legislation may be questioned under Article 14 on the ground that it is unreasonable; "unreasonable not in the sense of not being reasonable, but in the sense that it is manifestly arbitrary". Drawing a comparison between the law in England and in India, the <ORG> further observed that in England the Judges would say, "Parliament never intended the authority to make such Rules; they are unreasonable and ultra vires". In India, arbitrariness is not a separate ground since it will come within the embargo of Article 14 of the Constitution. But subordinate legislation must be so arbitrary that it could not be said to be in conformity with the statute or that it offends Article 14 of the Constitution.

In this connection, we would also like to refer to a decision of this <ORG> in the <CITATION> . (1987 (1) SCR 1 at p.53). This <ORG> has held that though there is no fundamental right in a citizen to carry on trade or business in liquor; and the <ORG> under its regulatory power has the power to prohibit absolutely every form of activity in relation to intoxicants such as its manufacture, storage, export, import, sale and possession; nevertheless when the <ORG> decides to grant such right or privilege to others, the <ORG> cannot escape the rigor of Article 14. The <ORG>, however, observed, "But while considering the applicability of Article 14 in such a case we must bear in mind that having regard to the nature of the trade or business the <ORG> would be slow to interfere with the policy laid down by the <ORG> Government for grant of licences for manufacture and sale of liquor. The <ORG> would, in view of the inherently pernicious nature of the commodity allow a large measure of latitude to the <ORG> Government in determining its policy of regulating manufacture and trade in liquor. Moreover, the grant of licences for manufacture and sale of liquor would essentially be a matter of economic policy where the <ORG> would hesitate to intervene and strike down what the <ORG> Government has done unless it appears to be plainly arbitrary, irrational or mala fide."

In the present case, therefore, we must examine whether there is any manifest arbitrariness in prescribing a distributor licence which can be granted only to a company owned by the <ORG>; and in compelling the appellants to sell their product to the distributor. The appellants have pointed out that the amendments must be considered as arbitrary because they cause undue hardship to all those who are concerned with the manufacture and sale of liquor. They point out that although the manufacturers are obliged to sell their commodity to the <ORG>, there is no corresponding obligation cast on the <ORG> to buy the liquor manufactured by the manufacturers in the <ORG> of Karnataka. In the absence of such an obligation on the <ORG> to buy the liquor, it can well happen that <ORG> may act arbitrarily or capriciously and may purchase or not purchase liquor from the manufacturers at its own sweet-will. This would seriously affect the business of all those engaged in the manufacture and sale of liquor. This apprehension does not appear to be justified. In the <ORG>ment of Objections on behalf of the <ORG> Excise Commissioner which were filed before <ORG>, the respondents have explained in paragraph 16 that it is not correct to state that the <ORG> company is at liberty to purchase or not to purchase the liquor produced by the petitioners. It is bound to purchase the liquor if there is demand from the wholesalers. Even otherwise it has been submitted that proper guidelines will be issued to the <ORG> company in this behalf. The <ORG> company is expected to act bona fide and with responsibility and it is not correct to contend that the <ORG> agency will be interested only in a particular manufacturer. This submission has considerable force. What is more important, during the period that these appeals were pending before us, <ORG> has not merely established several depots but has carried on distribution of liquor in the <ORG> of Karnataka on a large scale. Learned counsel appearing for the respondents have stated before us that <ORG> receives orders for supply from various purchasers. These orders specify the brand of liquor and the company from which the supplies are required. Accordingly <ORG> places orders with the concerned companies for the brands of liquor which are demanded by their purchasers. It is on the basis of these demand requisitions received by <ORG> that <ORG> places orders. There is, therefore, no question of any hardship being caused to the appellants by reason of the fact that their sales have to be channelled through an intermediary. Depending upon the orders received by the <ORG>, it in turn, places orders with the suppliers or manufacturers concerned. The business activity of the appellants cannot, therefore, be said to be curtailed in any manner. Nor can there be any hardship on the appellants. Once the Rules oblige the manufacturers to supply their product only to the company holding the distributor licence, a corresponding duty is cast on the distributor to place orders with the suppliers concerned whenever demand for a particular product is received by it.

Looking to the channelizing role of <ORG>, the fear of discrimination between different suppliers expressed by the appellants does not appear to be justified. In the case of <CITATION> . (1975 1 SCR 1 at 23) this Court has observed that it is not every fancied possibility of discrimination but the real risk of discrimination that we must take into account. The same view was reiterated in <CITATION> (1980 (2) SCR 1015 at 1021-22). Also, if there is discrimination in actual practice, this Court is not powerless.

The second ground of hardship which is pointed out relates to excise duty. Under the Karnataka Excise (Excise Duties and Privileges Fee) Rules, 1968 a rebate in excise duty is given in respect of liquor which is either exported outside India or is exported to another <ORG> within India. This makes the liquor sold outside the <ORG> or exported considerably cheaper since it bears less incidence of excise duty. Under the present scheme, however, all these sales are converted into local sales because the sale must be made to <ORG> who, in turn, will either export it, if it has received an export order, or will export it to a place within India but outside the <ORG>. In both these cases, since the first sale will be within the <ORG> to <ORG>, a substantial rebate in excise will be lost and the goods manufactured by the appellants will become far more expensive and therefore will become much less competitive in the outside market. There is a similar provision relating to rebate in sales-tax which also the appellants will lose. There is no doubt that this will cause some hardship to the appellants. The fact, however, remains that nay concession which is granted by the <ORG> for export sales or inter-state sales is a matter of policy. Granting of such concession or absence of such concession cannot make the rule itself manifestly arbitrary or unreasonable. If the appellants are aggrieved by the existing Rules or would like a similar concession to be extended to sales which are to be made to <ORG> in respect of export orders or orders for supply outside the <ORG> received by it, it is open to them to make a suitable representation to the <ORG> Government. The absence of availability of such a concession, however, cannot make the Rules arbitrary or violative of Article 14. All manufacturers and suppliers within the <ORG> of Karnataka are governed by the same Rules and will, therefore, have to pay the same taxes. All persons who are similarly situated are similarly affected by the amended Rules. There is, therefore, no discrimination under Article 14 in its traditional sense.

The appellants have placed reliance upon the observations of this Court in <CITATION> . (1991 Suppl. (2) SCC 313 at p.220) to the effect that there is no fundamental right in a citizen to carry on trade or business in liquor. However, when the <ORG> has decided to part with such right or privilege to others, then the <ORG> can regulate the business consistent with the principles of equality enshrined under Article 14 and any infraction in this behalf at its pleasure is arbitrary as violating Article 14. Therefore, the exclusive right or privilege of manufacture, storage, sale, import and export of liquor through any agency other than the <ORG> would be subject to the rigorous of Article 14. We respectfully agree with these observation. In the present case, however, there is no violation of Article 143 It was also submitted before us that the Rules must be considered manifestly arbitrary because the avowed purpose of formulating the amended Rules is to stop evasion of excise. In the counter statement filed by <ORG> it has set out the object of the amendment. The affidavit states. "The impugned Rules have been made with the sole object of preventing leakage of excise revenue and, therefore, they are reasonable restrictions within the meaning of Article 19(6)." It is submitted before us that such evasion could have been checked by other means which would have been more beneficial to or less hard on the appellants. How such evasion is to be checked, however, is a matter of policy. So long as the policy as formulated in the amended Rules is not manifestly arbitrary or wholly unreasonable, it cannot be considered as violative of Article 14. There is, in the present case, no self evident disproportionality between the object to be achieved and the Rules which have been frames.

It was lastly submitted that <ORG> ought not to have been nominated for a distributor licence because it is not competent to discharge its obligations and does not have the necessary infrastructure. This plea was raised before <ORG> at a time when <ORG> had not started functioning. It is now a fully functional authority. <ORG> has stated that it has a large number of depots in various districts of the State and is already handling very substantial business. This plea, therefore, merits no further consideration. In any event, some problems with the discharge of its duties by <ORG> will not render the amended Rules providing for a distributor licence arbitrary or violative of Article 14.

In the premises, these appeals have no merit and they are dismissed with costs. Under the interim orders, the appellants are liable to pay compensation to <ORG> if they lose in the appeals. This is in view of the commission which is prescribed under the Rules which is to be paid to <ORG>. The appellants were also directed to keep separate accounts of their dealings and supply a copy of the same, inter alia, to <ORG>. Some of the appellants have accordingly supplied statements of account to <ORG>. Those who have not supplied such statements are directed to supply the same to <ORG> within eight weeks from today. The appellants are directed to pay to <ORG> the requisite commission amount on the basis of the dealings conducted by them within twelve weeks from today.

W.P. Nos. 666, 667 693, 694, 707 & 910 of 1990 For the same reasons, the writ petitions are also dismissed with the above directions.

S.L.P. (C) Nos. 13817-13828/1993 These petitions are for leave to appeal from a judgment of <ORG> upholding the validity of the amendments made to sub-rule (2) of Rule 4 and sub-rule (2) of Rule 11 of the Andhra Pradesh (Foreign Liquor and Indian Liquor) Rules, 1970 as also sub-rule (12) of Rule 66 of the Andhra Pradesh Distillery Rules, 1970 and Rule 34 (2) of the Andhra Pradesh Brewery Rules, 1970. These rules have been framed under the Andhra Pradesh Excise Act of 1968 in exercise of powers conferred by Section 72 of the Andhra Pradesh Excise Act of 1968. They were amended by G.O.M.S. No. 187 Revenue (Excise III(2) dated 18.3.1991. These amendments were challenged before <ORG> on the ground that they violated the petitioners' rights under Articles 14 and 19(1)(g) of the Constitution of India. These challenges have been negatived by <ORG> except for the retrospective operation of the amended Rules. The present petitions are for leave to appeal from this judgment and order of <ORG>. As a result of these amendments, the fee for the approval of any one variety of labels to be affixed on bottles of liquor is either enhanced from Rs. 100/- to Rs. 25000/- or fee of Rs.25000/- for approval of lables is introduced for the first time. The approval has to be obtained every year. These amendments were challenged as violative of Articles 14 and 19(1)(g) of the Constitution.

As common questions of law arise, these petitions have been heard along with the petitions and appeals challenging amendments to various Rules under the Karnataka Excise Act. On the question of violation of Article 19(1)(g) of the Constitution this Court has already held in these very matters ( <CITATION> . (supra) that the amended Rules do not violate Article 19(1)(g) of the Constitution. The only challenge, therefore, which survives is the challenge under Article 14. The petitioners contend that the approval fee for labels has been suddenly enhanced from Rs.100/- to Rs.25000/- by virtue of the amendments. In some cases such a fee has been introduced for the first time. These amendments are highly arbitrary and, therefore, violate Article 14 of the constitution. It is also contended that the Andhra Pradesh Excise Act, 1968 does not contemplate any fee of this kind.

Now, Section 21(3) of the Andhra Pradesh Excise Act provides that different rates may be specified for different kinds of excisable articles and different modes of levying duties under Section 22 may be prescribed. Section 22 prescribes different modes of levying excise duty and countervailing duty under Section 21. Sub-clause (d) of Section 22 provides for imposition of fees or requirement of licences for manufacture, supply or sale of any excisable article. Section 72 deals with the power to make rules. Under Section 72(2)(g) and Section 72(h)(ii) it is provided as follows :-

"72(2) : In particular and without prejudice to the generality of the foregoing provision, the Government may make rules -

(g) regulating the time, place and manner of payment of any duty or fee and the taking of security for the due payment of any duty or fee ;

(h): prescribing the authority by which, the form in which and the terms and conditions on and subject to which any licence or permit shall be granted or issued and may, by rules, among other matters -

(ii): prescribe the scale of fees, or the manner of fixing the fees payable in respect of any lease, licence or permit, or the storing of any excisable article."

Thus <ORG> is authorized to levy fees for various kinds of permits or licences which may be required for activities connected with the manufacture, supply or sale of liquor. Labelling of liquor bottles with brand lables is an essential activity connected with the sale and distribution of different varieties of liquor manufactured in the State by different manufacturers or imported into or exported outside the State. Different varieties of liquor produced by various manufacturers are thus identified for purchase of sale. It is, therefore, permissible for <ORG> under the Andhra Pradesh Excise Act, 1968 to levy fees for approval of different varieties of labels to be affixed to liquor bottles for the purpose of distribution and sale of liquor. The amendments are within the rule-making power of <ORG>. In fact prior to these amendments, a fee of Rs.100/- was being charged for approval of lables. It is nobody's case that the fee was beyond the rule-making power under Section 72 of the Act.

It is also contended that the fee of Rs.25000/- for the approval of any one variety of labels is exorbitant and totally disproportionate to the work involved. Therefore, such levy violates Article 14. But in this connection, it is necessary to bear in mind that the <ORG> under its regulatory powers has the right even to prohibit absolutely every form of activity in relation to intoxicants, its manufacturers, storage, export, import sale or possession. In all these respects the right to regulate these activities or to carry on these activities vests in the state. When, therefore, such rights are parted with, it is open to the <ORG> to part with such rights for a consideration. The fee for approval of labels is an aspect of the right to sell or distribute liquor which right the <ORG> Government has parted with for consideration in the form of a fee. The increase in the fee from Rs.100/- to Rs.25000/- may appear, at first glance, to be exorbitant. But it constitutes an extremely small percentage of the total turn-over of various products to which these labels are affixed. The fee for approval can not, therefore, be considered as exorbitant or its imposition wholly arbitrary. It is not the case of the petitioners that their trade in liquor is seriously affected by the levy of this increased fee. In the case of <CITATION> . (1975 (3) SCR 254 at 278) this Court upheld the right of the <ORG> to prohibit absolutely all forms of activities in relation to intoxicants. It said that the wider right to prohibit absolutely would include the narrower right to permit dealing in intoxicants on such terms of general application as the <ORG> deems expedient. The Court said that the Government has the power to charge a price for parting with its rights. It also further observed that the licence fee which the <ORG> Government charged to the licensee through the medium of auctions or the fixed fee which was charged to the vendors of foreign liquor holding licences need bear no quid pro quo to the services rendered to the licences. The word `fee' in this context is not used in the technical sense of the expression. By `licence fee' or `fixed fee' is meant the price or consideration which the Government charges to the licensees for parting with its privileges and granting them to the licensees. As the <ORG> can carry on a trade or business, such a charge is the normal incidence of a trading or business transaction. The contention, therefore, of the petitioners that there is no quid pro qua between the increased label fee and the services rendered also has no merit. It is based upon a misconception of the nature of the levy.

In the premises, we agree with the reasoning and conclusions arrived at by <ORG>. These special leave petitions are, therefore, dismissed with costs.