1. Foreign Exchange Management Act, 1999 has come into force from 1st June, 2000 replacing the earlier Act of Foreign Exchange Regulation Act, 1973.  The Reserve Bank of India had made regulation under clause (1) of sub section (3) of Section 6, sub section (2) of Section 47 of FEMA with regard to “Foreign Exchange Management (Acquisition & Transfer of Immovable Property in India) Regulation 2000.  Before we deal with the said Foreign Exchange Management Acquisition and Transfer of Immovable Property in India) Regulation 2000, it is necessary to know certain definition under FEMA.  Section 2 of FEMA gives various definitions of the words used in the said Act which are also applicable to the said Regulation.  Some of them which are relevant for this Article are as under :-

Section 2(v) – Person resident in India means –

(i)  a person residing in India for more than one hundred and eighty two days during the course of the preceding financial year but does not include -

(A)  a person who has gone out of India or who stays outside India, in either case -

(a)   for or on taking up employment outside India, or

(b)  for carrying on outside India business or vocation outside India, or

(c)  for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B)  a person who has come to or stays in India, in either case, otherwise than -

(a)     for or on taking up employment in India, or

(b)    for carrying on in India a business or vocation in India, or

(c)    for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

(i)       any person or body corporate registered or incorporated in India;

(ii)      an office, branch or agency in India owned or controlled by a person resident outside India,

(iii)    an office, branch or agency outside India owned or controlled by a person resident outside India,

(iv)      an office, branch or agency outside India owned or controlled by a person resident in India.

Section 2(w) –  person resident outside India means  a person who is not resident in India.

  Under the said Regulation 2000, Regulation 2(c) defines a person of Indian origin which reads as under :

“a person of Indian origin’ means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who

(i)   at any time, held Indian passport;

or

(ii) who or either of whose father or whose grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

The aforesaid 3 definitions are vitally important as far as the application of the said Regulation 2000 is concerned.

2.   We shall divide them into following categories : 

(a)     A person who is a citizen of India and resident of India,

(b)    A person who is citizen of India but resides outside India,

(c)    A person who is of Indian origin but resides outside India.

(a) A person who is a citizen of India and also resident of India does not need any permission for the purpose of acquiring or selling any immovable property.  There is no provision or restriction made with regard to Indian citizens who are residents of India as far as the transactions of immovable properties are concerned.

(b) A person who is a citizen of India but resident outside India – He

(i) may acquire any immovable property in India other than agricultural/plantation/farm house.

(ii) transfer any immovable property in India to a person resident in India, and

(iii) transfer any immovable property other than agriculture or plantation property or farm house to a person resident outside India who is a citizen of India or a person of Indian origin resident outside India.  Such a person can acquire any immovable property in India except agriculture/plantation/farm house.  He can also sell any immovable property to the residents in India.  This will include agriculture/plantation/farm house, if it belongs to him.  There is no restriction on transfer of agriculture/plantation/farm house so far as he does so in favour of residents in India.  Such a person can also transfer immovable property other than agricultural/plantation/farm house to any person who is a citizen of India but resident outside India or to a person of Indian original resident outside India.  In other words if the purchaser is citizen of India or of Indian origin, even though he is resident outside India, such a person can transfer immovable property other than agriculture/plantation/farm house to such an Indian citizen or person of Indian origin.  Such a person cannot transfer any immovable property to a person who is neither a citizen of India nor of Indian origin if he resides outside India.  A person who reside in India even though he may not be a citizen or of Indian origin can be transferee of property from such a person.

(c)  A person of Indian origin who is a resident outside India -

(i)  He may acquire immovable property other than agricultural land/farm house/plantation property in India by purchase from, out of (a) funds received in India by way of inward remittance in any place outside India or (b) funds held in any non-resident account maintained in accordance with the provisions of the Act and the Regulation made by the Reserve Bank under the Act.  In other words, such a person can acquire any immovable property other than agricultural land, etc. provided funds are inward remittance from out of India or fund held in non-resident account.  Except the aforesaid two funds, such a person cannot use any other fund for acquiring immovable property in India.

(ii) He may acquire any immovable property in India other than agricultural land/farm house/plantation property by way of gift from a person resident in India or from a person resident outside India who is a citizen of India or from a person of Indian original resident outside India.  Such a person can receive immovable property as a gift from the following categories :  (i) a person resident in India, (ii) a person resident outside India but a citizen of India, and (iii) a person resident outside India but of Indian origin.  Therefore, such a gift of immovable property cannot be accepted by such a person from a person who is neither a citizen of India nor of Indian origin if he is resident outside India.

(iii)  He may acquire any immovable property in India by way of inheritance from a person resident outside India who has acquired such property in accordance with the provisions of Foreign Exchange Law in force at the time of acquisition by him or the provisions of this Regulation or from a person resident in India.  One more way of acquiring such property by such a person is by way of inheritance.  But he can get the property by inheritence provided the deceased was (i) a person resident in India (it does not matter whether he is a citizen or not or whether he is of the Indian origin or not), (ii) the deceased had acquired the property as per the regulation than prescribed at the time of acquisition by him or present Regulation 2000.  Here there is no exception of agricultural land/farm house/plantation property.  Such property can also be inherited provided the aforesaid conditions are fulfilled.

(iv)  Such a person can transfer any immovable property other than agricultural land/plantation property/farm house by way of sale to a person resident in India.  Such a person cannot sell agricultural land, farm house or plantation property to any person.  However, in case of other immovable property, he can only sell the said property to a person who is resident in India.  A person who is not of resident of India cannot  purchase from such a person any immovable property.  

(v)  He can transfer agricultural land/farm house/plantation property in India by way of gift or sale to a person resident in India who is a citizen of India.  Such a person can sell or gift even the agricultural land/farm house/plantation property provided the purchaser or donee is Indian citizen who is resident in India.  A person who is resident outside India or a person who is not a citizen of India cannot be a purchaser or donee from such a person.  Both the conditions are required to be complied with, i.e. he has to be a citizen of India and he is to be resident of India.  In short, the purchaser or donee of agricultural land, etc. from such a person has to be  Indian citizen who is resident of India.

(vi)  He can transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian origin but resident outside India.  Such a person can gift immovable property as well as agricultural land, etc. to a person (i) who is a resident in India, or (ii) to a person resident outside India but who is a citizen of India, or (iii) to a person of Indian origin resident outside India.  In short, if one is a citizen of India or of Indian origin or resident in India, then he can be a donee of a gift of immovable property from such a person. 

3. There is a specific provision meant for acquisition of immovable property for carrying on a permitted activity.  A person resident outside India who has established in India in accordance with the Foreign Exchange Management (has established in India of branch or office or other place of business) Regulation 2000, a branch office or other place of business for carrying on in India any activity, excluding liaison office , may, acquire any immovable property in India, if it is necessary or incidental to carrying on such activity provided all applicable rules, regulations or directions for the time being in force are duly complied with and the person/s files with the Reserve Bank a declaration in Form IPI not later than 90 days from the date of such acquisition.  In other words a person may not be a citizen of India, may not be of Indian origin, but he has opened a branch or office or other place of business for carrying on in India any activity (excluding liaison office) even though he is a person resident outside India, can acquire any immovable property which is necessary for or incidental to carrying on such activity.  It will be, however, subject to two conditions (i) it must comply with applicable law, rules, regulations and directions, and (ii) filling a declaration in prescribed form not later than 90 days from the date of such acquisition.  Such a person can also transfer to an authorised dealer by way of mortgage  as a security for any borrowing the immovable property acquired which was necessary for or incidental to carrying on such activity.

4. However, there is complete prohibition on acquisition of immovable property in India by citizens of Pakistan Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan without prior permission of the Reserve Bank except in a case of lease not exceeding five years.  Citizens of these countries can neither purchase nor sell immovable property without permission of the Reserve Bank even though they may be residents of India.  They may take on lease or grand lease of immovable property in India but not exceeding a period of five years.

5. There is overall restriction on a person who is resident outside India as to transfer of any

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IX. TAXATION AND REAL ESTATE INVESTMENT

Court Judgments on Income Tax related with property

1. Madras High Court
Purchase of immovable property by Govt. – Principles of Natural justice must be followed – Opportunity to be heard must be given before passing order U/s 269 UD – Reasons for passing order may be recorded separately but the order would be incomplete unless either reasons are incorporated in the order of are served separately along with the order on affected party – Reasons for order must be communicated to the affected party – Income Tax  1961 Se. 269 UD.
GOVERNMENT OF INDIA AND ANOTHER
Vs.
MAXIM A LOBO AND ANOTHER (190 – ITR – 101)

2. (In the Andhra Pradesh High Court)
Mrs. Sooni Rustom Mehta and others
Vs.
Appropriate Authority Income Tax Department. (191 – ITR 290)
M. JAGANNDHA RAO and J.ESWARA PRASAD J.J. Acquisition of immovable property – deposit of consideration with Appropriate Authority – condition – precedent – Dispute regarding title to receive consideration – Meaning of “DISPUTE” and “TITLE” – Write Petition challenging rires of provisions – Amounts to dispute regarding title to receive consideration – Deposit of consideration with Appropriate Authority – valid – Income Tax Act 1961 U/s 269 UG.

3. Acquisition of Property (191 – ITR – {ST}3)
Appropriate Authority : Scope of powers
8.7.1991 : Their lordship M.N. Venkatachaliah and N.M. KASHIWAL J.J. dismissed following the dismissal of S.L.P. (Civil) No. 6304 of 1991 on 23.4.1991 (Sec.189 ITR (ST) 120) a Special leave petition by the Department to appeal against the judgement dated 14.12.1990 of the Delhi High Court in C.W. No. 47 of 1990 ITR 656 whereby the High Court allowed the assessee’s writ petition holding that the Appropriate Authority had the option either to acquire the property sought to be transferred or to issue a no objection certificate and that if any other law was being violated it was for the proper authorities under that law to take action : Appropriate Authority V Sawant Narang : SLP (Civil) No. 11817 of 1991.

4. (In the Supreme Court of India). Appropriate Authority and another Vs. Tanvi Trading and Credits P.Ltd. and others. Rangnath Misra CII and M.H. KANIA and Kuldip Singh JJ April 23, 1991.
Acquisition of immovable property – Proposed transfer of immovable property – statement  filed – Appropriate Authority – Scope of Powers – Only to decide whether Government should purchase properly or if no decision to purchase is ordered to issue no objection certificate Income Tax Act 1961 Ss 269 UC (3), 269 UL (3).

5. Acquisition of property {187 ITR (St) 66}
Two different report by Valuation Officer : No basis for either report : Effect.
3.12.1990 : Their Lordship N.D. Ojha and S.C. Agrawal against the judgement dated 14.3.1985 of Delhi High Court in ITSA No.1 of 1984 reported in 157 ITR 308, whereby the High Court dismissed the 2nd Appeal of the Department against the order of the Tribunal and held that the true meaning of Section 269 C, of the Income Tax Act 1961 was that there must be material before the Competent Authority to show that the fair market value exceeded the apparent consideration by more than 15% and that neither under section 269 L of the Income Tax Act was there power given to the Valuation Officer to submit a Second Report and that as there was no basis for either of the report submitted by the valuation officer in this case, the acquisition of the property was not valid : Commissioner of Income Tax Vs. Arun Mehta SLP (Civil) Nos. 12452 – 12455 of 1984.

6. Acquisition of property {188 ITR (ST) 86}.
Tenant of property : Whether can request for acquisition 19.2.1991 : Their Lordship K.N. Singh, Kuldip Singh and P.B. Sawant J.J. dismissed a Special Leave Petition by a tenant of a building against the judgement dated 23.11.19890 of the Delhi High Court in C.W.P. No. 3483 of 1990 whereby the High Court dismissed the tenant’s writ  petition on the ground that he had no locus standi to file the petition. In this case the building in question had been agreed to be sold to a third party for a certain sum, permission of the Income Tax authorities obtained, and the tenant had been survey notice to vacate the premises. The tenants claimed that the agreed consideration was low and that the Department should acquired the property : S.R. Minocha Vs. Appropriate Authority SLP (Civil) No. 16703 of 1990.

7. (In the Orissa High Court)  (188- ITR  306
Madan Mohan Samantray
Vs.
Union of India and others
G.B. Patnaik and J. B. Mahapatra JJJ
April 17 1990.
Acquisition of immovable property – Jurisdiction of Civil court – suits in Civil Court impliedly barred in proceedings under Chapter XXA – income Tax Act 1961 Chapter XXA S. 293.

8. (in the Madras High Court).  188 ITR – 306
Naresh M. Mehta Vs. Appropriate Authority.
Kanakraj J. January 19, 1991.
Acquisition of immovable property – Agreement for sale of property – Application for certificate of  No Objection- Property sub-divided and sol without sanction from Appropriate Authority – No prohibition against sale of such property privately subdivided -  rejection of application  not valid – Income Tax Act 1961, S 269 UC, constitution of India Act 226.

9. (In the Delhi High Court) 188 ITR  623
Tanvi Trading & Credits Pvt. Ltd. and others
V/s.
Appropriate Authority and others
B.N. Kirpal and Mrs. Santosh Duggal JJ.
November 28, 1990.

Acquisition of immovable property – proposed transfer of immovable property – statement filed – appropriate Authority scope of powers – only to decide whether Government should purchase property – No power to decide whether proposed transferred is illegal – If no decision to purchase ordered,  Appropriate Authority should issue No Objection Certificate. No jurisdiction to order statement to be filed  - Income Tax Act 1961 SS 269 UC (3) 269 UD 269 UL.

10. (In the Delhi High Court)
Mrs. Satwant Narang (188 ITR 656)
V/s.
Appropriate authority IT Department, New Delhi.
M. K. Chawla and Arunkkumar JJ December 14 1990 Acquisition of immovable property – proposed transfer of immovable property for more than RS. 10 Lacs – Prescribed statement filed – Appropriate Authority – Scope of powers – To order purchase of property b Central Government on issue No Objection Certificate – No jurisdiction to go into object or purpose of transaction – No jurisdiction to club one property with another find fault in validity of proposed transaction – Property cleared by competent authority under land ceiling  Act – Municipal Corporation not disputing ownership – Appropriate Authority can got go into legality of proposed transaction on the basis of defects in adjacent plot subject – Matter of separate statement – Income Tax 1961 SS 269 UC, 269 UD, 269 UH 269 UL.

NON – Taxability of surrender of tenancy rights prior to 1-4-94
By Vimal Punmiya, Chartered Accountant

The issue regarding taxability/non-taxability of surrender of Tenancy rights is giving sleepless nights to millions of Tenants, especially in city like Mumbai where Pugree system is in great vogue.
The decision of the Special Bench constituted by the Bombay Tribunal in the case of Cadell Wvg. Mill Co. (P) Ltd. V/s. ACIT reported in (1995) 55 ITD 137 (Bom.) sent shocking waves to millions where in the Tribunal had taken stand that the amount received on surrender of tenancy right was casual income and taxable and that only where permission was granted to the tenant at any time by the Landlord under the terms of the contractual tenancy or where any permission to sub-lease was obtained by the tenant from the Landlord, the surrender of tenancy rights even by the statutory tenant is a valid transfer of capital asset.

Recently on similar facts and issues the Special Bench constituted under the Delhi Tribunal in the case.
The amount received on surrender of Tenancy rights is a Capital Receipt.
It can be charged to tax only under Capital Gains.
But chargeability failed because of the decision of the Apex Court in the case of BC Srinivas Shetty reported in 128 ITR 294/5 Taxman 1(c) provisions cannot be applied was regarded as never intended by section 45 to be subject of charge.
That the amendment made in section 55(2) by the Finance Act 1994 taxing the receipts as Capital Gains was only prospective in operation.
For arriving at the aforesaid decision the Delhi Court decision and distinguished the issues with the High Court which have taken a contrary view.
In order to treat the receipts as Capital receipts reliance was placed in the case of BAWA SHIV Charan Singh V/s. CIT (1984) 149 ITR 29 (Delhi) where it was held Property is a term of widest import and it signifies every possible interest which a person can acquire, hold and enjoy. Tenancy right is a Capital Asset. When the interest of the Lessor is a parted with, the price paid would be premium or salami, but the periodical payments by the lessee for continous enjoyment of the benefits under the lease are in the nature of rent, the former is a capital receipt the letter a revenue receipt.
The apex court in Universal Radiators V/s. CIT (1993) 201 ITR 800 /68 Taxmann 45 (SC) has held that the eligibility to tax is different from liability to pay tax. Since the amount falls within the ambit of eligibility to tax the same is outside the purview of exempt income. The Allahabad Court in Smt. Anand Bala Bhusan V/s. Cit (1995) 83 Taxmann 548 (all.) has stated that Section 10(3) applies to casual and non-recurring income which are not chargeable U/s. 45 of the Act. The term All receipts in Section 10(3) cannot enlarge the scope of Section 10(3). Similarly the Delhi High Court has distinguished the decision of the Bombay Tribunal is Cadell wvg. Case stating that the said case was rendered with reference to the provision of the Bombay Rents, Hotels, Lodging House Rates Control Act, 1947. Section 12 thereof only entitled the statutory tenant to continue to be in possession till standard rent or permitted increase are paid. Therefore, the statutory tenant did not have an estate or interest capable of being transferred placing reliance in the case of Anan Niwas P.Ltd. V/s. Anandji Kalyanji pedhi AIR 1979 SC 144. The said Section of the Bombay Act entitlked statutory tenant to continue to be in possession till standard rent or permitted increases are paid, nothing further whereas under DRC Act, rights of a statutory tenant were held to be heritable.
The Delhi Tribunal has also held that the decision of the Allahabad High Court in CULABCHANDS case reported in 192 ITR 495 wherein it was held the receipts were of casual and non-recurring nature and provisions of section 10(3) are applicable is not correct because the said decision is revered by the Calcutta High Court in B.K. Roy (P) Ltd. V/s. CIT (1997) 211 ITR 500, Karnataka High Court in Joy ICW Creams (Bang.)  P.Ltd and Cadell Wvg, Mills Coo. Pvt. Ltd. (Bom. Tribunal) also the same Allahabad High Court on similar facts in the case of Smt. Anand Bala Bhushan V/s. CIT (1995) 83 Taxmann 548 (all.) head held that the receipts of compensation was nto of the nature of ordinary income and, therefore, the question of treating the same as a casual receipt for the purposes of income tax did not arise.
The Delhi Tribunal has stated that under the Delhi Rent Control Act a tenant even after the determination of the tenantncy continues to have an interest in the tenanted premises as held in SMT. Gian Devi Anand V/s. Jeevan Kumar AIR 1985 SC 796.
Further under the following cases :
Surrender of tenancy rights in a premises for ownership rights in another premises does not constitute a transfer :
(1991) 192 ITR 382 (S.C.) A. Basper
(1984) 148 ITR  99 (Bom) Nila Products
(1981) 129 ITR 448 (Bom.) Mrs. Shirinbai P.Pundole
(1979) 117 ITR 581 (Cal.) A. Gasper
In view of the decision of the Delhi Tribunal I am of the view that on representations made the Bombay Tribunal may reconsider or review its decision because if section 5(3) of DRC Act prohibits the tenant from claiming or receiving payment in consideration of relinquishment transfer or assignment of his tenancy, and section 48(1)(b) of DRC Act prescribes penalty for contravention of the provisions of Section 5 of DRC Act the similar provisions are also available in the Bombay Rent Act and even under the Bombay Rent Act a tenant continues to have an interest in the tenanted premises.

Gist of recent judgements – 9th March 2000 Compulsory acquisition of immovable properties by Government of India under Chapter XXC of Income Tax Act

The Government believed that the parties were under-selling immovable properties in order to save more stamp duty registration charges and tax under the Income Tax Act, hence the Govt. of India introduced Chapter XXC of Income Tax Act. Initially the limit of transaction was Rs. 10 lakhs or more so far as Greater Mumbai is concerned. This limit has now been enhanced to Rs. 75 lakhs. The constitutional validity of this provision was challenged in the Supreme Court of India which held that Chapter XXC of the Income Tax Act was valid. (See S.C. Judgement in the case of Keshav Ram & Co. vs. Union of India, reported in (1989) 3 S.C.C. Page 151).
Supreme Court has also held that if the Government of India takes a decision to compulsorily acquire the immovable property, due notice should be given to the parties concerned and proper hearing should be given to them before taking any decision for compulsory acquisition of immovable property.

Acquisition of Immovable property for Public purposes under the Land Acquisition Act, 1984
The Land Acquisition Act authorizes State Government inter alia, to acquire immovable property for public purposes or for benefit of a Limited Company having certain objects. Sometimes persons whose properties are notified to be acquired submit their opposition when Enquirer is held by the Special 5A of the said Act. If any of the parties affected by the proposed acquisition initiates proceedings for quashing of the acquisition proceedings, the Court may on finding that the acquisition proceedings  were not valid, quash the Notification u.s. 6 of the said Act. But that party which approaches the Court for the relief alone is entitled to the benefit of the decision. Other parties whose property is notified for acquisition are not entitled to take any advantage of the decision so given in favour of only one party who approached the Court.
(See S.C. Judgement reported in 1994 (4) ALL MR in the case of Delhi Administration v.s. Gurdip Singh Urban & Ors. Page 678).

Government dues such as Sales Tax, Income Tax, Land Revenue etc. have priority over other creditors
Borrowers when they approach financial institutions for financial facilities, financial institutions require borrowers to furnish adequate security. Generally, whenever borrower owns any immovable property, he creates an equitable mortgages in favour of the financial institutions as security for repayment of the proposed loan financial facilities. In proceedings initiated by financial institutions for recovery of its claim, it moves the Court for appointment of Receiver of the mortgages property and Court generally appoints a Receiver of the mortgages property. The Government can file a claim before the Court Receiver claiming priority over the financial institutions. The Court has held that claim of the Government for recovery of tax, etc has a priority over all other creditors whether secured of unsecured. (See the Judgement of Bombay High Court reported in 1994(4) ALL MR 679 Bank of Maharashtra vs. Konkan Companies Pvt.Ltd. & Ors.

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X. Rent Control Acts in India

The law in a changing society

 By M.D. Rijhwani

Posted on 15th May 2002

Genesis of lease:

After the industrial revolution in Europe in the nineteenth century, emerged a middle class between two well etched classes namely feudal lords and their subjects. The middle class became the vehicle for the commerce of the manufactured goods. They soon became rich in the incarnation of industrialists and businessmen, scientists, professors, bankers and their aides, the directors of joint stock companies and still lower the vast number of professionals as managers in industry and commerce. In fact they formed the backbone of new civilization thrown up by the new conditions.

All the groups forming higher and lower middle class aspired to live with the grace and comforts of feudal lords. They started living in luxurious houses either built by them or acquired on lease. The building activity in urban areas grew up by leaps and bounds with the insatiable demand of the expanding middle class. One way of investing money then was to build houses and give them on to business houses for commercial purposes or for housing the ambitious middle class. The investment therein was branded as gilt-edged security as the advantage in building houses and letting them on rent was that the investment in immoveable property was more safe compared to the investment in commerce and other fluctuating securities and earned a definite income continuously according to the rules of demand and supply and also had the easy liquidity in the sale of the property on expiry of the lease or subject to the lease already granted which would expire sooner or later and then the property liquefied. The tenants who stayed on in spite of the expiry of lease could either be evicted by self help or by the decree of a court which could be obtained easily according to the general law of the land. The scene of liquidity froze in the frame of time till the outbreak of the First World War in 1914.

Rent Restriction Acts: Their features

In the war, rows of houses were destroyed by bombing and those lying vacant in tenantable condition were requisitioned. Most of the buildings had deteriorated for want of repairs. The prices of all commodities went up including those of building material. The demand for housing became acute. The lessors (landlords) who normally renewed leases resorted to action for eviction and started charging heavy rents for fresh leases. In England, the government stepped in and passed laws called rent restrictions acts (1) to prevent landlords increasing rents above the maximum rents permitted by the new laws (2) to give tenants security of tenure by preventing landlords from evicting them without an order of the court which could not be given except on certain specified grounds like default in the payment of rent, sub-letting, making structural alterations, and the landlord’s genuine need to occupy the premises and some more. The acts were a piece of social legislation protecting lessees in occupation as it would have been hard for them to find out another suitable premises which had become scarce and exhorbitant in rent. The protection was specifically given to the persons in occupation of a tenement and on their death to the members of their family living with them. In respect of the tenancy of commercial premises, it went to the next of kin. (The terms lease and tenancy have the same meaning, the difference being only historical).

As against these rights namely the security of tenure coupled with the right to pay only the standard rent, which were meant for personal protection of tenants, the acts took away the historical right of a tenant to assign the lease to an other person or sublet the premises. The tenant, therefore, was not allowed to profiteer by assigning the tenancy or subletting it which he could do as per the law before the passing of the acts.

In England the first rent control act was passed in 1915, the Increase of Rent and Mortgage Interest (War Restrictions) Act, 1915. Thereafter many rent acts were passed like Increase of Rent and Mortgage Interest (Restriction) Act, 1920 (Act of 1920) and later in the years 1923, 1933, 1938, 1939, 1957 and 1965.

In India, the first law was passed in Bombay Presidency in 1915 on the model of English law and thereafter in 1939 which was repealed and replaced by a comprehensive law called the Bombay Rents, Hotel, and Lodging House Rates Control Act, 1947 which has now been repealed and replaced by the Maharashtra Rent Control Act, 1999. The Maharashtra Rent Control Act, 1999 also repeals two Rent Control Acts in force in the Marathwada and Vidarbha region of Maharashtra and presents a unified law on the subject of rent control.

Similar laws were passed in other provinces in India as a first step in the enthused social awakening.

In England, landlords and tenants by and large respected the law, but, in India, they stultified the whole objective of the social legislation. The tenants started subletting parts of the premises on labels called paying guests or the whole of the premises on fabulous payments on the so called care taker arrangement. The cautious among them paid a share to the landlords from the money obtained for transfer of tenancy i.e. one surrendered the tenancy and the other took a fresh one in his favour. Again the Bombay Land Requisition Act was passed in 1948 to requisition the lands and houses which had fallen vacant for public purposes and forced the landlords to notify the vacancy of tenancy to the government and on the government refusing to occupy the vacant houses the landlords could create a fresh tenancy. The Land Requisition Act was largely misused.

The tenants who obtained the unique protection were required to be strictly regular in payment of rent and if they defaulted, were penalized severely in forfeiture of tenancy and finally ejectment by decree of the Court of law. Later on some states like Maharashtra became rational by removing the sting from the law of forfeiture of tenancy by providing for payment of interest at the rate of 9 per cent per annum on the amount of the arrears of rent a defaulted payment.

After the passing of the acts in the last fifty years, virtually all commercial premises have changed hands at least ten times and the landlords given a fair share each time. In residential premises also, the landlords got a good slice each time the tenancy changed hands.

New commercial premises came to be built after Second World War on a grand scale around the already existing old business centres. They were either leased on a premium or on high rents which now appear to be lowly. In such class of premises again, the tenancy has been transferred a number of times. Those who prospered went away for bigger places and those who did not were brought out. The landlord had a finger in every pie. In metropolitan cities like Bombay and Delhi the present tenant is not the original tenant of war days but is the man who well knows the history of the seven generations of his forefathers but not that of the tenants before him who have far outnumbered his grand fathers, each one of them having paid a share of premium to the landlord and gone away happily. It is the landlord who can tell the tale. The present tenant who came in five or ten years ago may be paying a seemingly paltry amount as rent but who can deny that he and the tenants before him had successively paid a share of premium which will sustain the landlord and his family for generations to come. The landlord has collected, during the last fifty years, the value of his property five fold and still retaining the invaluable right of reversion; reversing the fate of tenant rather than reverting to the land.

Rents Acts in operation:

The Bombay Rent Act, 1947 was amended in 1959 introducing an exception to the prohibition of assignment of tenancy of commercial premises. That was that a tenant of commercial premises, while disposing of the whole of his stock in trade, his assets and liabilities, along with the goodwill of the business (name and style), could assign the tenancy to a purchaser of his business. This was a welcome provision which gave mobility to the business.

The housing shortage continued to worsen. Needy persons took premises on leave and licence paying large deposits and heavy licence fees. At times the courts tore off the label of licence and declared the transaction to be a lease which brings in protection of the rents acts, security of tenure and the right to get the rent standardised.

Normally the arrangement of leave and licence was literally honoured and on expiry of the term of licence, the possession was quietly handed over. In spite of the two judgements of the Bombay High Court following a judgement of the Supreme Court dispelling the clouds hovering over the genuine transaction of lease, very few people went to the courts. And whenever they went there they were looked down upon by the stern eye of the courts for retracting from the gentleman’s agreement. In preface to my book “Lease and Licence Distinguished” (N.M.Tripathi, 1968) I had said, “Rent Control legislation is one of the forms of social legislation. Any attempt to evade the operational effects of the legislation is viewed by the courts as a dishonest act and to claim its protection is equally considered ungentlemanly unless an additional case for survival is made out. Surely, this changing face of the courts keeps the balance between the freedom of contract and the struggle for survival.”

The happy balance existing in the society and largely managed by the courts was tilted by the amendment to the Bombay Rent Act commencing from the 1^st February 1973 transforming all licensees with subsisting agreements into deemed tenants and making it an offence for a tenant thereafter to give a premises on leave and licence. The legislation put a fear in the mind of the people dispensing accommodation, creating scarcity all around.

One unsavoury consequence of the Amendment Act of 1973 was that even pure licences given out of good will for a short period and for a reasonable licence fee without taking any deposit were also protected even though they were created just a few days prior to the 1^st February, 1973. This ruined many an honest licensor and many upright licensees were tempted to take immoral, though legal stand and claim tenancy. What is worse, rich companies, banks, governments and governmental bodies which need no protection as an individual licensee does, have claimed advantage of the amendment.

Similarly the sub-tenancies created before the 1^st February 1973 was legalized by amendment to the Bombay Rent Act in the year 1987.

After a long period of fourteen years came the respite from another piece of legislation in 1987 amending the Bombay Rent Act, pinning down the arrangement of leave and licence to its literal sense allowing no scope for interpretation by the courts. An agreement of leave and licence could not be constructed as camouflage of the lease but to be governed strictly by the terms of the agreement. It gave a fillip to the dispensation of the vast volume of accommodation lying idle since then.

Soon thereafter the Central Government announced the national housing policy which recommended the rationalization and far as possible to achieve the uniformity of the rent laws in all the states in India. Not being satisfied with the formulation of a general broad policy it also drafted a terse and no nonsense model rent law which among other things recommended 1) exempting the application of rent law for a period of fifteen years from the houses newly constructed or substantially renovated 2) exempting the application of the law from residential as well as non residential premises charging more than a prescribed rent 3) making a provision of creating tenancies for a limited period 4) fixation of standard rent on the market value of the land and the cost of construction. 5) revision of rent of existing tenancies on a graduated scale and again the periodic revision of rent on the prevailing consumer index and 6) setting up two tier system of adjudication with rent controllers and tribunals ousting the jurisdiction of courts and establishing speedy and simplified procedures for settling disputes within a year.

Then finally came the Maharashtra Rent Control Act, 1999 consolidating the three acts in the state of Maharashtra. A draft bill vouching adherence to model rent law with a great fanfare in early nineties was circulated in public inviting suggestions from them. After lying in limbo for nearly eight years the act was passed commencing from 31^st March 2000. It has failed to swim with the essential thrust of the model rent law as well as the aspirations of the people. Since it has not affected in any manner the status or tenure of tenancies acquired under the said earlier three acts which otherwise would have belied the logic of present economic conditions the standard rent which has been made revisable at five per cent could have been made revisable at a uniform licence fee charged in cases of premises given on leave and licence and can be said to be reasonable in the current inflationary trends.

Maharashtra Rent Control Act, 1999: Salient Features:

The new act that is the Maharashtra Rent Control Act, 1999 has in the preamble said what changes it is going to make. It says, “the act is to unify, consolidate and amend the law relating to the control of rent and repairs of certain premises and of eviction and for encouraging the construction of new houses by assuring a fair return on the investment by landlords and to provide for the matters connected with the purposes aforesaid”.

The salient features of the new act of 1999 are :-

1) Consolidation of the three acts as mentioned above but omitting the application of the act relating to the control of rates of hotels and lodging houses.

2) Withdrawing the application of the act from the companies (S.3. (1) (b)).

The new rent control act of 1999 has withdrawn the application of the act from the banks, public sector undertakings, or any corporation established by or under any central or state act, or foreign missions, or international agencies, multinational companies and limited companies having a paid up share capital of more than rupees one crore. This suggestion was given by me in my article in a daily in 1978 and repeated by me in the second edition of my book “Lease and Licence Distinguished” thus: “What a fall! . … … … The amendment of 1973 converted certain licenses into leases into leases and offered a morsel to the needy and struggling persons. The companies and other like groups snatched it away and gulped it. … … … It is really sad to see a company paying high salaries to its directors and officers along with all the conceivable perquisites, rich dividend to its share holders and with its capability to spend away the funds on any obscure heads while at the same time claiming the protection of the rent acts. ………. Now what is the way out? A company takes premises on lease for a fixed period and then refuses to vacate it on expiry of the stipulated period taking a stand that the lease is protected under the rent act or that the premises given on leave and licence comes within the protection of the amendment of 1973. How is the company to be compelled to restore the socio-economic balance achieved by the tradition of “company lease?” … … … An ideal solution is a suitable legislation to specifically exclude the companies incorporated under the companies act, foreigners, foreign governments, their consulates and trade representations, the central and state governments in India and such like from the protection of the rent acts.”

However the new act while withdrawing protection from the companies has not withdrawn the protection from the premises let to the government or to local authority or taken on behalf of the government who have enjoyed the protection of the rent acts from the very beginning and continue to enjoy the said privilege. The picture has changed now. The government is no more a government with only policing duties. It has taken to wings to fly into the far away skies of economic adventurism with the avowed adoption of socialistic pattern of society as a form of governance. It has lot of money to squander away. Then why should they not pay the rent according to market forces or acquire new premises on prevailing market rate? The new act ought to have withdrawn the protection from the government also.

The discrimination against the companies is unconstitutional in so far as the government falls in the same class as the companies and there are no intelligible differentia that can separate the companies from the government in regard to the objective to be achieved by the enactment withdrawing the protection of the rent act from the companies and not from the government.

3) Withdrawing the application of provisions of standardization of rent from the premises, whether old or newly constructed, which have not been let or given on licence for a continuous period of one year (S.6)

By amendment to section 4 of the Bombay Rent Act (inserting sub-section 1A after Section 4) in 1987 the provisions relating to standardization of rent were withdrawn for a period of five years to buildings constructed after the 1^st October 1987 so that the landlord could recover a larger part of his investment in that period according to the rules of demand and supply. Similar provisions had been enacted in other states long ago.

The new act of 1999 carried the concept further. The provisions relating to standard rent have been withdrawn from the premises given on tenancy or license in buildings whether old or newly constructed where they have not been let or given on licence for a continuous period of one year. It would have been abreast of the times if the tenancies created after the commandment of the act had been exempted altogether from the operation of the act that is not only from the provisions of the standardization of rent but also from the protection of tenure under the Act.

4) After having given maximum rights to tenants the legislature began to zealously secure to landlords payment of rent under the English acts as well as under the earlier acts in India. It scripted a draconian provision that if a tenant remained in arrears of rent for more than six months and if he failed to pay them within one month next after the month in which he received the notice, the tenancy stood forfeited and on suit being filed the court had no choice but to pass the decree of eviction. The maxim ‘ignorance of law is no excuse’ which was treated by law books as archaic and quoted by judges with a wink to confuse junior lawyers was applied here without showing remorse. The hapless tenants came to be evicted in droves. Even the Supreme Court raised its hands in reading discretion to have been invested in judges to avert the consequence of forfeiture. Finally in 1987 the legislature woke up in the cries of tenants and watered down the stringent law. The forfeiture was not to take effect if the defaulter deposited in court the arrears of rent with simple interest at the rate of nine per cent per annum on the first day of the hearing of the suit and complied with other conditions including the payment of the cost of suit. Such relief was not made available after availing of two such chances.

However under the new act of 1999 the relief against forfeiture can be availed of every time the defaulter complies with the simple requirements laid down in section 15(3), which are more or less similar that is if, within a period of ninety days form the date of the service of the summons of the suit, the tenant pays the standard rent and permitted increases then due together with simple interest on the amount of arrears of rent at fifteen per cent per annum and thereafter continues to pay regularly such standard rent and permitted increases till the suit is finally decided and also pays the cost of the suit as directed by the court. The proviso limiting the chances of relief against forfeiture only for two such defaults in the provisions of the old act has been conspicuously omitted here. Thus the payment for the arrears of rent are equated, as it were, with the collection of bill each time for payment of services rendered or goods sold with the compound interest customarily charged on delayed payments, the compound interest here being the cost of the suit. The penalty of simple interest at the rate of fifteen per cent per annum and the cost of the suit which in these days is back breaking is a sufficient deterrence to making default in payment of rent.

5) Under the Act of 1947 the standard rent once fixed could not be increased or decreased. Only the permitted increases could be increased if new areas of collecting social charges were to be traversed. Now under the new act increase in standard rent is permitted annually at the rate of four per cent (s.6). As the security of tenure, one of the two basic tenets on which all rent control acts were founded, has not been touched, it would have been keeping with the times if the standard rent, which has justifiably not been allowed to be revised retrospectively and which in any case was always a lesser principle and now evaporating in inflationary heat, had been allowed to be increased at the rate of at least ten per cent annually which is the norm in the transactions of letting premises on leave and licence for more than a year and yet considered a pittance by economics of the present day.

6) Registration of the agreement of tenancy as well as leave and licence has to be compulsorily made by landlord or licensor on pain of imprisonment and fine. Tenant or licensee has been allowed in absence of registration of agreement to prove the terms orally (s.55).

7) Payment of premium as consideration for the grant or relinquishment of tenancy which was made illegal in England and India with civil and criminal consequence has been explicitly permitted to encourage dealings in black and white which were hitherto in black only, to generate money for circulation in the market as well as tax for the exchequer.

8) If you call it leave and licence, it is leave and licence: In Delhi and New Delhi the concept of the grant of tenancy for a limited period or the rent act not applying to a tenancy when the rent charged exceeds a certain amount was introduced long ago as a precursor to the laws rationalizing the rent acts. But the amendment of 1987 to the Bombay Rent Act, 1947 inserting section 13A2 was a consummate step in that direction. The classic distinction between the concept of lease which has well-defined ingredients giving a right in immovable property and that of licence which only makes the user lawful without creating a right in immovable property, kept alive by subtle reasoning, called quibbling by judges in private conversation, has been changed by the legislature to sub-serve the interests of the fast changing society. The clear-out lease by mutual agreement can be so arranged as to give it a character of ephemeral licence to occupy an immovable property for a short period of time; only the business premises have been left untouched for the reasons of their easy availability for an asking price and the stakes in the business being so high and engaging that fighting for the gains of lease, which are being diluted from time to time, look chicken-feed. The new act of 1999 has planted the said amendment whole sale in section 24 thereof.

9) Government allottees under the Bombay Land Requisition Act, 1948: The Supreme Court in the case of H.D. Vora (1984) 2 SCC 337, gave an innovative judgement that the continuance of the requisition of premises for more than thirty years which was conceptually temporary in character was a fraud on the power of the government which in effect did the acquisition of the property without paying the market value of the property in the guise of requisition and ordered the government to release the landlord’s premises from requisition The landlords whose premises remained under requisition for more than thirty years got a manna from heaven and quickly filed the writ petitions in the Bombay High Court for an order directing the government to derequisition their premises. As the Government Pleader on the original side of High Court, Bombay in the mid-eighties I stood defenceless and alone facing the juggernaut unleashed by the Supreme Court. The High Court allowed the petitions and passed the orders of eviction. The allottees went to the Supreme Court.

The cases were referred to the constitutional bench of five judges. The majority by four to one (AIR 1994 SC 2319) by yet another subtle interpretation of law confirmed the judgment given earlier in H.D. Vora’s case. Justice P.B. Sawant in his minority judgment agreeing with the reasoning of the majority on questions of law however ruled differently on when the allottees should vacate the premises and said that since the landlords with the tenements freed from requisition would get the same standard rent they would not be prejudiced if some more time was given to the allottees to find out suitable place for them. The government by amendment to the Bombay Rent Act, 1947 trying to rescue the allottees redefined their status as deemed tenants. The provision was challenged in Bombay High Court in the case of Ramji Premjibhai Gohil, 1998 (4) MLJ 523 and finally struck down as ultra vires the constitution as beyond the legislative competence. The said provision has been transplanted as section 27 of the new act of 1999 which on fresh challenge is declared unconstitutional in Subhash Laxmidas Majithia, W.P. No. 1595 decided on 30.4.2001 by Bombay High Court following its earlier decision in Ramji’s case. The allottees are now waiting for the verdict of the Supreme Court with their hands raised in prayer.

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XI. Stamp & Registration

Adjudication of Proper Stamp Duty
By M.K. Gokhale, Deputy Supt. Of Stamps (Retd.)

Section 31 of the Bombay Stamp Act, 1958 provides about the adjudication of proper Stamp Duty. The applicant under this section has to submit an instrument executed or unexecuted and previously stamped or not for the purpose of opinion to the collector of stamps and for this purpose, the applicant has to pay a fee of Rs. 50/-. On receipt of the application of adjudication and the instrument, the collector has to form his opinion as regards its chargeablity and then express his opinion to the applicant. Sub Section (4) of Section 32 of the Act proves that when the instrument is brought to the collector for adjudication within one month from the date of its execution, the person liable to pay stamp duty within 60 days form the date of service of the notice of demand in respect of the stamp duty adjudicated by the collector. If the applicant failed to pay the said stamp duty within the stipulated period of 60 days, the person is liable to pay a penalty at the rate of two percent per month or part thereof, from the date of execution of such instrument.
It is therefore necessary to pay stamp duty within 60 days from the date of the demand notice served by the collector to avoid levy of penalty.
In view of the penal provision in sub-section (4) of section 32 of the Act, the applicant should take care to submit the unexcelled document for adjudication under section 31 of the Bombay Stamp Act, 1958. In case of unexecuted instrument the collector has no power to levy penalty and if the applicant does not agree with the determination of Stamp Duty, he can withdraw his document from adjudication.

National Co-op. Hsg. Fed. Conference moots exemption of stamp duty and registration fee
By A.T. Bureau

The 19th Conference of the Chief Executive of apex Co-operative Housing Federation, organised by the National Co-operative Housing Federation of India on 20th May 2000, at Kochi, urged the State governments to (I) exempt housing co-operative from payment of stamp duty and registration fee (ii) contributed liberally towards the share capital of their respective apex. Federations so as to strengthen their financial base thereby enabling  them to raise their borrowing power and (iii) allot 30% of the acquired land for housing purpose to housing co-operatives.
The following are some of the recommendations made by the conference.
* The LIC, NHB and HUDCO should be allocated more funds to housing co-operatives in order to enable them to meet the targets smooth under the two million housing programme
* The National Housing Bank should reduce its rate of interest from 12.0% to 11%.
* The NHB should contribute towards share capital of apex Federations to raise refinance upto 12 times of their net owned funds.
HUDCO should provide loans to apex federations on the basis of security of floating charge. It should not charge processing fee and front end fee from apex federations. It should reduce interest rate by 1% on block loans to apex Federations.
* The State Governments, which have so far, not constituted special committees on housing co-operatives in their respective States, should be requested to do so immediately. The conference was presided over by Shri S.N. Sharma, Chairman NCHF, who is a Minister in the Madhya Pradesh Ministry.
In his speech, Shri Sharma said that in line with the National Agenda, a two million housing programme has been launched since 1998-1999 under which, the Union government has fixed a target for co-operative sector to build one million houses each year predominantly for weaker sections and low income groups in the country. He informed the conference that during the year 1998-99 housing co-operatives completed the construction of about 17,000 units in urban areas with the loan assistance received from the apex federations. He proudly mentioned that the progress made by co-operatives during 1998-99 was well appreciated by the Government of India.
* Shri Sharma advocated for the Policy Support to housing co-operatives as envisaged in the National Housing and Habitant Policy in order to achieve the targets for house construction smoothly and efficiently besides adequate flow of funds from LIC, NHB and HUDCO allocation of 30% of land acquired for housing purpose by State Government exemption from payment of stamp duty and registration fee, proper legal frame work and liberal contribution in the share capital of apex Federations by State Governments.
Shri Sharma also said that the separate model law on Housing co-operatives, prepared in association with NCHF, was still under the consideration of the government of India. Efforts were being made to set it finalised early so as to provide proper legal frame work to housing co-operatives for their smooth functioning. He pointed out that funds raised by apex Federations from funding agencies had become expensive to members of housing cooperatives compared to the prevalent interest rate on housing finance offered by other agencies. In this connection, he referred to the interest rates offered by the LIC and NHB, which were still on higher side.

Registration fee & stamp duty payers association’s stand only Leave & Licence
By A.T. Bureau

As per Section 55 of The Maharashtra Rent Control Act, 1999 Registration of Leave and Licence Agreement has been made compulsory with effect form 31/03/2000. The Registration Fee and Stamp Duty Payers association along with various property related associations had filed their objection for the stamp duty on refundable deposits as well as levy of Stamp Duty on Leave and Licence Agreement Representatives of the Association had met the Honourable Chief Minister Shri Vilasrao Deshmukh, the Honorable Revenue Minister Shri Ashok Shaven as well as the Senior Officers at Mantralaya. The difficulties being faced by the stamp duty payers were brought to the 2000/2120/CR/592/M-I  has been issued stating that a token registration fee of Rs. 1,000/- would be levied on Leave and Licence Agreement if the property is situated in Municipal Corporation limits and of Rs. 500/- if the property is situated in the other areas irrespective of the deposits, type of the premises or size of the premises. According to the verbal information receive from the authorities Leave and Licence Agreement has to be stamped on Rs. 20/-. However no mention is made about levy of stamp duty in the abovesaid Notification. This could give power to the authorities to interpret the documents as that of Lease. It is the belief of the Association that Professionals would advise their clients to draft agreements of Leave and Licence with renewal clauses rather than drafting lease agreements so that the tax payers can save money on payment of stamp duty. The Government could loose crores of rupees because of drafting error. This is on our opinion is a legal loopholes which will have to be plugged by the authorities.
The above Notification dated 8/6/2000 proposes to levy Registration Fee of Rs. 1,000/- or Rs. 500/- depending on the place where the property is situated from the date of publication of the Gazette. The Maharashtra Rent Control Act,  2000 has come into effect from 31st March, 2000 and all those persons who have executed the documents between 31/3/2000 & 8/6/2000 could unnecessarily be penalized. This definitely had not been intention of the Government.
With the registration of Leave and Licence being made compulsory it would not be surprising that the cash stripped Municipal Corporations would collect information about Leave and Licence Agreements and start issuing notices for levy of higher property tax to the owners of property which have been given on Leave and Licence. The Licensor has to pay not only excess property tax, but also society non-occupancy charges as well as income tax on the income.
The Association appreciate the steps taken by the Revenue Authorities of charging less amount as Registration Fees as well as willingness to accept the practical suggestions being made by the various property related associations with regards to Leave and Licence Agreement. However a written clarification from the Revenue Department stating that the stamp duty of Rs. 20/- only will be levied on Leave and Licence Agreement will be of immense help in clarifying the above said issue.
The Registration Fee and Stamp Duty Payers Association is thankful to the media for expressing the views of the members of the public particularly the Real Estate Community as regards levy of Stamp duty on Leave and Licence Agreement.

PAYMENT OF STAMP DUTY
By A.T. Bureau

The Registration Fee and Stamp Duty Payers Association has brought to the notice of the Honourable Minister for Revenue as well as the Inspector General of Registration that as of date franking facilities are available to the residents of the Mumbai at Town Hall, Shaheed Bhagat Singh Road, Near Reserve Bank of India, Mumbai – 400023 and at MMRDA Building, Bandra Kurla Complex, Bandra (East), Mumbai – 400051. It has been the suggestion of the Association that franking facilities should be available at the central Suburbs also. In this connection, the Association has also pointed out that as of date, franking facilities are available at the Central Suburbs also. In this connection, the Association has also pointed out that as of date, franking facilities are available at only two places i.e. Mumbai City and in Western Suburb. No facility for payment of Stamp Duty within a few kilometers distance is available to the lakhs of residents between Dadar to Mulund and Wadala to Mankhurd. As a result of the same, huge amount of cash to be carried out by the members residing in the Central Suburbs.
The Association has been given to understand that having regards to the practical difficulties faced by the residents of the Central Suburbs, the authorities are considering installation of franking machine at Ground floor at the Chembur office in the month of April 2000. The address of the Sub Registrars Office is Ground floor, New Administrative Building, Phase II, Ramkrishna Chemburkar Marg, Near Chembur Fine Arts Hall, Chembur (East), Mumbai – 400071. When the franking facilities would start at Chembur, it would be a big relief to the Stamp Duty Payers at Central Suburbs.
The Association also requests the authorities to accept the cash at all the office upto a sum of Rs. 50,000/-. At present only cash upto Rs 25,000/- is accepted by the authorities. The Association also requests the authorities that they should deliver the franked documents on the same day to the parties so that they should deliver the franked documents on the same day to the parties so that the mental related transactions, the parties executed the documents only after the proper stamp duty has been paid on the documents.
The Association had through its press release in 1999 requested the authorities that the map of various places in Maharashtra as well as the market value of various localities of Maharashtra should be available to the common man through the medium of internet. The Association is given to understand that the website with the market value of property will be available on the Internet very shortly.
The Association further states that on account of the recent amendments to the Rent Act all transactions relating to rental premises will have to be compulsorily registered. This will increase the pressure of work at the Sub Registrars for the city of Mumbai. It is not surprising to find that because of heavy work load a lot of pressure is there on the Sub-Registrars. At times, one has to spend more than five hours just to register a document. Also the precious time of the Tax payers is wasted in complying with the bureaucratic formalities. The stamp duty rates for transfer of tenancy as per Article 5 (g-d) of the Bombay Stamp Act 1958 are the same for all the areas of the city of Mumbai which is Rs. 1,000 per sq.metre for commercial premises and Rs. 100/- per sq.metre for residential premises. There is a wide-up gap in the prevailing prices at Nariman Point, Peddar Road, Govandi & Charkop. Yet from the stamp duty point of view on transfer of tenancy the stamp duty liability is the same. The Association herewith requests the newly appointed Inspector General of Registration Shri Bhoge to reduce the hardships of the common man and take pragmatic steps to simplify the Bombay Stamp Act 1958 and appoint more staff at the Sub Registrars Office to reduce the hardships of the tax payers.

Stamp Duty on Leave & License Agreement
By Bankimchandra Khona, Solicitor

Under Section 55 of The Maharashtra Rent Control Act, 1999, now even an Agreement for Leave & Licence needs to be registered.  Therefore, the question of payment of stamp duty on Leave and Licence Agreement arises. There is no specific provision made for payment of stamp duty on Leave & Licence Agreement under Schedule I of the Bombay Stamp Act, 1958.  Hence the stamp duty of Rs.20/- becomes payable under Article 5(h) of Schedule I of Bombay Stamp Act.

 2. It has been stated that Stamp Authority / Registration Authority proposes to levy stamp duty by treating a Leave & Licence Agreement as a Lease and to levy stamp duty as per Article 36 of Schedule I of the Bombay Stamp Act.  Article 36 of Schedule I of Bombay Stamp Act is with regard to the stamp duty payable on a lease.  There is no mention therein whatsoever about a Leave & Licence Agreement.

3.  Can Stamp and Registration Authorities equate Leave & Licence with a Lease ?  Can the Authorities, therefore, insist on levying stamp duty on a Leave & Licence Agreement  not  Rs.20/- but as per Article 36 depending upon the period of the Licence ?  There will be a vast difference in payment of stamp duty as per Article 36 of Schedule I of the Bombay Stamp Act and as per Article 5 (h).

4. It is respectfully submitted that the Leave & Licence and Lease / Tenancy Agreement are two entirely different kinds of document which have different legal implications and effect.

5. The Lease is defined u/s. 105 of the Transfer of Property Act, which reads as under :-
“105.  Lease defined.- A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

6. A Licence is defined u/s. 52 of the Indian Easements Act, 1882.  The said Section 52 reads as under :
“Where one person grants to another, or to a definite number of other persons, right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right be unlawful and such right does not amount to an easement or an interest in property, the right is called Licence”.
 
Lease and Licence are defined under two different statutes.
 
7. The essential distinction between a Lease and a Licence is that in a Lease, there is transfer of interest in the property while in the case of licence, there is no such transfer although the Licensee acquires only a personal right to occupy the property.  This principle has been confirmed by number of High Courts and Supreme Court judgements (AIR 1968 S.C. 175 (178), AIR 1989 S.C. 1816 (1990), Second Law Report 381, etc.).

8. U/s. 56 of the Easements Act, a Licence is personal and  the Licence cannot be transferred by the Licensee, whereas Lease, except in the case where Bombay Rent Act is applicable, is transferable.  Under Section 108(B)(j) of the Transfer of Property Act, the Lessee is not only entitled to transfer his leasehold right but can also mortgage or sub-lease the whole or any part of his interest in the property, whereas the Licensee cannot transfer or mortgage or grant sub-license to any person.  The Licensee cannot  sue a stranger in his own name, whereas the Lessee is entitled to sue a stranger on his own name.  The License is revocable by the Licensor under Section 60 of the Easements unless it falls within two exceptions mentioned in that Section, the Lease is not by the Lessor.  The licence comes to an end when the Licensor makes an assignment of his interest in the property, whereas a lease continue to be valid and binding on the Assignee of the Lessor when the Lessor assigns and transfers his interest in the property which is called a transfer of “reversionary right”.
 
9. Now U/s. 7 of Maharashtra Rent Control Act, 1999, the licence and tenancy are separately defined. The licence is defined under the Rent Act u/s. 7(5), and the tenancy is defined u/s. 7(15) of the said Act.

10. The basic test to distinguish a Lease from Licence is the intention of the parties.
 
11. Explanation B of Section 24 the said Rent Act,  states that an Agreement of Licence in writing shall be conclusive evidence of the facts stated therein.    In view of Explanation (B) to Section 24, once it has been mentioned in an Agreement that same is Leave & Licence Agreement, then it is a conclusive evidence of the fact that it is a Licence and not a Lease and that intention of the parties is to have a licence and not a lease.  In view of the said provision, now it is not open for anybody much less Stamp Authority to contend when Agreement is of Leave & Licence that the same is Lease.                                                        In case of licence for residential premises, Owner/Licensor is entitled and has to proceed u/s. 24 of the said Act, whereas in tenancy agreement for recovery of possession, the Lessor is entitled to initiate ejectment proceedings under Chapter IV of the Rent Act and under Section 33 of the said Act has to file a suit in the Court of Small Causes at Mumbai .Therefore, there are two different  provisions under the Rent Act in respect of the recovery of possession by the Licensor and by the Landlord/Lessor.  There are other various provisions under the Rent Act where distinction is made between the Agreement of Tenancy and the License.

12. In case of recovery of possession by the Lessor or Landlord to which provisions of said Maharashtra Rent Control Act applies, will have to file a suit for ejectment in Small

Causes Court only.   Whereas in case of licence of a residential premises, the proceedings are to be taken u/s. 24 before the Competent Authority.

13. In view of Explanation B to Section 24 of the Rent Act, once the document states that it is a licence granted by the Licensor to the Licensee, it is conclusive proof that it is a licence and that it was the intention of the parties that it has to be  Licence and not Lease.  Such document will be covered by the Easements Act, the Licensee will not be entitled to transfer, mortgage, grant sub-licence.  The licence, on the death of Licensee, will come to an end.  It is submitted that in such circumstances, the licence being personal permission, it is not open for Stamp Authorities to say that even though Agreement is of Leave & Licence but it could be construed as a Lease.  it is respectfully submitted that Stamp Authority in view of specific provision of Explanation 24 of Rent Act cannot treat a Licence as Lease on the ground that document is not licence but in fact it is lease.

14. The interest and right of a lessee or tenant are heritable under the Transfer of Property Act as also under the Bombay Rent Act.  But the right to use premises is not heritable in case of Leave & Licence.   On the death of a Licensee, his heirs will not inherit a right as a Licensee to use the premises.  Therefore, considering the definition of the Lease and Licence,  both are different under all relevant Acts. Both Agreements have different meanings, legal effects and consequences. It is abundantly clear that lease and/or tenancy agreement is  distinct from Leave & Licence Agreement. One cannot treat a Leave & Licence Agreement as a Lease and claim stamp duty as per Article 36 of Schedule I of Bombay Stamp Act.

Stamp Duty on tenancy Agreement and
Leave & Licence Agreement
By Bankimchandra P.Khona

From 1st April, 2000 a Tenancy Agreement and a Leave  & licence Agreement under section 55 of the new Rent Act are required to be in writing and registered.
Question will arise as to payment of stamp duty on such Tenancy Agreement and Leave and licence agreement First we will consider the provisions of Tenancy Agreement.
Agreement of monthly tenancy will be required to be stamped under Article 36A(I) of Schedule 1 of the Bombay Stamp Act. The stamp duty leviable shall be same as is leviable on conveyance under clauses a, b, c or d as the case may be of Article 25 for the whole amount of rent payable or the amount of average annual rent, whichever is lower. It is possible to interpret Article 36A(1) of Schedule 1 of Bombay Stamp Act in two different manner. In case of monthly tenancy, is it amount of average annual rent or is it only monthly rent required to be ascertained and on such average annual rent or monthly rent stamp duty will be payable as per the applicability of clause a,b,c,d or e of the said Article 25 of Schedule 1 of Bombay Stamp Act ? The words used in the said Article is for the whole amount of rent payable or amount of average annual rent whichever is lower. It is submitted that  the monthly tenancy is for a month and continue till it is terminated. Therefore, the period of tenancy is only a month and stamp duty should be calculated on a monthly rent and not on average annual rent. In case of Mumbai, for (a) the non-residential premises and (b) the residential premises which are not part of a co-oeprative housing society building or to which Maharashtra Apartment Ownership Act, 1970 does not apply Stamp Duty is 10%. However, in case of residential premises of a building belonging to a co-operative housing society or the premises to which Maharashtra Apartment Ownership Act, 1970 applies Stamp Duty shall not be 10 per cent but as per the schedule of Stamp Duty which is lower and wherein the maximum rate is 8 per cent. In short, Article 36 of Schedule I of the Bombay Stamp Act will cover the payment of Stamp duty on monthly tenancy agreement.

It may be pointed out that under Article 36, in addition to the Rent, if any fine or premium or money is advanced or to be advanced in addition to the rent fixed, then on such fine or premium or money advanced or to be advanced, additional duty is payable as per Article 25 of Schedule I of Bombay Stamp Act, i.e. 10 per cent in case of non-residential premises and residential premises which are not within the co-operative housing society buildings or the premises to which the provisions of Maharashtra Apartment Act does not apply and in case the premises of a building of a co-oeprative housing society or to which the Apartment Act, applies, the concessional rate as state hereinbefore shall apply.
Explanation I of Article 36 provides that rent paid in advance shall be deemed to be premium or money advanced within the meaning of said Article. Therefore, any rent paid in advance will be considered as premium or money advanced and on the same, stamp duty at aforesaid rates will be required to be paid.
Explanation II of said Article further provides that if the tenants agrees to pay recurring charges such as Government revenues, the landlords’ share of municipal rates or taxes which are required to be paid by the landlord, then such amount shall also be deemed to be part of rent and naturally such rate or taxes or shares will attract stamp duty at the aforesaid rates of 10 per cent or concessional rate of depending upon the nature of the premises.
Some times the question arises as to what happens to the interest-free security deposit. Will they be considered as fine or premium ?
Will any stamp duty be payable on the same ?
We are told that Stamp Authorities consider the income which the landlord will earn of the said security deposit as rent and such yearly income is being added to the rent and the stamp duty is claimed by the stamp authorities on such amount. In our respectful submission, there is no provision under the Stamp Act to recover any stamp duty on interest free security deposit which is required to be returned on the determination of tenancy or any income which would be earned out on the same or any assumed income. There is a provision for recovery of such stamp duty and therefore by any letter or order or circular or notification, stamp duty authorities cannot claim or recover any stamp duty. It is being said that there is internal letter or circular for recovery of such stamp duty. It is submitted that under no letter or writing or circular such recovery can be made as stamp duty unless the same squarely falls within any one or more Articles of Schedule I of Bombay Stamp Act. Therefore, in our opinion, no extra stamp duty could be levied for interest-free security deposit which is required to be returned at the determination of tenancy or before that. Such deposit is neither fine nor premium nor any amount advanced.
It is also being claimed or said that under the provisions of Article 5(g-d), stamp duty is payable on the are of the tenanted property. The said Article 5 (g-d) applies in a case where tenancy rights are being transferred by a tenant himself. The said Article 5(g-d) has no application when landlord creates tenancy in favour of a tenant. It is submitted that Article 5(g-d) has no application in case of new tenancy agreement between the landlord and tenant.
In short, stamp duty will be payable either at 10 per cent or at concessional rate only on the consideration of rent received or fine or premium paid or any money advanced or to be advanced or payment of share of the landlord to Government Revenue, cess, municipal rates or taxes.

Now we will consider payment of stamp duty on Leave & Licence Agreement
Leave & Licence Agreement and the Tenancy Agreement are both different types of Agreement. The tenancy agreements are governed by the Transfer of Property Act and the Maharashtra Rent Control Act. The Maharashtra Rent Control Act. The Leave and Licence Agreement are governed by the Easement Act and Maharashtra Rent Control Act. The Maharashtra Rent Control Act also distinguishes between Leave and Licence Agreement are governed by the Easement Act and Maharashtra Rent Control Act. The Maharashtra Rent Control Act also distinguishes between Leave & Licence Agreement and Tenancy Agreement and therefore both of them are not same.
We are told that Stamp Authorities apply Article 36 of Schedule I of Bombay Stamp Act and claim of stamp duty on Leave & Licence Agreements. In our humble opinion, Article 36 of Schedule I of Bombay Stamp Act cannot and does not apply to Leave and Licence Agreement. Leave and Licence Agreement falls within Article 5(h) of Schedule I. As there is no such specific provision of Leave & Licence Agreement under Schedule I, Article 5(h) will apply and only stamp duty of Rs. 20/- is required to be paid. No stamp duty could be recovered under Article 36 of Schedule I of Bombay Stamp Act. Such a demand is not legally valid. Leave & Licence Agreement will attract Stamp duty of Rs. 20/- only irrespective of period of Licence, Licence fee, Security Deposit, advance payment of compensation or Licence fee or payment of share of Taxes and cess payable by the Licensor.

____________________________________________________________

XII.IF SOCIETY IS FORMED OF GROUP OF FLATS/HOUSES,

 LAWS GOVERNING SUCH SOCIETY ARE GIVEN BELOW TAKING MAHARASHTRA LAWS AS MODEL FOR JUST INFORMATION

Click on captions below to be taken to the respective page in the web:-

Sinking fund, its propriety, utilisation, investment and withdrawal thereof

> DOCUMENTS TO KEEP AS “PERMANENT RECORD” BY SOCIETY/OWNER

> Builders cannot charges Transfer fees

> Can society be formed without consent of the builder ?

> Can Society refuse transfer of flat ?

> Can Society transfer the Share Certificate in the name of the nominee in spite of objections from legal heirs !

> Car parking

> Formation of Co-operative Housing Society

> Any other matter with the permission of chair 

> Amendments to the Maharashtra co-operative society act, 1960. Mahrashtra Act No. VII of 1997.

> Payment for the lift by members of the society

> Register your society this way

> Solutions to Conveyance Problems

> EXPULSION OF A MEMBER

> Formation of Co-operative Housing Society

> Limit fixed for transfer fee, Donation or any other charges not allowed

> Nominee is a mere trustee

> Non Occupancy Charges can not be more than 10%

> Salient Features of the Model Bye-Laws

> Sinking fund, its propriety, utilisation, investment and withdrawal thereof

> Society dues in following circumstances cannot be recovered under section 101 of M.C.S. Act, 1960.

> CAN OCCUPANCY RIGHTS IN OWNERSHIP FLAT BE TRANSFERRED OR ATTACHED

____________________________________________________________

For Karnataka Land Conversion Rules CLICK HERE

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XIII. DETAILS ABOUT Home Loans

There are several features of a Home loan that you must consider based on an analysis of your specific needs. 

How much can you afford? 

As the investment in a home does not yield any monthly income, (unless you have rented out the home) your ability to repay the loan depends entirely on your salary or regular income from a stable business. Finance companies would normally give you a loan to the extent that your monthly repayments are less than 35-50% of your gross monthly salary. 

How much must you leverage? 

Having found a Rs. 10 lac property that you want to buy, you must decide how much of the cost can be funded by a loan. 

Normally Housing Finance Companies will loan you about 80-85% of the property value. You need to make a minimum down payment of 15-20% of the property value. Please also remember that you have to normally bear the following fixed costs before your loan is disbursed: 

1. Processing and administrative fee (1.5-2% both included)
2. Legal fees
3. Stamp duty charges ( for resold property)
4. Property insurance premium
5. Accident insurance premium

As the value of the loan amount increases, the interest rate charged usually also increases. You may feel tempted to take a smaller loan by funding the large down payment (the difference between the value of the property and the loan you have applied for), by withdrawals from other investments. If your investments are in Fixed Deposits that are giving you about 11% p.a (about 7.4% p.a. after tax) and the effective post tax cost of you Home Loan is 10% (about 15% before tax) then this is a good idea. However, if you expect to make over 20% p.a. (about 13.5% post tax) by investing in shares or in a business, then you must borrow as much as you can on the Home Loan and not withdraw money from your other investments. 

Another important consideration is your tax bracket and the extent of using available tax breaks. The tax breaks are directly related to the level of interest and principal repayments made each year, with an over all upper limit. You may not qualify for the full tax break if your loan is relatively small. Also remember that the government is keen to give more concessions to the housing sector and the overall cap on tax breaks will go up in the future. It is prudent to lock into a large loan today rather than a smaller one. 
 

If you have identified other profitable avenues of savings that are expected to give you 15-20% returns p.a, you can use the Home Loan as a way of getting a cheap loan. In this case borrow up to the limit of 80-85% of the property value rather than withdraw cash from the other savings to make the down payment on the loan. 

What is the tenure of the loan? 

Loans are usually for a maximum period of 15 years (which may go upto 20 years in some cases). Longer tenure loans have smaller monthly installments. You can still get a large loan on a relatively small monthly salary by choosing to take a longer period loan. However, longer period loans maybe more expensive (higher rate of interest) even though the monthly installment payment is lower. Convenience always comes at a cost! …………AbodesIndia.com will try to lower costs. 

Statistical evidence also shows that most people take a longer tenure loan of 10-15 years but end up prepaying the same in 5-6 years. This happens because salaries invariably improve with time. There are two costs that could have been avoided through better planing. The first is the Prepayment penalty of 1-2 % and the second is the higher interest rates quoted on longer tenure loan (especially over 20 years). 

In this example, both costs could have been avoided by taking just a 5-6 year loan. 

Further, if you intend to sell the home after about 5-10 years, take a 5-10 year loan only. There is no point paying a higher interest rate for a longer tenure loan of 15-20 years, if you intend to PREPAY the loan in 5-10 years. 

How will interest rates move? 

Till recently you did not have to make this decision as all loans were given on a FIXED RATE basis. This means that the interest rate is fixed for the full tenure of the loan and so is your monthly repayment amount. Life was simple. You could easily plan for the future as your cash flows each monthly after the loan repayments were very predictable. 

However, interest rates in the economy, changes depending on the demand and supply of money. When industry is booming and everyone needs money to do business, interest rates move up and vice –versa. Home loan customers became unhappy about having to pay a very high interest rate that they were locked into, when rates subsequently fell. 

For the customer’s convenience, FLOATING RATE loans were recently introduced. The interest rate on these loans changed every time the interest rate in the financial system changed. The monthly installment falls if interest rate in the economy falls ( HSBC home loan product) . With other companies the monthly installment amount was kept fixed but the tenure of the loan reduces if interest rates in the economy falls ( e.g HDFC floating rate loans). Normally, floating interest rates are quoted in the form of "PLR plus premium". The PLR (Prime Lending Rate) varies from company to company and changes as frequently as once in 3 months. 

Example…… 

A floating rate quote of PLR+0.5% means that interest rate on the loan will change from 14.5% to 15.5% if PLR goes up from 14% to 15%. Also a PLR +0.5% quote from one bank is very different from a PLR +0.5% quote from another as the PLR levels for each may differ. 

In a floating rate loan, the customer gains if interest rates fall, but will take a severe beating if interest rates rise. 

In order to reduce this disadvantage of a the floating rate loan some progressive banks like HSBC have introduced a HYBRID LOAN. In this case a person can decide to fix the interest rate on his loan for periods of 1,2 or 3 years on a long tenure loan and subsequently decide to float his loan. 

For example….. 

You can take a 15 year loan specifying that you will have a fixed interest rate for the first 3 years, after which you have the option to convert to a floating rate loan. If you think that interest rates are about to fall them you will opt for a floating rate loan after 3 years. If interest rates were to rise during the 3 year period you are fully protected as you had locked in a rate for 3 years. 

You will want to stay on with a Floating rate loan as long as you feel that interest rates are expected to fall further. The moment you expect interest rates to start rising, switch immediately to a fixed rate loan. As these changes never happen overnight, you will have enough time to make the move …..provided you watch interest rates carefully. 

This additional flexibility can be capitalised to substantially lower the cost of the loan, often saving as much as 50% of the total interest you may have paid on a simple Fixed rate loan. But……there is a cost ……..the trouble of tracking interest rates and taking a forward looking view on interest rates……. 

Is there any prepayment penalties? 

Each monthly installment consists of a portion that goes towards repaying the original loan principal and the balance going towards interest on the outstanding loan. If you pay anything over the amount that would go towards principal repayment, the excess amount is construed to be a loan prepayment. Most Housing Finance companies charge a fee of 1-2% on the amount being prepaid. This can be a big disadvantage in several cases. 

1. Your earning capacity will normally increase with age and a prepayment fee deters you from completely retiring your debt before time.
2. Your ability to refinance the loan if interest rates subsequently fall gets constrained
3. You may want to sell the home during the tenure of the loan and you find prepayment costs are an unnecessary burden.

The Total Effective Interest Rate (TEIR) vrs the EMI comparisons: 

It is very important for you to understand the total cost of the loan and try to minimise this cost to the extent possible. As home loans are of a long duration even a 0.5% difference in interest rates can cost you a lot of money over time. 

For example……… 

If you had taken a taken a 15 year loan of Rs. 5 lacs at 15% p.a you would have paid Rs. 31000 less than a 15 year loan of Rs 5 lacs for 15.5%. 

Most of us compare the cost of the loan by comparing the EMI’s (Equated Monthly Installments). This can be misleading as you are ignoring the "time value of money" which means that you need to look at when the EMI is being paid. This is because the value of One Rupee today is vastly different from the value of a Rupee 10 years ago. Using a Discounted Cashflow Model that calculates the Effective interest cost depending on when the EMI amounts are being paid solves this problem. 

Other costs that go into the same Discounted Cashflow Model include: 

1. Annual rest, monthly rest, daily rest method of quoting interest rates. The annual rest method of quoting interest rates gives the borrower the credit of principal repaid only once a year although he is paying a portion of the principal in each monthly installment (EMI). A loan quoted with an annual rest interest rate is much more expensive than one quoted on a monthly /daily rest method although the 2 numbers may look identical on paper. 
2. Processing and administrative fees that have to be paid at the time the loan is disbursed.
3. Tax benefits that reduce the total annual repayment.

Equal Monthly Installment (EMI) :

Loan repayments are usually in Equal Monthly Installments over the tenure of the loan. Some banks also offer a Variable Installment Scheme were in repayments are higher in the beginning of the loan period. This is beneficial for those individuals who are trying to maximise their tax breaks in the initial years and expect future tax breaks to fall (we believe that the opposite is more likely!)

Fixed /Floating rate:

Under a floating rate loan, the interest rate on the loan varies from time to time depending on the Prime Lending Rate fixed by the Reserve Bank. This change can happen as frequently as one in six months. If the PLR falls, you benefit as the effective interest rate on your remaining loan falls. However, your payments every month stay the same. The Finance Company will refund some of your EMI cheques and effectively compensates you by reducing the tenure of the loan. The reverse happens if the PLR rises, much to your disadvantage.

Choosing between fixed and floating loans:

In the last 2-3 years the PLR has fallen as the Indian economy had slowed down and demand for money was low. If you expect this trend to continue, you stand to benefit from a floating rate loan. If interest rates begin to rise again, you can prepay your floating rate loan and lock in to fixed rate loan. You must them choose a floating rate loan with no repayment charges (one is offered by HSBC). However, if you do not want to speculate on interest rates and need a stable loan to help planning the future, then go for a Fixed rate loan.

Rest:

Interest rates are quotes on a daily rest, monthly rest or annual rest basis. The annual rest quote implies that the company gives you the credit for the monthly principal repayments only at the end of each year. Such loans are therefore more expensive than a monthly /daily rest loan. The shorter the tenure of the loan, the greater the effective interest rate difference will be. AbodesIndia.com has standardised all interest rate quotes from companies on a MONTHLY REST basis ( rates will therefore look different from Company brochure quotes which maybe on a annual rest basis)

Processing Fee:

A one time fee which is normally non-refundable and payable along with your initial loan application. Rates can vary from 1-2% of the loan amount.

Administrative Fee:

A one time fee which is normally non-refundable and payable before your loan is disbused. Rates can vary from 1-2% of the loan amount.

Commitment fees:

This interest is charged if you do not draw the sanctioned loan within a period of 6-9 months. The rate of interest is usually about 1-2% a months.

Interest Tax:

Housing Finance companies have to pay a tax on the interest income they receive from you. They sometimes pass this on to the customer. Always check with the company if the interest rate they are quoting includes interest tax or not. This tax normally about 2% of the interest rate charged. E.g if the interet rate quoted is 14% then the actual interest rate including interest tax is about 14.28%. AbodesIndia.com has standardised all rates AFTER Interest Tax, on a monthly rest basis to aid comparison across companies.This rate is called the Effective rate.

Prepayment charge:

Most Housing Finance companies charge a fee for prepaying your loan before its full tenure is over. This helps them plan their finances, at your expense. Your earning capacity will normally increase with age and a prepayment fee can be a big cost. This fee also limits your ability to refinance the loan if interest rates fall after a few years. The fee is normally in the range of 1-2% of the prepaid amount.

Refinance Charge:

Some Housing Finance companies do not charge you for prepayments from your own savings. However, if you retire a loan using money borrowed from another Finance Company, you will have to pay a Refinance charge of 1-2% of the loan outstanding.

Down payment:

Housing finance companies would normally give a loan up to 80-85% of the value of the property. The remaining amount would have to paid by the buyer (to the seller), as a down payment before the he draws on the loan.

Tenure of the loan

Normally, loans are given for a period of 1-15 years. Some companies also give loans upto 20 years at an additional interest cost of 0.25% -0.5%. Most companies do not allow loans for a fraction of a year.

Valuation of properties offered as collateral securities to the banks

ROLE OF PANEL VALUER

Posted on 12th Jan 1999
 

While granting the finance to the applicant, depending upon the necessity, the Bank insist them to create collateral securities by the way of equitable mortgage.

According to the Transfer of Property Act (section53).

‘A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced / or to be advanced by the way of loan, an existing or future debt of the performance of an engagement which may give rise to a pecuniary liability’.

Finance is advanced by the Banks by depositing the Title Deeds of the property as security. Acceptance of the deed as security depends upon the legal opinion given by the Panel Advocate. On the basis of legal opinion and scrutinising the basic documents like Title Deed, Tax Receipts etc. Bank sanctions loan to the clients. Nobody does the site inspection. The physical inspection is very much required as there are occasions that the documents created for mortgage have no connection with the actual property of which collateral security have been obtained.

Panel Valuer is the only person who is physically inspecting the property under mortgage and depending upon the site conditions, prepares his valuations reports and issues the valuation certificate. When a property is valued for the purpose of creating Equitable mortgage to the Banks, the responsibility of the Panel Valuer is much more and he takes extra care. He observes many vital factors like complications in documents, involvement of others’ right in the property possible litigation, encroachments, right of ownership etc. Apart from involving mere technical knowledge, he applies his intelligence, shrewdness and analyses practical and critical site conditions. For this, he goes through the following stages and prepares his final Valuation report.

1. Perusal of Documents

2. Physical Inspection

3. Assessment of Value

1. Perusal of Documents

The following documents are perused before going for the site inspection.

1. Title Deed – Name of the owner, The date and Registration No. of the Title Deed, Survey No., Ward No. Village Name, etc. The size and extent of the site, Any percentage of shares value is involved. Any common share (with the neighbours) is involved, Any easement right is mentioned. Age of the building if mentioned.

2. Approved Drawings if available : The year of approval. The owner’s name, Survey No., Ward No., Block No., Village Name etc.

3. Tax receipt :- name of the owner, tax amount ,Tax Assessment No. Door No. Street No., etc.

2. PHYSICAL INSPECTION

Since no property is sticked with the label bearing Survey No., Owners Name etc., physical inspection is of utmost importance as far the Realistic Market Value is concerned. Panel Valuer is the only competent person to check the property physically and certify, whether the property offered for inspection is the same described in the Title Deed which is being pledged to the Bank.

During his site inspection Panel Valuer observes the following :-

• The size and extent of the plot.

• Location with reference to the boundaries.

• Incorrect extent mentioned in the document purposely or by oversight.

• Whether the plot is situated in a ‘Land Locked Land’ situation ?

• Whether the whole or part of the land is notified for acquisition by Government or any statutory body ?

• Whether the local Authority has declared the particular zone as any special zone ?

• Any problems are there with regards to Urban Land Ceiling ?

• Is there any encumbrance ?

• Will there be any problem in transferring the conveyance of ownership ?

• Are there any common shares in the property ?

• Whether the drawings are approved for which the land was purchased ?

• Whether the environmental conditions is good or not ?

• Is there any nuisance due to environmental pollution ?

• Is there any legal problem existing in the Title Deed ?

• Is there any easement right mentioned in the Title Deed ?

• Character and classification of locality i.e. Residential / Commercial / Industrial etc.

• Development of the surrounding areas.

• Is the locality subjected to frequent flooding ?

• Feasibility to the civic amenities like school, hospitals, offices, markets

• Level of land with topographical conditions, shape of land, type of use to which it can be put.

• Any restrictions of use ?

• Whether leasehold or freehold land ?

• Is it in town planning approved layout ?

• Road facility, water potential, under ground sewerage systems etc.

• Commercial potential of the property any other sentimental / social issue which may affect the value.

In Case of Buildings

• Is it an unauthorised construction ?

• Is it constructed violating the local building rules ?

• The specifications of the building in detail.

• How is the condition of the building ?

• Is it being maintained well ?

• The purpose for which the building is used ?

• Whether the building is owner occupied, tenanted or vacant ?

• If it is tenanted, any problem is apprehended in vacant

• Is the building constructed /extended in encroached area ?

• How is the quality of workmanship ?

• How is the strength of foundation ?

• What is the further life of the building ?

• Side and rear compound walls – is it being owned by this owner or do neighbours have many share ?

• Has the building got common wall ?

• The services (like water supply arrangements, drainage arrangements, Electricity deposits, Electrical fittings etc. and compound wall).

3. Assessment of Value

The Panel Valuer assesses the prevailing Market Value of land after analysing various factors like location, size, shape, demand etc. He analyses the factors favoring extra value and the affecting factors for negative values, assessing the depreciated value of extra items, the depreciated value of amenities, miscellaneous structures etc. Before finalising the value Panel Valuers ensures that the provisions in the various local laws do not affect the value of the land / structures.

Some Banks follow the procedure of sanctioning the loan first and ask later for the valuation Certificate from its Panel Valuer.

In one case, when an applicant seeks the sanction of additional loan, he said he will give a vacant site of sufficient extent worth of one crore. The manager of the Bank inspected the property, went to the Registrar’s Office, enquired about the Guideline Value, got himself satisfied about the worthiness for one crore, and forwarded the proposal. The central office sanctioned the loan. Before signing the papers, the Bank requested the Applicant to get a Valuation. Certificate from the Panel Valuer. The Valuer certified the Market Value as 50 Lakhs because in that place the Market Value was less than the Guide line Value. To avoid such type of consequences and complications some basic suggestions for Banks are given below.

1. The Banks must have their own Panel Valuers to safeguard their interest in this regard.

2. The Panel Valuers may be permitted to peruse the documents which are in the custody of the Bank. Perusing the documents is the P/Valuer’s duty if undisputed value is required.

3. When the clients are directed to the P/Valuers the Bank may request him to carry out the valuation on their behalf. This procedures will avoid many problems.

4. Be cautious while accepting the Title Deeds involving undivided share of land alone.

5. Verify whether property under valuation involved more than one Title Document.

6. The Bank Officer in charge must have knowledge in the Field measurements like Guntha, Acre, Areas, Hectare, Sq.metres, Sq.feet, Sq.Yards etc.

7. Only the prevailing Market Rate is to be adopted and not the Guideline Rates.

8. Before considering the initial proposals, kindly do not insist the P/Valuer to certify the value assumed at the time of the proposals.

9. The Panel Valuer can be mutually consulted and his expert opinion may be sought in case of any complications.

10. Asking the applicants to obtain the valuation certificate form the Revenue officials is not considered as the right procedure. The Revenue people are the authority to identify the property correctly or to certify the Survey No. etc.

Finally, remember the basic principle of valuation - value varies with the purpose. Value is a function of date purpose and place. Hence each valuation is a typical one and depending upon the merits of the individual case the Panel Valuer applies his mind, analyses the Pros & Cons and do the authentic, accurate, unbiased, undisputed and unquestionable Valuation to safeguard the interest of the Bank.

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Details about STATE BANK OF INDIA Home Loans

"THE MOST PREFERRED HOME LOAN PROVIDER" voted in AWAAZ Consumer Awards along with the MOST PREFERRED BANK AWARD in a survey conducted by TV 18 in association with AC Nielsen-ORG Marg in 21 cities across India. 

SBI HOME LOANS now offers Interest Rates concessions on GREEN HOMES in accordance with SBI's commitment to Environment protection.

SBI Home Loans come to you on the solid foundation of trust and transparency built in the tradition of State Bank of India.

Best Practices followed in SBI mentioned below will tell you why it makes sense to do business with State Bank of India

• Package of exclusive benefits:
  • Complimentary international ATM-Debit card
  • Complimentary SBI Classic/ International Credit Card. 
  • Option for  internet-banking
  • Concessional package under ‘Credit Khazana’ for prospective Auto Loan, Student Loan, Personal Loan  borrowers whose accounts are conducted satisfactorily
  • 50% concession in charges in respect of all personal remittances/ collection of outstation cheques
    
    Personal loan at attractive rates under SBI Home Plus scheme tailored exclusively for SBI Home Loan customers.

  
  Purpose
  
  Purchase/ Construction of House/ Flat
  
  Purchase of a plot of land for construction of House
  
  Extension/ repair/ renovation/ alteration of an existing House/ Flat
  
  Purchase of Furnishings and Consumer Durables as a part of the project cost.
  
  Takeover of an existing loan from other Banks/ Housing Finance Companies.
  
  Eligibility
  
  Minimum age 18 years as on the date of sanction
  
  Maximum age limit for a Home Loan borrower is fixed at 70 years, i.e. the age by which the loan should be fully repaid.
  
  Availability of sufficient, regular and continuous source of income for servicing the loan repayment.
  

  Loan Amount
  
  

• 40 to 60 times of NMI, depending on repayment capacity as % of NMI as under -
  

  Net Annual Income	EMI/NMI Ratio
  Upto Rs.2 lacs	40%
  Above Rs.2 lac to Rs. 5 lacs	50%
  Above Rs. 5 lacs	55%

  To enhance loan eligibility you have option to add:
  
  1. Income of your spouse/ your son/ daughter living with you, provided they have a steady income and his/ her salary account is maintained with SBI.
  2. Expected rent accruals (less taxes, cess, etc.) if the house/ flat being purchased is proposed to be rented out.
  3. Depreciation, subject to some conditions.
  4. Regular income from all sources.
  

  
  Margin

  Purchase/ Construction of a new House/ Flat/ Plot of land: 20% for loans up to Rs. 1 cr.,  25% for loans above Rs. 1 cr.

  Repairs/ Renovation of an existing House/ Flat: 20%

  
  
  Interest
  
  Click here to view the interest rates.

  Processing Fee
  
  0.50% of Loan amount with a cap of Rs.10,000/-(including Service Tax)
  
  Pre-closure Penalty
  No penalty if the loan is preclosed from own savings/windfall gains for which documentary evidence is produced by the customer.
  
  In case, such proof is not produced by the borrower, penalty @2% on the amount prepaid in excess of normal EMI dues shall be levied if the loan is preclosed within 3 years from the date of commencement of repayment.
  
  Security
  
  

• Equitable mortgage of the property
• Other tangible security of adequate value like NSCs, Life Insurance policies etc., if the property cannot be mortgaged

  Maximum Repayment Period
  

• For applicants upto 45 years of age: 25 years
• For applicants over 45 years of age: 15 years

  Moratorium
  
  Upto 18 months from the date of disbursement of first instalment or 2 months after final disbursement in respect of loans for construction of new house/ flat (moratorium period will be included in the maximum repayment period)

  Disbursement
  
  

• In lump sum direct in favour of the builder/ seller in respect of outright purchase
• In stages depending upon the actual progress of work in respect of construction of house/ flat etc.

  
  Documents
  
  

• Completed application form
• Passport size photograph
• Proof of Identity – PAN Card/ Voters ID/ Passport/ Driving     License
• Proof of Residence – Recent Telephone Bill/ Electricity Bill/ Property tax receipt/ Passport/ Voters ID
• Proof of business address in respect of businessmen/ industrialists
• Sale Deed, Agreement of Sale, Letter of Allotment, Non encumbrance certificate, Land/ Building Tax paid receipt etc. (as applicable and subject to satisfaction report from our empanelled lawyer)
• Copy of approved plan and approval from the Local Body
• Statement of Bank Account/ Pass Book for last 6 months

  
  ‘SBI-Flexi’ Home Loans
  
  A customized product designed to enable borrowers to hedge their Home Loan against unfavourable movement in interest rates. The product gives you a one time irrevocable option to choose one of the three customized combinations of fixed and floating interest rates and also to choose the order in which the fixed and floating rate will be availed.
  
  Minimum Loan Amount: Rs.5 lacs
  
  (Other terms and conditions – as applicable to regular Home Loans)

  
  ‘SBI-Maxgain’ Home Loans
  
  An innovative and customer-friendly product to enable you to earn optimal yield on your savings and minimize interest burden on Home Loans, with no extra cost.
  
  The loan is granted as an Overdraft facility with the added flexibility for you to operate your Home Loan Account like your SB or Current Account.
  
  The product serves to minimize your interest cost by enabling you to park your surplus funds in ‘SBI-Maxgain’ (with the benefit to withdraw the surplus funds whenever you require), specially in the wake of low yields from other deposit/ investment avenues.
  Minimum Loan Amount: Rs.5 lacs
  
  (Other terms and conditions – as applicable to regular Home Loans)

  
  ‘SBI-Realty’ Home Loans
  
  A unique product if you are on the look out for a loan to purchase a plot of land for house construction. The loan is available for a maximum amount of Rs.1 crore* and with a comfortable repayment period of upto 25 years.
  
  You are also eligible to avail another Housing Loan for construction of house on the plot financed above with the benefit of running both the loans concurrently.
  
  (House construction should commence within 2 years from the date of availment of ‘SBI-Realty’ Housing Loan)
  
  (Other terms and conditions – as applicable to regular Home Loans)
  
  (* relaxation considered on case to case basis)
  

  
  ‘SBI-Freedom’ Home Loans
  

  
  A revolutionary product designed for customers who are on the look out for a source of finance for a property they want to invest in without mortgaging the same. All you have to do is pledge any financial security that you have and you will get a Home Loan for your dream home.

   

  A must-take for those who do not want to pay stamp duty for mortgage of their property or go through the hassles of creation of mortgage.

   

  You also have an option to take the loan by way of mortgage of the property and pledge financial securities in lieu of margin money.

   

  Repayment is highly customized, giving you the option to repay through regular EMIs or through maturity proceeds of the securities pledged.

   

  (Other terms and conditions – as applicable to regular Home Loans)
  

  ‘SBI-OPTIMA’ ADDITIONAL HOME LOANS

  ‘SBI-HOMELINE’ SPECIAL PERSONAL LOANS

  
  Innovative and value added products extended to existing Home loan borrowers with a satisfactory repayment record of 3 years and whose loan is Standard Asset, with a view to reinforce the customer loyalty and to maintain long term relationship with the borrowers. In case of take-over of Home Loans from other Banks/HFCs, the borrower should have fulfilled the above conditions with the present Bank/HFC.

   

  Purpose

   

  ‘SBI-Optima’ Additional Home Loans	to meet expenditure towards major repair, renovation, addition to their house/flat, purchase of furniture, fixtures and consumer durables
  ‘SBI-Homeline’ Special Personal Loans	General purpose loan to meet expenditure to meet forseen/unforeseen contingencies

  Eligibility

   

  ‘SBI-Optima’ Additional Home Loans	18 times NMI (for salaried borrowers)/ 1 ½ times NAI ( for others) or   (i)25% of the original project cost of house/flat (ii) 85% of the cost of repairs etc. or (iii) gap between 85% of the current market price of flat/house and actual outstanding loan dues ,   whichever is lower (EMI/NMI ratio of all loans should not exceed 60%)
  ‘SBI-Homeline’ Special Personal Loans	18 times NMI (for salaried borrowers)/ 1 ½ times NAI (for others)

  Interest Rates/processing fee

   

  ‘SBI-Optima’ Additional Home Loans	As applicable to Home Loans
  ‘SBI-Homeline’ Special Personal Loans	Interest rates 50 bps above rates applicable to the repayment tenure (floating rates only)   Processing fee : 0.50% of the loan amount (including service tax)

  Other Salient Features
  
  

  • Inbuilt provision for availment of the loans on the expiry of each bloc of 5 years, the first bloc commencing on the expiry of 5 years from the date of sanction of original Home Loan.
  • Original Home Loan and all ‘SBI-Optima’ Home Loans/’SBI-HomeLine’ Personal Loans can run concurrently
  • Comfortable repayment obligations – Tenure of the loans equal to the residual maturity of the original Home Loans -

   

  ‘PRASHASAN PLUS’, ‘TEACHER PLUS’ AND ‘OIL PLUS’

  
  The above ‘ plus’ schemes offer concessional interest rate of 0.25% below the applicable interest rates on Home Loans to niche client groups like Government Employees, Teachers, employees of public sector oil companies etc.
  
   For more information you may please call our contact centre on toll free number 1800 11 22 11