Pagdi System

Pagdi is a customary model of tenancy in India that involves a tenant and a landlord, similar to other
rental agreements. However, what sets it apart is that the tenant is also a co-owner of the property
and has the right to sublet or sell the property.
In the pagdi rental system, the tenant is a co-owner of the property who enjoys all the rights of an
owner like selling or sub-letting the property.
In the pagdi system law, the tenant pays a fee, premium or consideration to the landlord as a lump
sum payment. On the other hand, the property rent remains unchanged for the tenant, which is much
lower than the market rate. Also, as a co-owner, the tenant can sublet or sell the property whenever
he wishes to.

If the tenant sublets the property, the rental income is shared by him/her and the landlord in the
percentage of 35%- 65%.
Similarly, when the property is sold, the landlord (owner of the property) gets 30-50% of the sale
proceeds, and the tenant takes the remaining.

Under the pagdi system law, landlords often suffer losses, as the rental of the buildings are drastically
lower than market prices. Due to this, it is difficult for the landlord to maintain and repair the
building when needed.

Typically, the pagdi kirayadar system is carried out with verbal agreements. There is hardly any well
maintained documentation, which makes the sale process easy and quick. However, if the tenant
wishes to sell the house, it is recommended that he/she take the No Objection Certificate from the
lender. It would be better to ask consent from the landlord about selling the house and transferring
tenancy to avoid any inconvenience later. Though there is no thumb rule, he/she would have to
transfer 30-50% of the proceeds to the landlord, which is a prominent practice in the pagdi system.

Advantages of Pagdi System in India

 Low Rents: The Pagdi system offers lower rent to tenants than the current market rates in major
urban cities.
 Security of Tenure: The Pagdi system provides tenants with the security of tenure, allowing them to
occupy the property indefinitely.
 Co Ownership Rights: Tenants have the right to co own the property, though not the land, and have
selling and sub-letting rights.

Disadvantages of Pagdi System in India

 No Control over Rent: After paying the Pagdi amount, tenants have no control over rent. Landlords
can increase the rent, and tenants have no legal recourse to challenge it.
 Responsibility for Property Maintenance: Tenants are responsible for repairs and renovations of
the property, which can be a financial burden, particularly for marginalized communities.
Related Case laws-

Satyawati Sharma (Dead) by Lrs. v. Union of India, 2008 (6) SCALE 325

This judgment has made a huge change in the whole concept of the ground of eviction as
provided under Section 14(1)(e) of the Rent Control Act. For the first time section 14(1)(e) of the
Delhi Rent Control Act, 1958 was challenged before the Supreme Court, being violative of the
doctrine of equality enshrined in article 14 of the Constitution of India in Satyawati
Sharma's case. This resulted in striking down the discriminatory portion of the Section 14(1)
(e) so that the remaining part be read of-

"that the premises are required bona fide by the landlord for himself or for any member of his
family dependent on him, if he is the owner thereof, or for any person for whose benefit the
premises are held and that the landlord or such person has no other reasonably suitable
accommodation."

As a consequence thereof, the court surveyed various judgments and consistently held the
paramount object of providing safeguards to tenants against the exploitations by landlords,
who seek to take undue advantage of the pressing need for accommodation of a large number of
people looking for a house on rent for residence or business in the background of acute scarcity.

V.S. Talwar v. Prem Chandra Sharma, AIR 1984 SC 664

Landlord files an application for eviction of the tenant under section 14(1)(e) on the ground that
the premises were being used for personal office purposes, though, the rent agreement does not
mention about the commercial purposes. The High Court rejected the landlord's submission that
the use of the word 'personal' before 'office' was intended to convey the idea that the tenancy was
'not' for the purpose of accommodating a place of business.

Baldev Sahai Bangia v. R.C. Bhasin, AIR 1982 SC 1091

The landlord filed an eviction of the tenant on the ground of bona fide requirement and non-
residence of the tenant under section 14(1)(d) and (e) of the Delhi Control Act, 1958. In this
case, the tenant left the house after marriage but his mother was still living and paying the rent.
So, the case revolves around the meaning of the word “family” of the tenant under the act. The
Supreme Court laid down the wider interpretation of this term and call for amendment. Hence,
the landlord failed in eviction plea.