FCI Cannot Unilaterally Reduce Rent Or Recover 'Excess' Payment Without Landlord's Consent & Notice: Punjab & Haryana High Court

"Any unilateral alteration affecting the rights and obligations of the parties, without mutual consent, cannot ordinarily be sustained in law," Punjab and Haryana High Court, in a significant ruling, held that a tenant, including statutory bodies like the Food Corporation of India (FCI), cannot unilaterally reduce agreed-upon rent or recover alleged excess payments without the landlord’s prior consent or a notice of hearing.

A bench of Justice Amarinder Singh Grewal observed that any modification to contractual terms affecting the rights of a party must adhere to the principles of natural justice and fairness. The Court emphasized that administrative decisions taken internally by a tenant cannot be imposed retrospectively on a landlord who was never informed of such changes.

The Food Corporation of India (FCI) had been a tenant of the plaintiffs' godowns since 1978, with rent rates revised periodically based on various agreements. A dispute arose when FCI withheld rent for late 1990 and early 1991 to recover an alleged overpayment of ₹48,828.80 made between 1984 and 1985, along with ₹28,876.60 as interest. The plaintiffs filed a suit for mandatory injunction challenging this recovery, which was decreed by the trial court and subsequently affirmed by the first appellate court.

The primary question before the court was whether the FCI was legally justified in unilaterally reducing the rate of rent and recovering alleged excess payments without prior notice or the consent of the landlords. The court also examined whether such a revision of rent, based on internal administrative letters not communicated to the other party, could be binding under contract law.

FCI's Unilateral Rent Revision Lacks Legal Validity

The court noted that the rent for the period between November 1984 and May 1985 was initially sanctioned and paid at 57.50 paise per square foot. However, the FCI later sought to reduce this rate to 45 paise per square foot based on an internal letter from its Zonal Office dated September 9, 1987. The bench found that this retrospective revision was attempted several years after the payment had already been released.

Agreement Binding Only Through Mutual Consent

Justice Grewal emphasized that the binding force of any agreement is derived from the mutual consent of the parties involved. The court observed that once parties agree to specific terms, neither side possesses the authority to modify them in isolation. The bench noted that "an agreement derives its binding force from the mutual consent of the parties to its terms and conditions."

"Once the parties have agreed upon the terms of a contract, neither party can unilaterally alter or modify such terms without informing the other party and obtaining its consent."

Lack Of Communication To Landlords Fatal To FCI’s Case

A crucial admission came from the FCI's own witness, an Assistant Grade-I officer, who conceded during cross-examination that the letter revising the rent was never sent to the landlords. The court found that no prior notice or opportunity for a hearing was issued before the corporation began making deductions from the current rent. This failure to communicate the change made the recovery action legally unsustainable.

Principles Of Natural Justice Must Be Followed

The court held that the Zonal Manager's exercise of internal administrative powers could not override the rights of the landlord without following due process. Justice Grewal highlighted that "the principles of fairness and natural justice require that before taking any action adversely affecting the rights of a party, adequate notice and opportunity must be afforded." The bench found the FCI's conduct to be arbitrary.

"Such unilateral determination of rent, without notice to or consent of the affected party, appears to be arbitrary in nature."

No Recovery Of Payments Acted Upon By Both Parties

Since the FCI had already sanctioned and released the payment at the higher rate, and the landlords had arranged their affairs based on that fixation, the corporation could not retrospectively alter the rate. The court highlighted that no material was placed on record to show any fraud, misrepresentation, or concealment by the landlords that would justify such a recovery.

Scope Of Second Appeal Under Punjab Courts Act

The High Court also noted that its jurisdiction in a Regular Second Appeal is circumscribed by Section 41 of the Punjab Courts Act, 1918. Citing Supreme Court precedents like Pankajakshi v. Chandrika, the court maintained that it would not interfere with the concurrent findings of fact recorded by the lower courts unless a gross illegality was established.

The High Court dismissed the FCI's appeal, affirming that the corporation had no authority to unilaterally deduct amounts from the rent. The court upheld the lower courts' decrees, concluding that the recovery of the alleged excess amount and the demand for interest were unauthorized and illegal.

Date of Decision: 20 May 2026