Delhi Cloth and General Mills Ltd. v. S. Paramjit Singh and Another
THOMMEN, J. Civil Appeal No. 4043 of 1987.
The question which arises in this appeaJ is as regards the validity
of clause (iii) of sub-section (3) of Section 1 of the Jammu & Kashmir E
Houses and Shops Rent Control Act, 1966 (hereinafter referred to as
."the Act"). The challenge against the clause on the ground of its
alleged violation of Article 14 of the Constitution was rejected by the
High Court of Jammu & Kashmir. The High Court, following its
earlier decision in The J & K Bank Ltd. v. State of J & K & Another,
AIR 1987 J & K 18, upheld the validity of the clause. F
The impugned provision; as it stood at the relevant time, reads:
"1(3) Notwithstanding anything contained in sub-section
(2), nothing in this Act shall apply to-
(i) ........................................... .
(ii) Omitted
(iii) any tenancy in respect of any house, or shop where the
income of the tenant, whether accruing within or outside I:I
the State, exceeds rupees 40,000 per annum;
Explanation: the word 'income' means 'net income.' "
The appellant, the Delhi Cloth & General Mills Limited is the
tenant of the building in question. Its claim for the protection of the
Act was disallowed by the courts below on the ground that clause (iii)
of sub-section (3) of Section 1, read with the Explanation, was
attracted in respect of the appellant.
According to the appellant, the impugned clause is discrimina
tory and arbitrary because it draws an artificial distinction between
C tenants on the basis of their income. Those tenants earning net income
below Rs.40,000 per annum are fortunate enough to be protected by
the beneficial provisions of the Act, while a person like the appellant
whose annual net income is undoubtedly in excess of the statutory
limit of Rs.40,000, is unreasonably and unfairly denied the protection
D of the Act. This statutory discrimination, it is contended, places
persons like the appellant at the mercy of the landlords who can easily
evict them by recourse to the far less restrictive provisions of the
Transfer of Property Act, 1882 and on the strength of their agreements
of lease.
0
Counsel for the appellant submits that the impugned clause does
not take into account the nature of the building, but only the income of
the tenant. .The income of the landlord himself is irrelevant. The pro
tection of the Act is withheld or extended, dependent solely on the
financial capacity of the tenant and without regard to the need of the
landlord or the age or other conditions· of the building or any other
factor. Treating tenants differently with reference to their annual
income is not an intelligible classification, for the income of a tenant
may vary from year to year, depending upon the nature of his business
and other factors. This variation in income may expose him to eviction
in a particular year when the business is prosperous but protects him
from eviction when the business declines and income falls. Further-·
more, counsel says. "income" is not a clear and precise concept.
Limiting it to net income does not make it clearer. What are the
permissible deductions to arrive at the "net", the Act does not say.
The Section is invalid because it is too broad or vague. Any classifica
tion based on such vague differentia is unintelligible and, therefore,
violative of Article 14. In any view, counsel submits, the classification
sought to be made between persons falling on either side of the
D.C.M. v. S. PARAMJIT SINGH [THOMMEN, J.]. 223
specified income has no reasonable relation to the object sought to be
achieved by the statute. Counsel relies on the observation of this Court
in Rattan Arya & Others v. State of Tamil Nadu & Another, [1986] 3
SCC 385 declaring Section 30(ii) of the Tamil Nadu Buildings (Lease
and Rent Control) Act, 1960 as unconstitutional. Counsel also relies
upon the decision of this Court in Motor General Traders & Another v.
State of Andhra Pradesh & Others, [ 1984] 1 SCC 222 declaring Section
32(b) of the A.P. Buildings (Lease, Rent and Eviction) Control Act,
1960 as unconstitutional.
These decisions, in our view, are easily distinguishable. In Rattan
Arya (supra) this Court stated that a distinction between residential
buildings leased on rent not exceeding Rs.400 per month an_d all other
buildings-whether residential or non-residential-was an unreason
able classification. There was no reason why non-residential buildings
leased on rent of Rs.400 per month or less should be treated diffe
rently from residential buildings of like rent or why in the case of
residential buildings the limit should have been limited to Rs.400 per
month. To so restrict the protection of the Act was an unreasonable
classification. In the Motor General Traders (supra), this Court stated
that to arbitrarily prescribe a cut off date, i.e., August 26, 1957, for
denying the protection of the Act, without regard to the age of the
building or to ihe extent of realisation of the investment by the owner
was an unreasonable classification. These decisions do not, in our
view, support the contentions of the appellant.
On the other hand, a classification with reference to economic
realities was upheld by this Court in Kera/a Hotel & Restaurant Associ
ation & Ors. v. State of Kera/a & Ors., [ 1990] 1 JT SC 324. This Court
stated "those who can afford the costlier cooked food, being more
affluent, would find the burden lighter. This object cannot be faulted
on principle and is, indeed, laudable''. Though that principle was
stated in a different context, significantly this Court accepted a classifi
cation based on financial capacity.
The classic and oft-repeated test to be applied when the constitu
tionality of legislation is questioned with reference to Article 14 of the
Constitution is what is. stated by this Court in Shri. Ram Krishna
Dalmla v. ShriJustice S.R. Tendolkar & Others, [1979] SCR 279. S.R.
Das, CJ. stated:
"In order, however, to pass the test of permissible classifi
cation two conditions must be fulfilled, namley, (i) that the
G·
224 SUPREME COURT REPORTS [ 1990] Supp. 2 S.C.R.
classification must be founded on an intelligible differentia
which distinguishes persons or things that are grouped
together from others left out of the group and, (ii) that the
differentia must have a rational relation to the object
sought to be achieved by the statute in question."
The object of the enactment in question is undoubtedly to pro
tect the weaker section of tenants from. unreasonable eviction and
unfair rent. The legislature, at the same time, did not desire to dis
courage persons from constructing buildings. The twin legislative object
is the protection of economically weaker tenants and ·encouragement
of construction of buildings. While protection is thus afforded ·to
deserving. tenants, construction of new buildings is encouraged by
exempting buildings occupied by richer classes of tenants from the
provisions of the Act. While a building is covered by the Act when
occupied by a tenant whose annual net income is less than the specified
amount, the protection is withheld when the same. building is occupied
by a richer tenant whose annual net income is higher than the specified
amount. Where a building is occupied by more than one tenant, the
applicability of the Act to each of them would depend upon his net
income. It is the tenant that the legislature intends to protect and not
the landlord or his building. The test adopted by the legislature for this
purpose is with reference to the tenant's net income, whether accruing
inside or outside the State, as on the date of the landlord's application
for eviction as well as on the date of the decree for eviction. The
legislative object is, therefore, to protect tenants who are economi
cally weaker in comparison to those affluent tenants falling outside the
specified limit of incpme, and at the same time to encourage construc
tion of new buildings which will result in better availability of accom
modation, employment opportunity and economic prosperity. This is a
reasonable classification which does not suffer from the vice of being
too vague or broad. Classification based on income is well-known to
law. Such classification has a reasonable relation to the twin legislative
object mentioned above. We see nothing unreasonable or irrational or
unworkable or vague or unfair or unjust in the classification adopted
by the impugned provision.
Nor is there lack of clarity in the concept of "income" or "net
income". Income is money or other benefit periodically received. It is
profit or revenue and not capital. It is a gain derived from capital or
labour or both. Net income is income obtained after deducting all
expenses incurred for the purpose of earning the income. It is income
H minus operating expenses. The concept of net income is what it is
D.C.M. v. S. PARAMJIT SINGH [THOMMEN, J.] 22)
ordinarily understood to be in common parlance, and not necessarily
limited by the technicalities of any fiscal enactment. See in this connec
tion the observation of the J ammu & Kashmir High Court in Banarsi
Das v. Jagdish Raj Kohli, AIR 1960 J & K 5.
The legislature in its wisdom is presumed to understand and
appreciate correctly the problems of the State and the needs of the B
people made manifest by experience. Absent blatant· disregard of con
stitutional provisions, legislative innovation by social and economic
experimentation must be permitted to continue wit~out judicial inter
ference.
The High Court, as stated earlier, followed its earlier decision on
the construction of the Section in The J & K Bank Ltd. v. State of J &
K & Another, AIR 1987 J & K 18. In that case, speaking for the
Division Bench, Anand, CJ. stated as follows:
"In our opinion, the challenge to vires of S. 1(3)(iii) of the
Act is not well founded. Undoubtedly, the Act is a piece of
social and beneficial legislation. The Legislature knows and
correctly appreciates the needs of its people. In its supreme
wisdom it denied the protection of the Act to tenants whose
annual 'income exceeds Rs.40,000. Social legislation of this
type is designed to protect the interest of a class of society
who, because of their economic conditions, deserves such
protection against their arbitrary eviction. The legislation
is intended to protect weaker and poorer classes of the
tenants and there is, therefore, an intelligible differentia
between the tenants whose annual income is Rs.4-0,000 and
those whose annual income is more than Rs.40,000. In con
struing Art. 14, the aid whereof has been pressed into
service by the learned counsel, the Court is not required to
adopt a doctrinaire approach which would choke the bene
ficial legislation. It is open to the legislature to recognise
the degree of harm and while doing so it can always make
reasonable classification. Article 14 forbids class legislation
but no reasonable classification. With a view to pass the
test of reasonable classification, there must exist intelligi
ble differentia between persons or things grouped together
from those who have been left out and there must be a
reasonable nexus with the object to be achieved by the
legislation. Keeping in view the object which the legislation
seeks to achieve, it can be safely said that there is reason-
226 SUPREME COURT REPORTS [ 1990) Supp, 2 S.C.R.
.. able nexus between the classification made by the legisla·
ture in the impugned section .and the object sought to be
. achieved. We also find that there is an intelligible diffe·
rentia between the tenants who are sought to be protected
by the Act from those who are denied the protection of the
Act."
We are in complete agreement with what has been stated by the
learned Chief Justice. ·
Accordingly, we see no merit in this appeal. It is dismissed with
costs here and in the courts below.
Civil Appeal No. 1370 of 1987.
·This appeal is brought by a nationalised bank. In view of our
judgment in Civil Appeal No. 4043 of 1987, we dismiss this appeal with
costs here and in the High Court.
" ' r ..
N.P.V. Appeals dismissed.
'