Delhi High Court
Shri Sunjay Aggarwal vs Ravi Bhushan Huf & Anr on 31 July, 2026
Author: Neena Bansal Krishna
Bench: Neena Bansal Krishna
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 6 th May, 2026
Pronounced on: 31st July, 2026
+ RFA 99/2025
SHRI SUNJAY AGGARWAL
S/o Shri R. K. Aggarwal,
R/o C-7, Suvidha Apartments,
Sector-13, Rohini,
Delhi- 110085 .....Appellant
Through: Mr. Shiv Charan Garg, Mr. Imran
Khan, Advocates.
versus
1.RAVI BHUSHAN HUF,
Through its Karta ,
Shri Ravi Bhushan,
S/o Shri Baldev Raj Dhingra,
R/o 63, Edward Line, GTB Nagar,
Kingsway Camp, Delhi-110009
2.Smt. Sapna,
W/o Shri Puneet Chanana,
D/o Shri Baldev Raj Dhingra,
R/o 2069, Outram Lines,
Kingsway Camp,
Delhi-110009 .....Respondents
Through: Mr.Naresh Gupta and Mr. Rachit
Gumber, Advocates.
CORAM:
HON'BLE MS. JUSTICE NEENA BANSAL KRISHNA
J U D G M E N T
NEENA BANSAL KRISHNA, J.
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1. The present Regular First Appeal under Section 96 of the Code of
Civil Procedure, 1908 (hereinafter referred to as “CPC“) has been filed on
behalf of the Defendant/Appellant against the Judgment and Decree dated
05.11.2024, passed by the learned District Judge, Delhi, whereby the Suit of
the Plaintiffs/Respondents was partly decreed and the Defendant/Appellant
was directed to pay damages at the rate of Rs.52,200/- per month for the
period commencing from 02.08.2013 till 31.03.2015.
2. The Plaintiffs/Respondents had instituted the Civil Suit bearing CS DJ
No.75770/2016 for recovery of possession, mesne profits and Mandatory
Injunction in respect of the entire basement and ground floor of property
bearing No.2271, admeasuring 160 square yards, situated at Hudson Lines,
Kingsway Camp, Delhi-110009(hereinafter referred to as the “suit
property”).
3. The facts in brief, as stated in the Plaint, are that the Defendant had
taken the suit property on rent under a duly executed and registered Rent
Agreement dated 26.04.2010. The tenancy was created for a period of three
years commencing from 01.04.2010 and ending on 31.03.2013. The last-
paid rent in respect of the Suit Property was Rs.52,200/- per month.
4. The Plaintiffs asserted that the tenancy expired by efflux of time on
31.03.2013, and out of abundant precaution, they served a Legal Notice
dated 10.01.2013 upon the Defendant, calling upon him to vacate and hand
over the possession of the suit property on or before 31.03.2013.
5. In terms of the Rent Agreement dated 26.04.2010, the Defendant was
under an obligation to vacate the suit property and hand over its peaceful
possession to the Plaintiffs, upon expiry of the tenancy. However, despite
the expiry of the stipulated period and the request made by the Plaintiffs on
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01.04.2013, the Defendant failed to vacate the suit property. The occupation
of the Defendant with effect from 01.04.2013 was, therefore, illegal and
unauthorised, and in the capacity of a trespasser.
6. Since the Defendant continued to remain in unauthorised use and
occupation of the suit property after 31.03.2013, he was liable to pay mesne
profits/use and occupation charges to the Plaintiffs. According to the
Plaintiffs, the suit property could have fetched a monthly rent of
approximately Rs.1,50,000/- if let out in the open market.
7. It was further averred that in terms of Clause 17 of the Rent
Agreement dated 26.04.2010, the Defendant was liable, in the event of his
failure to vacate the suit property upon expiry or earlier determination of the
tenancy, to pay twice the monthly rent till delivery of possession. On the
strength of the said Clause, the Plaintiffs claimed mesne profits at the rate of
Rs.1,04,400/- per month, describing the said amount as the pre-estimated
liquidated damages agreed between the parties.
8. It was also stated that under Clause 7 of the Rent Agreement dated
26.04.2010, the Defendant was liable to pay the conversion charges in
respect of the suit property to the MCD. The Defendant failed to pay the
conversion charges for the years 2011-2012 and 2012-2013, despite repeated
requests made by the Plaintiffs.
9. The Plaintiffs thus, instituted the Suit seeking recovery of possession
of the suit property, mesne profits/use and occupation charges with effect
from 01.04.2013 till handing over of its vacant possession, and a Decree of
Mandatory Injunction directing the Defendant to deposit the conversion
charges for the years 2011-2012 and 2012-2013, and thereafter, till vacation
of the suit property.
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10. The Defendant, in his Written Statement, took the preliminary
objection that the Plaintiffs had suppressed material facts and had not
approached the Court with clean hands. It was asserted that at the inception
of the tenancy, the Defendant had informed the Plaintiffs that he required the
suit property for a minimum period of 15 years, for running an Institute
offering Diploma and Degree Courses in Fashion and Interior Design
Technology.
11. According to the Defendant, though the Plaintiffs expressed their
inability to execute a Lease Deed for 15 years, they represented that a Lease
Deed would initially be executed for a period of three years and would
thereafter be renewed successively, so as to permit the Defendant to remain
in the suit property for the entire period of 15 years. Relying upon the said
assurance, the Defendant agreed to take the suit property on rent. It was thus
asserted that an oral understanding had been arrived at between the parties,
that the tenancy would continue from the year 2001 till the year 2016.
12. Pursuant to the said understanding, successive Rent Agreements were
executed between the parties for the periods 2001 to 2004, 2004 to 2007,
2007 to 2010 and 2010 to 2013. The fifth Rent Agreement was to be
executed for the period 2013 to 2016; however, upon expiry of the Rent
Agreement dated 26.04.2010, the Plaintiffs declined to execute a fresh
Agreement, purportedly to avoid the tax liability arising therefrom, while
assuring the Defendant that he could continue to occupy the suit property till
the year 2016.
13. It was stated that the Defendant had been regularly paying rent and
had never committed any default during the subsistence of the tenancy; that
several students were pursuing ongoing courses at the Institute being run
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from the suit property; and that discontinuation of the tenancy prior to the
year 2016, would adversely affect their studies.
14. It was further asserted that the Plaintiffs had continued to accept rent
even after 31.03.2013, and that the tenancy had therefore, not been
terminated by efflux of time. The receipt of the Legal Notice dated
10.01.2013 was denied, and it was asserted that no valid notice terminating
the tenancy had been served upon the Defendant.
15. On merits, the Defendant admitted that he had taken the entire
basement and ground floor of the suit property on rent and that the last-paid
rent was Rs.52,200/- per month. It was, however, denied that the tenancy
had expired on 31.03.2013, and it was asserted that he continued to be a
lawful tenant, pursuant to the oral understanding that the tenancy would
subsist for 15 years.
16. The Defendant denied that his possession of the suit property with
effect from 01.04.2013 was illegal or unauthorised, or that he was liable to
pay mesne profits at the rate of Rs.1,04,400/- per month, or that the Plaintiffs
were entitled to recover any amount over and above the agreed monthly rent,
which was being regularly paid and accepted.
17. The Defendant asserted that the conversion charges payable to the
MCD, had already been deposited by him from time to time. Accordingly,
the Defendant prayed for dismissal of the Suit.
18. The Plaintiffs filed their Replication, wherein they reiterated the
averments made in the Plaint and denied the assertions contained in the
Written Statement.
19. During the pendency of the Suit, the Plaintiffs filed an Application
under Order XII Rule 6 of the CPC, which was allowed vide Order dated
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09.07.2014. The Defendant was directed to hand over the possession of the
suit property to the Plaintiffs, and to pay arrears of rent/occupation charges
at the rate of Rs.52,200/- per month with effect from 01.04.2013, and was
further directed to continue paying the said amount from month to month.
20. In compliance with the said Order, the Defendant handed over the
possession of the suit property to the Plaintiffs on 31.03.2015. The
rent/use and occupation charges at the rate of Rs.52,200/- per month till
31.03.2015 were also paid by the Defendant.
21. Consequently, the Suit survived only in respect of the claim for
mesne profits/damages and the relief of Mandatory Injunction pertaining
to the conversion charges.
22. The Issues were initially framed vide Order dated 13.12.2023, and
thereafter Issue No.1 was subsequently reframed vide Order dated
21.08.2024. For the sake of convenience, the Issues were renumbered by the
learned District Judge, as under:
“1. Whether the plaintiff is entitled to the decree of mesne
profits for the period 01.04.2013 till 31.03.2015? OPP
2. Whether the plaintiff is entitled to recovery of interest on
that amount? If so, at what rate? OPP
3. Whether the plaintiff is entitled to the relief of mandatory
injunction as prayed for? OPP
4. Whether the lease was orally extended for another three
years between the parties w.e.f. 01.04.2013 till 31.03.2015?
OPD
5. Relief.”
23. In support of their case, the Plaintiffs examined PW-1Sh. Ravi
Bhushan,(Plaintiff No.1)who tendered his evidence by way of affidavit
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Ex.PW1/A. He proved the original Rent Agreement dated 26.04.2010 as
Ex.PW1/1; Legal Notice dated 10.01.2013; postal receipts; certified copies
of Lease Deeds dated 23.10.2015, 29.01.2014 and 22.07.2011 as Ex.PW1/1
to PW1/7.
24. In defence, the Defendant examined himself as DW-1 and tendered
his evidence by way of affidavit Ex.DW1/A, on the lines of the case set up
in the Written Statement.DW-1 relied upon the Google Maps printouts
depicting the location of two plots, along with the supporting Affidavit
under Section 63 of the BSA, 2023, collectively exhibited as Ex.DW1/1.
25. The learned District Judge, upon considering the pleadings and
evidence led by the parties, held that the Defendant had failed to prove that
the tenancy had been orally extended till the year 2016. It was observed that
no evidence, except his own testimony, had been led in support of the
alleged oral arrangement and, even in his Affidavit Ex.DW1/A, no specific
plea of oral extension had been taken.
26. Though the Defendant had denied receipt of the Legal Notice dated
10.01.2013, the learned District Judge held that service of summons in the
Suit was sufficient notice for termination of the tenancy under Section 106
of the Transfer of Property Act, 1882. Since the summons had been served
on 18.07.2013, the tenancy was held to have stood terminated on
02.08.2013.
27. As regards the claim for mesne profits, the learned District Judge held
that Clause 17 of the registered Rent Agreement, provided for payment of
twice the monthly rent in the event of failure to vacate the suit property, was
enforceable under Section 74 of the Indian Contract Act, 1872.
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28. Since the Defendant had already paid Rs.52,200/- per month till
handing over of possession on 31.03.2015, he was directed to pay an
additional sum of Rs.52,200/- per month as damages for the period from
02.08.2013 till 31.03.2015. The claim for interest on the said amount was,
however, declined.
29. The relief of Mandatory Injunction in respect of the conversion
charges was also declined, as PW-1 had not deposed in respect thereof in
his Affidavit Ex.PW1/A. The production of the receipts during the cross-
examination of DW-1, was held insufficient to prove the said claim.
30. Consequently, the Suit was partly decreed, and the Defendant was
directed to pay damages at the rate of Rs.52,200/- per month for the period
commencing from 02.08.2013 till 31.03.2015.
31. Aggrieved by the impugned Judgment and Decree dated 05.11.2024,
the Defendant/Appellant has preferred the present Regular First
Appeal,principally assailing the award of damages at the rate of
Rs.52,200/- per month for the period from 02.08.2013 till 31.03.2015.
32. The grounds of challenge are that the learned District Judge has
erroneously applied Section 74 of the Indian Contract Act, 1872, to hold that
the Plaintiffs were entitled to recover the amount stipulated under Clause 17
of the Rent Agreement, without proving the actual loss suffered by them or
the prevailing market rent of the suit property.
33. Section 74 of the Indian Contract Act does not entitle a party to
automatically recover the entire amount stipulated by way of penalty, but
only reasonable compensation not exceeding the amount so stipulated. The
Court was, therefore, required to determine reasonable compensation on the
basis of the pleadings and evidence led by the parties. Reliance has been
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placed upon M.C. Aggarwal, HUF v. Sahara India, 2011 SCC OnLine Del
3715, to contend that compensation must be assessed having regard to the
circumstances existing on the date of the breach.
34. It is further contended that the learned District Judge failed to
consider the definition of “mesne profits” under Section 2(12) of the CPC,
which contemplates the profits actually received, or which might with
ordinary diligence have been received, by a person in wrongful possession.
According to the Appellant, the amount payable towards mesne profits could
not have been determined merely on the basis of the penal stipulation
contained in Clause 17 of the Rent Agreement.
35. It is asserted that a contractual stipulation providing for payment of
twice the agreed rent, could not have been enforced without examining
whether the stipulated amount constituted a genuine pre-estimate of the loss
likely to be suffered or was merely in the nature of a penalty. Reliance has
been placed upon Maya Devi v. Lalta Prasad, (2015) 5 SCC 588, to contend
that the party claiming liquidated damages was required to plead and prove
that the stipulated amount represented a fair and reasonable pre-estimate of
damages.
36. The Appellant further contends that the Plaintiffs had failed to prove
that the suit property could have fetched rent at the rate claimed by them.
The Lease Deeds Ex.PW1/4 to Ex.PW1/7, relied upon to establish the
prevailing rent of comparable properties, were neither proved through their
executants nor shown to relate to properties similarly situated and
comparable to the suit property.
37. It is also asserted that the suit property was an old and dilapidated
residential property, comprising, inter alia, of a basement. No independent
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witness or other cogent evidence had been produced to establish that a
similarly situated property could command rent of Rs.1,04,400/- per month.
38. The Appellant thus, claims that the award of damages was based
solely upon Clause 17 of the Rent Agreement, without any determination of
reasonable compensation or prevailing market rent and was, therefore,
contrary to Section 74 of the Indian Contract Act, 1872 and Section 2(12) of
the CPC.
39. Accordingly the Appellant seeks setting aside of the impugned
Judgment and Decree dated 05.11.2024.
Submissions heard and record perused.
40. The Suit of the Plaintiffs/Respondents having been partly decreed and
possession having already been restored to them, during the pendency of the
Suit, the present Appeal is confined to a singular challenge,namely,
whether the learned District Judge was justified in awarding damages at the
rate of Rs.52,200/- per month for the period from 02.08.2013 till
31.03.2015, in addition to the sum of Rs.52,200/- per month already paid,
for the said period, solely on the strength of Clause 17 of the Rent
Agreement dated 26.04.2010, without independently assessing reasonable
compensation under Section 74 of the Indian Contract Act, 1872, or mesne
profits within the meaning of Section 2(12) of the CPC.
I.Whether Clause 17 was automatically enforceable under Section 74 of
the Indian Contract Act, 1872:
41. Section 74 of the Indian Contract Act, 1872 reads as under:
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“74. Compensation for breach of contract where penalty
stipulated for.-When a contract has been broken, if a sum is
named in the contract as the amount to be paid in case of
such breach,or if the contract contains any other stipulation
by way of penalty, the party complaining of the breach is
entitled, whether or not actual damage or loss is proved to
have been caused thereby, to receive from the party who has
broken the contract reasonable compensation not exceeding
the amount so namedor, as the case may be, the penalty
stipulated for.”
42. A plain reading of Section 74 makes it evident that the sum stipulated
in the contract does not become automatically recoverable merely upon
proof of breach. The aggrieved party is entitled only to “reasonable
compensation not exceeding” the sum named or the penalty stipulated. The
contractual amount, therefore, constitutes the outer limit of compensation,
while the determination of what would constitute reasonable compensation,
remains an exercise to be undertaken upon consideration of the facts and
material on record.
43. The learned District Judge has, however, treated Clause 17 of the
Rent Agreement as being automatically enforceable upon breach, “whether
or not actual damage or loss is proved”, and has held that the Plaintiffs were
entitled to receive the amount stipulated therein, whether or not actual
damage or loss was proved.
44. Such a reading of Section 74 was negatived by the Constitution Bench
of the Supreme Court in Fateh Chand v. Balkishan Das, (1964) 1 SCR 515,
wherein it was held that these words merely dispense with proof of the
precise quantum of loss, and do not dispense with the existence of legal
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injury. It was, in terms, observed that Section 74 “does not justify the award
of compensation when in consequence of the breach no legal injury at all
has resulted”.
45. The Constitution Bench further held that although the Court’s
jurisdiction to award compensation, is unqualified up to the stipulated
ceiling, “compensation has to be reasonable, and that imposes upon the
Court a duty to award compensation according to settled principles”.The
Constitution Bench, in the facts before it, held that although a stipulation for
forfeiture of Rs. 25,000/- had been included in the Agreement, and although
the defendant had committed breach, the plaintiff was entitled only to forfeit
the earnest money of Rs.1,000/- as reasonable compensation, and could not
retain the balance sum, no evidence having been led of any loss or damage
to justify a larger figure.
46. In the case of Oil and Natural Gas Corporation Ltd. v. Saw Pipes
Ltd., (2003) 5 SCC 705, the Supreme Court recognised that where the loss
arising from breach is difficult or impossible to quantify and the amount
stipulated represents a genuine pre-estimate which is neither unreasonable
nor penal, the stipulated amount may be awarded ,without independent proof
of the precise quantum of loss. The principle, however, does not dispense
with proof where the loss is capable of being established by evidence.
47. The principles enunciated in Fateh Chand (supra) and Saw Pipes Ltd.
(supra) were thereafter comprehensively restated by the Supreme Court in
Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136.
48. Upon a review of the earlier authorities, the Supreme Court
summarised the law governing compensation under Section 74 in paragraph
43,as under:
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“43.1. Where a sum is named in a contract as a liquidated amount
payable by way of damages, the party complaining of a breach can
receive as reasonable compensation such liquidated amount only if it
is a genuine pre-estimate of damages fixed by both parties and found
to be such by the court. In other cases, where a sum is named in a
contract as a liquidated amount payable by way of damages, only
reasonable compensation can be awarded not exceeding the amount
so stated. Similarly, in cases where the amount fixed is in the nature of
penalty, only reasonable compensation can be awarded not exceeding
the penalty so stated. In both cases, the liquidated amount or penalty
is the upper limit beyond which the Court cannot grant reasonable
compensation.
43.2. Reasonable compensation will be fixed on wellknown principles
that are applicable to the law of contract, which are to be found inter
alia in Section 73 of the Contract Act.
43.3. Since Section 74 awards reasonable compensation for damage
or loss caused by a breach of contract, damage or loss caused is a
sine qua non for the applicability of the Section.
…
43.6. The expression ‘whether or not actual damage or loss is proved
to have been caused thereby’ means that where it is possible to prove
actual damage or loss, such proof is not dispensed with. It is only in
cases where damage or loss is difficult or impossible to prove that
the liquidated amount named in the contract, if a genuine pre-
estimate of damage or loss, can be awarded.”
49. It was thus, held that where a sum is named in a contract as liquidated
damages, the party complaining of breach, may receive the stipulated
amount as reasonable compensation only where it represents a genuine pre-
estimate of damages agreed between the parties and is found by the Court to
be such. In all other cases, whether the amount stipulated is described as
liquidated damages or is in the nature of a penalty, only reasonable
compensation may be awarded, not exceeding the amount so stipulated,
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which constitutes the upper limit beyond which compensation cannot be
granted.
50. It was further held that damage or loss caused by the breach is a sine
qua non for the applicability of Section 74; and that where it is possible to
prove actual damage or loss, such proof is not dispensed with, and it is only
in cases where damage or loss is difficult or impossible to prove that the
liquidated amount, if a genuine pre-estimate, may be awarded.
51. Thus, two features of Section 74 have consistently been emphasised:
first, that the stipulated amount operates as the outer limit, not the automatic
measure, of compensation; and second, that the dispensation with proof of
“actual damage or loss” does not amount to a dispensation with the
requirement of legal injury.Even where proof of the precise quantum of loss
may be dispensed with because such loss is difficult or impossible to assess,
the Court is not relieved of its obligation to apply its mind to what would
constitute reasonable compensation, in the facts of the given case.
52. In the present case, Clause 17 of the Rent Agreement dated
26.04.2010, provided that in the event of continued occupation, the
Defendant “shall be liable to pay two times of the rent per month payable at
that time”.
53. In terms of Section 74 read with the enunciation in Fateh Chand
(supra) and Kailash Nath Associates (supra),insofar as the claim of the
Plaintiffs was founded upon Clause 17, the amount stipulated therein could
operate only as the maximum contractual limit of compensation and not as
its automatic measure.
54. The learned District Judge was required to ascertain reasonable
compensation on the material placed on record, subject to the ceiling of
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Rs.1,04,400/- per month prescribed by Clause 17, and could not have
decreed the said figure mechanically.
II. The meaning and measure of mesne profits under Section 2(12) of the
CPC
55. Section 2(12) of the CPC defines “mesne profits” as under:
“‘mesne profits’ of property means those profits which the
person in wrongful possession of such property actually
received or might with ordinary diligence have received
therefrom, together with interest on such profits, but shall
not include profits due to improvements made by the person
in wrongful possession.”
56. The very definition of mesne profits means the profits which the
person has derived from the wrongful possession of the property. It is,
therefore, evident that the calculation of mesne profits is not of the profits
which the Plaintiff may have derived from sale or otherwise of the property,
but is the wrongful benefit derived by the tenant, who has continued in
unlawful possession.
57. The Supreme Court in Atma Ram Properties (P) Ltd. v. Federal
Motors (P) Ltd., (2005) 1 SCC 705, held that once a tenancy governed by
the Transfer of Property Act, 1882 comes to an end, the erstwhile tenant
becomes liable, for the period during which he continues in occupation, “to
pay damages for use and occupation at the rate at which the landlord could
have let out the premises on being vacated by the tenant”. It was further
held that the landlord is not confined, for such period, to the contractual rate
of rent payable during the subsistence of the tenancy.
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58. In Bureau of Indian Standards v. Goodwill Theatres Pvt. Ltd., 2018
(1) RCR (Civil) 400, while referring to the definition of mesne profits under
Section 2(12) of the CPC, mesne profits do not include profits due to
improvements made by the person in wrongful possession, and represent the
value of the usage of the land to the person in wrongful possession. The
reference point for the assessment is, therefore, the value which the person
in wrongful possession has enjoyed by continuing in occupation, which is
ordinarily measured by the rent at which similarly situated premises could
have been let out in the open market during the period of such occupation.
59. Applying the aforesaid principles, the measure of mesne profits in the
present case,was the rent which the suit property could reasonably have
commanded in the open market during the period from 02.08.2013 till
31.03.2015. The last-paid contractual rent of Rs.52,200/- per month and the
amount stipulated under Clause 17 could constitute relevant circumstances,
but neither could, by itself, conclusively determine the market letting value
of the suit property.
60. It is also pertinent to note that Rs.52,200/- per month was not a static
rent agreed between the parties, but represented the rent payable only during
the final year of the tenancy. Under the Rent Agreement dated 26.04.2010,
the monthly rent was fixed at Rs.47,000/- for the year 2010-2011,
Rs.49,600/- for the year 2011-2012 and Rs.52,200/- for the year 2012-2013.
The contractual arrangement itself, therefore, contemplated an annual
escalation of approximately 5% in the rent of the suit property, which
constitutes a relevant indicator while assessing its rental value for the
period immediately following the expiry of the tenancy.
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61. The loss occasioned to a landlord on account of continued occupation
of tenanted premises by an erstwhile tenant, is not a loss incapable of
ascertainment; it is a loss which is ordinarily capable of being demonstrated
through evidence of prevailing rentals of comparable premises in the same
locality. The present case, therefore, does not fall within the class of cases
contemplated in Saw Pipes (supra), where the nature of the transaction
rendered the loss difficult or impossible to quantify. The Plaintiffs were,
therefore, required to establish the said loss on evidence, and could not have
anchored their claim upon Clause 17 alone.
62. The question whether a clause providing for payment of double the
contractual rent in the event of continued occupation post-termination, can
be enforced under Section 74 of the Indian Contract Act, 1872 without proof
of the loss actually suffered by the landlord, had come up for consideration
before this Court in M/s Sahara India v. M.C. Agrawal HUF, 2011 SCC
OnLine Del 3715, in the context of a lease of commercial premises which
contained a clause similar to Clause 17 of the present Rent Agreement.
63. It was held that such a clause providing for payment of double the
contractual rent during the period of unauthorised occupation, is ex faciein
the nature of a clause in terrorem and cannot be mechanically enforced
under Section 74 of the Indian Contract Act, 1872. It was further observed
that “what is the rent which the premises can fetch during the period of the
illegal occupation by the erstwhile tenant is a fact which can be easily
proved in a suit for possession and mesne profits against the tenants by
leading evidence with respect to rents of similar premises within the
locality”. The award of mesne profits at double the contractual rate was,
accordingly, set aside.
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64. Since the landlord in that case, had not led any evidence regarding the
rent fetched by similar premises in the locality during the relevant period,
the Court took judicial notice of the escalation in rentals in urban Delhi and
assessed mesne profits by applying an annual compounded enhancement of
15% over the last contractual rent. The said method was thus, adopted as a
substitute in the absence of reliable evidence of the prevailing market rent,
and not as an inflexible rule applicable, irrespective of the evidence
available in a given case.
65. The question was again considered by this Court in State Bank of
India v. Dr. Meera Luthra & Ors., 2017 SCC OnLine Del 9513, wherein it
was held that the assessment of mesne profits is essentially a question of
fact, dependent upon either party proving the rate of rent for the relevant
period, and that Lease Deeds pertaining to years removed from the said
period, cannot be relied upon to establish the prevailing market rent.
66. A Division Bench of this Court, in M/s Mehra Jewel Palace Pvt. Ltd.
v. Miniso Lifestyle Pvt. Ltd. &Anr., 2025 DHC 8351-DB, decided on
22.09.2025, upon a consideration of Fateh Chand (supra) and Kailash Nath
Associates (supra), held that the stipulated sum in a clause providing for
double the rent in the event of continued occupation, could operate only as
the outer limit, and that damage or loss caused by the breach was the sine
qua non for the applicability of Section 74. It was further held that in the
absence of any pleading or proof by the lessor that the market rent had
increased, or that any loss had been suffered, no recovery over and above the
contractual rent could be granted.
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III. Appreciation of the material placed on record by the Plaintiffs:
67. The measure of mesne profits being the rent which the suit property
could have commanded in the open market during the relevant period, it
becomes necessary to consider the material which the Plaintiffs placed on
record in that regard. The Plaintiffs, in paragraph 6 of the Plaint, had averred
that the suit property was capable of fetching approximately Rs.1,50,000/-
per month if let out in the open market, and, in support thereof, had
exhibited four Lease Deeds Ex.PW1/4 to Ex.PW1/7.
68. The learned District Judge, at paragraph 30 of the impugned
Judgment, has recorded that “the plaintiff proved on record certain rent
agreements Ex.PW1/4 to Ex.PW1/7 to prove on record the contemporary
rate of rent which could be fetched by similar properties”, but has thereafter
declined to consider the same, on the twin grounds that these facts were not
pleaded in the Plaint, and that the Plaintiffs had already been awarded
penalty in view of Clause 17 of the Rent Agreement.
69. Neither of these grounds can be sustained. The averment as to the
prevailing market rent,was specifically contained in paragraph 6 of the
Plaint itself. As regards the second ground, Clause 17 could not, in view of
the discussion above, could have been mechanically enforced under Section
74, and the evidence regarding market rent could not, therefore, have been
rendered superfluous on that account.
70. The registered Lease Deed dated 23.10.2015Ex.PW1/4, commencing
from 01.11.2015, was executed by the Plaintiffs in respect of the Ground
Floor of the same property bearing No.2271, Hudson Lines, in favour of Sh.
Gopal Goel, at a monthly rent of Rs.75,000/- with an annual escalation of
5%. Though it relates only to the Ground Floor and not to the entire suit
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property comprising the basement and Ground Floor, it commenced within
seven months after possession was recovered from the Defendant. It is,
therefore, the most direct evidence on record of the subsequent renting value
of the Ground Floor of the suit property.
71. The registered Lease DeedsEx.PW1/5 and Ex.PW1/6are in respect of
the basement and Ground Floor, respectively, of the neighbouring property
bearing No.2510, Hudson Lines. Ex.PW1/6 was executed on 22.07.2011 for
a term of five years commencing from 01.08.2011, and Ex.PW1/5 was
executed on 29.01.2014 for a term of five years commencing from
10.02.2014, both with an annual escalation of 5%.
72. Under registered Lease Deed Ex.PW1/6, the rent for the Ground
Floor was Rs.1,10,250/- per month from 01.08.2013 till 31.07.2014 and
Rs.1,15,763/- per month from 01.08.2014 till 31.07.2015.As per registered
Lease Deed Ex.PW1/5, the rent for the basement was Rs.55,000/- per month
from 10.02.2014 and Rs.57,750/- per month from 10.02.2015.
73. Taken together, they demonstrate that during the overlapping period
from 02.08.2013 to 31.03.2015, the combined market rent for the basement
and Ground Floor of property No. 2510,ranged from approximately
Rs.1,65,250/- to Rs.1,73,513/- per month,which is materially higher than the
sum of Rs.1,04,400/- per month, stipulated by Clause 17.
74. The Appellant has, however, contended that property No. 2510 is not
comparable to the suit property, on account of differences in location and
characteristics.
75. PW-1, Ravi Bhushan, in his cross-examination dated 28.02.2024, has
admitted that DTC buses ply on the road on which property No. 2510 is
situated, and that the suit property is situated on a 30-feet-wide road with a
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nala in front. PW-1 has, however, voluntarily stated that “the status of road
on which the property No. 2510 is situated is the same as of my property”,
and has denied the suggestion that property No. 2510 cannot be compared
with the suit property for the purposes of damages and rent.
76. It is also pertinent to observe that DW-1, Sunjay Aggarwal, in his
cross-examination, has himself admitted that “the property no. 2510 and the
suit property i.e. 2271 fall in Hudson Line area”, and that “the distance
between the aforesaid two properties is 200 meters”. The comparability of
the two properties, so far as location and neighbourhood are concerned, is
therefore not open to dispute by the Appellant.
77. The rentals reflected in Ex.PW1/5 and Ex.PW1/6 are, therefore,
relevant indicators of the prevailing market rent in the locality, during the
period in question. Since the said Lease Deeds relate to the basement and
Ground Floor of a property situated in the same locality and approximately
200 metres from the suit property, they constitute substantial comparative
material for assessing the market rental value of the suit property.
78. Though the two properties are situated in the same locality at a
distance of 200 meters from each other, the differences concerning frontage,
accessibility and immediate surroundings do affect the weight to be assigned
to Ex.PW1/5 and Ex.PW1/6, and warrant a reasonable downward
adjustment while applying the rentals reflected therein to the suit property.
Even after such adjustment, the market rent for the basement and Ground
Floor of the suit property, taken together, during the period 02.08.2013 to
31.03.2015, would remain materially in excess of Rs.1,04,400/- per month.
79. DW-1, Sunjay Aggarwal in his cross-examination dated 21.08.2024,
has also admitted that “I had agreed to pay double of the rent amount as
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penalty charges in terms of Para 17 of Ex. PW1/1, if I do not vacate the
tenant premises despite determination and termination of my tenancy”.
While the said admission does not render Clause 17 automatically
enforceable in view of the discussion above, it does establish that a doubling
of the rent as the anticipated consequence of continued occupation, was
consciously agreed to by the Defendant, and was within the contemplation
of both parties.
80. On a conspectus of the aforesaid material, the market rental value of
the suit property, comprising the basement and Ground Floor of property
No.2271, Hudson Lines, during the period from 02.08.2013 till 31.03.2015,
may reasonably be assessed at an amount exceeding Rs.1,04,400/- per
month.
81. Even after making an appropriate downward adjustment for the
differences between the suit property and property No.2510, the figure of
Rs.1,04,400/- per month represents a reasonable and conservative
assessment of its rental value.
IV. The effect of Section 74 of the Indian Contract Act, 1872 on the
compensation recoverable:
82. The evidence appreciated above, establishes that the market rent for
the basement and Ground Floor of the suit property, taken together, during
the period 02.08.2013 to 31.03.2015, was in excess of Rs.1,04,400/- per
month.However, in terms of Clause 17 of the Rent Agreement dated
26.04.2010, the parties themselves had fixed the sum payable in the event of
continued occupation at twice the monthly rent, that is, Rs.1,04,400/- per
month. As held in Fateh Chand (supra) and Kailash Nath Associates (supra),
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the said sum operates as the outer limit of the compensation recoverable by
the Plaintiffs under Section 74 of the Indian Contract Act, 1872.
83. The reasonable compensation payable to the Plaintiffs for the
wrongful use and occupation of the suit property by the Defendant during
the said period is, accordingly, held at Rs.1,04,400/- per month, that being
the figure at which the market evidence on record stands checked by the
ceiling prescribed by Section 74. The said figure is arrived at not by
mechanical enforcement of Clause 17 of the Rent Agreement, but upon an
independent appreciation of the material on record, which discloses a market
rent in excess thereof, and by application of the statutory ceiling to the
compensation so assessed. The Defendant having already paid a sum of
Rs.52,200/- per month for the said period, the additional sum payable to the
Plaintiffs works out to Rs.52,200/- per month.
Conclusion
84. The learned District Judge, in the impugned Judgment, proceeded on
the reasoning that Clause 17 of the Rent Agreement was automatically
enforceable upon breach under Section 74 of the Indian Contract Act, 1872,
and on that footing, declined to appreciate the material placed on record by
the Plaintiffs, i.e. leases Deeds Ex.PW1/4 to Ex.PW1/7. For the reasons set
out above, the said reasoning is not sustainable in law.
85. However, on a proper appreciation of the material on record, the
additional sum of Rs.52,200/- per month awarded by the learned District
Judge for the period 02.08.2013 to 31.03.2015 is sustainable as mesne
profits under Section 2(12) of the CPC and reasonable compensation, being
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within the ceiling prescribed by Clause 17 of the Rent Agreement, in terms
of Section 74.
86. In the light of above reasoning, the impugned Judgment and the
Decree awarding the said amount is affirmed.
87. The Regular First Appeal is accordingly, dismissed.Pending
Application(s), if any, are disposed of, accordingly.
(NEENA BANSAL KRISHNA)
JUDGE
JULY 31, 2026
N
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