Mesne Profit : Compensation On Account Of Unauthorized Holding

Vishal Garg Narwana, Advocate
Punjab & Haryana High Court, Chandigarh
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Date : 04/08/2023
Location : Kothi No. 2024, Sector 21-C, Chandigarh
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Mesne Profit : Compensation On Account Of Unauthorized Holding

The underlying principle based on which the `Code of Civil Procedure, 1908' functions is `ubi jus ibi remedium' that signifies that where there is a right, there is a remedy. The concept of mesne profits has been developed from this principle because it is the law of nature to provide the right to compensation where there has been an infringement or breach of a legal right. The concept of mesne profits has its origin in the medieval period. Under the feudal system, the King owned all land. The King would let out a part of these lands to his barons on the condition that they will provide him with soldiers whenever he wanted to raise an army.

Mesne Profit are described in Section 2(12) of the Code of Civil Procedure, 1908, as those profits that the person in wrongful possession of the property actually received or could have obtained with reasonable diligence, along with interest on those profits; however, profits attributable to improvements made by the person in wrongful possession is not included. The procedure presenting the rights of the parties involved in a suit concerning mesne profits, a civil court will rely on Rule 12 of Order 20 of Code of Civil Procedure, 1908. When a decree has to be passed for recovery of possession of immovable property and for mesne profits then the procedure as laid down in Order 20 Rule 12 CPC would have to be followed.

The Civil Procedure Code, 1908, does not specify any standards by which the mesne profits should be evaluated. The law just stipulates that any profits gained from renovations or upgrades of the property are disregarded however the interest on such profits is included. Mesne profits must be in net profits as well, under the equity rule. Mesne Profit is a type of damage; hence the government cannot set a set standard on how to measure them.

The amount of mesne profits will thus be decided by the court at its discretion based on the various factors like Nature and Condition of the property; Location of the property; Value of the property. However, as we are unable to specify a specific range for mesne profit, the courts must adhere to a few guidelines when determining the amount to be granted. The profit taken the account is made by the person in wrongful possession, restoration of status before the dispossession of the Decree-holder. The uses to which the decree-holder could have put the property in if he was the possessor. A lessee, tenant, or licensee who occupies the property for a length of time longer than that for which authorization was granted, or whose occupancy is terminated by termination, revocation, or order of the court, is considered to be in unlawful possession and is responsible for paying mesne profits. It is settled principle of law that in case of mesne profits the burden of proof rests on the claimant i.e. the plaintiff. Before claiming mesne profit, the plaintiff has to establish before the Hon'ble Court that he was lawful owner of the property and he was deprived of it by the unlawful possession of the defendant. The plaintiff having proved the aforementioned facts becomes entitled to mesne profit.

The tenant is liable to pay mesne profits or compensation for use and occupation of the premises at the same rate at which the landlord would have been able to let out the premises and earn rent if the tenant would have vacated the premises. The landlord is not bound by the contractual rate of rent effective for the period preceding the date of the decree.

The basis of determination of the amount of mesne profit, depends on the facts and circumstances of each case considering place where the property is situated i.e. village or city or metropolitan city, location, nature of premises i.e. commercial or residential area and the rate of rent precedent on which premises can be let out are the guiding factor in the facts of individual case.

There could be no straight jacket formula while fixing the amount of mesne profits in such cases and the Courts would have to be guided by the facts and circumstances of each case and upon various judgments to fix the mesne profits. There should be a balance between the competing claims between mesne profit at market rate and reasonable compensation for landlord. The basic burden lies upon the landlord to prove and support his case of reasonable compensation/mesne profits. He must put on record material documents/compensation along with the affidavit to support his case of enhanced. The material if placed by the landlord/Licensor/Owner, the Court needs to consider the said material by giving full opportunity to the tenant/Licensee/Occupant/trespasser/obstructionists. The Rent Control Legislation, governing the particular premises/Location/residential or non-residential area of the premises, the age/nature and the construction of building/premises, the facilities in the premises and outside the premises, advantages and disadvantages, the market value and the rental value of the premises based on architecture/expert/valuation reports/opinion, other instances of the rent/license fees of similarly situated premises and the date of termination of the tenancy/license are to be considered while determining the mesne profit. The compensation was awarded as condition precedent should not be oppressive and unreasonable which in a given case, if tenant failed to pay, has no option but to suffer the execution of a decree, as observed by the Apex Court in Niyas Ahmed (supra). The user and the use of the premises are also material. The market value changes with time. The stamp duty is also changes accordingly. The rent/license fee/compensation so fixed at the interim period, based upon the market value may in a given case needs to be changed or re-fixed if case is made out. It may go up or go down if market value changes drastically. One cannot overlook that at the time of basic agreement, both the parties mutually agreed to the particular rent/Leave license fee irrespective of valuation of the property. Now, when the Court fixes the compensation/license fee, after termination of the tenancy, there is no question of any agreed rent or compensation. The Court after giving opportunities to both the parties, needs to decide the interim and urgent issue of grant of provisional fair and reasonable compensation/occupation charges, based upon authenticated material produced on the record, pending the Appeal, summarily. There is no question of detail trial, but it is an essential condition precedent to grant stay of the eviction decree/order on the footing of Order 41 Rule 5 of Civil Procedure Code. The final decision of the appeal should be uninfluenced by such tentative figure/order. Such provisional payment should be condition precedent but it is always adjustable. The amount so fixed in such proceedings is tentative figure. Such interim order/payment is always subject to the final result of the appeal. The cases of trespasser, unauthorized occupant, obstructionist need to be dealt with again on different footing than that of a regular tenant/protected tenant/licensee as they are not governed by the Rent Control Legislation. Such unauthorized or illegal occupants, based upon the material produced on record, after giving opportunity to them may be directed to pay such occupation charges/compensation, pending the appeal, at the current market rate/rent which may be determined by the Court, taking note of interest of both the parties.

The landlord is entitled to reasonable compensation from the date of the eviction order i.e. the date when the tenant's possession became illegal. This however could not be extended to a case where, for instance the landlord moves an application after inordinate period of delay. Resultantly, the period for which the amount would be payable must be restricted to 3 years.

Under Section 2(12) of the Civil Procedure Code, 1908, which contains the definition of mesne profit, interest is an integral part of mesne profits and has to be in the computation of mesne profits itself. This proceeds on the theory that the person in wrongful possession appropriating income from the property himself gets the benefit of the interest on such income.

If the tenant having suffered a decree or order for eviction may continue his fight before the superior forum but, on the termination of the proceedings and the decree or order of eviction first passed having been maintained, the tenancy would stand terminated with effect from the date of the decree passed by the lower forum. In the case of premises governed by rent control legislation, the decree of eviction on being affirmed, would be determinative of the date of termination of tenancy and the decree of affirmation passed by the superior forum at any subsequent stage or date, would not, by reference to the doctrine of merger have the effect of postponing the date of termination of tenancy.

In calculation of mesne profits, once the rent paid on similar premises on same area was taken as the basis and the definition of mesne profits in Section 2(12) CPC provides that mesne profits include the interest thereon. The market rate as per the current potential of the suit property should be considered while deciding on the amount of mesne profits to be granted to the property owner.

To summarize, mesne profits of property are defined as those profits that the person in wrongful possession of the property actually received along with interest on those profits and the actual profit gained by the possessor or reasonably might have received with the use of the said property. Additionally, rather than considering what the plaintiff has lost as a result of being deprived of possession, the court calculates the mesne profits based on what the defendant has acquired or reasonably could have gained with ordinary effort by unlawfully having the property. Mesne profits are a form of damages caused to the actual owner and the right to sue for mesne profit is a right to sue for damages. This right is a right in personam which cannot be transferred and cannot be attached or sold in execution of a decree against the person entitled to the decree under Section 60 of the Code of Civil Procedure. The period of limitation for a suit for the profits of immovable property belonging to the plaintiff which have been wrongfully received by the defendant is three years and the time of limitation begins to run when the profits are received.

Judgements relied upon:

1. M/s. Martin & Harris Private Limited & Anr. v.Rajendra Mehta & Ors., 2022(8) SCC 527.

2. Anderson Wright & co. v. Amarnath Roy, 2005 (2) RCR (C) 831.

3. N. Dasjee v. Tirupathi Devasthanam, AIR 1965 SC 1213.

4. M/s. Atma Ram Properties (P) Ltd v. M/S. Federal Motors Pvt. Ltd., 2005 (1) RCR (C) 212.

5. State of Maharashtra & Anr. v. M/s. Super Max International Pvt. Ltd., 2009 (2) RCR (R) 246.

6. Achal Mishra v. Rama Shankara Singh and Others, 2006 (1) R.C.R (Rent) 532.

7. Congress Committee (I) Rural and Another v. A. Brahmgyan Singh, 2022 (2) RCR (R) 212.

8. Angoori Devi and others v. Smt. Satya Bhama, 2016(5) R.C.R (Civil) 1043.

9. M/s Yogpathy and others v. M/s Fabmark Exports, 2022 (1) RCR (R) 49.

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