TMI Blog2019 (4) TMI 2009X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding: PROVIDED FURTHER that the Lessor shall have the preemptive right to purchase the whole property or any part thereof that may be subject of sale, transfer, assignment or otherwise parting with the possession as the case may be, after deduction fifty percent of the unearned increase as aforesaid. PROVIDED FURTHER that notwithstanding the limitations and conditions as mentioned in subclause 6(a), the lessee may sell or transfer the floor space constructed on the plot subject to the permission of the Lessor in writing on payment of ₹ 100/for each flat/floor space for the first sale/transfer, for subsequent sale/ transfer the lessor may on payment of proportionate 50% of the unearned increase (i.e. the difference between the premium already paid by the purchase/transferor and the market price of the time of sale transfer towards the portion of the land) grant permission to the sublessee/ transferor for such subsequent sale/transfer of the floor space to be transferred. Prior permission of the lessor for such second and subsequent sale/transfer of floor space shall be subject to the conditions of getting the Deed of Apartment and the sublease (as defined under the Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly the same shall pursuant to Section 394(2) of the Companies Act, 1956 be transferred to and become the debts, liabilities, duties and obligations of Jindal Stainless Limited; ... (emphasis supplied) 5. Respondent No.2 then moved a formal application for mutating the property in its name vide application dated 22nd August, 2003. Respondent No.2 was then advised to withdraw the said application on 16th January, 2004. Thereafter, respondent No.2 applied to the appellant on 19th January, 2004, for conversion of the property from leasehold to freehold. Under the conversion policy of the appellant, the lessee was obliged to pay all dues, including the charges towards use, damages, sub use, unearned income (UEI), ground rent, certificate/maintenance charges etc. The instructions followed by the competent authority in regard to charging of UEI have been articulated in document AnnexureP1, which reads thus: ANNEXURE PI DELHI DEVELOPMENT AUTHORITY Sub: Substitution/addition/deletion of names in lease/sublease of industrial/commercial plots unearned increase In supersession of previous instructions on the subject, the Lt. Governor, Delhi is please to order th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach and every change in the constitution. This would be applicable in all cases where the lease deed has been executed or not. d) In case where a private limited company/public limited company separately floating a new company although Directors may be the same and the name of old company has not changed and it still exists as it was, 50% unearned increase will be chargeable in such cases. 3. Interest at the rate of 18% per annum on the unearned increase from the date of receipt of the application intimating the change till the payment by the company or individual or firm shall be charged on the amount of the unearned increase payable to the DDA. 4. The administrative conditions prescribed in the UO No.F.1(23)/78/C(L) Part II dated 8.5.79 will remain unchanged. Sd/S. C. VARSHNEYA DEPUTY FINANCIAL ADVISOR (HOUSING) No.LSAI/1(6)87/Policy Case/Unearned Increase dated 6.9.88 (emphasis supplied) 6. In light of the prevailing policy, the appellant called upon the respondents to pay an amount of ₹ 6,17,53,998/( Rupees Six Crore Seventeen Lakh Fifty Three Thousand Nine Hundred Ninety Eight only) towards UEI and an amount of ₹ 10,44,394 (Rupees Ten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally speaking, Respondent s right to levy unearned increase cannot be defeated by first effecting demerger and then to further assign, transfer etc. without previous consent of the respondent/lessor. Consequentially, impugned demand (Annexure P17) and the Notice (Annexure P20) are held to be valid and this writ petition is dismissed with costs of 50,000/, while vacating the interim order. 7. The respondents carried the matter in Letters Patent Appeal before the Division Bench of the High Court, being L.P.A. No.735 of 2012. Upon examining the relevant clauses of the Perpetual Lease Deed and the policy documents of the appellant, the Division Bench, vide its order dated 30th April, 2014, was pleased to allow the appeal and set aside the demand notice and show cause notice issued by the appellant and direct the appellant to take consequential steps as per law regarding the conversion of the property to freehold, without charging UEI, for the following reasons: 12. We have a look at the clause 6 of the perpetual lease deed dated September 28, 1993 which reads as follows:10 (6)(a) The Lessee shall not sell, transfer, assign or otherwise part with the possession of the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aling with a situation where a new company is being floated. In our view the said clause would have no application to a case of demerger which is a mere reorganisation of business like in the present case. 19. There is no specific Clause of the Policy dealing with a case of demerger. The facts of the present case are somewhat akin to a situation as stipulated in Clause 1(b) of the said policy, inasmuch as clause 1(b) deals with a situation of conversion of a partnership firm into a private limited company comprising only original partners as Directors/Subscribers/Share Holders, namely, mere reorganisation of the business. The Policy specifically provides for no unearned increase to be charged in such a situation. 20. We may clarify that it is not every case of demerger that the unearned increase will not apply. There may be cases where an element of sale is involved. In such a situation the issue would be different. 21. Hence, in our view, the respondent is not entitled to charge any unearned increase in the facts and circumstances of the present case keeping in mind a meaningful reading of Clause 6(a) of the perpetual lease and the policy for unearned increase. Even in eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, is not in dispute. As a consequence whereof, the respondents were liable to pay UEI as demanded by the appellant. The effect of demerger of a public limited company has been examined in M/s. Parasram Harnand Rao Vs. M/s. Shanti Parsad Narinder Kumar Jain and Anr., (1980) 3 SCC 565 Cox Kings Ltd. and Anr. Vs. Chander Malhotra (Smt.), (1997) 2 SCC 687 M/s. General Radio and Appliances Co. Ltd. and Ors. Vs. M.A. Khader (dead) by LRs. (1986) 2 SCC 686, Indian Saving Products Ltd. Vs. Delhi Development Authority and Ors., (2004) 120 Com. Cases 818 (Delhi) and Singer India Ltd. Vs. Chander Mohan Chadha and Ors. (2004) 7 SCC 1 The appellant would also contend that the Division Bench erred in observing that there was no specific clause dealing with the case of demerger in the instructions (regarding implementation of the policy) relied upon by the appellant. Further, it wrongly applied clause 1(b), which relates to conversion of a partnership firm into a private limited company , to the present case, which was admittedly a demerger of a public limited company (lessee). In such a case, clause 2(d) of the instructions would come into play, which stipulates that when another compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u Vs. C. Ethirajavalli Thayaramma and Ors. (1949) 2 MLR 423, Madras Bangalore Transport Co. (West) Vs. Inder Singh and Ors. (1986) 3 SCC 62, State of U.P. and Ors. Vs. Renusagar Power Co. and Ors. (1988) 4 SCC 59 and New Horizons Limited and Anr. Vs. Union of India and Ors. (1995) 1 SCC 478 It is contended that being a case of demerger, the concerned companies were not even required to pay any stamp duty, which presupposes that it was not a case of a voluntary transfer. It is urged that the respondents have fulfilled the test of substantial identity as the lessee (respondent No.1) was holding 98.62% shares of the transferee (respondent No.2) at the relevant time. In other words, the transaction between the respondents inter se is a genuine, bona fide case of reorganization of the business with demerger sanctioned by the High Court and, for which reason, no liability towards UEI would arise. 10. We have heard Ms. Binu Tamta, learned counsel for the appellant and Mr. Jayant Bhushan, learned senior counsel appearing for the respondents. 11. For answering the seminal question, we must first advert to the obligation of respondent No.1 springing from the stipulation in the perpetu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 13. In the first place, it is not open to the respondents to contend that the arrangement and demerger scheme does not result in transfer of the subject plot from the original lessee (respondent No.1) to respondent No.2. Inasmuch as, clause (2) of the order passed by the Company Judge approving the scheme of demerger, as reproduced above, makes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease Deed. The obligation to pay UEI does not flow only from the instructions issued by the competent authority of the appellant but primarily from the stipulation in the Perpetual Lease Deed in the form of clause 6(a). Viewed thus, the Division Bench of the High Court committed a manifest error in allowing the appeal and setting aside the judgment of the learned Single Judge, who had rightly dismissed the writ petition and upheld the demand notice and the show cause notice calling upon the respondents to pay the unearned increase amount in terms of clause 6(a) of the Perpetual Lease Deed. That demand was final and binding on the respondents, so long as the stipulation in the form of clause 6(a) of the Perpetual Lease was in force. 16. Reverting to the decisions pressed into service by the appellant, to wit, Parasram Harnand Rao (supra), Cox Kings Ltd. (supra), M/s. General Radio and Appliances Co. Ltd. (supra), Indian Saving Products Ltd. (supra), and Singer India Ltd. (supra), dealt with the effect of such a transfer which results in unlawful subletting within the meaning of the concerned rent legislation. In the present case, the fact that it is a case of transfer of the su ..... 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