TMI Blog2017 (8) TMI 1519X X X X Extracts X X X X X X X X Extracts X X X X ..... assignment acquired the leasehold rights for the remaining term of the lease on 1 September 2005 together with the rights and benefits arising out of the original lease of 16 July 1985. The Calcutta High Court had clearly and expressly observed, while rejecting UDA's claim of forfeiture and re-entry, that the transfer was of the residual term of seven years and that if UDA did not intend to renew the lease, the land would revert to it. There was no absolute or indefeasible right to renewal either in IISCO or in Ajar, which succeeded to the leasehold interest. As a matter of fact, when UDA decided to renew the lease, it was duty bound to evaluate all aspects bearing upon the public interest which included (i) the purpose for which the land was granted under the original lease agreement; (ii) the extent to which the purpose had been fulfilled; (iii) whether the original purpose underlying the grant of the land would be subserved by the renewal sought by a commercial developer; (iv) the market value of the land; (v) the revenue which would be generated for the activities of UDA if the land would be transferred on commercial terms that would realise the best price. UDA choose to bli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 10853 of 2017 (Arising out of SLP (C) No. 8145 of 2016) and Civil Appeal No. 10854 of 2017 (Arising out of SLP (C) No. 13455 of 2016) - - - Dated:- 24-8-2017 - J.S. Khehar, C.J.I. and Dr. D.Y. Chandrachud, J. For the Appellant : Shyam Divan, C.U. Singh, Ravindra Shrivastava, Sr. Advs., Senthil Jagadeesan, T. Srinivasa Murthy, Abhinav Malhotra, Shruti Iyer, Liz Mathew, Arjun Garg, Manish Yadav and R. Chandra, Advs. For the Respondents : Kamini Jaiswal, Pranav Sachdeva, Jatinder Pal Singh, Neha Rathi, Amiy Shukla, Samir Ali Khan, Sakshi Kakkar, C.D. Singh, T. Harish Kumar and Mishra Saurabh, Advs. JUDGMENT Dr. D.Y. Chandrachud, J. 1. Leave granted. 2. The Appellant, Ajar Enterprises Private Limited ( Ajar ) has called into question a judgment of a Division Bench of the Madhya Pradesh High Court, in its Bench at Indore, dated 8 February 2016. The High Court (i) set aside the renewal of a lease granted by Ujjain Development Authority ( UDA ) to Ajar for the period from 21 December 2012 till 20 December 2042; (ii) directed that possession of the land in dispute be taken back; (iii) that in order to fetch the best price, the land be put to a public auc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the case, on condition of payment of transfer fees to the Ujjain Development Authority of 10 % on the amount that is arrived at by adding 20 times the annual lease rent to the premium, the permission for transfer can be given. If the transfer is desired in the interests of the transferor's natural justice then on deposit of transfer fee of ₹ 100/- the plot of land can be transferred. This permission shall be given only when the lessee obtains a permission letter from the competent authority under the Urban Land Ceiling Act, 1976 and submit it. (v) The lessee had to submit building plans for approval within six months of receiving possession and to commence construction within two years. An extension of time could be granted limited to one year (Clause 5); (vi) If construction was not commenced within the specified period, the lessor had a right of re-entry, upon which the amount paid by the lessee would be refunded with a deduction of twenty percent (Clause 6); and (vii) The lease would be governed by other requirements of UDA, the municipal corporation and by the bye-laws of the government then prevailing or as would be made applicable from time to time ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him that already about ₹ 75 lakhs have been spent from his establishment fund as there is no secured creditor in the case. It is suggested before me that unless this offer is accepted the valuation of the Company (in liquidation) will get further diminished and there will be no future offer in the matter. I am, therefore, constrained to accept the highest offer of ₹ 20 crores although it is not matching the valuation report. The offer of ₹ 20 crores, it may be noted, was for the sale of all the assets of the company liquidation including the plant, machinery and the lands held by the company, both freehold and leasehold. 9. On 22 July 2003, UDA informed the Official Liquidator that it had cancelled the lease and re-entered on the land on 7 July 2003 as a result of a breach of the conditions of lease. On 28 July 2003, UDA forwarded a cheque in the amount of ₹ 2,44,052 after deducting twenty percent of the premium paid. This, it was stated was as a result of the failure of IISCO to utilise 30,506.50 square meters out of the leased land admeasuring 43,407 square metres. 10. On 4 August 2003, the Official Liquidator informed UDA that the leasehold righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atically get possession back. Whether the company in liquidation constructed residential flats or not or whether there was any violation of Clause 6 or not, was a question to be decided by a Civil Court. The applicant could not have taken up this cause upon themselves to decide that there had been in fact a violation of Clause 6 and they could take possession forcibly. The official liquidator was in possession of the land in question at material time meaning thereby this Court being the winding up court was in custody of the land in question. The applicant could not have entered into the possession without specific leave being obtained from this Court. In consequence, it was held that the termination of the lease and re-entry were of no consequence and that UDA was not entitled to seek possession of the land from the Official Liquidator. 14. On 1 September 2005, the Official Liquidator assigned all the leasehold rights of IISCO in favour of Ajar. The deed of assignment records that out of a total sale consideration of ₹ 20.50 crores, the valuation of the leased land had been apportioned at ₹ 1,35,20,183. The recital in the deed of assignment reads thus: (n) For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from the date of execution of this deed upto the residuary period of the first term of the said original deed of lease . 15. A Letters Patent Appeal filed by UDA against the order of the Single Judge was dismissed by a Division Bench of the High Court on 22 July 2009. The Division Bench held that UDA had knowledge that IISCO was in liquidation and of the notice of sale. The court held that since the properties were sold only for the residuary part of the first term of the lease, no case for interference was made out. The delay of UDA weighed in the balance. The findings of the Division Bench are extracted below: After considering the facts of this case and after scrutinizing the facts in this matter, it appears to us that the Appellant had knowledge of the fact that the company has gone into liquidation and, further notice of sale was duly published in the newspaper which is admittedly within the knowledge of the Appellant since the Appellant did not take any steps in the matter for a long time. After the sale was confirmed, the properties were handed over and that too, only for the residuary part of the first terms of the lease. The Appellant filed this application and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease. 20. In pursuance of a public notice issued by UDA on 3 December 2012 inviting applications for conversion of leasehold lands into freehold, Ajar applied on 4 December 2012. On 28 May 2013, UDA called upon Ajar to pay an amount of ₹ 74,57,323 towards conversion fees which Ajar deposited on 29 May 2013. 21. On 2 July 2013, the first and second Respondents instituted a public interest litigation before the Indore Bench of the Madhya Pradesh High Court to challenge the deed of renewal dated 10 May 2012 and the agreement for transfer dated 7 June 2011. The petition also sought a direction to UDA to conduct a fresh allotment of the land by auction and for an enquiry into alleged acts of corruption by the officers of UDA. During the pendency of the writ proceedings, UDA executed a deed of conveyance on 12 July 2013 by which the land was converted to freehold. Leave was granted by the High Court to amend the writ petition to challenge the order of UDA dated 28 May 2013 and the deed of conveyance dated 12 July 2013. During the pendency of the writ proceedings, Ajar claims to have obtained on 19 September 2013 permissions and approvals for building upon and developing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y recognised public purpose embodied in the Directive Principles contained in Part IV of the Constitution; (iv) UDA had incorrectly proceeded on the basis that it had no option except to renew the lease in view of the judgment of the Calcutta High Court. The Calcutta High Court did not hold that UDA was bound to renew the lease. On the contrary, the finding was that if UDA did not agree to the terms and conditions for renewal after the expiry of the residuary term, the lease would not be renewed; (v) The fact that UDA had cancelled the lease on the ground that IISCO had violated its covenants ought to have been taken into consideration by UDA while deciding whether to renew the lease; (vi) Though there was a Clause for renewal in the original lease deed dated 16 July 1985, UDA ought to have taken into consideration (a) the location of the land; (b) market value of adjoining land; and (c) the fact that the land had not been leased to Ajar to achieve a constitutionally sanctioned purpose under Part IV of the Constitution. UDA ought to have made efforts to obtain the best available price while renewing the lease. UDA renewed the lease on a nominal premium to confer a benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm; (iii) All aspects of the lease including its tenure, right of renewal, rates and conversion to freehold are comprehensively regulated by statutory provisions which are devoid of any discretionary element. The lease deed dated 16 July 1985 is granted statutory sanction Under Sections 181 and 182 of the Madhya Pradesh Land Revenue Code 1959. The provisions for renewal contained in the original lease deed are in accord with Rules 24 and 25 of the Madhya Pradesh Nagar Tatha Gram Nivesh Vikasit Bhoomiyo, Griho, Bhavano Tatha Anya Sanrachanao Ka Vyayan Niyam, 1975 notified in 1977. Rule 25 mandates that where the period of lease is thirty years, there shall be a right of renewal for two periods of thirty years each subject to the payment of increased ground rent on each renewal, not exceeding fifty percent. The Clause for renewal in the lease is enforceable both Under Section 182(1) and Rule 25. Moreover Section 181-A empowers the state government to convert leases granted for residential or commercial purposes in urban areas into freehold. The state government has promulgate the Madhya Pradesh Grant of Freehold Rights in respect of Land on Lease situated in Urban Area Rules 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nior Counsel that it had taken all possible steps to cancel the lease and to take back possession of the property. Having lost before all courts including this Court in the Special Leave Petition Under Article 136, UDA had no option but to transfer the lease. The lease was renewed in accordance with the terms of the deed and the statutory Rules holding the field. 425 such renewals were effected by UDA and the land was converted to freehold pursuant to a policy of the state government. There has been no loss to the public exchequer. UDA acted in pursuance of legal advice received by it. In 2005, the leasehold rights were assigned for a consideration of ₹ 1.35 crores. For the purpose of computing the transfer fees, UDA adopted the date of the order of the Calcutta High Court (22 July 2009) as a result of which it obtained a further sum of ₹ 64 lacs. UDA was bound by the terms of lease as well as the 1977 Rules while effecting renewal and it could not have demanded the market value of the land in 2012. The conversion to freehold is in accordance with the Rules of 2010. UDA issued advertisements for such conversion and approved as many as 152 properties for conversion to fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d over a huge tract admeasuring 43,407 square meters to a private developer for a negligible price; (vi) UDA hurriedly effected the renewal for thirty years despite legal notices issued by the first and second Respondents. The hurried conversion of the land to freehold indicates mala fides. The CEO of UDA who took these decisions has nearly twenty corruption cases pending against him; (vii) The third party purchasers cannot obtain a better title than Ajar. As a matter of fact, Ajar ought to have informed the buyers of the pending writ proceedings. If the buyers have been informed, they have dealt with the plots at their own peril. If they have not been informed, Ajar must make good the loss by returning the entire sale consideration together with interest; and (viii) From the documents produced before this Court by Ajar it emerges that nearly one-fourth of the sale deeds were executed post September 2015 after the hearing in the writ petition had concluded. Ajar has hence acted with a lack of bona fides only to defeat the final orders that would be passed in the public interest petition. 28. These submissions need to be considered. 29. Chapter XXIII of the Madhya Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts Act 1895. Ejectment of a government lessee can be on one or more of the grounds specified in Sub-Section 2 of Section 182; which are: (i) failure to pay the rent for a period of three months after it has become due; (ii) use of land for purposes other than that for which it was granted; (iii) expiry of the term of the lease; and (iv) contravention of the conditions of the grant. 31. The Rules of 1977 contain elaborate provisions for the transfer of government land vested in or maintained by the Town and Country Development Authority and in respect of other land. Rule 3 requires the general or special sanction of the state government to the transfer of government land which has been vested in or which is maintained by the Authority. Under Rule 4 all other land shall be transferred in accordance with the Rules which follow. Four modes have been stipulated in Rule 5 for transfer of Authority land. These are: (i) direct negotiations; (ii) public auction; (iii) invitation of tenders; and (iv) on concessional terms. If any other mode is to be used, Rule 5(A) (inserted on 26 September 2005) stipulates that the Director Town and Country Planning Department shall forward his opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd shall be either for 30 years or 99 years as may be determined by the Authority with the right of renewal by the lessor. 25. Where the period of lease is fixed at 30 years there shall be right of renewal for 2 further periods of 30 years each subject to payment of increased ground rent on each renewal not exceeding 50 percent. 26. Where the purchaser by an application in writing requests the Authority to convert the period of lease from 30 years to 90 years, the Authority may do so after charging in addition 15 percent of the premium fixed for 30 years of lease with proportionate increase in annual ground rent. The Rules in Hindi are set out below: 34. Rule 24 stipulates that every transfer of land has to be (subject to the provisions contained in the rules) by lease. Every lease has to be either for thirty years or ninety nine years as determined by the authority with a right of renewal by the lessor. Rule 24 indicates that it is subject to the provisions contained in the Rules. Moreover, while Rule 24 does contemplate a provision for renewal, the expression right of renewal by the lessor is of significance. The provision does not embody an absolute or indefea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easuring 275 hectares was acquired in four phases. In the first phase, 150.856 hectares of land were acquired against a compensation of ₹ 61.35 lacs at an average rate of acquisition of ₹ 4.06 per square meter. The subject land, it has been stated, was taken possession of on 19 May 1979 and 26 May 1979. The land owners had claimed compensation of ₹ 7000 per bigha (Rs. 3.34 per square meter) for some part and ₹ 6000 per bigha (Rs. 2.87 per square meter) for the remaining land. These rates were agreed upon and compensation was paid in 1979. The premium for the grant of leasehold interests to IISCO was fixed at ₹ 10 per square metre, excluding development charges. UDA claims on this basis that the premium to IISCO was charged at a market rate. What is, however of significance is that UDA has not disclosed before this Court the rate at which other adjoining lands were transferred. 37. The original lease deed dated 16 July 1985 was executed in favour of IISCO specifically for the purpose of the constructing residential houses and for the development of a colony. The total extent of the land leased was 43,407 square meters. The premium was ₹ 4,34,07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e premium in accordance with the general or special sanction of the state government to the scale of premium; (ii) due publicity of the proposal to dispose of land by the authority by negotiations, in at least two newspapers one of which should be a local Hindi newspaper and in another newspaper that has wide circulation in the state together with the publication of notices in prominent public offices; (iii) submission of offers together with earnest money deposit not less than one-fifth of the premium and; (iv) procedure to be followed where more than one offer is received. UDA has in its additional affidavit dated 14 August 2017 filed in these proceedings adverted to the manner in which the first phase of land admeasuring 150.856 hectares was acquired against the payment of compensation and the allotment of land on lease to IISCO. UDA has produced no material to indicate that it had followed the procedure laid down in Rule 6 of the 1975 Rules when it proceeded to make the original allotment in favour of IISCO. While UDA claims that the land was allotted to IISCO at ₹ 10 per square metre excluding development charges without any concession , it has remained silent on the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have assigned the interest of the company liquidation in the leasehold land. The Calcutta High Court noted that if UDA did not agree to the terms and conditions for renewal after the expiration of seven years, the lease would not be renewed and UDA would automatically get possession back . It was in this view of the matter that the High Court did not enquire into the question as to whether there was any breach by the company in liquidation of its obligations under the original lease deed. The judgment of the Single Judge was confirmed in appeal by the Division Bench and eventually a special leave petition was dismissed by this Court as well. 41. When UDA decided to renew the lease it proceeded on the basis that after the decision of the Calcutta High Court, it had no option but to renew the lease. Even before this Court, the submission of UDA is that once its objections were overruled by the Calcutta High Court it had no option but to renew the lease. This submission betrays a lack of understating of the judgment of the Calcutta High Court as well as of the terms of the original lease. The judgment of the Calcutta High Court made it abundantly clear both to the assignee who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules 24 and 25, it would be manifestly unfair to re-auction the land at the time of renewal. The present case does not fall in such a category simply because the purpose for which the land was allotted to the company in liquidation was not the purpose for which Ajar had stepped in. Ajar could not be oblivious to the observations contained in the judgment of the Calcutta High Court particularly when the Clause for renewal in the original lease deed did not stipulate an absolute or indefeasible right of renewal. In taking the view that UDA had no option but to renew the lease, UDA has acted in a manner which betrays a total lack of understanding of its rights and of the trust placed in it as a custodian of public interest. UDA has acted in a manner that has ensured the conferment of a largesse upon the private developer in disregard of the public interest in ensuring the disposal of lands belonging to the authority in a transparent manner which ensures the realization of the best possible return. The renewal of the lease dated 10 May 2012 for a further term of thirty years from 20 December 2012 to 21 December 2042 was manifestly flawed. 43. The conversion of the land to freehold i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey assert in their favour. In so far as the validity of the renewal is concerned that is something which concerns Ajar, through whom the purchasers assert their claim. However, leaving aside technicalities, we have heard them on all aspects. 45. The judgment of the High Court has been assailed on the ground that the proceedings were concluded without furnishing third party purchasers an opportunity of being heard. The submission that there has been a violation of the principles of natural justice has been urged by both Ajar as well as on behalf of the purchasers. The interests of the purchasers have been pursued both in a special leave petition and in the interim application. The purchasers of plots claim their interest through the developer. 46. It is necessary to note in this context that the public interest litigation before the High Court was instituted on 2 July 2013. By that date, the developer had on 10 May 2012 obtained a renewal of the lease for a period of thirty years and had applied for conversion of the land into freehold. UDA executed a deed for the conversion of the leasehold land to freehold on 12 July 2013. It is thereafter on 19 September 2013 that Ajar cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court. There is an evident lack of bona fides on the part of Ajar. 48. A Constitution Bench of this Court has held in its decision in re: Natural Resources (supra) that auction is not the only permissible means for the disposal of natural resources. The court noticed that legislation does permit or prescribe methods other than auction, Justice D K Jain delivering the judgment of four judges held that: 149...auction as a mode cannot be conferred the status of a constitutional principle. Alienation of natural resources is a policy decision, and the means adopted for the same are thus, executive prerogatives. However, when such a policy decision is not backed by a social or welfare purpose, and precious and scarce natural resources are alienated for commercial pursuits of profit maximizing private entrepreneurs, adoption of means other than those that are competitive and maximize revenue may be arbitrary and face the wrath of Article 14 of the Constitution. Hence, rather than prescribing or proscribing a method, we believe, a judicial scrutiny of methods of disposal of natural resources should depend on the facts and circumstances of each case, in consonance with the principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a constitutionally recognised social purpose intended to achieve the welfare of the community, the considerations which would govern would be different from those when it alienates natural resources for commercial exploitation. When a public body is actuated by a constitutional purpose embodied in the Directive Principles, the considerations which weigh with it in determining the mode of alienation should be such as would achieve the underlying object. In certain cases, the dominant consideration is not to maximize revenues but to achieve social good such as when the alienation is to provide affordable housing to members of the Scheduled Castes or Tribes or to implement housing schemes for Below the Poverty Line (BPL) families. In other cases where natural resources are alienated for commercial exploitation, a public authority cannot allow them to be dissipated at its unbridled discretion at the cost of public interest. 50. The present case is indeed an illustration of a situation where a public body has acted oblivious to and in disregard of public interest. The land was originally leased out to IISCO, a subsidiary of SAIL (an undertaking of the Government of India). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was complicit in renewing the lease and granting an undeserved windfall on a commercial developer. Fraud, it is well-settled unravels everything. The subsequent conversion of the land to freehold in September 2013 cannot enure to the benefit of Ajar since the underlying basis of the entire transaction stands vitiated by fraud. There can be no manner of doubt about the principle which accepts the sanctity of contracts. Equally, no court can be a hapless spectator when a public authority forsakes the trust with which valuable resources such as land under its control are impressed. Land is a scarce public resource. When public bodies are vested with control over land-in this case over land which was acquired for facilitating planned development, no authority can claim an immunity from its accountability to matters of public interest. 51. We will not interfere with the direction of the High Court to the effect that the transfer charges for the deed of assignment of lease shall be determined on the basis of the guidelines prevailing in 2011-2012. The relevant date would have to be 7 June 2011 on which the deed of assignment was executed by UDA. 52. For the above reasons, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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