The Bombay High Court deliberated on whether a licensee, after the termination of the license agreement, should be directed to pay fair market rent or only contractually agreed fees as a pre-condition for the stay of an eviction decree. The court upheld that fair market rent, not just the agreed damages, could be levied from the date of the decree under the principles set in Atma Ram Properties (P) Ltd. v. Federal Motors (P) Ltd..

1. Challenge by the Petitioner (Safset Agencies)

The petitioner challenged an order by the Appellate Bench of the Small Causes Court that directed it to deposit the entire decretal amount and a fair market rent of Rs. 17,95,000 per month as a precondition to stay the eviction decree. The petitioner contended that the agreed contractual damages of Rs. 6,00,000 per month should suffice.

2. Background of the License Agreement

Safset Agencies entered into a leave and license agreement with the respondents in 2006 for commercial premises in Mumbai. The agreement was for five years, with Rs. 3,00,000 as monthly rent and Rs. 6,00,000 as damages if the premises weren’t vacated after the agreement ended in 2011.

3. Dispute Over Termination and Damages

After disputes arose, the respondents terminated the license in 2009. They filed a suit for eviction and recovery of compensation, while the petitioner sought a declaration of tenancy and claimed the real intention was to create a tenancy. The Small Causes Court ruled in favor of the respondents, ordering Safset Agencies to vacate and pay damages.

4. Appellate Court’s Order on Market Rent

The Appellate Court directed Safset Agencies to pay Rs. 6,00,000 per month until the decree and Rs. 17,95,000 thereafter, applying the fair market rent principle from Atma Ram Properties. Safset Agencies disputed this, arguing that since the parties agreed on damages, there was no need for market rent.

5. Court's Analysis and Reasoning

The court analyzed whether Atma Ram Properties—which mandates fair market rent for unlawful possession after the decree in tenant eviction cases—applied here. It was held that the principle extended to licensee cases, as the licensee's occupation becomes unlawful upon termination, and the agreed fees do not necessarily reflect the current market rate.

6. Quantum of Rent

The court considered whether the rent fixed by the Appellate Court was excessive. The petitioner's valuation reports claimed lower rates, while the respondents provided evidence suggesting higher rent for similar premises. The court found the rate determined by the Appellate Bench reasonable.

Acts and Sections Discussed:

• Atma Ram Properties (P) Ltd. v. Federal Motors (P) Ltd. – Applied principles of fair market rent when a tenant/licensee continues to occupy the property unlawfully.
• Order 41 Rule 5 of the Code of Civil Procedure, 1908 – Governs the conditions under which an appellate court can stay the execution of a decree.
• Section 24 of Maharashtra Rent Control Act, 1999 (MRC Act) – Discusses damages in cases of residential licenses but does not apply to commercial premises, as in this case.

Ratio Decidendi:

The court ruled that a licensee's continued possession post-termination is unlawful, and under equitable principles, they must pay fair market rent, not just the contractually agreed compensation. This ensures the landlord is not unduly prejudiced during prolonged legal disputes.

Subjects:

• License Agreement
• Eviction Decree
• Fair Market Rent
• Atma Ram Properties Doctrine
• Appellate Stay