The Bombay High Court has clarified that courts cannot direct payment of interim compensation based on prevailing market rent during the pendency of a possession suit unless unlawful occupation is first established. This ruling reinforces the limited scope of Order XV-A of the Code of Civil Procedure and prevents judicial overreach in civil disputes involving leasehold properties.
Background & Facts
The Dispute
The dispute arises from a lease agreement dated 12 March 1992 between Rajpal Brothers Private Limited (Lessor) and Hindustan Petroleum Corporation Limited (HPCL, Lessee) for demised land. The agreed monthly rent was Rs. 4,000. The lease term expired, but HPCL continued to occupy the premises without executing a new lease or paying increased rent. The Lessor filed Title and Ejectment Suit No. 5 of 2024 seeking recovery of possession and arrears of rent. During the pendency of the suit, the Lessor applied for interim compensation at market rates, claiming Rs. 10,79,567 per month and arrears of Rs. 3,07,67,659.50.
Key Facts
- Lease Agreement executed on 12.03.1992 with monthly rent of Rs. 4,000
- Lease term expired; HPCL continued possession without renewal
- Lessor filed Suit No. 5 of 2024 on an unspecified date prior to 2025 seeking possession and arrears
- Interim compensation application sought Rs. 10,79,567/month and arrears of Rs. 3,07,67,659.50
- Trial Court rejected interim application by order dated 23.07.2025, holding unlawful occupation not yet proven
- Appellate Bench of Small Causes Court reversed Trial Court by order dated 11.12.2025, directing HPCL to pay Rs. 1,00,000/month as interim compensation from 17.10.2022
- HPCL deposited Rs. 1,00,000/month on a without-prejudice basis as of 13.03.2026
Procedural History
- 12.03.1992: Lease agreement executed at Rs. 4,000/month
- Date unknown (prior to 2024): Lease expired; HPCL continued occupation
- 2024: Lessor filed Title and Ejectment Suit No. 5 of 2024
- 2025: Lessor filed application for interim compensation
- 23.07.2025: Trial Court dismissed interim application, holding unlawful possession not established
- 11.12.2025: Appellate Bench of Small Causes Court set aside Trial Court order and directed HPCL to pay Rs. 1,00,000/month from 17.10.2022
- 2026: HPCL filed Writ Petition No. 3435 of 2026 challenging the Appellate Bench order
- 2026: Lessor filed Writ Petition No. 2184 of 2026 seeking enhancement of interim compensation
- 13.03.2026: Bombay High Court delivered judgment
Relief Sought
- HPCL sought setting aside of the Appellate Bench order directing Rs. 1,00,000/month interim compensation
- Lessor sought enhancement of interim compensation to reflect market rent
The Legal Issue
Can a court, under Order XV-A of the Code of Civil Procedure, 1908, direct a defendant to pay interim compensation based on prevailing market rent during the pendency of a possession suit, when the legality of occupation has not yet been adjudicated?
Arguments Presented
For the Petitioner (HPCL)
HPCL contended that the Appellate Bench exceeded its jurisdiction under Order XV-A CPC. The provision permits courts to direct deposit of arrears of rent or license fee only, not interim compensation calculated on market rates. The Appellate Bench improperly relied on judgments concerning mesne profits and stay of ejectment decrees (Atma Ram Properties, State of Maharashtra v. Super Max International), which apply only after a decree for possession is passed. Since no decree exists, the court had no power to impose market-based payments.
For the Respondent (Lessor)
The Lessor argued that HPCL’s continued occupation after lease expiry constituted unjust enrichment. The Appellate Bench’s order of Rs. 1,00,000/month was a reasonable interim measure to prevent loss to the Lessor. Reliance was placed on Indian Oil Corporation v. Sudera Realty and Bijay Kumar Manish Kumar HUF v. Ashwin Bhanulal Desai, which recognized the court’s power to ensure fair compensation during pendency. The Lessor contended that the interim amount was modest compared to market rates and should be upheld or enhanced.
The Court's Analysis
The Court examined the language and intent of Order XV-A CPC, which states: "the court may direct the defendant to deposit in court such amount as the court deems fit". The phrase "such amount" refers exclusively to arrears of rent or license fee, not to hypothetical market value or interim compensation. The Court emphasized that Order XV-A is not a general equitable power to compensate for loss during litigation; it is a procedural mechanism to secure payment of dues already recognized under the lease.
"The Appellate Court has erroneously imported the concept of payment of interim compensation enunciated in the judgment of the Apex Court in Atma Ram Properties... which contemplate Appellate Court's power to grant stay to the decree for ejectment subject to payment of interim compensation. In the present case, decree of ejectment is yet to be passed."
The Court distinguished Atma Ram Properties and State of Maharashtra v. Super Max International, noting these cases dealt with stays of final ejectment decrees, not interim relief during trial. Similarly, Indian Oil Corporation and Bijay Kumar Manish Kumar HUF concerned mesne profits - a remedy available only after success in the main suit. The Court held that mesne profits and interim compensation under Order XV-A are distinct remedies with different thresholds.
The Court concluded that the Appellate Bench committed a jurisdictional error by substituting its own valuation of market rent for the contractual rent, without a finding of unlawful occupation. Such an exercise amounts to adjudicating the merits prematurely.
The Verdict
The Bombay High Court set aside the Appellate Bench’s order dated 11.12.2025 directing HPCL to pay Rs. 1,00,000 per month as interim compensation from 17.10.2022. Writ Petition No. 3435 of 2026 filed by HPCL was allowed. Writ Petition No. 2184 of 2026 filed by the Lessor was rendered infructuous and dismissed. HPCL may apply to the Trial Court for withdrawal of the amount deposited on a without-prejudice basis.
What This Means For Similar Cases
Interim Relief Under Order XV-A CPC Is Limited to Contractual Rent Arrears
- Practitioners must limit interim applications under Order XV-A CPC to arrears of rent or license fee as stipulated in the lease
- Courts cannot substitute market rent, inflation-adjusted rates, or speculative valuations in the absence of a finding of unlawful occupation
- Applications seeking "interim compensation" must be framed as claims for mesne profits, to be determined post-decree
Pre-Decree Compensation Requires Separate Legal Grounding
- Any claim for compensation beyond contractual rent must be pursued under Section 47 or Section 50 of the CPC, or as a claim for mesne profits under Order XX, Rule 12
- Courts must not conflate interim deposit orders with equitable remedies
- Lessor’s remedy for unjust enrichment lies in proving unlawful possession and then claiming mesne profits - not in pre-trial market rate adjustments
Small Causes Courts Must Not Overstep Jurisdictional Boundaries
- Small Causes Courts, while empowered to handle landlord-tenant disputes, are bound by the procedural limits of the CPC
- Appellate Benches must not expand jurisdiction by importing principles from higher courts applicable only after decree
- Judges must distinguish between securing dues and adjudicating entitlements
