Delhi HC mesne profits case: Why SBI had to pay ₹3.27 crore to landlady

A tenant who continues to occupy a property after its lawful tenancy has ended can be liable to pay mesne profits, or compensation for wrongful possession. But a recent Delhi High Court case shows that the date on which possession becomes unauthorised can depend on the terms of the tenancy and subsequent agreements between the parties.

In a judgment pronounced on July 9, 2026, the Delhi High Court upheld an award of mesne profits against State Bank of India for its occupation of a commercial property in Delhi's Defence Colony Market. The court dismissed appeals filed by both the landlady, Smt Raj Kumari Garg, and the bank against the trial court's 2022 judgment.

Based on the rates fixed by the court, the mesne profits work out to about ₹3.27 crore for the period from May 2012 until the property was vacated on December 31, 2017, before applicable interest. The court also upheld interest at 6% per annum.

The dispute, however, had a crucial exception. The bank was not held liable for mesne profits for the period between 2008 and May 2012 because Garg had taken a ₹25 lakh loan from the bank and had undertaken to continue the tenancy until the loan was repaid.

How the tenancy began and why the dispute arose

Garg owned two floors of property in Defence Colony Market, comprising 1,600 sq ft on the first floor and 1,200 sq ft on the second floor. The premises were leased to the erstwhile State Bank of Patiala, now part of State Bank of India, under a registered lease deed dated March 10, 2003.

The lease was effective from January 1, 2002, to December 31, 2004, at a monthly rent of ₹62,000. The agreement provided for renewal options, with a 20% increase in rent, subject to the bank making a written request before the expiry of the existing lease.

The lease expired on December 31, 2004. The bank did not exercise the renewal option in the manner stipulated in the agreement and continued occupying the premises. Garg nevertheless continued accepting enhanced rent, and the relationship was subsequently treated as a month-to-month tenancy.

The landlady later issued a legal notice dated May 9, 2008, seeking possession and demanding mesne profits at ₹4 lakh a month from June 1, 2008. The bank did not vacate the property.

Garg subsequently filed a suit seeking possession, occupation charges and mesne profits. The bank eventually handed over the property on December 31, 2017, during the pendency of the litigation.

The ₹25 lakh loan changed the crucial period of liability

A major issue before the court was the effect of a separate financial arrangement between Garg and the bank.

In February 2007, Garg obtained a loan of ₹25 lakh from the bank. In connection with the loan, she gave an undertaking agreeing to extend the tenancy until the loan was repaid. The loan was ultimately repaid in May 2012.

Although Garg had issued the termination notice in May 2008, the Delhi High Court held that she could not rely on that notice to claim mesne profits for the period when her earlier undertaking to continue the tenancy remained operative.

The court noted that Garg had accepted the benefit of the loan and had specifically undertaken to extend the tenancy until May 2012. It therefore held that the bank could not be treated as an unauthorised occupant before that point.

Consequently, the landlady's claim for mesne profits for the period from 2008 until May 2012 was rejected. The bank remained liable only for the rent payable during that period.

The court also found that although the undertaking was not a registered lease deed, it was sufficient in the circumstances to establish an extension of the tenancy on a month-to-month basis. The tenancy became unauthorised after the relevant event occurred in May 2012.

How the court calculated ₹3.27 crore

Once the bank's occupation became unauthorised, the question was how much compensation it should pay.

The trial court awarded mesne profits at ₹163 per sq ft per month from May 2012 to December 2015, followed by a 15% enhancement from January 2016 until the property was vacated on December 31, 2017. It also awarded 6% annual interest. The High Court upheld those findings.

The property covered 2,800 sq ft. At ₹163 per sq ft, the monthly mesne profit was ₹4,56,400.

For the period from May 2012 to December 2015, this rate was applied before the 15% enhancement. From January 2016 until December 2017, the enhanced rate worked out to approximately ₹5,24,860 a month.

On the basis of these court-approved rates, the total mesne profits are approximately ₹3.27 crore, excluding the 6% annual interest. The calculation is consistent with the amounts and periods specified in the judgment.

The landlady had sought a higher rate of ₹216 per sq ft. The bank, meanwhile, challenged the ₹163 per sq ft rate as excessive. The High Court rejected both challenges.

Why ₹163 per sq ft was considered reasonable

The court examined evidence relating to comparable properties in Defence Colony Market.

One witness, Ved Prakash Bansal, owned another commercial property in the market. He had leased its first and second floors to Amalgamated Bean Coffee Trading Company for a Cafe Coffee Day outlet in 2009 at ₹163.33 per sq ft per month. The rent was subsequently increased to ₹216 per sq ft from August 2015.

Another witness, Jagdish Gupta, had leased commercial premises to Standard Chartered Bank in 2015 at ₹396 per sq ft, with a subsequent increase to ₹475.20 per sq ft.

The court considered differences between the properties, including the age and configuration of the premises, but concluded that ₹163 per sq ft from May 2012, followed by a 15% increase, was reasonable. It also noted that the bank had not produced evidence sufficient to establish that the rate was excessive.

What exactly are mesne profits?

Mesne profits are different from ordinary contractual rent.

Section 2(12) of the Code of Civil Procedure defines mesne profits as profits that a person in wrongful possession of property actually received, or could have received with ordinary diligence, together with interest. The Supreme Court has explained that the measure generally relates to the value of the use of the property during wrongful possession.

In practical terms, once a tenancy or other lawful right to occupy a property has ended, a person who continues to remain in possession may have to compensate the owner for that wrongful occupation.

However, the liability does not automatically arise merely because a lease document has expired. The court must determine whether the occupant's possession was actually unauthorised during the period for which mesne profits are claimed.

That distinction was central to the Garg case. The bank's possession between 2008 and May 2012 was not treated as wrongful because of the undertaking linked to the ₹25 lakh loan. It was only after May 2012 that the bank's continued occupation was treated as unauthorised.

Market rent, rather than old rent, can determine mesne profits

Mesne profits are not necessarily calculated using the last contractual rent paid by the tenant.

Courts can examine evidence of prevailing market rates for comparable properties to determine the value of the use and occupation of the premises. In the Garg case, comparable lease transactions in Defence Colony Market were relied upon to determine the appropriate rate.

The court also has discretion regarding interest. In this case, the High Court upheld the 6% annual interest awarded by the trial court under Section 34 of the CPC.

Order XX Rule 12 of the CPC also provides for decrees concerning possession and mesne profits and permits courts to direct an inquiry into mesne profits for the relevant period.

Landlady's plea for higher amount rejected again

Garg had appealed against the denial of mesne profits for the period before May 2012 and had also sought a higher rate of ₹216 per sq ft. State Bank of India separately challenged the award of mesne profits and the 6% interest.

The Delhi High Court dismissed both appeals on July 9, 2026, leaving the trial court's award intact.

Garg subsequently filed a review petition seeking reconsideration of the July judgment. On September 10, 2026, the Delhi High Court dismissed that review petition as well.

The court said a review can be entertained on recognised grounds such as an error apparent on the face of the record, discovery of new and important evidence, or another sufficient reason. It found that Garg's grounds essentially sought to reopen findings already decided in the July judgment and did not disclose an error apparent on the face of the record.

The September 10 order therefore left the July 2026 judgment and the mesne-profit award undisturbed.

The case illustrates an important principle for both landlords and tenants: the expiry of a written lease does not, by itself, determine every question about the legality of subsequent occupation. Subsequent conduct, undertakings and agreements can affect whether possession remains lawful. Once lawful possession ends, however, continued occupation can expose the tenant to mesne profits based on the property's prevailing value of use.