2015 (11) TMI 1718 - SC - Indian Laws

Mortgage decree challenged - Held that - In the present case the mortgage done by the ABP itself is bad in law. We are of the clear view that this expectation is not valid at all in the eye of law. Moreover this Court in number of decisions has held clearly that doctrine of legitimate expectation cannot be invoked by someone who has no dealing or transaction or negotiations with an authority or by someone who has a recognized legal relationship with the authority. Therefore as the Bank is not having any recognized legal relationship with the State in view of the fact that the mortgage by the ABP in favour of the Bank itself is bad in law there is no question of invoking doctrine of legitimate expectation in the present case as it applies to a regular consistent predictable and certain conduct process or activity of the decision-making authority. The expectation should be legitimate that is reasonable logical and valid. Any expectation which is based on sporadic or casual or random acts or which is unreasonable illogical or invalid cannot be a legitimate expectation. The doctrine of legitimate expectation ordinarily would not have any application when the legislature has enacted a statute. The legitimate expectation should be legitimate reasonable and valid. For the application of doctrine of legitimate expectation any representation or promise should be made by an authority. A person unconnected with the authority who had no previous dealing and who has not entered into any transaction or negotiations with the authority cannot invoke the doctrine of legitimate expectation. A person who bases his claim on the doctrine of legitimate expectation has to satisfy that he has relied on the said representation and the denial of that expectation has worked to his detriment. The High Court after having recorded a finding that the Bank being the nominee of the mortgagee has a right to make an application for conversion of Nazul land into a freehold land without appreciating the fact that the Bank has not having any subsistence interest in the leasehold property obtained a mortgage decree behind the back of the State being the paramount title holder applied the doctrine of legitimate expectation. In the instant case admittedly the State never recognized the Appellant Bank as a mortgagee. Further the State was not aware about the alleged mortgage said to have been created by the lessee ABP Company by deposit of Lease document. Moreover the State never represented or promised either to the lessee or to the Bank to give any benefit under the lease. In such circumstances we are of the definite opinion that the High Court has committed grave error in applying the doctrine of legitimate expectation in favour of the bank.

Summary

Issues Involved:
1. Validity of the mortgage created by the lessee (ABP Company) in favor of the Bank.
2. Legitimacy of the auction sale and subsequent conversion of leasehold property into freehold.
3. Applicability of the doctrine of legitimate expectation.
4. Rights of the State of Uttar Pradesh over the Nazul land.
5. Validity of the show cause notice issued by the State of Uttar Pradesh.

Detailed Analysis:

1. Validity of the Mortgage Created by the Lessee (ABP Company) in Favor of the Bank:
The Court examined whether the mortgage created by ABP Company in favor of the Bank was valid. The property in question was Nazul land, governed by the Government Grants Act, 1895, and Nazul Rules. The lease explicitly required prior written sanction from the lessor (State of Uttar Pradesh) for any transfer or sublease. The Court found no evidence that such sanction was obtained. Therefore, the mortgage was deemed invalid and ab initio void, meaning no right was created in favor of the Bank by reason of the said mortgage.

2. Legitimacy of the Auction Sale and Subsequent Conversion of Leasehold Property into Freehold:
The Court scrutinized the auction sale and the subsequent conversion of the property from leasehold to freehold. The Bank had obtained a mortgage decree from the Calcutta High Court without making the State of Uttar Pradesh a party, which was a significant procedural flaw. The subsequent proceedings, including transferring the decree to the Debt Recovery Tribunal and auctioning the property, were declared illegal and without jurisdiction. The Court concluded that the Bank had no right, title, or interest in the property to claim its conversion into freehold.

3. Applicability of the Doctrine of Legitimate Expectation:
The High Court had applied the doctrine of legitimate expectation to justify the conversion of the property into freehold in favor of the Bank. However, the Supreme Court found this application erroneous. The doctrine of legitimate expectation requires a valid, reasonable, and lawful expectation based on a promise or established practice by the authority. Since the mortgage itself was invalid, the Bank's expectation was not legitimate. The Court held that the doctrine could not be invoked by someone with no recognized legal relationship with the authority.

4. Rights of the State of Uttar Pradesh Over the Nazul Land:
The Court reaffirmed that the property in question was Nazul land, a government property managed under Nazul Rules. The lease terms and the Government Grants Act, 1895, clearly stated that the Transfer of Property Act, 1882, did not apply to government grants. Therefore, the State of Uttar Pradesh retained paramount rights over the property. The Bank's actions, including the mortgage and subsequent legal proceedings, were invalid without the State's sanction.

5. Validity of the Show Cause Notice Issued by the State of Uttar Pradesh:
The State of Uttar Pradesh had issued a show cause notice to ABP Company for resumption of the property due to lease violations. The Court found this notice legal and valid. The Bank's challenge to the notice was dismissed, as the Bank had no legitimate interest or standing to contest it.

Conclusion:
The Supreme Court allowed Civil Appeal No. 5254 of 2010, setting aside the High Court's judgment that had favored the Bank. The Court dismissed other related appeals, reaffirming the State of Uttar Pradesh's rights over the Nazul land and invalidating the mortgage and subsequent legal actions taken by the Bank. The show cause notice issued by the State was upheld as lawful.