In Focus

Understanding The Pagdi System

By Gajanan Khergamker

Where redevelopment is concerned, very often, in the island city particularly in olden parts, there’s reference to pagdi properties. The consideration paid to a landlord as a fine, premium or consideration (pagdi) has been legalised by Section 56 of Rent Control Act, 1999.


It is now also lawful for a tenant to receive any amount in consideration of the relinquishment or transfer of his tenancy. Incidentally, in the Rent Act, 1974 giving or receiving pagdi in cash was held ‘illegal’ hence there was extensive use of black money. Now too, in cities like Mumbai, for the transfer of tenancy, 33 per cent of the amount in transaction is paid in cash to the landlord to effect the transfer of tenancy or assignment.

If one wants to sell his home for Rs nine lakhs, he will have to pay Rs three lakh of the amount to the landlord. The purchaser of land in a pagdi system is said to be a tenant and has limited rights because a very nominal rent is collected by the landlord and receipt given accordingly. However, when there is redevelopment of the said property, the landlord usually makes a deal with the developer and stakes his claim of his 33 per cent and accordingly takes profit out of the property permanently.

Those who are in accommodation or in possession of the said property after redevelopment become the sole owners of the said premises. Section 56 of the Maharashtra Rent Control Act, 1999 reads as follows:

Sec. 56: Rights of Tenant and Landlord to receive lawful charges – Notwithstanding anything contained in this Act, it shall be lawful for
1) The tenant or any person acting or purporting to act on behalf of the tenant to claim or receive an sum or any consideration, as a condition of the relinquishment, transfer or assignment of his tenancy or any premises;

2) The landlord or any person acting or purporting to act on behalf of the landlord to receive any fine, premium or other like sum deposit or any consideration on 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.

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