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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL NO. 4260   OF  2019 (Arising out of SLP(Civil) No.29201 of 2014)

Delhi Development Authority      …..Appellant(s)   :Versus:

Nalwa Sons Investment Ltd. and Anr.     ....Respondent(s)

J U D G M E N T

A.M. Khanwilkar, J.

1. Leave granted. 2. The seminal question involved in the present appeal is:

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

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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)?

3. Briefly stated,  in an auction conducted by the appellant,

respondent No.1 (former name Jindal Strips Limited) was

allotted a commercial plot in Bhikaji Cama Place, New Delhi,

on 23rd March, 1993. Possession of the plot was handed over

to respondent No.1 on 6th  September, 1993 and a Perpetual

Lease Deed dated 28th September, 1993, was executed by the

appellant in favour of respondent No.1.   It is apposite to

reproduce stipulation 6(a) of the said Lease Deed, which reads

thus:  

“6. (a)  The Lessee shall not sell, transfer, assign or otherwise part with the possession of the whole or any part  of the Commercial  Plot  except  with the previous consent in writing of the Lessor which he shall be entitled to refuse in his absolute discretion.  

PROVIDED that in the event of the consent being given, the Lessor  may impose such terms and conditions as he thinks fit and the Lessor shall be entitled to claim and recover a portion of the unearned increase in the value (i.e.  the difference between the premium paid and the market value) of the Commercial plot at the time of sale, transfer assignment, or parting with the possession, the amount to be recovered being fifty per cent of the

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unearned increase and the decision of the Lessor in respect of the market value shall be final and binding:

PROVIDED FURTHER that the Lessor  shall  have the pre­ emptive  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  Rs.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 Delhi, Apartment Ownership Act, 1986) executed by the lessee in favour of such floor space buyers/transferee.

PROVIDED FURTHER that the  lessee  shall  be  required to intimate the first list  of the floor  space  buyer/transferees giving full  details  of  name,  address  and quantum of floor space to the Lessor, simultaneously with the grant of completion certificate. However, completion certificate shall be issued only on furnishing the valid list of first purchaser of floor  space  alongwith copies  of  deed of  apartment duly executed with each one of them. The grant of permission by the Lessor to the Lessee for transfer of floor space or subsequent transfer of floor space to another persons, shall not absolve the lessee from violation of the terms & conditions of the lease. The Lessee shall also be responsible for making all arrangements as are necessary for maintenance of the building including but without limitation affecting the fire fighting system and the common services.”

(emphasis supplied)

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4. Respondent No.1 and respondent No.2 entered  into an

arrangement and invited an order of demerger from the

Company Judge of the High Court of Punjab and Haryana at

Chandigarh.   On 30th  May, 2003, the High Court of Punjab

and Haryana passed the order of demerger of the companies.

It would be apposite to reproduce paragraphs (2) and (3) of the

said demerger order, which read thus:

“xxx xxx xxx xxx xxx

2.  That with effect from the appointed date, the Stainless Steel Undertaking of Jindal Strips Limited with all the property, assets, rights and powers specified in Parts I,  II, and III  of  the Schedule hereto  shall stand transferred to and vest in Jindal Stainless Limited, without further act or deed and accordingly the same shall pursuant to Section 394(2) of the Companies Act, 1956  be transferred to and vest  in Jindal  Steel  Limited with effect  from the said date for all the estate and interest of Jindal Strips Limited therein, subject to the existing charges thereon more particularly described in the said scheme of arrangement and demerger; and

3. That all the debts, liabilities dues and obligations, secured or unsecured as more particularly described in the Scheme of Arrangement and Demerger, whether provided in the books of account of Jindal Strips Limited, whether disclosed or undisclosed in the balance sheet, pertaining to the Stainless Steel Undertaking and accordingly 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)

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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 Annexure­

P1, which reads thus:  

“ANNEXURE P­I

DELHI DEVELOPMENT AUTHORITY

Sub:  Substitution/addition/deletion of names in lease/sub­ lease of industrial/commercial plots unearned increase

In supersession of previous instructions on the subject, the Lt. Governor, Delhi is please to order that hence forth in the matters of addition/deletion and  substitution  of  names in respect of Industrial/commercial Lease/Sub­Lease to be executed or already executed, the following procedure shall be followed:­

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1. No unearned increase to be charged:

a)  The auction purchaser/allottee shall be permitted free of charge, to add, delete or substitute the names of  family members which  may, where necessary, take the form of partnership firm or private limited company.

b)  In case of conversion of partnership firm into private limited company comprising original partners as Directors/Subscribers/Share­holders.

c)  In case of addition, deletion or substitution of partners in a firm or directors and conversion of sole proprietorship firm or partnership concern into private limited company when change in constitution is limited, for approval by the DDA, within one year from the date of purchase of plot  in auction.  This  will to apply in case  of  plot  obtained by the party by way of allotment.

d)  Change from private limited company to public limited company where a private limited company becomes a public limited company under Section 43­A of Companies Act, 1956.

2.  Where unearned increase is to be charged:

a)  Addition of outsiders not falling within the family members shall be allowed through  a conveyance  deed on payment of 50% unearned increase on his proportionate shares. The  unearned increase shall be calculated at the market rate prevalent on the date of receipt of the application in the office of the DDA.

b)  Substitution of the original allottee/auction purchasers  shall  be  allowed on payment  of  50% unearned increase of his shares in the value of the plot which will be calculated at the market rate. The market rate shall be the rate prevalent on the date of receipt of the application. It is irrespective of the fact whether the lease deed has been executed or not.

c)  50% Unearned increase will be charged in respect of proportionate shares of the plot parted with by way of addition, deletion or substitution of partner/partners in case of single ownership or partnership firm and Director/Directors/Shareholders/Subscribers in case of Private Limited Company. This is application where the incoming persons do not fall within the definition of family.

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Unearned increase would be charged on the basis of market rate prevalent on the date of intimation for each 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 Rs.6,17,53,998/­

(Rupees Six Crore Seventeen Lakh Fifty Three Thousand Nine

Hundred Ninety Eight only) towards   UEI and an amount of

Rs.10,44,394 (Rupees Ten Lakh Forty Four Thousand Three

Hundred Ninety Four only) towards misuse charges.  As  the

demanded amount  was not  deposited,  a  show cause notice

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was  issued  to the  respondents  on 13th  January,  2011.  The

respondents challenged both the said show cause notice and

the demand notice by way of a writ petition filed before the

High Court of Delhi at New Delhi, bearing Writ Petition (Civil)

No.1885 of 2011. The learned Single Judge of the High Court,

after considering the rival submissions, eventually dismissed

the said writ petition by recording following reasons:  

“9. Upon considering the submissions advanced, material on record and the decisions cited, this Court is of considered view that even without lifting the corporate veil, it is abundantly clear from the scheme of arrangement and de­ merger of the petitioner companies as reflected in the order (Annexure P­4) that the assets of the first petitioner stands transferred to the second petitioner, thereby attracting clause 2(d) of Instructions (Annexure P­23) making 50% of unearned increase chargeable and clause 1(a) of the instructions (Annexure P­23) are inapplicable as they relate to partnership firms or private limited companies only and not to public limited companies like the petitioners.  

10.  Even clause 6(a) of the Perpetual Lease (Annexure P­2) between the first petitioner and the respondent prohibits the transfer of possession of the whole or any part of the commercial plot without previous consent of the respondent and stipulates that sale/transfer/assignment or parting with the possession of the commercial plot would attract 50% of the unearned increase and thus, the first petitioner is bound by  it. It is  quite  elementary that  without  mutation of the subject premises being there in the name of the allottee, i.e., the  first  petitioner, there cannot be any conversion of the subject  premises from  leasehold to freehold  and  therefore substitution of the Lessees of commercial plots like the instant one, clearly attracts the imposition of unearned increase, in view of a Division Bench decision of this Court

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in  Indian Shaving Products  (Supra). The single bench decision in Kiran Kohli (Supra) relied upon by the petitioners is distinguishable on facts and is not applicable to the instant  matter, as it does  not deal  with the Instructions (Annexure P­23), which squarely governs the dispute raised herein.

11.  Logically speaking, Respondent’s right to levy unearned increase cannot be defeated by first effecting de­ merger 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:­

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‘(6)(a) The Lessee shall not sell, transfer, assign or otherwise part with the possession of the whole or any part  of the  Commercial  Plot  except  with  the  previous consent in writing of the Lessor which he shall be entitled to refuse in his absolute discretion.

PROVIDED that in the event of the consent being given, the Lessor may impose such terms and conditions as he thinks fit and the Lessor shall be entitled to claim and recover a portion of the unearned increase in the value (i.e. the difference between the premium paid and the market value) of the Commercial plot at the time of sale, transfer, assignment, or parting with the possession, the amount to be recovered being fifty percent of the unearned increase and the  decision of the Lessor in respect of the market value shall be final and binding.’

13. A perusal of the above Clause shows that DDA, when giving consent for sale, transfer, assignment  or otherwise parting with possession of the commercial plot, may (emphasis supplied) impose such terms and conditions as it thinks fit and shall be entitled to claim and recover a portion of the unearned increase. The object of the said Clause is to protect DDA and to permit it to recover a part of the unearned increase which the lessee obtains on sale of the property.

14. In other words, the intent is to recover a part of the profit made by the lessee.

15. In the present facts it is obvious that no consideration whatsoever has passed. It is a case of reorganisation of business.

16. The impugned order relies on Clause 2(d) of the Policy for charge of unearned increase to hold that the appellants are covered by the said clause and are hence liable to pay unearned increase. Clause 2(d) of the policy reads as under:­

‘2(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 if  still  exists  as  it

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was, 50% unearned increase will be chargeable in such cases.’

  17. Reference may also be had to clause 1(b) (which deals with situations where no unearned increase is to be charged) of the policy which reads as follows:­

  ‘1(b) In case of conversion of partnership firm into private limited company comprising original partners as Directors/Subscribers/Shareholders.’

 18. Clause 2(d) of the policy does not deal with a situation of demerger of companies within the same group with common Directors and Promoters/shareholders.  It is dealing 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  equity  no  such amount can be claimed by DDA.

22.  Regarding the  judgment  of the Division Bench of this Court in Indian Shaving Products Limited vs. DDA (supra),

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in our view, the said judgment would not be applicable to the facts of the present case. That was a case where the petitioner had bought the entire shareholding of a company called Sharpedge Limited in 1987. The said company became a sick company under SICA. Under a proposal of rehabilitation a scheme of  amalgamation was approved by BIFR in 1992 under which all the properties of the transferor company Sharpedge Limited vested with the transferee company i.e. petitioner. It was in those facts that the Court held that DDA is entitled to recover unearned increase.

23. In view of the above, we allow the present appeal and set aside the impugned order dated August 16, 2012 passed in W.P.(C)1885/2011. The impugned demand dated August 05, 2010 and the notice dated January 13, 2011 are quashed. Respondent will take consequential steps as per law regarding conversion of the property to freehold without charging the said unearned increase.”

8. This decision has been challenged by the appellant on

the ground that the Division Bench has completely

misconstrued the relevant clauses in the Lease Deed and the

policy document. According to the appellant, clause 6(a) of the

Lease Deed uses the expansive expression “sell, transfer,

assign or otherwise part with the possession of the whole or

any part of the commercial plot.”  Further, the proviso thereto

stipulates that the lessor shall be entitled to claim and recover

UEI on the value  (i.e.  difference between the premium paid

and the market value) of the commercial plot at the relevant

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time. The appellant contends that clause 6(a) cannot be

construed to mean that if no sale consideration is involved in

the transaction,  then the appellant would not be entitled to

recover the UEI. For, the words “sell, transfer, assign or

otherwise parting with the possession” could be even without

consideration and the stipulation makes  it  amply clear that

the appellant is entitled to recover UEI towards the “premium

paid” on the “market value” of the commercial plot and not the

“Agreement value/amount”   per se. It  is contended that the

fact that the demerger had taken place as a result of which the

right, title and interest in the plot in question stood

transferred to another company, 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.,1 Cox & Kings Ltd. and Anr. Vs. Chander

Malhotra (Smt.),2 M/s. General Radio and Appliances Co.

1  (1980) 3 SCC 565 2  (1997) 2 SCC 687

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Ltd. and  Ors. Vs.  M.A.  Khader (dead) by LRs.3,  Indian

Saving Products Ltd. Vs. Delhi Development Authority

and Ors.,4  and  Singer India Ltd. Vs. Chander Mohan

Chadha and Ors.5  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 company is formed, even though

the directors of the two companies remain the same and the

name of transferee company is same, UEI is still chargeable.  

9. The respondents, on the other hand, have supported the

view expressed by the Division Bench and would contend that

on proper construction of the stipulation in the Lease Deed 3 (1986) 2 SCC 686  4 (2004) 120 Com. Cases 818 (Delhi)  5  (2004) 7 SCC  1

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and the policy document, including instructions relied upon

by the appellant, it would be clear that charging of UEI would

depend upon whether the  property  or  part thereof is  being

effectively transferred to outsiders and for consideration.   If

the transaction is not for any consideration but is merely an

arrangement  and demerger  of the  public limited  companies

resorted to under the aegis of the order passed by the

Company Judge of the jurisdictional Company Court, the

question  of paying  any  UEI in respect of such transaction

cannot be countenanced. It is submitted that such a view is

reinforced from the other illustrations noted in the

policy/instructions (clause 1 thereof), such as substitution of

a family  member, conversion of a partnership firm into a

private limited company or addition, deletion or substitution of

partners in a firm, or change from private limited company to

public   limited company, which although, are cases of

transfer, but no UEI is chargeable. In the present case,

contends the learned counsel for the respondents, the two

companies  are  admittedly  group companies  and respondent

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No.1 (original lessee) owned 98.62% of the shares of

respondent No.2 at the relevant time. In reality, therefore, the

respondent  No.1 (original lessee) continued to  have control

over the property in question and, by invoking the principle of

lifting or piercing of corporate veil, it must be concluded that

the transfer of property in terms of the scheme of demerger is

effectively not to an outsider muchless for consideration. The

respondents have distinguished the decisions relied upon by

the appellant. According to the respondents, the exposition in

the said decisions must be understood in the context of the

fact situation of the concerned case. In the present case,

however, the transfer of property is not to an outsider and, in

any case,  is without any consideration and on no­profit basis.

As  a result,   the   liability to  pay  UEI  does  not  arise. To

buttress the above submissions, the respondents have relied

upon the decisions in  K. Devarajulu Naidu Vs. C.

Ethirajavalli Thayaramma and Ors.6, Madras Bangalore

Transport Co. (West) Vs. Inder Singh and Ors.7, State of

6  (1949) 2 MLR 423 7  (1986) 3 SCC 62

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U.P. and Ors. Vs. Renusagar Power Co. and Ors.8  and New

Horizons Limited and Anr. Vs. Union of India and Ors.9  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

8  (1988) 4 SCC 59 9  (1995) 1 SCC 478

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stipulation in the perpetual Lease Deed. Clause 6(a), as

extracted in paragraph 3 above, envisages a bar to sell,

transfer, assign or otherwise part with the possession of the

whole  or any  part of the commercial plot, except  with the

previous consent in writing of the lessor (appellant), which the

appellant would be entitled to refuse in its absolute discretion.

While granting consent in terms of the proviso to clause 6(a), it

is open to the appellant to impose such terms and conditions

as may be deemed appropriate and claim and recover a

portion of the unearned increase in the value of the

commercial plot, being  50% of the  unearned increase. The

decision of  the appellant in this  behalf is final  and binding

upon the original lessee (respondent No.1). 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

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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.  

12. Indeed, the  said instructions  advert to the  category  of

persons from whom no unearned increase should be charged,

despite being a case of transfer of the property as mentioned

in clause (1) thereof. The Division Bench of the High Court has

relied upon the category mentioned in clause (1)(b).  The same

reads thus:  

“1. No unearned increase to be charged:  (a)  xxx xxx xxx (b) In case of conversion of partnership firm into  private limited company comprising original partners as Directors/Subscribers/Shareholders.”

From the plain language of this clause, we fail to fathom how

the said clause will be of any avail to the respondents. For, we

are not dealing with a case of conversion of a partnership firm

into a  private limited company  as such.  The fact that the

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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.  

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

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(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 it amply

clear that all property, assets, rights and powers in respect of

the specified properties, including the subject plot, shall stand

transferred to and vest in respondent No.2. Once it is a case of

transfer, it must abide by the stipulation in clause 6(a) of the

Lease Deed of taking previous consent in writing of the lessor

(appellant) and to fulfill such terms and conditions as may be

imposed, including to pay any unearned increase amount. We

find force in the argument of the appellant that the fact

situation of the present case would, in fact, be governed by

clause 2(d) of the instructions which reads thus:

“2. Where unearned increase is to be charged:  (a)  xxx xxx xxx (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 if still exists as it  was, 50% unearned increase will be chargeable in such cases.”

This clause plainly applies to the present case.  The demand of

unearned increase from the respondents  is  founded on that

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basis. The  High  Court  misinterpreted the said clause and

erroneously opined that it is not applicable to a case of

demerger of a public limited company.  

14. The  principal clause is clause  6(a)  of the  Lease  Deed.

The clause referred to in the instructions is equally significant.

Indeed, the latter merely provides for the mechanism to

recover the unearned  increase  from the original lessee.  The

fact that the same group of persons   or directors/

promoters/shareholders would be and are associated with the

transferee company does not cease to be  a case of transfer or

exempted from payment of UEI, as envisaged in clause 6(a) of

the Lease Deed.  Rather, clause 2(d) of the policy, noted above,

makes it  expressly clear that  unearned increase be charged

irrespective of the fact that the directors in both companies are

common and the old  (parent)  company has not changed its

name.  

15. The fact that it was a case of transfer is reinforced from

the order of demerger passed by the Company Judge and once

it is a case of transfer, coupled with the fact that the

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respondents are not covered within the categories specified in

clauses 1(a) to 1(d) of the policy of the appellant, reproduced in

paragraph 5 above, they  would be liable to pay unearned

increase  (UEI)  in the manner specified  in clause 6(a) of the

Lease 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 &

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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 subject plot from the

lessee (respondent  No.1), a public limited company, to the

transferee (respondent No.2), another public limited company,

is indisputable. That is reinforced from the order of the

Company Judge, formulating the scheme for demerger of the

lessee company. It is not an involuntary transfer as such. The

only issue is whether, by virtue of the fact that the affairs of

the transferee  company  (respondent  No.2)  are  controlled  by

the same set of  directors/shareholders of the original lessee

(respondent  No.1)  with about 98.62% of the shares of the

transferee  company  (respondent  No.2), that  would or  would

not absolve the respondent No.1 of its obligations under the

Lease  Deed. The answer is an emphatic “No”. For, under

clause 6(a) of the Lease Deed, it is incumbent to seek previous

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consent in writing from the lessor (appellant) and to abide by

the terms and conditions  specified by  the appellant in  that

behalf, including the payment of unearned increase

determined as per the said clause.   Going by the plain

language of clause 6(a) of the Lease Deed, there is no reason to

extricate the respondents from the obligation of the lessee

(transferor) flowing therefrom.

17. Having said thus, the decisions pressed into service by

the respondents in  K.  Devarajulu  Naidu  (supra),  Madras

Bangalore Transport Co.    (supra),   State of U.P. and Ors.

(supra),  and  New Horizons  Limited  (supra),  will be of no

avail. The same in no way contradict the stand of the appellant

that as  a consequence of a demerger, being a case of transfer

of the subject property in terms of the order of demerger

passed by the Company Judge, the rigours   of clause 6(a) of

the Lease Deed read with the policy of the

Corporation/Authority regarding levy and determination of

UEI would clearly apply proprio vigore,  irrespective of the fact

that the control of the newly established public limited

26

company (respondent No.2) is with the directors of the lessee

(respondent No.1), a public limited company, or that the

transfer of the subject  property  was  without consideration.

Thus  understood, 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. Resultantly, the decision of the learned Single

Judge in dismissing the writ petition deserves to be restored.  

18. Accordingly, this appeal succeeds. The impugned

judgment and order passed by the Division Bench of the High

Court is set aside and instead, the judgment and order passed

by the leaned Single Judge dated 16th  August, 2012,

dismissing   W.P.(C) No.1885 of 2011, is restored. There shall

be no order as to costs.  All applications are also disposed of.  

…………………………..….J.           (A.M. Khanwilkar)

…………………………..….J.

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(Ajay Rastogi) New Delhi; April  24, 2019.