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

Date of the Judgment: March 17, 2023
Citation: Not Available
Judges: Dinesh Maheshwari, J. and J.K. Maheshwari, J.
Can a company demand conversion of leasehold land to freehold based on a later government policy? The Supreme Court of India recently addressed this question in a case where a company sought to convert its leased land to freehold under a policy introduced years after the lease agreement. This case examines the applicability of government policies to pre-existing lease agreements. The judgment was delivered by a two-judge bench comprising Justices Dinesh Maheshwari and J.K. Maheshwari, with Justice Dinesh Maheshwari authoring the opinion.

Case Background

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 in 2006. The petitioner constructed a commercial complex, “Grand Venice Mall,” on the land. Years later, the State of Uttar Pradesh introduced a policy in 2013 to promote tourism, offering incentives for theme parks and amusement parks. This policy was amended in 2016 to include theme-based malls. The petitioner then sought to convert its leased land to freehold under this policy, arguing that its mall qualified as a theme-based mall. The State of Uttar Pradesh rejected this request, leading to the present legal challenge.

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, where the State of Uttar Pradesh rejected its proposal for conversion of land from leasehold to freehold. This writ petition was later transferred to the Supreme Court of India. The Supreme Court had earlier directed the State to consider the petitioner’s proposal for conversion of the land to freehold in a related criminal writ petition filed by the director of the petitioner-company. The State rejected the proposal, leading to the present case.

Legal Framework

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

• Policy dated 06.11.2013: This policy aimed to promote tourism in Uttar Pradesh by incentivizing the establishment of theme parks and amusement parks. It included provisions for exemptions from stamp duty and taxes on construction materials for projects meeting specific criteria (minimum area of 300 acres and minimum capital investment of Rs. 500 crores). The policy also stated that theme parks/amusement parks could be established by private sector, PPP or any authority by creating an S.P.V.
  
  “Theme Park I Amusement Park etc. will be set up under the Uttar Pradesh Town Planning and Development Act, 1973 and various planning Acts in accordance with the prescribed procedure for agricultural land use…Theme Park/Amusement Park can be established and operated by private sector, PPP or any authority by creating an S.P.V. In such a situation, all the decisions regarding the assessment of the desired land, the selection of the private investor and the implementation of the project after the selection will be taken by the concerned authority/government body/public undertaking under its own rules.”
• Office Memo dated 03.05.2016: This memo amended the 2013 policy, including theme-based malls within its scope. It relaxed the minimum land requirement of 300 acres for theme-based malls and stipulated that the working agency would provide freehold land to the SPV after acquiring the land as per the rules.
  
  “Theme based Mall is also included in the extensive scheme and relaxation is given in respect of limitation of 300 Acres of minimum land as mentioned in Para No.2 for the matter related with the theme -based Mall…The working agency will provide freehold land to the S.P.V. after acquiring the land as per the rules, for which the freehold charge will be payable as per the rules.”
• Allotment Letter dated 05.08.2006: This letter stipulated that the land was allotted on a 90-year lease basis. It also mentioned that a tripartite lease deed would be executed between UPSIDC, the developer, and the ultimate allottee.
  
  “The land is allotted on 90 years lease basis which has to be specified to its tenants/Co./Owners”
  
  “The Tripartite Lease Deed of the built -up premises shall be executed by UPSIDC Ltd., with the ultimate allottees of Developer on the request of the developer in writing.”
• Lease Deed dated 23.08.2006: This deed outlined the terms of the lease, including restrictions on transfer or subletting without the lessor’s consent.
  
  “That the Lessee will not without the previous consent in writing of the Lessor, transfer, sublet, relinquish mortgage or assign its interest in the demised premises or buildings standing thereon or both as a whole”

Arguments

Petitioner’s Arguments:

• The petitioner argued that its project, “Grand Venice Mall,” qualifies as a theme-based mall under the amended policy of 2016 and is therefore entitled to the benefits of the policy, including conversion of the land from leasehold to freehold.
• The petitioner contended that clause 3 of the 2013 policy allows private sector entities to establish theme parks/amusement parks, and therefore, the petitioner is eligible for the benefits under the policy.
• The petitioner relied on the recommendation letter dated 31.01.2015 from UPSIDC and the letter dated 16.09.2016 from the Director General Tourism, Uttar Pradesh, as proof of the project’s eligibility for the benefits under the policy.
• The petitioner argued that clause 5(d) of the amended policy stipulates that the working agency will provide freehold land to the SPV, and therefore, the petitioner is entitled to the benefit of getting the subject land converted from leasehold to freehold.
• The petitioner argued that it should be allowed to enter into bipartite agreements with investors and that no tripartite lease deed is required for sub-letting the built-up space.
• The petitioner submitted that non-grant of freehold would adversely impede investment in the mall since expected foreign investment would fall through and Indian investors would refuse to execute the lease deeds.

Respondents’ Arguments:

• The respondents argued that the amended policy does not apply to the petitioner because the land was leased to the petitioner on a 90-year lease basis in 2006, prior to the introduction of the policy.
• The respondents contended that the policy requires a partnership with a State Government PSU/SPV with a minimum 20% stake, which is absent in the petitioner’s case.
• The respondents argued that the policy is applicable to projects with a Floor Area Ratio (FAR) of 0.5, whereas the petitioner’s project has an FAR of 4.0.
• The respondents submitted that the policy provides for the acquisition of land by the working agency and then providing it as freehold to the SPV, and that there is nothing within the policy that provides for conversion of the land from leasehold to freehold.
• The respondents contended that the letters dated 31.01.2015 and 16.09.2016 were merely recommendatory and did not guarantee freehold conversion.
• The respondents argued that the prevailing policy of UPSIDC is to allot land on a leasehold basis and that granting freehold rights to the petitioner would be prejudicial to the government and contrary to the rules and regulations of UPSIDC.
• The respondents contended that the allotment letter dated 05.08.2006 and clause 13 of the lease deed dated 23.08.2006 made it clear that the allottee has to abide by the terms and conditions of allotment, which included the execution of tripartite lease deeds.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

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 court did not explicitly cite any previous judgments in its reasoning. However, it did refer to the following legal provisions and documents:

• Policy dated 06.11.2013: The original policy for promoting tourism in Uttar Pradesh.
• Office Memo dated 03.05.2016: The amendment to the 2013 policy, including theme-based malls.
• Allotment Letter dated 05.08.2006: The letter allotting the land to the petitioner on a 90-year lease.
• Lease Deed dated 23.08.2006: The lease agreement between UPSIDC and the petitioner.
• Lease Deed dated 30.03.2009: The lease agreement between UPSIDC and the petitioner for an additional parcel of land.

Judgment

Authorities Viewed by the Court:

• The Court held that the Policy dated 06.11.2013 was not applicable to the petitioner’s case as it was formulated after the land was allotted to the petitioner.
• The Court held that the Office Memo dated 03.05.2016 was not applicable to the petitioner’s project as it did not meet the requirements of the policy, such as the requirement of a minimum 20% stake by a State Government PSU/SPV.
• The Court relied on the Allotment Letter dated 05.08.2006 to establish that the land was allotted on a 90-year lease basis.
• The Court referred to the Lease Deed dated 23.08.2006 and Lease Deed dated 30.03.2009 to show the terms of the lease, including restrictions on transfer and subletting.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the petitioner’s land was leased to it before the introduction of the policy that it sought to use to convert the leasehold to freehold. The court emphasized that the policy was intended to encourage new projects and did not apply retrospectively to existing lease agreements. The absence of any State Government participation in the project was also a key factor in the court’s decision. The court was also influenced by the fact that the project did not meet the requirements of the policy.

Logical Reasoning:

The court considered the petitioner’s argument that its project should be considered as a theme based mall. However, the court rejected this argument as the project was not in compliance with the policy and the policy was not applicable to the petitioner’s project. The court also considered the petitioner’s argument that it should be allowed to enter into bipartite agreements with investors. However, the court did not make a final decision on this issue, leaving it open for consideration at the appropriate stage in the appropriate proceedings. The court held that the policy in question was not applicable to the petitioner’s project and therefore the petitioner was not entitled to conversion of the land from leasehold to freehold. The court reasoned that the policy was intended to encourage new projects and did not apply retrospectively to existing lease agreements. The court also noted that the petitioner’s project did not meet the requirements of the policy, such as the requirement of a minimum 20% stake by a State Government PSU/SPV. The court relied on the terms of the allotment letter and the lease deeds to show that the land was allotted on a 90-year lease basis. The court also noted that the petitioner’s project did not meet the requirements of the policy, such as the requirement of a minimum 20% stake by a State Government PSU/SPV.

The court stated that, “the claim of the petitioner turns out to be hollow and baseless because neither the original policy formulated on 06.11.2013 nor its amendment on 03.05.2016 have any application to the subject land or to the project of the petitioner.”

The court further observed, “Viewed from any angle, even on direct construction of the relevant clauses vis-à-vis the subject -matter of the present petition , it remains beyond a shadow of doubt that the pol icy in question with its amendment is of no application whatsoever in relation to the project in question.”

The court also stated, “the policy in question cannot be applied in relation to the subject land. Therefore, we find no necessity to delve further into the other issues raised on behalf of the respondent No. 2 that it has no policy to grant freehold rights in its allotments.”

There were no dissenting opinions in this case.

Key Takeaways

• Government policies are generally not applied retrospectively to alter pre-existing contractual agreements.
• To benefit from a government policy, projects must meet all the eligibility criteria specified in the policy.
• Recommendations from government bodies do not guarantee the grant of benefits unless they are explicitly approved by the competent authority.
• Lease agreements are binding contracts, and any changes must be made within the framework of the agreement and the law.

Directions

The Supreme Court did not issue any specific directions in this case.

Development of Law

The ratio decidendi of this case is that a government policy cannot be applied retrospectively to override existing legal rights and obligations created by a lease agreement. The court also clarified that to benefit from a government policy, projects must meet all the eligibility criteria specified in the policy. This case reaffirms the principle that lease agreements are binding contracts and any changes must be made within the framework of the agreement and the law. The court’s decision did not change the previous positions of law.

Conclusion

The Supreme Court dismissed the writ petition, upholding the State of Uttar Pradesh’s decision to deny the conversion of the petitioner’s leased land to freehold. The court concluded that the tourism policy of 2013 and its amendment in 2016 did not apply to the petitioner’s project, as the lease agreement predated the policy, and the project did not meet the policy’s requirements, including the need for State Government participation.