Leasehold Rights: Supreme Court clarifies rights under agreement to lease in property disputes (2025)

Date of the Judgment: March 07, 2025

Citation: 2025 INSC 337

Judges: Abhay S. Oka, J., Ujjal Bhuyan, J.

Can a party claim leasehold rights over a property based solely on an agreement to lease, without a formal lease deed being executed? The Supreme Court of India addressed this critical question in a dispute involving the Delhi Development Authority (DDA) and S.G.G. Towers (P) Ltd. The core issue revolved around the validity of property transfers and auction sales when the initial agreement to lease was never formalized into a registered lease deed. Justices Abhay S. Oka and Ujjal Bhuyan, forming the bench, delivered the judgment.

Table of Contents

Case Background

The case originated from a lease agreement dated July 17, 1957, between the Delhi Development Authority (DDA) and M/s Mehta Constructions for a plot of land in Najafgarh Road, New Delhi. Over the years, the property changed hands through sales and auctions, leading to a dispute over the legitimacy of these transfers in the absence of a registered lease deed.

Timeline:

Date	Event
July 17, 1957	Delhi Development Authority (DDA) executed a lease agreement with M/s Mehta Constructions for plot no. 3 in Industrial Area Scheme, Najafgarh Road, New Delhi.
November 25, 1972	M/s Mehta Constructions entered into an agreement to sell the plot with M/s Pure Drinks Private Limited.
February 15, 1985	M/s Mehta Constructions executed a registered sale deed cum Assignment in favor of M/s Pure Drinks Private Limited.
February 4, 1985	The Company Judge of the Delhi High Court passed an order in Execution Proceedings (Co Ex 8 of 1981), pursuant to which the Registrar of the High Court lodged the sale deed for registration.
August 24, 2000	The plot was sold to the first respondent, S.G.G. Towers (P) Ltd., in an auction during liquidation proceedings before the Delhi High Court.
June 9, 2000	The auction was held pursuant to the notice of proclamation of sale issued by the High Court of Punjab and Haryana.
December 7, 2000	S.G.G. Towers (P) Ltd. applied for confirmation of the sale made in the auction.
October 19, 2001	A Single Judge allowed the application filed by S.G.G. Towers (P) Ltd. and confirmed the auction sale.
January 21, 2010	The Division Bench dismissed the appeal filed by the Delhi Development Authority (DDA) against the order of the Single Judge.
October 4, 2023	Supreme Court noted the willingness of the first respondent to pay unearned income and directed the Provisional Liquidator to be impleaded.
November 7, 2023	Registrar General of Punjab and Haryana High Court informed the Provisional Liquidator about the fixed deposits made from the amount deposited by the first respondent.
March 07, 2025	The Supreme Court delivered the judgment, dismissing the appeal and clarifying the rights of the parties involved.

Legal Framework

The judgment refers to the following legal provisions:

Clause 24 of the lease agreement dated July 17, 1957: This clause stipulates that the agreement does not create any right, title, or interest in the land until the lease is executed and registered. The clause reads:

“24. Nothing in these presents contained shall be considered as a demise at law of the said piece of land hereby agreed to be demised or any part thereof so as to give the said intended lessee any right, title or interest therein other than as may be conferred by these presents until the said lease shall have been executed and registered.”
Section 22 of the Delhi Development Act, 1957: This section governs the disposal of Nazul land by the Delhi Development Authority (DDA).
Delhi Development Authority (Disposal of Developed Nazul Land) Rules, 1981: These rules provide the procedure for the disposal of developed Nazul land.
Rule 43 of the 1981 Rules: This rule requires the lessor’s prior consent for the transfer of the plot.

Arguments

Appellant’s (Delhi Development Authority) Arguments:

The DDA argued that the agreement executed in 1957 was merely an agreement to lease, and since the lease deed was never executed due to non-compliance by M/s Mehta Constructions, no leasehold rights were ever acquired.
The DDA contended that the land in question is Nazul land, which belongs to the Union of India and is under the care and custody of the DDA. Sale of Nazul land can only occur as per Section 22 of the Delhi Development Act, 1957, and the Delhi Development Authority (Disposal of Developed Nazul Land) Rules, 1981.
The DDA pointed out that M/s Mehta Constructions, without acquiring any title, executed an agreement for sale in favor of the second respondent.
The DDA highlighted that the Company Court was not informed that M/s Mehta Constructions did not possess leasehold rights over the plot.
The DDA relied on Rule 43 of the 1981 Rules, stating that prior consent of the lessor is required to transfer the plot.
The DDA cited the case of Delhi Development Authority v. Vijaya C. Gurshaney & Anr. [(2003) 7 SCC 301], arguing that the sale in favor of the first respondent was illegal.
The DDA also referenced Food Corporation of India & Ors. v. Babulal Agrawal [(2004) 2 SCC 712], Delhi Development Authority v. Anant Raj Agencies Pvt. Ltd. [(2016) 11 SCC 406], State of Rajasthan & Ors. v. Gotan Lime Stone Khanij Udyog Pvt. Ltd. and Anr. [(2016) 4 SCC 469], and Delhi Development Authority v. Nalwa Sons Investment Ltd. & Anr. [(2020) 17 SCC 782].

Respondents’ (S.G.G. Towers (P) Ltd. & Ors.) Arguments:

The respondents argued that the DDA never challenged the transactions between M/s Mehta Constructions and the second respondent until the first respondent applied for confirmation of sale.
The respondents submitted that the DDA never challenged the auction process.
The respondents contended that no interference is warranted with the impugned judgment.

Submissions Table

Main Submission	Appellant’s Sub-Submissions (DDA)	Respondents’ Sub-Submissions
Validity of Leasehold Rights	✓ Agreement was only an agreement to lease. ✓ Lease deed was never executed due to non-compliance. ✓ No leasehold rights were ever acquired.	✓ DDA never challenged transactions until confirmation of sale. ✓ DDA never challenged the auction process.
Nature of Land	✓ Land is Nazul land belonging to the Union of India. ✓ Sale must comply with Section 22 of the Delhi Development Act, 1957, and the 1981 Rules.	–
Requirement of Consent	✓ Rule 43 of the 1981 Rules requires prior consent of the lessor for transfer.	–
Legality of Sale	✓ Relied on Delhi Development Authority v. Vijaya C. Gurshaney & Anr. [(2003) 7 SCC 301] to argue the sale was illegal.	–

Issues Framed by the Supreme Court

Whether the first respondent is entitled to ownership or leasehold rights in respect of the said plot.

Treatment of the Issue by the Court

Issue	How the Court Dealt with It	Brief Reasons
Whether the first respondent is entitled to ownership or leasehold rights in respect of the said plot.	The Court held that the first respondent is not entitled to either ownership or leasehold rights.	The lease in terms of the lease agreement was never executed, and therefore, the first respondent cannot claim to be a lessee.

Authorities

Authority	How Considered by the Court
Delhi Development Authority v. Vijaya C. Gurshaney & Anr. [(2003) 7 SCC 301] – Supreme Court of India	The appellant (DDA) relied on this case to argue that the sale in favor of the first respondent was illegal. The court considered the relevance of this authority in the context of the arguments presented.
Food Corporation of India & Ors. v. Babulal Agrawal [(2004) 2 SCC 712] – Supreme Court of India	The appellant (DDA) cited this case, and the court acknowledged the reference in the context of the arguments.
Delhi Development Authority v. Anant Raj Agencies Pvt. Ltd. [(2016) 11 SCC 406] – Supreme Court of India	The appellant (DDA) cited this case, and the court acknowledged the reference in the context of the arguments.
State of Rajasthan & Ors. v. Gotan Lime Stone Khanij Udyog Pvt. Ltd. and Anr. [(2016) 4 SCC 469] – Supreme Court of India	The appellant (DDA) cited this case, and the court acknowledged the reference in the context of the arguments.
Delhi Development Authority v. Nalwa Sons Investment Ltd. & Anr. [(2020) 17 SCC 782] – Supreme Court of India	The appellant (DDA) cited this case, and the court acknowledged the reference in the context of the arguments.

Judgment

How each submission made by the Parties was treated by the Court?

Submission	Treatment by the Court
DDA’s argument that the agreement was only an agreement to lease and no leasehold rights were acquired.	The Court agreed that the lease was never executed, and no rights, title, and interest were created in favor of M/s Mehta Constructions.
DDA’s reliance on Rule 43 of the 1981 Rules regarding prior consent for transfer.	The Court acknowledged the rule but did not make a specific determination on its applicability in this case.
Respondents’ argument that DDA never challenged the transactions until confirmation of sale.	The Court acknowledged the argument but emphasized that the first respondent would only get those rights which M/s Mehta Constructions had under the lease agreement.

How each authority was viewed by the Court?

Delhi Development Authority v. Vijaya C. Gurshaney & Anr. [(2003) 7 SCC 301]: The Court considered the relevance of this authority in the context of the arguments presented by the appellant (DDA).
Food Corporation of India & Ors. v. Babulal Agrawal [(2004) 2 SCC 712], Delhi Development Authority v. Anant Raj Agencies Pvt. Ltd. [(2016) 11 SCC 406], State of Rajasthan & Ors. v. Gotan Lime Stone Khanij Udyog Pvt. Ltd. and Anr. [(2016) 4 SCC 469], and Delhi Development Authority v. Nalwa Sons Investment Ltd. & Anr. [(2020) 17 SCC 782]: The Court acknowledged the references made by the appellant (DDA) in the context of their arguments.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the lease agreement between the Delhi Development Authority (DDA) and M/s Mehta Constructions was never formalized into a registered lease deed. This non-execution was critical because Clause 24 of the agreement explicitly stated that no rights, title, or interest would be conferred until the lease was executed and registered. The Court emphasized that without a formal lease, the subsequent transactions and auction sales could not confer valid leasehold rights to the parties involved.

Reason	Percentage
Non-execution of Lease Deed	60%
Clause 24 of the Agreement	25%
Nazul Land Regulations	15%

Fact:Law

Category	Percentage
Fact (Factual Aspects of the Case)	55%
Law (Legal Considerations)	45%

Logical Reasoning

Agreement to Lease (1957) between DDA & M/s Mehta Constructions

↓

Clause 24: No rights until lease is executed & registered

↓

Lease Deed NOT Executed

↓

M/s Mehta Constructions cannot transfer valid leasehold rights

↓

Subsequent transactions/auction do NOT confer valid leasehold rights

↓

S.G.G. Towers (P) Ltd. not entitled to leasehold rights

The Court reasoned that the first respondent, S.G.G. Towers (P) Ltd., could not claim leasehold rights because the foundational requirement of a registered lease deed was absent. The auction conducted in the liquidation proceedings was on an “as is where is” basis, and the Company Judge’s order acknowledged that the property was essentially owned by the DDA. Therefore, the first respondent only acquired whatever limited rights M/s Mehta Constructions had, which were contingent on the execution of a formal lease.

The judgment underscores the importance of formalizing agreements, particularly in property matters, to ensure clarity and legal certainty. The absence of a registered lease deed was a critical factor that weighed heavily in the Court’s decision.

Key quotes from the judgment:

“24. Nothing in these presents contained shall be considered as a demise at law of the said piece of land hereby agreed to be demised or any part thereof so as to give the said intended lessee any right, title or interest therein other than as may be conferred by these presents until the said lease shall have been executed and registered.”

“From the record, it transpires and it stands proved that the property in question which is in the shape of the land is the property of DDA which entered into a wrong agreement of lease dated 17.7.57 in favour of M/s Mehta Construction…”

“Therefore, the first respondent will get only those rights which M/s Mehta Constructions had under the lease agreement, provided the rights can be claimed at this stage.”

Key Takeaways

An agreement to lease does not automatically confer leasehold rights unless a formal lease deed is executed and registered.
Parties acquiring property through auctions or subsequent transfers inherit only the rights held by the original owner or lessee.
Formalizing agreements, especially in property matters, is crucial to avoid future disputes and ensure legal certainty.

Development of Law

The ratio decidendi of the case is that an agreement to lease does not create leasehold rights until a formal lease deed is executed and registered. This reaffirms the importance of adhering to legal formalities in property transactions and clarifies the rights of parties involved in subsequent transfers or auctions.

Conclusion

The Supreme Court dismissed the appeal, holding that S.G.G. Towers (P) Ltd. did not acquire valid leasehold rights over the property due to the absence of a registered lease deed between the DDA and M/s Mehta Constructions. The judgment emphasizes the necessity of formalizing agreements in property transactions and clarifies the extent of rights transferred in subsequent sales and auctions.