UNDERSTANDING THE VALUATION OF PAGDI RIGHTS (PREMIUM) IN INDIA

LEGAL INSIGHTS AND CONSIDERATIONS

By Council of Engineers and Valuers (CEV) Legal & Valuation Desk

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In the complex and nuanced world of property law in India, the valuation of Pagdi rights is a subject that demands both legal acumen and an in-depth understanding of the market dynamics. Pagdi rights, which primarily refer to the tenancy rights granted to individuals who occupy properties at a rent far below the prevailing market rate, have been a point of contention in many legal disputes. As the real estate sector continues to evolve and the Indian judiciary grapples with challenges related to property rights, understanding the principles surrounding Pagdi rights valuation becomes crucial for anyone involved in the practice of property valuation. In this article, we delve into the key legal aspects that should guide valuation practitioners when dealing with Pagdi rights, based on key court judgments, statutory interpretations, and market considerations.

What Are Pagdi Rights?

Pagdi rights refer to the tenancy rights that individuals hold in properties where they pay rent far below the prevailing market rate. This system, prevalent in cities like Mumbai, is often a legacy of colonial laws and is regulated by rent control acts. Pagdi tenants, though protected from eviction, face complex issues when it comes to the valuation of their rights, especially when they seek to transfer or sell these rights or negotiate settlements with landlords.

The crux of the matter lies in determining the fair market value of Pagdi rights when a dispute arises, particularly when the tenant decides to sell or transfer these rights. The value of Pagdi rights often represents a percentage of the market value of the property, but the percentage can vary significantly depending on factors like location, age of the property, and the nature of the tenancy agreement.

Key Court Judgments Impacting Property Valuation

Over the years, several court judgments have helped shape the way property values, including those involving Pagdi rights, are determined in India. Below are a few key cases that offer insights into the judicial approach to property valuation.

1. Sumitraben Singabhai Gamit vs. State of Gujarat & Ors. (2025):
   In this landmark judgment, the Supreme Court of India clarified that compensation for land acquisition under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) must reflect the market value at the time of acquisition. The Court emphasized that the date of Section 11 Notification—which is when the government declares its intent to acquire land—should be the reference point for determining the value of the property. This case established a principle that compensation should be based on current market realities, not on outdated or arbitrary values, making it clear that land or property valuation must be aligned with real-time market conditions.
2. Smt. Sabita Sharma & Ors. vs. State of U.P. & Ors.:
   This case reaffirmed the position that property valuation must be grounded in market reality. The judgment emphasized the importance of taking the date of Section 11 Notification into account when determining the market value. In the context of Pagdi rights, this judgment suggests that any calculation of compensation or the transfer value of such rights must consider the present market conditions and the timing of relevant notifications, rather than arbitrarily fixed rates from the past.
3. Krishna S/O Bhimarao Deshpande vs. Pralhad S/O Bhimarao Deshpande (2023):
   A significant case concerning property partition in the state of Karnataka, this judgment highlighted the need for oral and documentary evidence when determining the value of property. The Court emphasized that in partition suits or disputes related to property valuation, the process should be based on accurate documentation and credible oral evidence, ensuring that the valuation is as close to the actual market price as possible. This is especially relevant when Pagdi rights are involved, as the rights of the tenant are often not clearly documented, requiring a careful examination of both written agreements and verbal understandings between the parties involved.

Key Considerations for Valuing Pagdi Rights

1. Market Value vs. Rent Control Laws

The most crucial factor in determining the value of Pagdi rights is the market value of the property. Courts and valuers often need to distinguish between the rent-controlled value, which is what the tenant currently pays, and the actual market value of the property in a deregulated scenario. The key challenge lies in determining how much of the market value should be attributed to the tenant’s rights.

In many cases, the valuation of Pagdi rights is often estimated at a percentage of the current market value of the property, typically ranging from 50% to 66%. This percentage reflects the fact that Pagdi tenants have limited control over the property, and their tenancy rights are subject to the whims of the landlord and regulatory authorities.

2. Statutory Interpretation and Compensation Guidelines

While there is no single formula for Pagdi rights valuation, the judiciary has often leaned on the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR) for guidance. The Act itself sets out principles of fair compensation based on market value, which has been instrumental in providing a framework for valuing various types of property rights, including Pagdi rights.

The Indian Rent Control Act also plays a role in this process by regulating the maximum rent payable by Pagdi tenants and the conditions under which they can be evicted or transferred. These statutory provisions provide context to valuation professionals when determining the potential sale or settlement value of Pagdi rights.

3. Market Dynamics and Property Location

Valuers must take into account the current market dynamics and location of the property when estimating the value of Pagdi rights. Properties located in prime areas, such as Mumbai, often command a significantly higher premium due to the scarcity of land and high demand for real estate. In such locations, the value of Pagdi rights could potentially be much higher, even if the rent remains artificially low. Conversely, properties in less developed areas might not attract the same premium, even if they are still subject to rent control laws.

4. The Role of Evidence

As established in the Krishna S/O Bhimarao Deshpande case, the evidence-based approach is vital in property disputes. When dealing with the valuation of Pagdi rights, it is essential to gather all relevant documentary evidence, such as rent receipts, lease agreements, and court rulings, as well as oral testimony. A thorough analysis of these factors can help establish a fair and reasonable estimate of the value of Pagdi rights.

Practical Approach for Valuation Aspirants

For valuation practice aspirants in India, understanding the intricacies of Pagdi rights valuation is essential. Given the complexity of the subject, aspiring valuers should follow a multi-step approach:

1. Comprehend Relevant Laws: Familiarize yourself with the Indian Rent Control Act, the RFCTLARR Act, and relevant judicial precedents that impact property valuation.
2. Understand Market Conditions: Stay updated on current market trends, especially in urban centers like Mumbai, where Pagdi rights are most prevalent. Keep track of local developments, infrastructure projects, and changes in government policies.
3. Leverage Evidence: Always work with a range of documentary and oral evidence when valuing Pagdi rights. A well-documented analysis can significantly enhance the credibility of your valuation.
4. Consult Legal Experts: Work alongside legal experts to understand the finer points of tenancy agreements and rent control laws. A thorough understanding of these can often provide clarity when valuing Pagdi rights.
5. Consider Future Trends: The evolution of rent control laws and potential changes in government policies can have a significant impact on the value of Pagdi rights. It’s crucial to factor in future developments when making your valuation.

Important

The valuation of Pagdi rights in India is an intricate process that requires a deep understanding of both the legal landscape and the dynamic nature of real estate markets. While no single court judgment or formula can provide a definitive answer, the principles outlined in landmark cases offer valuable guidance. By focusing on market value, statutory interpretation, and evidence-based approaches, property valuation professionals can provide accurate and fair assessments of Pagdi rights. For aspiring valuers, gaining expertise in this field can open up numerous opportunities in India’s ever-evolving property market.

Published by CEV Group Legal Research Division – Serving Valuation, Real Estate & Legal Professionals with Knowledge that Counts