Himachal Pradesh Tourism Development Corporation Lease Dispute: Supreme Court Intervention in Property Lease (28 March 2018)

Date of the Judgment: 28 March 2018
Citation: (2018) INSC 229
Judges: Dipak Misra, CJI, A.M. Khanwilkar, J.
Can a High Court order a public tender for a property that is already under a valid lease agreement? The Supreme Court of India addressed this question in a case involving the Himachal Pradesh Tourism Development Corporation (HPTDC) and the Municipal Corporation of Shimla. The court overturned the High Court’s decision, emphasizing the importance of respecting existing contracts and following due process. The judgment was authored by Justice A.M. Khanwilkar, with Chief Justice Dipak Misra concurring.

Case Background

The case began with a public interest litigation (PIL) filed by Ravinder Kumar Sankhayan, who was concerned about the lease of Municipal Corporation property to HPTDC. The petitioner alleged that the property, known as “Goofa,” was leased at a rate lower than the market value and without a proper auction or tender process. The Municipal Corporation had leased the property to HPTDC in 1978, and the lease was still in effect. The petitioner also claimed that the Municipal Corporation had not recovered municipal taxes and lease money from HPTDC, causing financial losses. The petitioner sought various reliefs, including restraining the allotment of the property to HPTDC, directing the recovery of dues, and revising lease amounts to realistic market rates.

Timeline

Course of Proceedings

The High Court, while considering the interim relief sought by the petitioner, ordered the Municipal Corporation to file a list of its properties and outstanding dues. The High Court also allowed an intervener to participate in the proceedings, who offered a significantly higher monthly lease amount than what HPTDC was paying. The High Court, swayed by this higher offer, directed the Municipal Corporation to issue a public advertisement for leasing the property, without considering the subsisting lease agreement between HPTDC and the Municipal Corporation. Consequently, the Municipal Corporation issued a tender notice, and N & S Resorts emerged as the highest bidder. The High Court then directed the Municipal Corporation to lease the property to N & S Resorts, ordering HPTDC to vacate the premises. HPTDC and the State of Himachal Pradesh appealed these orders to the Supreme Court.

Legal Framework

The Supreme Court highlighted Section 157 of the Himachal Pradesh Municipal Corporation Act, 1994, which outlines the procedure for granting leases. According to this section, a lease proposal must be recommended by the Municipal Corporation, and the agreement can only be executed after the Government grants prior sanction. The court noted that the High Court’s orders were in disregard of this procedure.
The relevant portion of the Himachal Pradesh Municipal Corporation Act, 1994 is as follows:

“Section 157 of the Himachal Pradesh Municipal Corporation Act, 1994, which mandates the procedure for grant of lease. First, the proposal should be recommended by the Municipal Corporation; and second, the agreement can be executed by the Municipal Corporation only after grant of prior sanction by the Government for leasing out the property.”

Arguments

The State of Himachal Pradesh argued that the land belonged to the government, and the Municipal Corporation had possession since 1977. They stated that HPTDC, as a state corporation, was promoting tourism and was bound by the state’s tourism policy. The State emphasized that the lease agreement between HPTDC and the Municipal Corporation was still valid and that HPTDC’s occupation was not comparable to a private lease. The State also argued that the High Court did not have the authority to order a public tender without first addressing the validity of the existing lease agreement.

The High Court, on the other hand, was of the view that the lease amount paid by HPTDC was significantly lower than the market rate, leading to financial loss for the Municipal Corporation. The High Court was also of the opinion that HPTDC did not have a legal, contractual, or statutory right to continue occupying the premises indefinitely and that the property should be leased to the highest bidder in the public interest.

The innovativeness of the argument by the State was that it highlighted the fact that HPTDC was a state corporation with different obligations than a private entity and that the High Court did not have the authority to order a public tender without first addressing the validity of the existing lease agreement.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in the judgment. However, the core issue was whether the High Court could order a public tender for a property that was already under a valid lease agreement, without first addressing the validity of the existing contract and without considering the procedure established under Section 157 of the Himachal Pradesh Municipal Corporation Act, 1994.

The sub-issue was whether the High Court was right in ordering the Municipal Corporation to lease the property to the highest bidder by disregarding the subsisting lease agreement between the Municipal Corporation and HPTDC.

Treatment of the Issue by the Court

Authorities

The Supreme Court primarily relied on the Himachal Pradesh Municipal Corporation Act, 1994, specifically Section 157, which outlines the procedure for granting leases.

Judgment

How each authority was viewed by the Court?

• Section 157 of the Himachal Pradesh Municipal Corporation Act, 1994*: The Court held that the High Court’s orders were in complete disregard of this provision, which mandates the procedure for grant of lease.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to uphold the sanctity of existing contracts and to ensure that judicial review does not overstep its boundaries. The Court was critical of the High Court’s approach of ordering a public tender without first addressing the validity of the subsisting lease agreement between the Municipal Corporation and HPTDC. The Court emphasized that the High Court’s order was a mandatory order passed at an interlocutory stage without sufficient reasons and in disregard of the statutory procedure prescribed under Section 157 of the Himachal Pradesh Municipal Corporation Act, 1994. The Court also noted that the High Court had not even considered the fact that HPTDC was not in unauthorized occupation of the property.

The Court’s reasoning was based more on the legal framework and the need to respect existing contracts and statutory procedures (Law) than on the specific facts of the case (Fact).

The Supreme Court held that the High Court should not have ordered a public tender without first addressing the validity of the existing lease agreement. The Court emphasized the need to respect existing contracts and statutory procedures. The Court also noted that the High Court had not even considered the fact that HPTDC was not in unauthorized occupation of the property.

The Supreme Court observed that the High Court’s order was a mandatory order passed at an interlocutory stage without sufficient reasons. The court also emphasized that the High Court’s order was in disregard of Section 157 of the Himachal Pradesh Municipal Corporation Act, 1994, which mandates the procedure for grant of lease.

The Supreme Court stated, “It is unfathomable as to how the High Court could have passed the order dated 24th May, 2005, to straightway direct the Municipal Corporation to issue tender notice. There is no indication in the order passed by the High Court on 24th May, 2005, of having quashed the subsisting contract between Municipal Corporation and HPTDC.”

The Court further stated, “As aforesaid, without deciding on the issue of validity of the subsisting contractual terms and conditions between the Municipal Corporation and HPTDC, the High Court could not and should not have ventured to pass the order, such as dated 24th May, 2005.”

The Court also observed, “The order dated 5th July, 2005 is only a consequential order which must, therefore, meet the same fate. We hold that the interim orders passed by the High Court were in complete disregard of the scope of judicial review.”

The Supreme Court noted that the writ petitioner had not even prayed for quashing of the subsisting contract between the Municipal Corporation and HPTDC. The Court stated that the relief sought by the petitioner could only be entertained after the subject premises were vacated by HPTDC upon expiry or termination of the subsisting contract.

The Court also addressed the issue of outstanding dues payable by HPTDC to the Municipal Corporation. The Court stated that this matter could be resolved with the intervention of the State. The Court also stated that if HPTDC is financially incapable of settling the dues, the State may have to provide financial assistance to HPTDC.

Key Takeaways

• ✓ High Courts should not order public tenders for properties under valid lease agreements without first addressing the validity of the existing contract.
• ✓ Existing contractual obligations must be respected.
• ✓ Judicial review should not overstep its boundaries.
• ✓ Statutory procedures for granting leases must be followed.
• ✓ The State Government should intervene to resolve financial disputes between its corporations and municipal bodies.

Directions

The Supreme Court directed the Municipal Corporation to refund the earnest money of Rs. 10 lakhs paid by N & S Resorts, with interest at 9% per annum from the date of deposit until realization. The court also directed that if the refund is not made within twelve weeks, the Municipal Corporation would be liable to pay interest at 12% per annum from the date of deposit until realization.

Development of Law

The ratio decidendi of the case is that a High Court cannot order a public tender for a property that is already under a valid lease agreement, without first addressing the validity of the existing contract. The judgment reinforces the principle that existing contractual obligations must be respected and that judicial review should not overstep its boundaries. There was no change in the previous position of the law.

Conclusion

In conclusion, the Supreme Court set aside the High Court’s orders, emphasizing the importance of respecting existing contracts and following due process. The Court’s decision underscores the principle that High Courts should not interfere with valid contractual agreements without first determining their validity. The Court also directed the Municipal Corporation to refund the earnest money paid by N & S Resorts with interest.