In an auction held by the appellant, respondent No.1 (formerly Jindal Strips Limited) was awarded a commercial plot in Bhikaji Cama Place, New Delhi, on March 23, 1993, with possession ...
No Acts & Articles mentioned in this case
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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
2
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 23
rd
March, 1993. Possession of the plot was handed over
to respondent No.1 on 6
th
September, 1993 and a Perpetual
Lease Deed dated 28
th
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
3
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 30
th
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 22
nd
August, 2003. Respondent No.2 was then advised to withdraw
the said application on 16
th
January, 2004. Thereafter,
respondent No.2 applied to the appellant on 19
th
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 13
th
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
9
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 30
th
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
13
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
14
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
15
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
17
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
18
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 6
th
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 5
th
August, 2010 and
notice dated 31
st
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
21
(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
22
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
23
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 &
24
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
25
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 5
th
August, 2010, and the show cause notice dated 13
th
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 16
th
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.
27
(Ajay Rastogi)
New Delhi;
April 24, 2019.
Legal Notes
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