2017 (8) TMI 1519 - SC - Indian Laws

Acquisition of the land and its allotment to IISCO - lease agreement - cancellation of lease as a result of breach of the conditions of lease - the leasehold land was transferred without the knowledge of lessor - renewal of lease - conversion of leasehold property into freehold property. Held that - 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 purpose for allotting such a large tract of land admeasuring 43,407 square meters was to enable IISCO to construct and develop a residential colony for its employees. The land was not being allotted for commercial exploitation to a developer. The terms of the lease clearly evince the manner in which the land was to be utilized and the consequences of breach. When IISCO went into liquidation, the Official Liquidator placed its assets including the leasehold land for sale. Ajar under the deed of 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 blink at its obligations by conferring a largesse on Ajar. It did so on the hypothesis that after the Calcutta High Court had rejected its objections to the assignment of the leasehold interest, it was precluded from doing anything other than to renew the lease. 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. 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. The rights which have been created in favour of third party purchasers of plots through the execution of registered sale deeds prior to the date of the judgment of the High Court shall not be disturbed - UDA shall through its Chief Officer verify the correctness of the statement submitted by Ajar that it has executed sixty seven registered sale deeds in respect of individual plots prior to the judgment of the High Court. This shall be completed within one month with notice to the individual purchasers and Ajar. The benefit of direction (i) above shall only extend to those cases found to be genuine on verification - in respect of third parties (other than i above) with whom there are no registered sale deeds, Ajar shall refund the consideration paid by the respective purchasers within a period of three months together with interest at the rate of nine percent computed from the date on which payments were received. Judgement of High Court affirmed - appeal disposed off.

Summary

Issues Involved:
1. Validity of the renewal of the lease granted by Ujjain Development Authority (UDA) to Ajar Enterprises Private Limited.
2. Legality of the transfer of the leasehold rights from IISCO to Ajar Enterprises.
3. Appropriateness of the conversion of the leasehold land into freehold.
4. Rights of third-party purchasers who bought plots from Ajar Enterprises.
5. Compliance with public interest and statutory provisions by UDA.

Issue-wise Detailed Analysis:

1. Validity of the Renewal of the Lease:
The High Court set aside the renewal of the lease granted by UDA to Ajar for the period from 21 December 2012 till 20 December 2042. The court noted that UDA had incorrectly assumed it was bound to renew the lease based on the Calcutta High Court judgment, which did not mandate such renewal. The High Court emphasized that UDA should have considered the breach of covenants by IISCO and the public interest, including the location and market value of the land. The renewal was done on a nominal premium, conferring an undue benefit on a private developer, which was contrary to public interest.

2. Legality of the Transfer of Leasehold Rights:
The original lease to IISCO was for the development of a residential colony. IISCO, a subsidiary of Steel Authority of India Limited, was wound up, and its assets, including the leasehold land, were sold by the Official Liquidator. UDA had canceled the lease due to IISCO's default in payment and failure to construct on the land. However, the Calcutta High Court allowed the sale of the leasehold interest for the remaining term of the lease. The High Court's judgment clarified that the lease could be renewed but did not mandate it. UDA's decision to renew the lease without considering public interest and the breach of covenants was flawed.

3. Conversion of Leasehold Land into Freehold:
The conversion of the leasehold land into freehold was based on the renewed lease, which was found to be invalid. The 2010 Rules for the grant of freehold rights require the land to be on a leasehold basis for thirty years or more. Since the renewal was flawed, the subsequent conversion to freehold was also unsustainable.

4. Rights of Third-Party Purchasers:
The third-party purchasers were not parties to the proceedings before the High Court. However, the Supreme Court heard their submissions. The court noted that the developer executed agreements to sell and sale deeds during the pendency of the writ proceedings. The court found a lack of bona fides on the part of Ajar, as many transactions were executed after the High Court reserved judgment. The court protected the rights of purchasers with registered sale deeds executed before the High Court's judgment but directed Ajar to refund the consideration to other purchasers.

5. Compliance with Public Interest and Statutory Provisions:
The Supreme Court emphasized that disposal of public property must ensure the best price to generate funds for welfare activities. UDA acted in disregard of public interest by renewing the lease and converting the land to freehold without following an open and transparent process. The court highlighted the importance of ensuring public interest and fairness in the disposal of public land.

Conclusion:
The Supreme Court affirmed the High Court's judgment, setting aside the renewal of the lease and the conversion of the land to freehold. The court protected the rights of bona fide third-party purchasers with registered sale deeds and directed Ajar to refund the consideration to other purchasers. UDA's actions were found to be contrary to public interest, and the court emphasized the need for transparency and fairness in the disposal of public land.