2019 (4) TMI 2009 - SC - Companies Law

Transfer of lease consequent to an order of arrangement and demerger - levy of unearned increase or not - if the original lessee (respondent No.1 a public limited company) in respect of the plot given on lease by the appellant transfers the same to another public limited company albeit an alter ego of the former consequent to an order of arrangement and demerger passed by the Company Judge then whether it is liable to pay 50% unearned increase (UEI) on the market value of the plot to the appellant (lessor)? HELD THAT - The amount towards the unearned increase is computed on the basis of the difference between the premium paid and the market value of the commercial plot. In doing so the fact that the transfer under consideration did not involve any consideration amount or the value paid by the transferee is below the market value would not inhibit recovery of 50% of the prescribed unearned increase amount on actual or in a given case notional basis. This is the plain meaning of the stipulation. This position is reinforced from the contemporaneous instructions issued by the competent authority of the appellant about the manner in which the unearned increase should be charged and from whom such charges should be recovered. That can be discerned from the instructions dated 6th September 1988. The fact that the instructions extricate the category of transfers referred to in clause (1) of the instructions from the liability of paying an unearned increase despite being a case of transfer cannot be the basis to exclude the other category of transfers/persons not specifically covered by clause (1) such as the case of present respondents. That is a policy matter. The respondents were fully aware about the existence of such a policy. That policy has not been challenged in the writ petition. Concededly the reliefs claimed in the writ petition were limited to quashing of the demand letter dated 5th August 2010 and notice dated 31st January 2011 demanding unearned increase; and to direct the appellant to convert the said property from leasehold to freehold in favour of respondent No.2 without charging any unearned increase. The reliefs are founded on the assertion that the transfer was not to any outsider much less for any consideration. The grounds on which the demand letter dated 5th August 2010 and the show cause notice dated 13th January 2011 have been challenged cannot be countenanced. Appeal allowed.

Summary

Issues Involved:
1. Liability to pay 50% unearned increase (UEI) on the market value of the plot upon transfer due to demerger.
2. Interpretation of lease deed clause 6(a) regarding transfer and UEI.
3. Applicability of policy instructions on UEI in cases of demerger.
4. Validity of demand and show cause notices issued by the appellant.

Issue-wise Detailed Analysis:

1. Liability to pay 50% unearned increase (UEI) on the market value of the plot upon transfer due to demerger:
The primary issue is whether the original lessee (respondent No.1) must pay 50% UEI to the appellant upon transferring the leased plot to another public limited company (respondent No.2) due to a demerger order. The Supreme Court held that the transfer of the plot resulting from the demerger order by the Company Judge constitutes a transfer under clause 6(a) of the Lease Deed, thus making the respondents liable to pay UEI. The Court emphasized that the transfer, even without consideration, mandates UEI payment based on the difference between the premium paid and the market value of the plot.

2. Interpretation of lease deed clause 6(a) regarding transfer and UEI:
Clause 6(a) of the Lease Deed prohibits selling, transferring, assigning, or otherwise parting with possession of the plot without the appellant’s prior written consent. The clause allows the appellant to impose conditions, including recovering 50% of the unearned increase. The Court clarified that the expansive terms "sell, transfer, assign or otherwise part with the possession" include transfers without consideration, thus obligating the payment of UEI.

3. Applicability of policy instructions on UEI in cases of demerger:
The Court examined the policy instructions regarding UEI, particularly clause 2(d), which stipulates charging 50% UEI when a new company is formed, even if the directors remain the same. The Court found that this clause applies to the present case of demerger, rejecting the respondents' argument that clause 1(b), which exempts certain transfers from UEI, should apply. The Court emphasized that the policy does not specifically exempt demergers from UEI, and the respondents' case does not fall within the exempted categories.

4. Validity of demand and show cause notices issued by the appellant:
The appellant issued demand and show cause notices to the respondents for UEI payment. The respondents challenged these notices, but the Single Judge upheld them, which the Division Bench later set aside. The Supreme Court reinstated the Single Judge’s decision, affirming the validity of the notices. The Court ruled that the demand for UEI was consistent with clause 6(a) of the Lease Deed and the applicable policy instructions, thus making the notices legitimate and enforceable.

Conclusion:
The Supreme Court concluded that the respondents are liable to pay 50% UEI upon transferring the plot due to the demerger. The interpretation of clause 6(a) of the Lease Deed and the relevant policy instructions support the appellant's demand. The demand and show cause notices issued by the appellant were deemed valid, and the Division Bench's judgment was set aside, restoring the Single Judge’s decision.