All You Need To Know About Pagdi System In India
Reading about real estate, you must have come across the term 'pagdi'. The pagdi system has been a prevalent practice across India since the pre-Independence era, although the number of people who are tenants under such a system today, may not be high. The Section 56 of the Rent Control Act, 1999 legalised the pagdi system when it said that the tenant or any person acting or purporting to act on behalf of the tenant to claim or receive any sum or any consideration, as a condition of the relinquishment, transfer or assignment of his tenancy of any premises. The landlord or any person acting or purporting to act on behalf of the landlord could receive any fine, premium or other like sum or deposit or any consideration (refers to pagdi) in respect of the grant, or renewal of a lease of any premises, or for giving his consent to the transfer of a lease to any other person. The pagdi-kiraydar system assured the tenant that despite price inflation or other fluctuations, the rent they pay would be nominal. In south Mumbai, popularly called SoBo, the pagdi system is still prevalent where some tenants pay a rent of Rs 500 per month when market rates might be as high as Rs 60,000 or more.
How does the system work?
What does the landlord gain if the rent is the same for years together? Let us look at this in some detail. Under this system, introduced decades ago, the tenant is a part-owner of the house but not the land. The tenant also keeps paying the rent till he has not sub-let the premise. This tenant or part-owner could also sell the property but a portion, about 30-50 per cent of the gross amount had to be paid to the real owner. If the part-owner puts this house on rent, even this rental income is divided among the real and part-owner. This usually resulted into the real owner making some profits from his asset but the tax incident would be low or completely avoidable.
In the recent years, the pagdi system has created some uproar across the country and especially in Delhi and Maharashtra. Here most pagdi kirayadars have the nominal rent agreement with them and no proof of the hefty amount that they had paid long back. For example, the pagdi would have been for Rs 1 lakh, 30 years ago, but the agreement mentions say, Rs 500, which is the rent per month that needed to be paid thereafter.
What is the benefit?
While such landlords and tenants might have avoided taxes, it is not the legal way out. So how does this help? In Europe of the 1940s, such rent control was purposely adopted to do away with any speculations in terms of property pricing after the World War-II. In India, too, it served the same purpose. In short, the pagdi system helped keep prices in check and speculation under wraps thereby assuring people of affordable housing.
About the latest protests
*In May 2017, shopkeepers who were pagdi tenants in Delhi's Chandni Chowk area were being evicted. As many as 10,000 such shops were affected with more than 50,000 out of job and many more under the radar. These shopkeepers demanded amendments in the Delhi Rent Control Act.
*In Mumbai last year, the Maharashtra government decided that it would intervene and even do away with the obsolete system, but, this did not go down well with the state's pagdi kirayadars.
The low rent is hardly a motivation for the landlord and therefore, such buildings are usually neglected when it comes to repair and maintenance. This year, the state government said that the landlords of buildings under the pagdi system can increase rent by 25 per cent in case of repair work. Soon enough, following protests by tenants who said that their landlords had taken to harassment and arbitrary price increase citing repairs, the decision was rolled back.
The Maharashtra government also formed a committee to look into the possibility of granting ownership rights to tenants living in Mumbai under the old pagdi system.