Damodhar Tukaram Mangalmurti & Ors
Vs. The State of Bombay  INSC 10 (2 February 1959)
IMAM, SYED JAFFER KAPUR, J.L.
CITATION: 1959 AIR 639 1959 SCR Supl. (2) 130
Lease-Construction-Enhancement of rent-"
Fair and equitable enhancement as the lessor shall determine "-Lease,
whether void for uncertainty-Court's Power to determine fair and equitable
In 1909, for the purpose of residential
accommodation, plots of land were given on lease by the Government to the
appellants and others for which a premium of Rs. 350 and an annual rent of Rs.
3-8-0 for each plot had to be paid.
Clause III of the deed of lease in each case
provided: " And the lessor does further covenant that lie will at the end
of the term Of 30 years hereby granted and so on from time to time thereafter
at the end of each successive further term of years as shall be granted at the
request of the lessee execute to him a renewed lease of the land hereby demised
for the term Of 30 years: Provided that the rent of the land hereby demised
shall be subject to such fair and equitable enhancement as the lessor shall
determine on the grant of every -renewal: Provided also that every such renewed
lease of the land shall contain such of the covenants, provisions and
conditions in these presents contained as shall be applicable and shall always
contain a covenant for further renewal of the lease." 181 By the year 1939
the first 30 years' period of some of the leases came to an end, and the Government
sought to enhance the annual rent from Rs. 3-8-0 to Rs. 21-14-0 per plot and
also to insert some new terms in the renewed deeds of lease.
The appellants brought a suit inter alia for
a declaration that the enhancement proposed was not, fair and equitable within
the meaning of Clause III of the deed of lease, that the fair and equitable
rent should be Rs. 7 per plot and that if the court was of the opinion that Rs.
7 was not a fair and equitable rent then it should fix such sum as it
considered fair and equitable. The respondent pleaded that such a suit was
incompetent. The question was whether the civil court had jurisdiction to
enquire whether the enhancement of the rent determined by the lessor was fair
and equitable within the meaning of cl. III of the deed of lease, and whether,
in any case, the lease was void for un- certainty.
Held, (per jafer Imam and S. K. Das, jj.),
that the lease is not void for uncertainty; that the expression " fair and
equitable " in the clause in question means fair and equitable in fact,
and not what the lessor subjectively considered to be fair and equitable; and,
that reading the clause as a whole and giving effect to all the words used
therein, the meaning is that the lessor must first determine what it considers
to be fair and equitable enhancement, but, if in fact it is not so, it is open
to the lessee to ask the court to determine what is fair and equitable
Accordingly, the suit was maintainable.
The rule laid down in Gourlay v. The Duke of
Somerset, (18I5) 19 Ves. 429; 23 E.R. 576, held applicable.
The New Beerbhom Coal Company Limited V.
Boloram Mahata and others, (1880) L.R. 7 I.A. 107 and Secretary of State for
India in Council v. Volkart Brothers, (1926) I.L.R. 50 Mad.
595, relied on.
Collier v. Mason, (1858) 25 Beav. 200; 53
E.R. 613 and Tekchand Kapurchand v. Mt. Birzabai, A.I.R. 1942, Nag. 119,
Per Kapur, J.-The correct interpretation to
be put on cl. III of the deed of lease is that the lessor was given the
authority to determine the enhancement of rent but such enhancement was to be
fair and equitable and what would be fair and equitable in any particular case
was also to be determined by the lessor. The rule applicable to the present
case is that relating to valuation or fixation of prices that where the
valuation is fixed by a valuer the court will hold it conclusive in the absence
of fraud or mistake or misconduct and the court will not enter into the
propriety of the valuation made or substitute its own valuation in place of that
determined by the valuer because that will not be an execution of the contract
of the parties but making a contract for them.
Case law discussed.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 181 and 181-A of 1955.
Appeals from the judgment and decree dated
September 30, 1952, of the former Nagpur High Court in Second Appeals Nos.
699 and 700 of 1946, arising out of the
judgment and decree dated February 21, 1946, of the court of First Additional
District Judge, Nagpur, in Civil Appeals Nos. 22-A and 23-A of 1946, against
the judgment and decree dated January 2, 1945, of the Court of Second
Subordinate Judge, Nagpur, in Civil Suit No. 143-A of 1944.
H. J. Umrigar, Ratnaparkhi A. O and Shankar
Anand Zinjarde for the appellants.
W. S. Barlingay and B. H. Dhebar, for the
1959. February 2. The Judgment of Jafer Imam
and S. K. Das, JJ., was delivered by S. K. Das, J. Kapur, J., delivered a
S. K. DAS, J.-These two appeals arise out of
a litigation which has had a chequered career in the courts below. The short
facts are these. The suit out of which the appeals arise was instituted on
January 13, 1941, but the plaint was amended on May 4, 1942. The amended plaint
was to the effect that in or about the year 1905 the defendant, the then
Provincial Government of the Central Provinces and Berar, Nagpur, " opened
up " an area known as the Craddock Town Area which was originally called
the Sitabuldi Extension Area or Dhantoli Area. Due to the scarcity of residential
accommodation in the city of Nagpur, the then Provincial Government along with
some prominent members of the Nagpur Municipal Committee devised a scheme to
extend residential accommodation by acquiring agricultural land and making it
available for residential purposes. With that object in view, the area in
question was acquired and building sites of the average size of about 10,000
each were carved out. These were leased out
on a premium of Rs. 350 and an annual rent of Rs. 3-8-0 each. The indenture of
lease in each case contained a clause to the following effect:- 183 " III.
And the lessor does further covenant that he will at the end of the term of 30
years hereby granted and so on from time to time thereafter at the end of each
successive further term of years as shall be granted at the request of the
lessee execute to him a renewed lease of the land hereby demised for the term
of 30 years; Provided that the rent of the land hereby demised shall be subject
to such fair and equitable enhancement as the lessor shall determine on the
grant of every renewal: Provided also that every such renewed lease of the land
shall contain such of the covenants, provisions and conditions in these
presents contained as shall be applicable and shall always contain a covenant
for further renewal of the lease." One of the leases was executed on May
24, 1909, and some other leases near about that year. By the year 1939 the
first 30 years' period of some of the leases came to an end.
The original plaintiffs, who were two in number
and who sued in their individual right as also representing the members of an
association known as the Craddock Town Plot-holders Association alleged that on
the expiry of the terms of the leases in question, during which period some of
the lessees had built houses on the leasehold property, the then Provincial
Government proposed an enhancement of Rs. 21-14-0 from Rs. 3-8-0 as annual rent
and also the insertion of some new terms in the renewed deeds of lease. The
plaintiffs, on the contrary, said that Rs. 7 per plot was the fair and
equitable enhancement. Various representations to the relevant authorities
having proved unavailing, the plaintiffs instituted the suit in which they
prayed (a) that the enhancement of rent from Rs. 3-8-0 to Rs. 21-14-0 per plot
was not fair and equitable within the meaning of el. III of the deed of lease;
(b) that the offer of Rs. 7 as annual rent made by the association was fair and
(c) that the defendant do insert in the
renewed deeds of lease only such conditions as were to be found in the original
deed and not to add to them to the detriment of the lessees' interest; and (d)
that in the event of this Court not agreeing that 184 Rs. 7 was a fair and,
reasonable rent, a fair and equitable rent should be fixed by it. The suit was
contested by the defendant on several grounds, with most of Which we are not
The learned Subordinate Judge of Nagpur, who
dealt with the suit in the first instance, took up certain preliminary issues
for decision and by a judgment dated April 13, 1942, he disposed of those
preliminary issues. One such issue material for our purpose was in these terms:
,In case of dispute as to what is fair and equitable rent, has the civil court
no right to, determine what is fair rent?" On this preliminary issue, he
found " that under the terms of cl.
III of the indenture of lease, the defendant
was entitled to fix a fair and equitable rent; but the civil court has
jurisdiction to enquire whether the rent fixed by the defendant is fair and
equitable within the meaning of cl.
III ". We need not refer to the other
preliminary issues on which the learned Subordinate Judge gave his decision,
because those issues no longer survive. On the disposal of the aforesaid
preliminary issue, the plaint was amended and some more lessees were added, the
30 years' period of whose leases had also expired ; therefore the position was
that the plaintiffs were those lessees, the 30 years' period of whose leases
had expired and as respects the renewal of whose leases the defendant had
proposed an enhancement of Rs. 21-14-0. The defendant claimed that it had been
very reasonable in fixing the enhanced rent and it further claimed the right of
withdrawing the offer of Rs. 21-14-0 and of making a fresh demand at a much
higher rent if the lessees did not agree to the terms originally proposed by
the defendant. The defendant further denied that the offer of Rs. 7, that is,
twice the original rent, made by the lessees was a reasonable and fair
After the disposal of the preliminary issues
the learned Subordinate Judge proceeded to try the suit on merits and on
January 2, 1945, he found on issue no. 4 that Rs. 14 per year would be the fair
and equitable enhanced rent for each plot of about 10,000 sq. ft. and he fixed
that rent for the next term of 30 years to 185 which the lessees were entitled
under cl. III; he further directed the grant of a rebate of 25 per cent. to
those lessees who agreed to a renewal for a term ending in 1948.
From the decision of the learned Subordinate
Judge two appeals, one by the plaintiffs, and the other by the defendant, were
taken to the District Judge and they were heard by the Additional District
Judge of Nagpur, who by his Judgment dated February 21, 1946, affirmed the decision
of the learned Subordinate Judge that under cl. III of the indenture of lease
it was open to the Subordinate Judge to determine what was the fair and
equitable rent. The learned Additional District Judge, however, reversed the
finding of the learned Subordinate Judge as to the quantum of the fair and
equitable rent. He came to the conclusion that the enhancement of rent should
not exceed Rs. 7, as any increase over that amount would not be a fair and
equitable one within the meaning of cl. III of the indenture of lease.
From the decision of the learned Additional
District Judge, two appeals were taken to the then High Court of Judicature at
Nagpur by the defendant Government. The appeals were first placed before a
single Judge who directed that they should be heard by a Division Bench. The
appeals were then heard by B. P. Sinha, C. J. (as he then was) and Mudholkar,
J. The learned Chief Justice came to the conclusion that the suit must fail on
the ground that the authority of the court had been invoked in a matter which
really lay in contract and the civil court had no jurisdiction to determine the
fair and equitable rent. Mudholkar, J., came to a contrary conclusion and held
that the suit was maintainable and the courts below could determine the fair and
On the question of what should be the fair
and equitable rent, the learned Chief Justice gave no finding except saying
that " the decision of the lower appellate, court on the question of
assessment of fair and equitable rent was not satisfactory, because it had gone
more by the rule of the thumb than upon the evidence adduced in the 24 186 case
or upon any other sound basis." Mudholkar, J., however, said that he saw
no adequate ground for differing from the view taken by the lower appellate
court with regard to the quantum of fair and equitable rent. On this difference
of opinion between the learned Chief Justice and Mudholkar, J., the case was
referred to a third Judge, namely, Hemeon, J., who agreed with the view of the
learned Chief Justice that, on a proper construction of cl. III of the
indenture of lease, the civil court had no jurisdiction to determine the fair
and equitable rent and the parties had consciously and deliberately stipulated
to abide by the lessor's fixation of a fair and equitable enhancement of rent;
and in that view of the matter, he expressed no opinion as to what should be
the fair and equitable rent.
In accordance with the opinion of the
majority of Judges, the appeals in the High Court were allowed and the suit was
dismissed with costs. The plaintiffs, who are the appellants here, then asked
for a certificate of fitness under Art. 133(1)(c) of the Constitution of India.
The High Court granted the necessary certificate by an order dated October 23,
1953, and the present appeals have been filed in pursuance of that certificate.
The area in question being now within the State of Bombay, the State of Bombay
has been substituted as the respondent before us.
The principal question before us is one of
construction of el. III of the indenture of lease. On behalf of the appellants
it has been argued that the construction put upon the clause by the majority of
Judges in the High Court is not correct inasmuch as it gives no effect to the
words " fair and equitable enhancement " occurring therein. On behalf
of the respondent, it has been submitted that the expression " subject to
such fair and equitable enhancement as the lessor shall determine " is
tantamount to saying " subject to such enhancement as the lessor shall
determine to be fair and equitable " ; in other words, the argument of
learned counsel for the respondent is that the parties had deliberately chosen
to abide by whatever was determined to be fair and equitable enhancement by 187
the lessor. Mudholkar, J., had proceeded on the footing that the primary
intention of the parties was that the enhancement must be fair and equitable
and the adjectival clause ,as the lessor shall determine " following the
word I enhancement' being subordinate to the primary intention of the parties
could be ignored. Learned counsel for the respondent has very strongly
submitted that this view is not correct.
We think that the clause should be read as a
whole and every effort should be made to give effect to all the words used
therein. The relevant portion of the clause states-" such fair and
equitable enhancement as the lessor shall determine ". If the construction
is that whatever the lessor determines as fair and equitable enhancement must
be treated as binding on the lessee, then the words 'fair and equitable' are
not given the meaning and sense which they have according to the ordinary
acceptation of those words.
I Fair' and I equitable' mean fair and
equitable in fact, and not what the lessor subjectively considered to be fair
and equitable. The words I fair' and 'equitable' both mean I just or unbiased'
(see the Concise Oxford Dictionary, 4th Edn., p. 426 and p. 402). If the
intention was to leave the enhancement to the subjective determination of the
lessor, the clause would have more aptly said-'such enhancement as the lessor
shall determine'. We consider that the words I fair and equitable' must be
given their due meaning and proper effect. The question then asked is-what
meaning is to be given to the words 'such...... as the lessor shall determine'.
It is indeed true that these words constitute an adjectival clause to the
expression ' fair and equitable enhancement', but we consider that the meaning
of the adjectival clause is merely this: the lessor must first determine what
it considers to be fair and equitable enhancement; but if in fact it is not so,
it is open to the lessee to ask the Court to determine what is fair and
equitable enhancement. We do not think that on a proper construction of the
clause, the intention was to oust the jurisdiction of the Court and make the
determination of the enhancement by the -lessor final and binding on the
We think that 188 the conclusion at which
Mudholkar, J., arrived on this point was correct, though not exactly for the
reasons given by him.
If the construction stated above is the
correct con- struction, then no further difficulty is presented by cl. 111. The
learned Judges of the High Court unanimously expressed the view that the lease
'Was not void for uncertainty, and in that view we concur. There is authority
in support of the view that a covenant to settle land I at a proper rate' or I
upon such terms and conditions as should be judged reasonable' is not void for
uncertainty (see The New Beerbhoom Coal Company Limited v. Boloram Mahata and
others (1) and Secretary of State, for India in Council v.
Volkart Brothers (2)). In the former case,
Sir Barnes Peacock who delivered the judgment of their Lordships said :
" The High Court affirmed the decision,
but not for reasons which their Lordships consider to be correct. They affirmed
it upon the ground that it was impossible to determine what was a reasonable
rate. Their Lordships cannot think that in the present case the Court, upon a
proper inquiry, would have been unable to determine it. There might have been
considerable difficulty in fixing the rate; but difficulties often occur in
determining what is a reasonable price or a reasonable rate, or in fixing the
amount of damages which a man has sustained under particular circumstances.
These are difficulties which the Court is bound to overcome." Our
attention has been drawn to some English decisions in which the point arose if
a contract which appoints a way of determining the price can be specifically
enforced. There are two lines of decisions. In Milnes V. Grey (3) the contract
provided that the price shall be valued by two different persons to be
nominated and if they happened to disagree then those two persons shall choose
a third person whose determination shall be final. The question was whether
such a contract could be specifically performed and the (1) (1880) L.R. 7 I.A.
(2) (1926) I.L.R. 50 Mad. 595.
(3) (18O7) 14 Ves. 400; 33 E.R. 574.
189 answer given by the Master of the Rolls
can be best put in his own words:
" The more I have considered this case,
the more I am satisfied, that, independently of all other objections, there is
no such agreement between the parties, as can be carried into execution. The
only agreement, into which the Defendant entered, was to purchase at a price,'
to be ascertained in a specified mode. No price having ever been fixed in that
mode, the parties have not agreed upon any price. Where then is the complete
and concluded contract, which this Court is called upon to execute ? " In
Taylor v. Brewer (1) a claim to compensation was founded on the resolution of a
committee which provided that" such remuneration be made as should be
deemed right ". It was held that the engagement was merely an engagement
of honour and no claim could be made on it. An example of the other line of
decisions is furnished by Gourlay v. The Duke of Somerset (2). In that case the
agreement provided for " all such usual and proper conditions,
reservations, and agreements, as shall be judged reasonable and proper by John Gale,
land surveyor, and in case of his death, by some other proper and competent
person to be mutually agreed upon by the said parties ". The plaintiff
came to court and the question arose whether the reference to settle the lease
to be made by the defendant to the plaintiff should be to the Master or to Mr.
Gale, the defendant contending that the court decreeing specific performance
will take the whole subject to itself and determine by its own officer, not by
a particular individual, what are usual and proper covenants.
Sir William Grant, Master of the Rolls,
said:- " When the agreement is, that the price of the estate shall be
fixed by arbitrators, and they do not fix it, there is no contract as the price
is of the essence of a contract of sale, and the Court cannot make a contract,
where there is none; but, where the Court has determined, that the agreement is
binding and (1) (1813) 1 M. & S. 290; 105 E.R. 108.
(2) (1815) 19 Ves. 429; 34 E.R. 576.
190 concluded and such as ought to be
executed, it does not require foreign aid to carry the details into execution.
Gale's agency is not of the essence of this
con- tract......... If the parties had gone to Gale, and got him to settle a
lease, and one of them had objected to the covenants as improper, and the Bill
had been filed by the other, the Court would have inspected the lease; and if
it were found unreasonable, would not have decreed an execution of the
agreement." We consider that the present case comes within the rule laid
down in Gourlay v. The Duke of Somerset (1). Learned counsel for the respondent
placed strong reliance on Collier v. Mason (2 ). That was a case in which the
defendant had agreed to purchase a property at a valuation to be made by AB;
the Court, though it considered AB's valuation very high and perhaps
exorbitant,'decreed specific performance, there appearing neither fraud,
mistake or miscarriage. The case was decided on the footing that the contract
provided that the property shall be purchased at such a price or sum as should
be fixed by reference to AB, and it was pointed out that there being no
evidence of fraud, mistake or miscarriage the parties were bound by the
contract they had made. There was no question in that case of the court
stepping in, under the terms of the contract, to determine what was fair and
reasonable. Learned counsel for the respondent also relied on Tekchand
Kapurchand v. Mt. Birzabai (3). The principle laid down therein was that a
contract binds the parties to it and their representatives and the court's power
to interfere with contracts is limited to such cases as fraud, undue influence
or mistake and relief against penalty or forfeiture. Indeed, we agree that if
the contract in the present case was that whatever the lessor determined as the
enhanced rent would be binding on the parties, then the court has no power to
interfere with that contract unless it is vitiated by fraud, undue influence,
mistake, etc. If, however, the proper construction of el. III of the contract
is -what (1) (1815) 19 Ves. 429; 34 E. R. 576.
(2) (1858) 25 Beav. 200; 53 E.R. 613.
(3) A.I.R. 1942 Nag. 119.
191 we have held it to be, then the contract
itself provides that the enhanced rent though determined by the lessor in the
first instance, must be fair and equitable. On such a construction the
determination of the enhancement by the lessor would not be final and it would
be open to the court to determine what is fair and equitable enhancement.
We say this with respect, but the Patna
decisions (Secretary of State for India in Council v. Nistarini Annie Mitter
(1) and Secretary of State v. Babu Rajendra Prasad (2)), referred to by the
learned Chief Justice in his judgment are not in point. Those decisions were
not concerned with interpreting a clause in the agreement like the one before
us and it was rightly held that in the absence of a contract between the
parties, the court had no power to impose upon the parties a bargain not of
their own making.
For the reasons given above, we hold that the
decision of the majority of the learned Judges of the High Court with regard to
the interpretation of cl. III of the indenture of lease is not correct and
these appeals must go back for a fresh hearing by the High Court in accordance
with law for determination of what should be the fair and equitable
enhancement. On that point there was no concluded finding by the majority of
the learned Judges of the High Court, but learned counsel for the appellants
submitted that the finding of the learned Additional District Judge on the
quantum of fair and equitable enhancement was a finding of fact and therefore
binding in second appeal. At this stage we express no opinion on such a
submission, nor do we express any opinion whether the courts below or any of
them have gone wrong in principle in determining what should be the fair and
equitable enhancement and whether on merits it should be Rs. 7 or Rs. 14 or Rs.
21-14-0, or even a higher sum. All these points must be considered afresh by
the High Court.
There is a further point which must also be
dealt with in the High Court. The learned Subordinate Judge decided on issue
no. 7 with regard to the conditions for a renewal of the lease that the
Government (8) (1927) I.L.R. 6 Pat. 446.
(9) A.I.R. 1937 Pat. 391.
192 were not entitled to make any alterations
in the clauses relating to re-entry and notice of demand as contained in cl. II
of the original lease. The learned Addl. District Judge said:
" As regards the new form of lease, it
is clear that the clause regarding building would be deleted if it is found to
be superfluous or redundant. While that in respect of right of lessor to enter
on the land without a demand of ground rent (in case of failure to pay it on
the appointed date) it is not necessary to interfere as it would amount to
making a contract for the parties. It is better to leave the matter to the
parties and their legal advisers." Whether the view of the learned
Subordinate Judge or of the District Judge is correct or not was not considered
by the High Court and as the appeals are going back on remand this point should
also be dealt with by the High Court.
Accordingly, we allow the appeals and set
aside the judgment and decree of the High Court dated September 30, 1952. The
appeals must go back for a fresh hearing by the High Court in accordance with
law and in the light of the observations made above. In the peculiar
circumstances of this case, there will be no order for costs of the hearing of
the appeals in this Court. Costs incurred in the two courts below and costs
incurred in the High Court, both before and after remand, will be dealt with by
the High Court when finally disposing of the appeals.
KAPUR, J.-I regret I am unable to agree in
the proposed judgment that it is open to the Court in the circumstances of this
case to go into the question of the valuation and to determine as to what, in
its opinion would be fair and equitable enhancement in rent and to interfere
with the enhancement as determined by the lessor under the terms of the
indenture of lease executed on May 24, 1909. The original lease was for a term
of 30 years with a provision for renewal for another 30 years with the proviso
that the rent of the land demised was " subject to such fair and equitable
enhancement as the lessor shall determine 193 The facts are set out in the
judgment of my learned brother, S. K. Das, J., and it is not necessary to
Plots of land measuring about 10,000 sq. ft.
were given on lease by the Government to the appellants and others, for which
the premium to be paid was Rs. 350 and the rent Rs. 3- 8-0 per annum or Re. 1
per cent. of the premium. Lease deeds were executed in 1909 under clause III of
which the lessor determined the enhanced rent at Rs. 21-14-0 and thus raised it
from Rs. 3-8-0 per plot to Rs. 21-14-0. The appellants brought a suit for
declaration that the enhancement proposed was excessive and the fair and
equitable rent should be Rs. 7 per plot and if the Court was of the opinion
that Rs. 7 was not a fair and equitable rent then it should fix such sum as it
considered fair and equitable. The respondent pleaded that such a suit was
incompetent. The question for decision is what is the effect of using the
adjectival words " fair and equitable ".
For the appellants it was argued that because
in the lease deed the enhancement contemplated was qualified by the words
" fair and equitable " the determination became clothed with a
qualification which made it subject to judicial review and determination
because it was for the Court to say whether the determined enhancement
conformed to the standard prescribed in the disputed clause or not. The
respondent contended on the other hand that the rule applicable to
determinations by valuers is that it is conclusive and cannot be overhauled
except upon proof of fraud and imposition of gross misconduct. Thus according
to the submission of the appellant the clause in dispute means such enhancement
as the lessor shall determine and which determination shall, in the opinion of
the Court, be fair and equitable and according to the respondent it means that
the amount of enhancement shall be fair and equitable but what is fair and
equitable shall be determined by the lessor, such determination being
conclusive. The appellants do not contend that the lessor is not a valuer and
that if the qualifying words " fair and equitable " had not been used
then 25 194 the enhancement determined would not be conclusive but the
contention is that by using these words the quality and the quantity of
enhancement is no longer in the sole determination of the lessor but the final
determination must be of the Court because otherwise any fanciful amount would
have to be accepted as fair and equitable and that the parties intended that
the lessor was not the final determiner of the quality and quantity of
enhancement and his determination was not conclusive but the lessee if
dissatisfied could get the matter reviewed by the Court.
In my view the correct interpretation to be
put on this clause of the lease deed is what is contended for by the
respondent. The lessor was given the authority to determine the enhancement but
such enhancement was to be fair and equitable and what would be fair and
equitable in any particular case was also to be determined by the lessor.
The lease deed entered into between the
parties is dated May 24, 1909. In the first clause are given the usual
obligations of the lessee as to payment of rent, the purpose of the building to
be constructed, the period in which it was to be completed, the design of the
building and keeping it in proper condition. In the second clause of the
agreement the lessor covenanted peaceful possession subject to the right of the
lessor to recover rent as arrears of land revenue and other remedies for
non-observance of the obligations contained in the first clause with a provision
for re-entry upon failure of certain conditions. I In the third clause the
lessor covenanted for grant of lease for further periods of 30 years at the
request of the lessee with the following proviso :
" Provided that the rent of the land
hereby demised shall be subject to such fair and equitable enhancement as the
lessor shall determine on the grant of every renewal ".
This is the disputed clause. Now it appears
that this further covenant was for the benefit of the lessee and the
reservations made are couched in such language which left the discretion in
regard to enhancement of rent to the lessor. What the enhancement was to be and
what would be fair and equitable was left to the 195 determination of the
lessor. It is not an unusual provision in a lease for a long term of years with
provision for renewal to leave the question of rent to be determined by the
lessor or an outside valuer and it s would not, in my respectful opinion, be a
correct interpretation to say that the enhancement by a valuer would be
unchallengeable if the adjectival words " fair and equitable " are
not used but would be subject to court's review if these words are employed.
That is going contrary to the very notion of valuations and their legal
incidence. The extent of the power of courts over valuations by valuers has
been stated in text books and in certain decided cases. In Williston on
Contracts, Vol. 3, s. 802, at p. 2252 the law is stated thus:
" In the absence of fraud or mistake,
the price fixed by aGreed valuers is conclusive upon the parties. Though an
excessively large or an unreasonably small price involves some element of
penalty or forfeiture, the possibility of this is -not enough to overcome the
express terms of the contract in the absence at least of fraud, gross mistake,
or such arbitrary conduct as is outside what the parties could have -reasonably
And it is not a far step to say that in all
cases of valuation the parties do contemplate a fair and equitable amount to be
fixed or determined and not any price fanciful or otherwise.
In Collier v. mason (1) the defendant agreed
to purchase a property at a valuation to be made by a third party. The
defendant repudiated the value as exorbitant and refused to complete his
contract and the plaintiff-vendor instituted a suit for specific performance.
The Court held that the valuation was very high and perhaps exorbitant but it
decreed specific performance of the contract as there appeared no fraud,
mistake or miscarriage. It was said by the Master of the Rolls " It may
have been improvident as between these parties to enter into a contract to buy
and sell property at a price to be fixed by another person, but that cannot
avoid the contract.
(1) (1858) 25 Beav. 200; 53 E. R. 613.
196 Here the referee has fixed the price,
which is said to be evidence of miscarriage, but this Court, upon the principle
laid down by Lord Eldon, must act on that valuation, unless there be proof of
some mistake, or some improper motive, I do not say a fraudulent one; as if the
valuer had valued something not included, or had valued it on a wholly
erroneous principle, or had desired to injure one of the parties to the
contract ; or even, in the absence of any proof of any of these things, if the
price were so excessive or so small as only to be explainable by reference to
some such cause; in any one of these cases the Court would refuse to act on the
valuation ". It does not appear that in that case the words "fair and
equitable " were used but that is implied in every reference for valuation
to be made by an agreed referee. He cannot act in a fanciful or a corrupt
manner or with puerile motives nor can he make a valuation which be (toes not
consider to be fair and equitable.
In cases of transfer of property the form of
contract to buy and sell may make a provision and very often such a provision
is made that the price payable shall be that which a certain valuer shall fix.
Such a requirement is an express condition or a condition implied in fact
qualifying the obligation of the buyer to pay the price and such a contract
cannot be performed unless the valuation first takes place. Such a condition is
a necessary condition or an inherent condition. Williston on Contracts, Vol. 3,
s. 800 ; Firth v. Midland Railway Co. (1). In such contracts it must be assumed
that the parties laid weight on the parti- cular individuality of the valuer.
Accordingly if the valuer dies or refuses to act the buyer cannot be compelled
to pay the price. A similar condition is common in long- term leases and in
provisions for renewal of leases and where the parties choose to abide by the
determination of a valuer and that valuation is not acceptable to one of the
parties, Courts will not interfere, the only exception being fraud, mistake or
In Vickers v. Vickers (2) which was a suit
for specific (1) (1875) L.R. 20 Eq. 100, 112.
(2) (1867) L.R. 4 Eq. 529.
197 performance of a contract enforcing an
option of purchase where the stock was to be valued in the usual way by two
valuers and one of the valuers was not allowed to proceed, it was held that
there was no contract between the parties which the Court could specifically
enforce. Sir W. Page Wood, V. C., said at p. 535:
" If a nomination of that kind fails, or
if the two persons named do not make their award, this Court has said there is
no constat of the price; the contract is not a complete contract, and there is
nothing on which it can act ".
In Weekes v. Gallard (1) where a contract was
entered into for the sale of certain property, the price to be fixed by two
valuers who afterwards valued the property at inadequate price, it was held
that in the abence of fraud or collusion on the part of the valuer, the buyer
was entitled to specific performance of the contract. Lord Romilly said :-
" The court has really no discretion in the matter. The discretion of the
court is bound, as Lord Ellenborough says, by fixed rules. In one case of this
kind a house and furniture were valued at three times their value, and yet
there was a decree for specific performance. The only defence to such a suit
would be fraud or collusion ".
A valuer may, in one sense, be called an
arbitrator but not in the proper legal sense of the term. Per Lindley, L. J.,
In re Carus Wilson & Greene (2). But there is this difference between
arbitration and valuation that the object of the former is to settle a dispute
which has arisen and of the latter to avoid a dispute arising. The arbitrator
is called in to settle judicially any matter in controversy between the parties
and the valuer by the exercise of his knowledge and skill has to make a
valuation the object being to prevent disputes from arising. A valuer like an
arbitrator is required to act fairly and diligently. He cannot act in a
fanciful or a perverse manner and his determination must be fair and equitable
whether the authority given to him uses these words or not. But once a (1)
(1869) 21 L.T. 655.
(2) (1886) 18 Q.B.D. 710.
198 valuation is properly made the valuation
is conclusive as between the parties and the Court in the absence of fraud,
mistake or collusion can- no more go into whether it is fair and equitable than
a Court can sit in appeal against the award of an arbitrator as to what would
be fair amount of damages in a particular case of breach of contract. See also
Emery v. Wase (1).
The decision in Gourlay v. Somerset (Duke of)
(2) was relied upon by the appellants in support of their case. That does not,
in my opinion; deal with the matter now before us.
There the suit was for specific performance
of an agreement to grant a lease. One of the conditions of the contract was
that the farm was to be let on conditions, reservations and agreements "
as shall be judged reasonable and proper by John Gale . " The Court was of
the opinion that Gale's agency was not of the essence of the contract and that
it could not be contended that the contract was to end if Gale refused to
settle a lease. The Court said :
" Suppose the reference is made to Gale
; is his decision liable to exception ? If it is, the decision with regard to
the propriety of the lease will ultimately be that of the Court. If not, the
Court may be carrying into execution a lease, which it may think extremely
unreasonable and improper. If the parties had gone to Gale, and got him to
settle a lease, and one of them had objected to the covenants as improper and
the Bill had been filed by the other, the Court would have inspected the lease;
and if it were found unreasonable, would not have decreed an execution of the
That was a case relating to covenants other
than fixation of price. With regard to the valuation or fixation of price it
was said that if an agreement was that the price of the estate would be fixed
by arbitrators and they did not fix it there was no contract of sale as the
contract as to the mode of fixing the price was of the essence of the contract
of sale and the Court could not make a contract where there is none. Similarly
it may be said that where the valuation is fixed by a valuer (1) (1801) 5 Ves.
846, 847, 848 ; 31 E.R. 889.
(2) (1815) 19 Ves. 429; 34 E.R. 576.
199 the court will hold it conclusive in the
absence of fraud or mistake or misconduct. The Court will not enter into the
propriety of the valuation made or substitute its own valuation in place of
that determined by the valuer because that will not be an execution of the
contract of the parties but making a contract for them.
The Transfer of Property Act contains no
provision by which the Court is empowered to fix rent of premises demised
although by legislation in the case of agricultural holdings certain tribunals
have been set up to make such determinations. The appellant relied on The New
Beerbhoom Coal Company v. Boloram Mahata (1). The covenant between the parties
was:-- Within that aforesaid mouzah we will not give a pottah, let give
settlement to anybody. If you take possession according to your requirement of
extra land over and above this pottah, and we shall settle any such lands with
you at a proper rate ".
A suit was brought by the lessees against the
lessor to obtain specific performance to execute a permanent lease of a large
area of land claiming benefit of the covenant above given and contended that
the defendants were bound to let them the land whenever called upon to do so.
The appellant company stated that they had negotiated with the lessor for lease
of the adjoining land (not of land which they had agreed to lease) upon the
terms that they were to pay Rs. 1- 8-0 for waste land and Rs. 3 for cultivable
land and the suit was for the grant of specific performance of the agreement by
compelling the lessor to grant them the lease at those rates and if the Court
would not order the lease at those rates then at such rates as the Court shall
think reasonable. The trial Court held that apart from 51 bighas mentioned in
the covenant the lessor could not be compelled to grant a lease for the
remaining land of the mouzah. The High Court affirmed this decision but on the
ground that it was impossible to determine what was the reasonable rate.
Sir Barnes Peacock said:- (1) (1880) L.R. 7
200 " Their Lordships cannot think that
in the present case the court, upon a proper inquiry, would have been unable to
determine it (proper rent). There might have been considerable difficulty in
fixing the rate ; but difficulties often occur in determining what is a
reasonable price or a reasonable rate, or in fixing the amount of damages which
a man has sustained under particular circumstances. These are difficulties
which the Court is bound to overcome ".
These observations of the Privy Council are
relied upon by the appellants to support the argument that it is open to the
Court to determine what the reasonable rate would be.
This was not a case where any question of
valuation arose nor was it a case where a valuation made by a valuer was sought
to be reviewed as not being proper and apart from the fact that the
observations are mere obiter this case is no authority for saying that the
determination of a valuer is subject to review by courts.
Another case which the appellant relied upon
was The Secretary of State for India v. Volkart Brothers (1).
There, in a deed of lease granted for 99
years by the East India Company there was a clause for renewal for another like
period on the lessee paying a sum of money and " upon such terms and
conditions as should be judged reasonable ".
The Secretary of State assigned a major
portion of the holding to a third party and Volkart Brothers before the expiry
of the original lease period tendered the due amount and asked for renewal of
the lease which the Secretary of State refused to renew and sued to eject the
lessees and the latter sued for specific performance of the covenant for
renewal. It was held by a majority that the covenant was not unenforceable on
account of uncertainty. Krishnan, J., was of the opinion that such a covenant
was too vague and uncertain and unenforceable because the clauses to be
inserted in the contract were themselves uncertain and the contract could not
be enforced. Venkatasubba Rao, J., was of the opinion that if the parties would
not agree to a reasonable rent the Court will intervene and fix it; The New
Beerbhoom (1) (1926) I.L.R. 50 Mad. 595.
201 Coal Company v. Boloram Mahata (1) was
relied upon. Courts Trotter, C. J., was also of the opinion that the covenant
was not too vague to be enforced. But this again was a case not of interfering
with the determination of a valuer but of specific performance of a contract of
renewal and it was held that by taking evidence even a vague and indefinite
covenant relating to renewal could be made definite.
In my opinion, therefore, the Court cannot go
into the question of correctness or otherwise of the determination of the lease
and the appeal should therefore be dismissed with costs.
By COURT.-In view of the opinion of the
majority, the appeals are allowed, setting aside the judgment and decree of the
High Court dated September 30, 1952. No order as to costs of the hearing in