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REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 10852 OF 2017 [Arising out of SLP (C) No. 7116 of 2016]

M/S. AJAR ENTERPRISES PRIVATE LIMITED .....APPELLANT

Versus

SATYANARAYAN SOMANI AND ORS. .....RESPONDENTS

WITH  CIVIL APPEAL NO. 10853 2017

@SLP (C) NO. 8145 OF 2016

AND  

CIVIL APPEAL NO.10854      2017 @SLP (C) NO. 13455 OF 2016

J   U   D    G   M   E   N   T

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

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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 auction; and (iv)

directed that the transfer fee which was charged to Ajar should be fixed on the basis of

the  guidelines  for  2011-2012  and  the  differential  be  recovered  with  interest  at  eight

percent  per  annum.  These  directions  have  been  issued  by  the  High  Court  while

entertaining a petition filed in public interest by the first and second respondents.  

3    UDA is a statutory body constituted under the Madhya Pradesh Town and Country

Planning Act, 1973. On 16 July 1985, a deed of lease was executed by UDA of land

admeasuring  43,407.00  square  meters,  situated  at  Sanwer  Road  and  comprised  in

Nanakheda Scheme No. 23 at  Ujjain in favour of  a company by the name of IISCO

Stanton Pipe & Foundry Company Ltd (“IISCO”). The term of the lease was thirty years

and an amount of Rs 4,34,070 was charged as premium. The annual lease rent was

fixed at Rs 8, 681 at the rate of two percent of the total premium. The salient provisions

of the lease were :

(i)The purpose of  the lease was to  enable  IISCO to  construct  residential

houses and develop a colony on the land;

(ii) The term of the lease was thirty years;  

(iii) The lease contemplated that it could be extended, upon the expiry of the

initial term for two further periods each of thirty years subject to the payment

of an enhanced lease rent of fifty percent above that payable for the previous

term. The clause on renewal was as follows :  

“The  lease  period  and  lease  rent  is  effective  from  21.12.82. Thereafter the term of lease can be extended (renewed) for two further periods of 30-30 years. At the time of every extension the

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lease rent can be increased by 50%.”

(iv)  Since  the land was granted  on lease for  the development  of  a  residential

colony, the lessee was ordinarily not permitted to transfer it until the construction

was complete. Clause 4 of the lease provided as follows :  

“The lessee has been given the land to develop the colony and construct  residential  houses.  Therefore,  until  houses  are constructed on this plot, this plot cannot be transferred to anyone in any manner. So long as the lessee does not construct the houses on this plot as per the sanctioned plan, he cannot mortgage, gift or in any other manner transfer this plot without the permission of the Authority.  If  the  lessee  wishes  to  transfer  his  plot  to  any  other person due to any special circumstances then on the basis of the pros and cons 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 Rs 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

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applicable from time to time (Clause 12).

4. IISCO, which was a subsidiary of Steel Authority of India Limited (a public sector

undertaking of the Union government), was ordered to be wound up by the High

Court of Judicature at Calcutta in BIFR Case No. 503 of 1994 instituted under the

Sick Industrial Companies (Special Provisions) Act 1985. The Official Liquidator

took over the movable and immovable assets of the company, including the leased

land in dispute.  

5. On 9 May 2003, the Official Liquidator invited offers for the purchase of the assets

of IISCO including the leased land on an “as is where is whatever there is basis”.

The leasehold rights were valued at Rs 1.35 crores.  

6. On 6 June 2003, UDA issued a notice to the Official Liquidator stating that it had

cancelled the lease and would re-enter upon the land. The ground for cancellation

was that in breach of the lease conditions, IISCO had defaulted in the payment of

the lease rent for the period from June 1995 to May 2003 and had, in addition,

failed to construct on a portion of land admeasuring 14,570 square metres.  

7. On 29 June 1999, UDA wrote to the Official Liquidator seeking return of an area

admeasuring 13,600 square metres on the ground that no construction had been

carried out by IISCO, under the terms of the lease. The Official Liquidator wrote

back  to  the  Chief  Executive  Officer  of  UDA  on  9  August  1999,  stating  that

possession of the vacant land could not be handed back without an order of the

High Court. UDA was advised to move the High Court for appropriate directions.  

8. On  4  July  2003,  a  Single  Judge  of  the  Calcutta  High  Court  while  exercising

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company jurisdiction accepted the highest offer submitted by an individual by the

name of Narendra Jain in the amount of Rs 20 crores, though it was lower than the

valuation of the land. The judgment of the learned Single Judge observes that :   

“From the valuation report  it  appears that  the valuer valued the assets of Rs. 73,68,96,313/-. The said figure includes the value of land,  which  has  been  valued  at                                  Rs 61,50,00,000/-.”  

The order of the Company Judge noted thus :  

“I am constrained to accept the offer of Rs. 20 crores although the same is not matching the valuation report inasmuch as the Official Liquidator  submits  that  the  monthly  expenses  for  keeping  the security guards is about Rs. 1.03 lakh, and it is, further, submitted by him that already about Rs. 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 Rs 20 crores although it is not matching the valuation report.”  

The offer of Rs 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    Rs 2,44,052 after

deducting twenty percent of the premium paid. This, it was stated was as a result of the

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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 rights had

already been sold, together with the other assets of the company, by an order dated 4

July 2003 of the High Court in consequence of which the cheque for refund was returned.

11    By an order dated 18 August 2003, the Company Judge rejected an application filed

by a third party for setting aside the sale of the assets of the company liquidation.  The

sale  consideration  was,  however,  enhanced  from              Rs  20  crores  to  Rs  20.50

crores. The sale consideration is stated to have been deposited on 17 September 2003

and Ajar was nominated by the purchaser as the entity to whom the assets which were

sold in the auction were to be transferred. According to Ajar, possession of the land and

assets was handed over to it on 30 September 2003.  

12    Ajar, by its letter dated 29 March 2004 requested UDA to mutate and transfer the

land in its favour. UDA by its letter dated 18 May 2004 declined to do so on the ground

that the lease stood cancelled and that it had re-entered upon the land.  

13    UDA filed an application before the Calcutta High Court objecting to the transfer of

the leasehold land.  A learned Single Judge of  the High Court,  by an order dated 16

August 2004, declined to grant  an interim stay and directed the Official  Liquidator  to

conclude the sale and to execute a conveyance in favour of the purchaser. In an appeal

against  the  order  of  the  Company  Judge,  a  Division  Bench  by  an  order  dated  22

February 2005 directed that the status quo be maintained in regard to the leasehold land

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and expedited the final disposal of the application filed by UDA. Eventually, the Single

Judge, by an order dated 5 August 2005, dismissed the application filed by UDA. The

Single Judge held thus :  

“It  appears that the learned Company Judge sold the lease-hold interest  of  the  un-expired  portion  of  the  lease  for  about  seven years.  The deed of  lease stipulated a renewal  clause.  For  such renewal clause the parties would have to agree to the modalities. The official liquidator could not have sold any right higher than the right enjoyed by the lessee under the Deed of Lease. The official liquidator in fact sold such right which he derived from the company in liquidation. The property belonged to the applicant and it would remain with the applicant.  If  they do not agree to the terms and conditions  after  expiry  of  seven  years  the  lease  would  not  be renewed  and  they  would  automatically  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 Rs 20.50 crores, the valuation of the leased land had been apportioned

at Rs 1,35,20,183. The recital in the deed of assignment reads thus :

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“(n) For the purpose of valuation the said property has been valued at Rs. 1,35,20,183/- (Rupees One Crore Thirty Five lakhs Twenty thousand One hundred Eighty Three) only being the apportioned purchase  price  of  the  said  property  out  of  the  total  sale consideration of  Rs.  20,50,00,000/-  (Rupees Twenty Crores Fifty Lacs only) as was directed to be apportioned by an order dated 6 th July 2004, passed by the Hon’ble High Court at Calcutta.”  

The deed of assignment records that (i) the assignment of the leasehold land to Ajar was

for the remainder of the lease term that is, upto 21 December 2012; (ii) the lease was

being assigned subject to the rights and privileges of the original lessee under the lease

agreement dated 16 July 1985. The material recitals in the deed of assignment are thus :  

“(o)    In or about August, 2004 the said Ujjain Vikash Pradhikaran, the said original lessor filed an application before the Hon’ble High Court at Calcutta, inter-alia, Praying therein for cancellation of the lease  of  the  demised  lease  hold  property  and  for  possession thereof intended to be assigned hereunder. By an order dated 5 August  2005  the  Hon’ble  High  Court  in  dismissing  the  said application inter alia held that the said lease hold land was sold by the official liquidator, the assignor herein to the purchaser being the assignee herein for the residuary period of the first lease term i.e. upto 21.12.2012. By the said order, the said application of Ujjain Vikash Pradhikaran was dismissed.  

(p) In view of the above order passed by the Honb’le High Court at Calcutta, the demised lease hold land is capable of being assigned by the assignor herein in favour of the assignee with effect from the execution of his deed upto the expiry of the residuary period of the first term of the original deed of Lease i.e., upto 21.12.2012 with the existing terms and conditions contained therein.

(q) In the aforesaid circumstances, the Assignor is transferring and assigning the said property to the Assignee in accordance with the existing terms and conditions mentioned in the said Deed of Lease dated 16th July, 1985  referred to  above  and  with  the  rights  and privileges of the Original Lessee thereunder.”

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Accordingly, in consideration of an amount of Rs 1.35 crores, the appellant was assigned

the leasehold rights under the deed of lease dated 16 July 1985 “with effect 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  there  is  no  reasons  has  been  (sic) shown in the petition in support of such delay caused by the appellant.

In  these  circumstances,  we  have  to  come  to  the  conclusion  that  the appellant had due notice of the facts of this case including the fact that the properties have been transferred and sold at this state.  

In  our  considered  opinion,  the  possession  of  the  property  cannot  be changed in any manner whatsoever since the order has given effect to. It is to be noted that the appellant did not taken any steps in the matter for a long period.”   

16    On 28 February 2011, the Governing Board of UDA resolved to file a Special Leave

Petition before this Court. The Special Leave Petition was dismissed on the ground of

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delay on 29 April 2011.

17     In the meantime, Ajar had, by its letters dated 16 February 2006 and 8 July 2010

requested UDA to transfer the leasehold land in its name.

18    On  25  May  2011,  the  first  respondent  addressed  a  communication  to  UDA,

requesting it not to effect a mutation of the property in the name of Ajar. On 1 June 2011,

the Governing Board of UDA resolved to transfer and mutate the property in the name of

Ajar. The transfer fee was to be determined in accordance with the guidelines prescribed

by the Collector as prevalent on 22 July 2009 when the Division Bench of the Calcutta

High Court dismissed UDA’s appeal. On 3 June 2011, UDA called upon the appellant to

pay an amount of Rs 64,20,228 towards transfer fees; Rs 1,56,258 towards arrears of

lease rent and Rs 1,99,833 towards interest. On 6 June 2011, Ajar paid the dues and on

7 June 2011, an agreement was executed by which the leasehold rights were transferred

in  favour  of  Ajar  in  terms of  the lease deed dated 16 July  1985 and subject  to  the

applicable rules and regulations of UDA.  

19    On 8 June 2011, Ajar wrote to UDA seeking a renewal of the lease for a period of

thirty years on a lease rent enhanced by fifty percent over the existing lease rent. On 10

May 2012, UDA renewed the lease in favour of Ajar for a period of thirty years from 21

December 2012 to 20 December 2042. The lease rent for the renewed term was fixed at

Rs 13,022 per annum, representing a fifty percent enhancement over the annual lease

rent of Rs 8,681 for the original term. The lease for the renewed term was registered and

Ajar paid the lease rent for the first fifteen years of the lease.  

20    In  pursuance  of  a  public  notice  issued  by  UDA on  3  December  2012  inviting

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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          Rs 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 land. Ajar claims to have entered into registered sale deeds in

respect of 67 plots and to have incurred an expenditure of Rs 18.39 crores on the project.

Ajar claims to have received notice of the writ petition on 15 September 2014.

22    By its judgment and order dated 8 February 2016, the High Court cancelled the

deed of renewal dated 21 May 2012 executed by UDA in favour of Ajar and directed that

possession of the land be taken over. The High Court also directed UDA to obtain the

best price for the land by putting it to public auction. UDA was also directed to calculate

the transfer fees on the basis of the guidelines prevailing in 2011-2012 and to recover the

differential together with interest at eight percent per annum in regard to the transfer of

the lease from IISCO to Ajar.

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23    The principal findings of the High Court are summarised below :  

(i)    Though the resolution of the Board of UDA for the transfer of the land was

dated 3 June 2011, inexplicably, the transfer fee was charged in accordance

with the guidelines of the Collector prevailing on 22 July 2009 (the date of the

decision  of  the  Calcutta  High  Court).  When  the  transfer  of  the  leasehold

interest was effected on 3 June 2011, there was no justification to compute the

transfer fee as of 2009;

(ii)    The court noted the submission of the writ petitioners that in 2011-2012, UDA

had realised a price of Rs 22,777 per square meter when it invited tenders for

scheme No. 48 of Vasant Vihar, situated in close proximity to the land. The

market value of the land in question in 2011-2012 would be Rs 65.11 crores.

As a result, UDA had suffered a loss of Rs 65 crores while renewing the lease

in favour of Ajar and thereafter converting it into freehold;

(iii)    The well-defined principles for the disposal of public land, emerging from the

decisions of this Court, lay down that the disposal of public property assumes

the character of a trust. The state is duty bound to ensure that it realises the

best price for the transfer of land in order to generate funds for its welfare

activities.  Inviting  tenders  with open participation or  a public  auction would

ensure  the  realisation  of  the  best  price.  Private  negotiations  should  be

eschewed. It  is only in exceptional cases that the modalities of a tender or

auction  can  be  departed  from,  where  the  state  acts  in  pursuance  of  a

constitutionally 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

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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 on a private developer;

(vii) The actions of UDA were contrary to public interest and it acted in a manner in

which a responsible authority would conduct its affairs.  

24    The judgment and order of the High Court has been questioned in three proceedings

initiated under Article 136 of the Constitution before this Court. One of them has been

initiated by Ajar Enterprises Private Limited, the transferee of the leasehold interest and

in whose favour the lease was initially renewed before the land was eventually converted

into freehold.    The court has also been moved on behalf of third party purchasers who

claim  to  have  purchased  plots  from  the  developer.  They  were  not  parties  to  the

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proceedings before the High Court. The third set of proceedings has been initiated by

UDA.  In addition,  I.A.  6 of  2017 has been filed by 54 applicants who claim to have

entered  into  transactions  for  the  sale  of  plots  with  the  developer.  We  allow  the

intervention application and have heard the learned Senior Counsel in support.

25    Mr Shyam Divan learned Senior Counsel representing Ajar and Mr Chander Uday

Singh  learned  Senior  Counsel  representing the interests  of  purchasers  have  broadly

adopted the same line of submissions in assailing the judgment of the High Court. The

submissions are thus :  

(i) None of the purchasers of plots were impleaded, though they were necessary

parties, in the proceedings before the High Court. The decision of the High Court

seriously impacts upon their rights. The purchasers, it has been urged, exercised

due diligence and obtained loans from public sector financial institutions. Though,

the  High  Court  was  informed  that  eighty  purchasers  had  paid  valuable

consideration for the purchase of plots, the PIL petitioners did not implead them.

The purchasers, it has been submitted, are bona fide purchasers, for value without

notice. At the least, if they were impleaded before the High Court, they could have

urged that the relief, if any, should be suitably moulded to protect their interest;

(ii) Ajar perfected its title in stages. The approval by the Official Liquidator was in

the nature of an assignment for the remaining term of the leasehold rights held by

IISCO, and on the same terms and conditions as those contained in the original

lease of 16 July 1985. Ajar could legitimately assert a right to renew the lease on the

expiration of the original term;

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(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.  UDA  had  issued  a  public  notice  inviting  applications  for

conversion to freehold. UDA processed as many as 425 renewals in the city of

Ujjain;

(iv) All transactions were in terms of statutory provisions and were effected by duly

registered instruments. The provisions of Sections 181, 181-A and 182 as well as

the provisions contained in the Rules of 1977 and 2010 have not been challenged

by the original petitioners before the High Court. Hence, they were not entitled to

question the mode of renewal or the rate at which the renewal of the lease or

conversion to freehold could be affected. The High Court  ignored the statutory

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provisions holding the field;

(v) The decision of the Constitution Bench of this Court, in re: Natural Resources

Allocation indicates that a public auction is not a mandatory requirement in all

circumstances. When a statute provides for any other mode, other than auction or

tender, such a provision must be followed;

(vi) In any event, the option of an open auction or tender arises only where it is

proposed to alienate natural resources or land belonging to or in the possession of

the government or its instrumentality. There can be no recourse to an auction or

tender where land is held by a lessee under a lease deed protected by Sections

181 and 182, or of land which has been converted to freehold under the 2010

Rules. In such a case, the government does not hold a right in praesenti;

(vii) The High Court erred in ignoring the statements made by UDA and by the

State to the effect that full market value was charged to IISCO when the land was

leased to it for building residential housing for its officers and workmen;

(viii) Ajar obtained a sanction for its residential layout from the Town and Country

Planning Department on 19 August 2013. It carved out 178 plots and has sold 124

plots out of which 67 are in accordance with registered sale deeds; and

(ix)  Ajar has obtained its interest in the leasehold land in pursuance of a court

sanctioned sale of the assets and properties of IISCO which was in liquidation. The

sanctity of contracts must be maintained. The effect of the order of the High Court

would be to unfairly displace the legitimate expectations of  a commercial  entity

which has acted in pursuance of a court sanctioned sale in its favour.

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26    On behalf of UDA, it has been urged by Mr Ravindra Srivastava, learned Senior

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 Rs 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 Rs 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 freehold.  

27    On the other hand, it has been urged on behalf of first and second respondents by

Ms Kamini Jaiswal learned counsel that :

(i) According to the Rules of 1977, land can be allotted by only four modes : (i) by direct

negotiations;  (ii)  by  auction;  (iii)  by  tender;  or  (iv)  under  concessional  terms.  In  the

present case, the land was transferred to IISCO on concessional terms. Upon a default

by IISCO of its obligations under the original lease deed, UDA cancelled its allotment and

re-entered upon the land. The Official Liquidator could not have conveyed a better title

than that which was held by IISCO. The fresh agreement between UDA and Ajar was for

18

the residuary term of the original lease namely, for seven years ending on 20 December

2012. Under Rule 25, only a person holding a lease of thirty years is eligible for renewal

and hence Ajar was not entitled to renewal of the lease;  

(ii)    The Calcutta High Court in its order dated 5 August 2005 noted that the leasehold

interest of IISCO was being conveyed for the remaining term of seven years after which it

would be at the absolute discretion of UDA to determine whether or not to renew the

lease;

(iii) When the lease of Ajar expired in December 2012, UDA as a public authority fairly

ought to have protected the public interest by bearing in mind: (a) the nature of the lease

and the original purpose of the allotment of land to IISCO; (b) the default by IISCO; (c)

the order of the Calcutta High Court which recognised that the lease was being assigned

only  for  the  residual  term after  which UDA could  decide as  to  whether  it  should  be

renewed; (d) public interest; and (e) considerations of protecting the revenue;  

(iv) Under the terms of the lease dated 16 July 1985, there was no automatic right of

renewal. Such renewal clauses are meant for leaseholders who have constructed houses

or buildings on leasehold land.  When land is alienated for commercial  gain,  a policy

which does not maximize the return for a public body would be violative of Article 14. In

the present case, UDA was not acting in pursuance of a goal enshrined in Part IV of the

Constitution;

(v) Ajar, acting as a builder and developer intended to develop the land in a commercial

venture,  contrary  to  the  purpose  for  which  the  land  was  allotted  to  IISCO.  UDA by

renewing the lease and converting it to freehold land, has virtually handed over a huge

tract admeasuring 43,407 square meters to a private developer for a negligible price;

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(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  Pradesh  Land  Revenue  Code  1959  is  titled

“Government Lessees and Service Land”. Section 181, as its marginal note indicates,

deals with government lessees. Sub-section 1 of Section 181 provides as follows :  

“181.  Government  Lessees.— (1)  Every person who holds  land from the State Government or to whom a right to occupy land is granted  by  the  State  Government  or  Collector  and  who  is  not entitled to hold land as a bhumiswami shall be called a Government lessee in respect of such land”.

Section 182 provides for the rights and liabilities of government lessees :

20

“182. Rights and liabilities of a Government lessee.—  

(1) A Government lessee shall, subject to any express provisions in this  Code,  hold  his  land  in  accordance  with  the  terms  and conditions of the grant, which shall be deemed to be a grant within the meaning of the Government Grants Act, 1895 (XV of 1895);

(2) A Government lessee may be ejected from his land by order of a Revenue Officer on one or more of the following grounds, namely : — (i) that he has failed to pay the rent for a period of three months from the date on which it became due; or (ii) that he has used such land for purposes other than for which it was granted; or (iii) that the term of his lease has expired; or (iv) that he has contravened any of the terms and conditions of  the grant  provided that  no order for ejectment of a Government lessee under this subsection shall be passed  without  giving  him  an  opportunity  of  being  heard  in  his defence”.  

Section 181-A provides for the conversion of leasehold rights into freehold and is in the

following terms :   

“Conversion  of  lease  hold  right  into  free  hold  right— Notwithstanding anything contained in Chapter VI and this Chapter of the Code, the State Government or any officer authorised by the State  Government  may  convert  various  leases  granted  for residential and commercial purposes in urban areas into free hold in such manner as may be prescribed.”

30    These provisions indicate that a government lessee is a person who holds land from

the state government or to whom a right of occupation is granted by government and who

is not entitled to hold land as a bhumiswami. Subject to the express provisions contained

in the Code, a government lessee holds land in accordance with the terms and conditions

of the grant. The grant is deemed to be a grant within the meaning of the Government

Grants  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

21

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 to the state government which shall  take a decision on the

proposal.

32    The rules contain specific provisions in regard to the modalities to be followed for the

disposal of land. Rule 6 adverts to the procedure where land is disposed of by direct

negotiations. Rule 6  inter  alia provides for (i)  the mode of fixing the premium by the

authority in accordance with a scale of premium sanctioned by the government; (ii) due

publicity of the proposed negotiations in newspapers and in stipulated public offices; (iii)

invitation of offers accompanied by the stipulated earnest money deposit; (iv) procedure

to be followed where more than one person makes an offer to take on lease the same

plot;  (v)  mode of deposit  of  the balance premium. Rule 7 provides for the fixation of

premium after the authority has auctioned a few plots of each category in the layout and

the sanction of the state government has been obtained. Rule 6 indicates that even when

22

the authority embarks upon direct negotiations for the transfer of lands vested in it, it is

required to ensure adequate publicity for a proposed disposal of land. This ensures that

competing offers are duly considered. Even in regard to the fixation of the premium, the

authority is not left to its own discretion and the manner of fixing premium is indicated in

the rules.

33    Similarly, Rules 8 to 17 embody detailed provisions in regard to the transfer of land

by auction. Rule 18 provides for the modalities to be followed in disposing of lands by

inviting tenders. Rule 19 allows the authority, with the previous permission of the state

government,  to  lease  out  land  on  concessional  terms to  a  public  institution  or  body

registered under any law for the time being in force. Rule 20 stipulates that ordinarily no

lease or sale of land on concessional terms shall be allowed for purposes other than a

charitable purpose such as a hospital, educational institution and orphanage. Under Rule

22, every lease of land on concessional terms is subject to the condition that if the land

leased or sold is not utilized within three years for the purpose for which it was given, the

authority shall have the power to cancel the lease and to resume possession.  

Rules 24, 25 and 26 provide as follows :  

“24. Subject to provision of these rules every transfer of land shall be  made  by  lease  and  every  lease  in  respect  of  any  piece  of Authority land 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

23

annual ground rent.”

The Rules in Hindi are set out below :

24. इन ननयमम कक  उपबबंधम कक  अध्यधधीन रहतक हहए, भभूनम कक प्रत्यकक अबंतरण पटक दकरक नकयक जकएगक

तथक प्रकधधककरधी भभूनम कक  नकसधी भकग कक  सम्बन्ध मम प्रत्यकक पटक यक तत 30 वरर बं कक  धलिए यक 99 वरर बं कक  धलिए

हतगक जजैसक कक  प्रकधधककरधी दकरक अवधकररत नकयक जकए सकथ हधी पटककतकर कत नवधीनधीकरण कक  बकबत अधधककर

हतगक.

25. जब पटक कक ककलिकवधध 30 वरर ननयत कर दधी जकए तत नवधीनधीकरण कक अधधककर प्रत्यकक

नवधीनधीकरण पर बढ़कयक हहए भभू-भकटक कक  50 प्रनतशत सक अनधधक कक भभुगतकन करनक कक  अध्यधधीन रहतक हहए

प्रत्यकक 30 वरर बं कक दत और ककलिकवधधयम कक  धलिए हतगक.

26.    जब कक तक धलिधखित मम आवकदन दकरक प्रकधधककरधी सक पटक कक ककलिकवधध कत 30 वरर सक 99 वरर मम सबंपररवनतरत करनक कक  धलिए प्रकथरनक करक तत प्रकधधककरधी , 30 वरर बं कक  पटक कक  धलिए ननयत नकयक गए प्रधीनमयम कक 15  प्रनतशत अनतररक रूप सक प्रभकररत करनक कक  पश्चकतत वकनररक भभू-भकटक मम आनभुपकनतक बढ़ततरधी करतक हहए, ऐसक कर सकक गक.

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 indefeasible

right  of  renewal.  Undoubtedly,  a  development  authority  as  a  public  body cannot  act

arbitrarily or at its own whims, in deciding whether or not to renew the lease. Its decisions

must be guided by public interest. Public interest postulates both protecting the interests

of the authority and ensuring fairness to the leaseholder who may have constructed on

the land in pursuance of the leasehold. Neither Rule 24 nor Rule 25 can be read to divest

the  authority  of  the  element  of  discretion  on  whether  to  renew the  lease.  However,

24

exercise of discretion must meet the touchstone of Article 14 of the Constitution. As a

public  authority, the decision must  be fair, reasonable  and guided by public  interest.

Under Rule 25, where the period of lease is thirty years, renewal is provided for two

terms,  each of  thirty  years  subject  to  the  payment  of  ground rent  enhanced on  the

occasion of each renewal by an amount not exceeding fifty percent. Rules 24 and 26,

read together indicate the extent of the enhancement in ground rent where the lease is

renewed.   

35    Now it  is  in  this  background that  it  would  be necessary to  appreciate  the facts

pertaining to the acquisition of the land and its allotment to IISCO under the original lease

agreement dated 16 July 1985. UDA intended to prepare a town development scheme for

the development of  residential  colonies, commercial  centres, public offices and public

amenities – among other things – for which an area bound by (i) Ujjain Dewas Road; (ii)

Ujjain Sanwer Road; and (iii) Government Engineering College Road was proposed. A

declaration was issued under Section 50(2) of the Madhya Pradesh Nagar Tatha Gram

Nivesh Adhiniyam, 1973 on 18 August 1977 which was gazetted on 23 September 1977.

On 20 January 1978, a notice was issued under Section 50(3) inviting objections and

suggestions  to  the draft  development  scheme.  On 17 June  1978,  a  notification  was

issued under Section 50(7) specifying the lands included in the scheme. The notification

was published in the Gazette on 11 August 1978.

36    Subsequently, a notification under Section 4(1) of the Land Acquisition Act 1894 was

issued on 20 January 1979 which was published in the Gazette on 16 February 1979.

Under the notification 275 hectares of land were proposed to be acquired. A declaration

under Section 6 was issued on 20 March 1979 which was gazetted on 13 April 1979. A

25

total area admeasuring 275 hectares was acquired in four phases. In the first phase,

150.856 hectares of land were acquired against a compensation of Rs 61.35 lacs at an

average rate of acquisition of Rs 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             Rs 7000 per bigha (Rs 3.34 per square meter) for some

part and Rs 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  Rs  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 Rs 4,34,070 with an annual lease rent of Rs 8681 computed at two

percent of the premium. Under the terms of the lease, there was a prohibition on the

transfer of the land unless the lessee, which had been granted the land to develop a

colony and construct residential houses had done so. In the event that the lessee wished

to transfer the land due to ‘special circumstances’, UDA could consider such a request

subject  to  the  payment  of  stipulated  transfer  fees.  The  original  lease  agreement

contemplated that the term of the lease could be renewed for two further periods, each of

thirty years, with an enhancement of the lease rent at the time of every renewal. We have

duly considered both English translation of the clause for renewal as set out in the lease

deed  annexed  to  these  proceedings  as  well  as  the  original  in  Hindi  which  read  as

26

follows :  

“  1.  The above land is being given on lease for first 30 years for construction of residential houses on lease.  The lease period is ineffective from 21.12.82. Thereafter the term of lease can be extended (renewed) for two further periods of 30-30 years.  At  the  time  of  every  extension  the  lease  rent  can  be increased by 50 %.”

1. लिधीज़ अवधध एवबं लिधीज़ रमट नदनकबंक 21.12.82  सक प्रभकवशधीलि हजै. इसकक  बकद सदर लिधीज़ कक अवधध 30-30

वरर कक  धलिए दत बकर बढ़कई (नवधीनधीकरण) जक सकक गधी. अवधध बढ़कतक समय प्रत्यकक बकर 50 प्रनतशत लिधीज़ रमट

बढ़कयक जक सकक गक.

38    A close reading of the clause for renewal would make it abundantly clear that there

was no absolute or indefeasible right of renewal. The language contained in the clause

for renewal indicates that parties contemplated that the term of the lease could on its

expiry on 20 December 1982 be renewed for two further terms each of thirty years. As

discussed above, Rule 24 of the 1977 Rules indicates that subject to the provisions of the

Rules, every transfer would be by way of lease; the lease would be either for thirty years

or ninety nine years as determined by the authority which would be renewal by the lessor.

Rule 25 posited, in the case of a lease for a term of thirty years, that there would be a

right of renewal for two further periods each of thirty years subject to the payment of

enhanced ground rent  not  exceeding fifty  percent.  A large tract  of  land admeasuring

43,407 square metres was granted on lease to it with a specific purpose of constructing

residential houses and for developing a colony. If land is proposed to be granted by direct

negotiations [as stipulated in Rule 5(a)] the modalities are prescribed in Rule 6 of the

1975 Rules. These modalities include (i) fixation of the 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

27

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  Rs  10  per  square  metre  excluding  development  charges  “without  any

concession”, it has remained silent on the rates at which other adjoining land was allotted

to parties other than IISCO. There is intrinsic merit in the submission which has been

urged by Ms Kamini Jaiswal, learned counsel for the first and second respondents that

the allotment  in  the present  case was not  referable  to  Rule  5(a)  which speaks of  a

transfer of land by direct negotiations. Since the allotment to IISCO was neither by way of

public auction under Rule 5(b) nor by inviting tenders under Rule 5(c) the allotment would

only be referable to Rule 5(d) which is an allotment on concessional terms. The power to

grant  land  on  concessional  terms  is  subject  to  Rule  19  under  which  a  grant  is

contemplated to a public institution or body registered under any law for the time being in

force. Ordinarily, as Rule 20 prescribes, such a grant can be made only for charitable

purposes.  The expression ‘ordinarily’  indicates  a general  though not  an invariable  or

mandatory requirement. This aspect of the matter, in our view, is of importance since the

purpose  for  which  the  land  which  was  granted  to  a  subsidiary  of  a  public  sector

undertaking was the development of a residential colony, evidently for the benefit of the

28

employees of IISCO.

39    When IISCO went into liquidation, its assets and properties including the leasehold

interest,  were put up for sale under the auspices of the Official  Liquidator. When the

Official Liquidator issued a notice on 9 May 2003, UDA informed him on 6 June 2003 that

it was cancelling the allotment of the land for violation of the terms of the lease both on

account of a default in the payment of the lease rent and because of a violation of the

lease condition mandating construction on the land. The Official Liquidator was informed

of the re-entry by UDA. After the Calcutta High Court had accepted the highest bid for the

sale of the assets of the company in liquidation, UDA raised an objection before the High

Court by filing an application.  

40    The learned Company Judge in his judgment dated 5 August 2005 clearly indicated

that what was sold was the leasehold interest in the unexpired portion of the lease which

was to still run for a period of seven years. While noting that the deed of lease contains a

clause  for  renewal,  the Calcutta  High  Court  carefully  noted that:  “for  such renewal

clause the parties would have to agree to the modalities”. The Official Liquidator was

held 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.

29

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 had successfully bid for the leasehold interest as well as to UDA that

what was being transferred was the interest of the company liquidation under the lease

deed  dated  16  July  1985.  Undoubtedly,  this  comprised  besides  the  residue  of  the

unexpired term of seven years, the benefit of the original lease agreement which contains

a renewal clause. However, both on the interpretation of that clause by the Calcutta High

Court  as  well  as  on  the  plain  terms  of  the  clause,  it  is  evident  that  there  was  no

indefeasible right of renewal. The clause for renewal provided that the lease could be

renewed, not that it must or shall be renewed. Moreover, Rules 24 and 25 of the 1977

Rules cannot be read to preclude UDA, as the lessor, from having due regard to all

relevant circumstances bearing upon the public interest while deciding whether to renew

the lease. Several aspects bearing upon the public interest were required to be borne in

mind. These included : firstly, the fact that the purpose for which the land was originally

granted to IISCO namely the construction of a residential colony for the employees of

IISCO could not be achieved by Ajar; secondly, whether the   breach of the covenants

contained in the lease agreement would disentitle the grant of renewal; thirdly, the fact

that the assignment of the land was to a private developer who was evidently intending to

use  it  not  for  the  original  purpose  for  which  the  land  was  allotted  to  IISCO but  for

commercial development; fourthly, the value of the land on the date when the renewal

30

was sought; and fifthly that public interest would best be subserved by ensuring that UDA

realised the best  possible price for  the land after  following an open and transparent

process.  

42    We must note at this stage that the present case does not fall into the category of

that class of cases where a person or entity to whom the land is allotted in the first place

has fulfilled the purpose of the allotment and seeks a renewal of the grant. For instance,

where a person to whom the land has been allotted for residential construction completes

the construction and, upon the expiry of the term of the lease seeks a renewal of the

lease,  a distinct  set  of  considerations will  apply. Such an individual  or  a cooperative

society  of  flat  purchasers  may  legitimately  contend  that  having  due  regard  to  the

provisions  contained  in  the  lease  document  and  in  Rules  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.

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43    The conversion of the land to freehold in favour of Ajar has evidently followed upon

the renewal of the lease deed in favour of Ajar on 10 May 2012. Rule 5 of the 2010 Rules

for the grant of freehold rights provides as follows :  

“5. Class of land eligible for conversion – Any land situated in an urban area and which is, -

1. Granted on leasehold basis for a period of thirty years or more by the State Government  or  by  an  Officer  authorised  to  do  so  for  residential  or commercial purpose; or

2. given  on  leasehold  right  of  thirty  years  or  more  for  residential  or commercial purpose, by virtue of a lease executed in favour of any person by the Madhya Pradesh Housing Board or a Development Authority  or a Housing Co-operative  Society on producing of  a no-objection certificate from such Board or  Authority or  Society, as the case may be,  shall  be eligible for conversion :  

Provided that such land as has been allotted without charging full premium as prescribed under the Revenue Book Circular shall not be eligible for conversion :  Provided further that land allotted to an urban local body shall note be eligible for conversion : Provided  also  that  no  such  leasehold  land  shall  be  converted whose lease conditions specifically prohibit conversion or on which leasehold rights have accrued under the Madhya Pradesh Nagariya Kshetro  Ke  Bhoomihin  Vyakti  (Pattadhruti  Adhikaron  Ka  Pradan Kiya Jana) Adhiniyam, 1984 (No. 15 of 1984) or Rajiv Gandhi Patta Aashtya Yojana or Mukhyamantri Aashrya Yojana.”  

Both Clauses (a) and (b) of Rule 5 stipulate that, to be eligible for conversion to freehold,

the land in an urban area should have been granted on a leasehold basis for a period of

thirty years or more.  In the present case, the conversion to freehold on 12 July 2013 has

its foundation in the lease deed dated 10 May 2012 under which the term of the lease

was renewed for a period of thirty years from 21 December 2012 to 20 December 2042.

But for the renewal, the term of the original lease expired on 20 December 2012. Once

the renewal  which was granted in  favour  of  Ajar  is  seriously  flawed and invalid,  the

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conversion of the land to freehold would in consequence also be unsustainable.  

44    The third party purchasers were not  parties to the proceedings before the High

Court. However, we have heard them in the present proceedings both on the merits of

the decision of the High Court as well as on the equities which they 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 claims to

have  obtained  approvals  for  construction  and  development  on  the  property.  Even

according to Ajar, the third party transactions were entered into by it during the pendency

of the writ proceedings before the High Court. The developer was aware of the pendency

of the proceedings before the High Court and it is in this background that the claim of his

having created third party rights needs to be evaluated. Ajar tendered during the course

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of these proceedings, a summary containing the third party rights stated to have been

created on the land in dispute.   According to the statement, the total land available for

sale is 24,688.06 square meters and the remaining area has to be developed for roads,

open spaces, gardens and services.   The saleable area has been carved up into 178

plots. The position which Ajar claims is as follows :  

(i) out of the 178 plots third party rights have been created in respect of 124 plots while

54 plots remain unsold;  

(ii) sale deeds have been executed in respect of 67 plots;  

(iii) agreements to sell have been executed in respect of 20 plots; and  

(iv) allotments have been made in respect 37 plots.

47    The disclosures which have been made in the statement tendered on behalf of the

developer indicate that the agreements to sell as well as the sale deeds were executed

during the pendency of the writ proceedings before the High Court.  Except for eight sale

deeds,  the others  have  been executed  after  Ajar  was  served  with  notice  of  the writ

proceedings on 15 September 2014.   Ms Jaiswal urged before the court that from the

statement produced by the developer on the record it emerges that even after the High

Court reserved judgment, the developer continued to execute agreements to sell  and

sale deeds before the final judgment came to be delivered. This submission is borne out

from the statement which has been placed on the record by the developer. The developer

executed agreements to sell in 2014, 2015 and even as late as January 2016 shortly

before the High Court delivered its decision on 8 February 2016. Sixty seven sale deeds,

of which details have been furnished on the record, indicate execution of the document of

sale in 2014, 2015 and 2016. The summary indicates that of the sale deeds, as many as

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21 were executed between November 2015 and February 2016 after judgment has been

reserved and before it was delivered by the High 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 principles which we have culled out above. Failing which, the Court, in  exercise  of  power  of  judicial  review, shall  term the  executive action as arbitrary, unfair, unreasonable and capricious due to its antimony with Article 14 of the Constitution.”

Justice Jagdish Singh Khehar (as the learned Chief Justice then was) in his concurring

judgment held that :

“200.  I  would  therefore  conclude  by  stating  that  no  part  of  the natural resource can be dissipated as a matter of largess, charity, donation or endowment, for private exploitation. Each bit of natural resource expended must bring back a reciprocal consideration. The consideration may be in the nature of earning revenue or may be to

35

"best subserve the common good". It may well be the amalgam of the two. There cannot be a dissipation of material resources free of cost or at a consideration lower than their actual worth. One set of citizens cannot prosper at the cost of another set of citizens, for that would not be fair or reasonable.”

49    Undoubtedly, disposal of natural resources by auction is not a mandatory principle

for, as  the Constitution  Bench held,  individual  statutes  may provide for  modalities  of

transfer by alternate modes which subserve public interest. In the present case, as we

have noted, Rule 5 of the 1975 Rules provides four modalities: (i) direct negotiations; (ii)

auction; (iii) inviting tenders; and (iv) concessional terms. Where the statute has provided

for several  modes of disposal,  the choice among one of the available methods must

facilitate  the  fulfilment  of  public  interest.   That  inter  alia requires  consideration  being

given to all aspects of the matter including the nature and value of the land, the purpose

of the allotment and the need for the authority to generate funds to facilitate the objects

for which it was constituted, such as planned development. The choice of one of a range

of permissible choices can never be based on the anvil  of  conferring an undeserved

benefit on a commercial developer. The choice of methods is not left to the unbridled

discretion  of  a  public  authority.  Where  a  public  authority  exercises  an  executive

prerogative, it must nonetheless act in a manner which would subserve public interest

and facilitate the distribution of scarce natural resources in a manner that would achieve

public  good.  Where  a  public  authority  implements  a  policy,  which  is  backed  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

36

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 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

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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.

Clearly this was a misreading of the judgment of the Calcutta High Court. The issue as

to whether the lease should be renewed was a matter distinct from whether the original

assignment of the lease in favour of IISCO to Ajar was valid.   The mere acquisition by

Ajar of the leasehold interest for the remainder of the term together with the benefits of

the original lease covenants, did not ipso jure entitle Ajar to renewal of the lease.  UDA

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

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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 no reason to interfere with the judgment of the High

Court.   However, we must,  in the exercise of our jurisdiction under Article 142 of the

Constitution suitably mould the relief so as to ensure the protection of persons with whom

the developer has entered into registered sale deeds prior to the judgment of the High

Court. We have done so after finding some weight in the equities asserted on behalf of

this  class  of  purchasers  who have  registered  sale  deeds in  their  favour  against  the

payment of full consideration. We have been informed that they have taken loans from

public financial  institutions and have invested hard-earned earnings towards the plots

which  they  have  purchased.  In  the  exercise  of  the  power  under  Article  142  of  the

Constitution, the court has the duty to render complete justice.  

53    In consequence we confirm all the directions issued by the High Court subject to the

following :

(i)    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;

(ii)    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; and  

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(iii)    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.  

54    The judgment of the High Court is affirmed in the above terms, and the appeals are

disposed of.

..………………………………CJI          [JAGDISH SINGH KHEHAR]

..…………………………………J       [DR D Y CHANDRACHUD]

New Delhi  Dated : 24, August 2017

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ITEM NO.1502               COURT NO.1               SECTION IV-A (For Judgment)                S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS Civil Appeal No.10852/2017 @ Petition(s) for Special Leave to Appeal (C) No(s).7116/2016 (Arising out of impugned final judgment and order dated 08-02-2016  in WPPIL No.8199/2013 passed by the High Court Of M.P. At Indore) M/S. AJAR ENTERPRISES PRIVATE LIMITED              Petitioner(s)                                 VERSUS SATYANARAYAN SOMANI AND ORS.                       Respondent(s) WITH CIVIL APPEAL NO.10853/2017 @ SLP(C)NO.8145/2016 (IV-A) CIVIL APPEAL NO.10854/2017 @ SLP(C)NO.13455/2016 (IV-A)   Date : 24-08-2017 These matters were called on for pronouncement

  of judgment today.

For Petitioner(s) Mr. Shyam Divan,Sr.Adv. SLP(C)7116 Mr. Senthil Jagadeesan,AOR

Mr. T. Srinivasa Murthy,Adv. Mr. Abhinav Malhotra,Adv. Ms. Shruti Iyer,Adv. Ms. Sonakshi Malhan,Adv.

SLP(C)8145 Mr. C.U. Singh,Sr.Adv. Mr. Liz Mathew,AOR

SLP(C)13455        Mr. Baij Nath Patel,Adv. Mr. Arjun Garg,AOR Ms. Sweta Yadav,Adv.

                   For Respondent(s) Mr. C.D. Singh,AOR

Mr. Pranav Sachdeva,AOR Mr. T. Harish Kumar,AOR Mr. Mishra Saurabh,AOR

                              UPON hearing the counsel the Court made the following                              O R D E R

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Hon'ble Dr. Justice D.Y. Chandrachud  pronounced the Reportable  judgment  of  the  Bench,  comprising  Hon'ble  the Chief Justice of India and His Lordship.

Leave granted. The appeals are disposed of in terms of the signed

Reportable judgment.    Pending application, if any, stands disposed of.

(Sarita Purohit)                      (Renuka Sadana)        Court Master         Assistant Registrar    

(Signed Reportable Judgment is placed on the file)