1. ' This first rent appeal raises a short but an important question as to whether a tenancy agreement, which provides an increase of rent after lapse of a particular period, is illegal and therefore cannot be enforced before the Controller.
2. ' The facts leading to the filiing of the above appeal are that the respondent is owner and landlady of premises being No. BF-2 Building No.1-B, Seavicw Township, Defence Officers Housing Authority, Karachi and let out to the appellant vide Tenancy agreement dated 22-9-1986. The respondent had filed an eviction application under Section 17 of the Cantonments Rent Restriction Act, 1963 (hereinafter referred to as the Act) against the appellant on the grounds of (1) illegally subletting the premises in question without the knowledge and permission of the respondent, (2) did not vacate the premises after expiry of the tenancy agreement, (3) has committed default in payment of rent since 1-9-1987, and (4) the respondent required the premises for her personal bona fide use.
3. The appellant resisted the eviction application. The appellant pleaded that the eviction application was without cause of action.
4. ' During the pendency of the eviction application, the Controller passed tentative rent order on 3-5- 1989 whereby directing the appellant to deposit the rent for the period from September, 1987 till disposal of the case at the rate of Rs.3,600. The appellant was further directed to deposit water and conservancy charges at the rate of Rs.90 per month with effect from 1-9-1987 till the disposal of the case. It is advantageous to reproduce the operative part of the above order which reads as follows:- "Since the opponent has been depositing the rent at the rate of Rs.3,000 per month in Misc.
5. Application No.56/88 the same may now be transferred deposited in the present Application No.14/89 together with the balance amount of Rs.11,400 a Rs.600 per month for the period from September 1987 till March 1989 in Case No. 114/89 by the 15th May, 1989."
6. ' The appellant did not comply with the above order. The respondent filed an application under section 17(a) of the Act praying to strike off the defence of the Appellant.
7. ' The Controller allowed the application and struck off the defence of the appellant and directed them to hand over vacant possession of the premises within 45 days from the date of order dated 29-8-1989.
8. ' Against the aforesaid order dated 29-8-1989 of the Additional Controller of Rents, Clifton Cantonment, this appeal has been preferred by the appellant under Section 24 of the Act.
9. ' It is contended by Mr. Rashid A. Rizvi, learned Advocate for the appellant/opponent that the learned Additional Controller has erred in holding that the agreed rent of Rs.3,600 per month after the 31st August 1987 is illegal. He draws my attention to section 10 of the Act.
10. ' On the other hand Mr. Raja Shamsuzzaman, learned counsel for the respondent submitted that there is only one agreement where two different rates of rent for different periods are mentioned.
11. His submission is that the rate of rent of the premises at Rs.3,600 per month is not hit by the provisions of section 10 of the Act.
12. ' In order to appreciation the contentions of the learned counsel for the parties, it is necessary to reproduce clause 3 of the Tenancy agreement dated 22-9-1986 and section 10 of the Act which read as follows:-- "3. The lease shall be for a period of 11 months commencing 1st October, 1986 and expiring on 31st August, 1987. The lease may be extended on mutually agreed terms and conditions. In case the lessor does not extend the lease, the lessee undertakes to immediately vacate the said apartment peacefully and in good tenantable condition on the expiry of this lease agreement. In case of failure to do so, the lessee shall pay rent at the rate of Rs.3,600 (Rupees three thousand and six hundred only) per month which shall increase by 20% per year each further year of default to vacate the premises.
10. Fine or premium not to be charged for grant, renewal or continuance of tenancy. No landlord shall, in consideration of the grant, renewal or continuance of a tenancy of any building, require the payment of any fine, premium or any other like sum in addition to the rent."
13. ' Section 7 of the Act provides for fixation of the fair rent by the Controller. Section 8 provides that the landlord shall not claim or receive any premium or other like sum in addition to fair rent or any rent in excess of such fair rent.
14. ' Section 10 of the Act provides that no landlord shall, in consideration of the grant, renewal or continuance of a tenancy of any building require the payment of any fine, premium or any other like sum in addition to the rent. In my judgment, Section 10 of the Act cannot be made applicable to this case. According to section 10 of the Act, where the fair rent of the building or premises has not been determined, the landlord has been prohibited from claiming, receiving or charging for grant, renewal or continuance of tenancy for the payment of any fine, premium or any other like sum in addition to the rent.
15. Section 10 clearly applies only to any fine, premium or other like sum in addition to the rent and not to the increase in the rent to which section 10 is applicable. The words "in addition to the rent" occurring in section 10 clearly negate the contention that the provision is applicable to the case where rent has been enhanced. The word "rent" used in section 9, therefore would only mean the rent as agreed to by the parties. I am of the humble view that the freedom of contract has not been completely taken away by section 10. What section 9 stipulates is that in case a fair rent is fixed, the landlord will not be permitted to charge increased rent except as provided by in the Act and in case the landlord enters into an agreement with the tenant to get an increased rent over and above the fixed rent, it follows that such a contract is not enforceable. But as long as the fair rent is not fixed, the parties are likely to enter into a contract. When it is contended that after 31-8- 1987, in case the lessor does not extend the lease, the lessee undertakes to immediately vacate the said apartment peacefully and in good tenantable condition on the expiry of the tenancy agreement. In case of failure to do so, the tenant shall pay at the rate of Rs.3,600 per month which shall increase by 20% per year for each further year of default to vacate the premises. The increase in rent would not violate in any manner the provisions of section 10. I fail to understand how a different consideration can apply to a case where originally the parties entered into a contract fixing Rs.3,000 as rent per month for the period 1-10-1986 to 31-8-1987 and in case the tenant chose to continue he would pay at the rat of Rs.3,600 per month. In either case, it is an agreed rent within the meaning of section 10 of the Act. What is contended by Mr.Rizvi is that the agreed rent is Rs.3,000. And it is increased after 31-8-1987 by 20% per year, it is hit by the provisions of section 10. I am unable to agree with his contertion. Section 10 is not applicable to a case of increase in rent under an agreement on two grounds. Firstly the word "rent" may mean the rent fixed by a single indivisible contract covering two different periods by two different contracts entered into one after the original period (1-10-1986 to 31-8-1987) was over. Secondly, section 10 relates only to the stipulation of a fine, premium or other like sum and does not concern itself with the payment of an increased rent. It would therefore be not correct to apply the provisions of section 10 to the facts of the case.
16. As there is no prohibition for the increase of rent by a contract between the parties in case where fair rent is not fixed, it cannot be said that the contract incorporated in tenancy agreement violated in any manner the provisions of section 10. The contract therefore is not illegal and void. The Controller, in my opinion, was correct in directing the appellant to deposit rent at the rate of Rs.3,600.
17. ' Mr. Rizvi contended that the enhancement of rent at 20% per year is by way of penalty and the respondent is not entitled to get the same.
18. ' Section 74 of the Contract Act no doubt deals with two types of damages which the parties to a contract may agree beforehand as payable in the event of breach. Such a sum may fall under one of the two heads mentioned in section 74. Firstly, it may be a genuine pre-estimate of the loss that will be caused to one party if the contract is broken by the other. Such a pre-estimated amount is called liquidated damages. Secondly, it may be, in the nature of threat held over the other party in terrorism, a security to the promises that the contract will be performed. A sum of this nature is called a penalty and it has been always been subject to equitable considerations.
19. ' In the present case, it cannot be said that the provision of the enhanced rent for the period after 31-8-1987 is in terrorem to the promiser. What the promiser had agreed in this case is to pay rent at the rate of Rs.3,000 per month upto 31-8-1987. The tenancy may be renewed on mutually agreed terms and conditions. Then the appellants had an option either to continue or to vacate the premises. In case they chose to continue, they agreed to pay rent at the rate of Rs.3,600 per month which shall increase by 20% per year for each further year of default to vacate the premises. This stipulation in my judgment cannot be called a penalty in view of the law of penalty as discussed above. I am supported in this conclusion of mine by the two cases namely Kuman Das and another v. Radhika Singh and another reported in AIR 1929 Patna 717 and Madan Mohan Garg v. Bohra Ram Lal reported in AIR 1934 Allahabad 115.
20. ' A Division Bench of Patna High Court in the above-referred Kuman Das case observed as under:- "that the 'clause for the payment of the enhanced rent is not penal because apparently it was not introduced into the lease to compel the performance of an act stipulated in the contract but was merely an option given to the lessee which he may accept or reject as he chooses, and as was pointed out by Jwala Prasad, J, a stipulation to pay a higher rent for what is in effect giving to the defendant the valuable right of occupancy in the land is neither penal nor an unreasonable one."
21. ' To the same effect were made observations by Allahabad High Court in the above-referred Madan Mohan Garg case.
22. ' In Muhammad Younus Malik v.Mst.Zahida Irshad 1980 SCM R 184 it was observed that the provisions of section 13(2)(i) of the repealed Ordinance expressly recognise agreement of tenancy, if any, between tenant and landlord.
23. ' In Mrs. Zarina Khawaja v. Agha Mahboob Shah PLD 1988 SC 190 the Hon'ble Supreme Court observed as follows:- "ONE: notwithstanding the enactment of the rent laws the relationship of landlord and tenant would continue to be determined and regulated in accordance with :-
(a) the general law, and
(b) the terms of tenancy between the parties.
24. ' But subject to a very very important condition that in case of repugnancy of either of these two elements to any of the provisions of the rent law the latter shall prevail, meaning thereby that the provisions of the general law and or the covenants in the agreement to the contrary, shall have no effect.
25. ' TWO; during the continuance and subsistence of the agreement of tenancy, the question of relationship of landlord and tenant, the regulation of that relationship particularly vis-a-vis the determination and payment of rent; as also the evictions shall be governed by the covenants contained in the agreement; provided that 'those convenants do not come in conflict with the provisions of the rent law and in case of conflict the provisions of that law will prevail notwithstanding any term of agreement to the contrary; ' THREE; after the expiry of the agreement of tenancy the general law of holding over by the tenant has not been repealed or modified by the rent laws except to the extent that it comes in conflict with the provisions of the Rent Restriction law. On the contrary, it was specifically provided in the definition of a `tenant' in section 2 of the West Pakistan Urban Rent Restriction Ordinance, 1959, that tenant would include "a tenant continuing in possession after the termination of the tenancy in his favour?' The definition of tenant in the present Sindh Law also provides that tenant would include "any person who continues to be in possession or occupation of the premises after the termination of his tenancy". Not only this, the present Sindh Law made it more clear when the provisions contained in sections 6 and 15(2)(i) of the Sindh Rented Premises Ordinance. 1979, providing that no tenancy would remain valid beyond the mutually agreed period and that a tenant would be liable to be evicted on termination of such period, were repealed. The obvious reason was that the pre-existing law before the re-enactment was kept intact, namely, that the previous tenancy arrangements between the parties will continue to operate notwithstanding the termination of the period and will govern the continuance of tenancy as visualised in the definition of the tenant holding over However, notwithstanding the continued operation of the terms of the agreement after the termination of the agreement; by process of law as aforesaid, its provisions whenever they are in conflict with the rent law, shall not be operative. For example, if a special method of eviction of the tenant is provided in the terms of the agreement which are repugnant to the provision contained in the relevant Rent Restriction law, the latter shall prevail to the extent of repugnancy. Section 15 of the Sindh Law is explicit on this point. Same was the position in the repealed law. Similar would be the case relating to some other situations, for example, the determination of the fair rent. Similarly the vice versa position would also be correct. The terms of the so-called expired agreement which are not repugnant to the rent law shall continue to operate.
26. For example, the rate of rent, the mode of payment thereof including its advance payment or deposit, provision for agreed increase in rent provided it is not after the determination of fair rent, provision for re-entry of a tenant after he vacates the premises for reconstruction, all covenants which support the conditions in section 15 of the Sindh Law and section 13 of the law repealed by it, and similar other conditions and covenants. There is useful discussion on this aspect in the case of Muhammad Younus Malik v. Mst. Zahida Irshad 1980 SCM R 184. We accordingly answer the 4th question in the negative and hold that the terms of an expired agreement as such, continue in operation, to the extent they are not repugnant to the. Rent law. Indeed same would be the position with an unexpired agreement also."
27. ' The dictum laid down in the above cases is applicable to the facts of the instant case. I hold that the terms of an expired agreement continue in operation to the extent they are not repugnant to the law. I have already held that the terms of clause 3 of the tenancy agreement are not repugnant to the provisions of section 10 of the Act.
28. ' In these circumstances, I think the eviction order could not be successfully assailed. In the result, the appeal is dismissed. However, I allow the appellant to vacate the premises in question on or before 31-7-199th In case the default is made, writ of possession would be issued without any notice ' to the appellant. In the circumstances of the case, the parties are directed to bear their own costs.