Supreme Court Denies Freehold Conversion for Leased Land: Bhasin Infotech vs. State of UP (2023)

Date of the Judgment: 17 March 2023

Citation: 2023 INSC 260

Judges: Dinesh Maheshwari, J. and J.K. Maheshwari, J.

Can a company demand the conversion of leasehold land to freehold based on a government policy that was introduced years after the lease agreement was signed? The Supreme Court of India recently addressed this question in a case involving Bhasin Infotech and Infrastructure Private Ltd. against the State of Uttar Pradesh. The core issue revolved around whether a company, which had been granted land on a 90-year lease, could claim the benefit of a later policy that allowed for freehold conversion to promote tourism. This judgment clarifies the applicability of government policies on pre-existing lease agreements.

Case Background

In 2006, Bhasin Infotech and Infrastructure Private Ltd. (the petitioner) was allotted a commercial plot in Surajpur, Uttar Pradesh, by the Uttar Pradesh State Industrial Development Corporation (UPSIDC) on a 90-year lease basis. The petitioner was given possession of the land after executing a lease deed on 23.08.2006. In 2009, an additional adjacent plot was also leased to the petitioner. The petitioner then constructed a commercial complex called “Grand Venice Mall.” In 2013, the State of Uttar Pradesh introduced a policy to promote tourism by setting up theme parks/amusement parks. This policy was later amended in 2016 to include theme-based malls. The petitioner sought to convert its leasehold land to freehold under this new policy, but the request was rejected by the State. The petitioner then challenged this rejection in the High Court, which was subsequently transferred to the Supreme Court.

Timeline:

Course of Proceedings

The petitioner initially filed a writ petition in the High Court of Judicature at Allahabad challenging the order dated 24.01.2022, which rejected the proposal to convert the land from leasehold to freehold. During the pendency of this writ petition, an application was filed in a related criminal writ petition before the Supreme Court. Considering the interconnected issues, the Supreme Court ordered the transfer of the writ petition from the High Court to itself. This was done to ensure a comprehensive and cohesive resolution of all related matters.

Legal Framework

The case primarily revolves around the interpretation and application of the following:

• Policy dated 06.11.2013: This policy was formulated by the State of Uttar Pradesh to promote tourism by establishing theme parks and amusement parks. It offered incentives like stamp duty exemptions and tax exemptions on construction materials for projects meeting specific criteria (minimum 300 acres and Rs. 500 crore investment).
• Office Memo dated 03.05.2016: This memo amended the 2013 policy, including theme-based malls within its scope. It also stipulated that the working agency would provide freehold land to the Special Purpose Vehicle (SPV) after acquiring it as per the rules, with freehold charges applicable.
• Allotment Letter dated 05.08.2006: This letter stated that the land was allotted on a 90-year lease basis. It also specified that a tripartite lease deed would be executed with the developer, UPSIDC, and the ultimate allottees.
• Lease Deeds dated 23.08.2006 and 30.03.2009: These deeds formalized the lease agreements for the allotted land. They included covenants restricting the lessee from transferring, subletting, or mortgaging the land without the lessor’s consent. Clause 13 of the lease deed dated 23.08.2006 stated that the allottee would have to abide by the general terms and conditions of allotment of UPSIDC.

Arguments

Petitioner’s Arguments:

• The petitioner argued that the policy of 2013 and its amendment in 2016 should apply to their project. They relied on clause 3 of the 2013 policy, which allows theme parks/amusement parks to be established by private entities. They contended that their project, “Grand Venice Mall,” qualifies as a theme-based mall under the amended policy.
• The petitioner emphasized the 2016 amendment, which included theme-based malls and relaxed the minimum land requirement. They highlighted clause 5(d) of the amendment, which states that the working agency would provide freehold land to the SPV (Special Purpose Vehicle).
• The petitioner relied on the recommendation letter dated 16.09.2016, issued by the Director General Tourism, which approved their proposal as a theme-based mall. They argued that this letter entitled them to the benefits of the policy, including freehold conversion.
• The petitioner argued that they should be allowed to enter into bipartite agreements with investors, citing clause 9 of the lease deed dated 23.08.2006, which grants them the right to sell the built-up portion. They contended that the requirement for tripartite agreements was not explicitly mentioned in this lease deed.

Respondents’ Arguments:

• The respondents argued that the amended policy was not applicable to the petitioner for several reasons. Firstly, the land was leased for 90 years. Secondly, the policy requires partnership with a State Government PSU/SPV, which was absent in the petitioner’s case. Thirdly, the policy applies to projects with a Floor Area Ratio (FAR) of 0.5, whereas the petitioner’s project has an FAR of 4.0. Fourthly, the policy provides for freehold land to be made available to the SPV for the construction of a theme-based mall and not for conversion of existing leasehold land.
• The respondents contended that the policy was prospective and did not apply to projects like the petitioner’s, where allotment and partial completion had occurred before the policy was introduced.
• The respondents argued that the letters dated 31.01.2015 and 16.09.2016 were merely recommendatory and did not guarantee freehold conversion. They also stated that UPSIDC’s policy is to allot land only on a leasehold basis.
• The respondents emphasized that the allotment letter and lease deeds required the execution of tripartite lease deeds with the ultimate allottees. They argued that the petitioner was bound by these terms and conditions.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue for consideration:

1. Whether the petitioner is entitled to seek conversion of the subject land from leasehold to freehold in view of the policy formulated by the respondent No. 1 State on 06.11.2013, as amended on 03.05.2016.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities and legal provisions:

• Policy dated 06.11.2013 of the Government of Uttar Pradesh for the promotion of tourism.
• Office Memo dated 03.05.2016 amending the 2013 policy, including theme-based malls.
• Allotment letter dated 05.08.2006 issued by UPSIDC, stating the land was allotted on a 90-year lease.
• Lease deed dated 23.08.2006 between UPSIDC and the petitioner.
• Lease deed dated 30.03.2009 for the additional plot of land.

Judgment

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

How each authority was viewed by the Court?

• The Court examined the Policy dated 06.11.2013 and concluded that it was meant for theme parks/amusement parks and not for commercial complexes like the petitioner’s project. The policy also required the involvement of a government body or an instrumentality of the government.
• The Court analyzed the Office Memo dated 03.05.2016 and found that it included theme-based malls but with specific stipulations, including a minimum of 20% partnership of the State Government or its instrumentality and that the working agency would provide freehold land to the SPV after acquiring it. The Court noted that these requirements were not met by the petitioner.
• The Court referred to the Allotment letter dated 05.08.2006 and the Lease Deeds dated 23.08.2006 and 30.03.2009 to highlight that the land was allotted on a 90-year lease basis and that the petitioner was bound by the terms and conditions of these documents.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Prospective Nature of the Policy: The Court emphasized that the policy of 2013 and its amendment in 2016 were prospective and did not apply to projects that were already completed or partially completed before the policy’s enactment. The land was allotted on lease, and construction had begun before the policy came into effect.
• Lack of State Government Partnership: The Court noted that the amended policy required a minimum of 20% partnership from the State Government or its instrumentalities. The petitioner’s project was a purely private investment, lacking the required government involvement.
• Specific Requirements of the Policy: The Court highlighted that the policy was meant for theme parks/amusement parks and theme-based malls with specific conditions, such as a minimum FAR of 0.5, which the petitioner’s project did not meet. The policy also required the land to be acquired by the working agency and then provided as freehold to the SPV.
• Terms of the Lease Agreement: The Court underscored that the land was specifically leased to the petitioner for 90 years, and the lease deeds contained covenants restricting the transfer or subletting of the land without the lessor’s consent. The petitioner was bound by these terms.

Fact:Law Ratio

The Court’s reasoning was primarily based on the legal interpretation of the policy and the lease agreements (70%), with some consideration of the factual aspects of the case (30%).

Logical Reasoning

Key Takeaways

• Government policies are generally prospective in nature and do not automatically apply to pre-existing agreements or projects.
• To avail benefits under a government policy, all conditions and requirements must be strictly met.
• Lease agreements are binding contracts, and lessees are obligated to adhere to the terms and conditions specified therein.
• Recommendations from committees do not automatically translate into approvals or entitlements.

Directions

The Supreme Court did not issue any specific directions, except to dismiss the writ petition and reject the prayer for freehold conversion. The Court clarified that its judgment would not affect other pending issues between the parties.

Specific Amendments Analysis

There is no specific amendment analysis in this judgment.

Development of Law

Ratio Decidendi: The Supreme Court held that a lessee of industrial land is not entitled to convert the leasehold to freehold based on a subsequent tourism promotion policy if the project does not meet the specific requirements of the policy, including the involvement of a State Government entity, and if the lease agreement predates the policy. The policy in question was held to be prospective in nature and not applicable to projects that were already completed or partially completed before its enactment.

This judgment clarifies that government policies are generally prospective and do not automatically override existing contractual obligations. It also emphasizes that to avail the benefits of a policy, all conditions and requirements must be strictly met. There is no change in the previous position of the law, but it is an affirmation of the existing legal principles.

Conclusion

The Supreme Court dismissed the writ petition filed by Bhasin Infotech, holding that the company was not entitled to convert its leasehold land to freehold under the State’s tourism policy. The Court found that the policy was prospective, the project did not meet the policy’s requirements, and the lease agreement was binding. This judgment reinforces the principle that government policies are generally prospective and that all conditions must be met to avail their benefits.